MIDTERM CASES On OPTION MONEY, RIGHT TO FIRST REFUSAL, EARNEST MONEY

WHEN OPTION IS WITHOUT SEPARATE The record shows that, on April 3, 1961, plaintiff Nicolas
CONSIDERATION Sanchez and defendant Severina Rigos executed an

instrument, entitled “Option to Purchase,” whereby Mrs. Rigos
NICOLAS SANCHEZ, plaintiff-appellee, vs. SEVERINA “agreed, promised and committed x x x to sell” to Sanchez, for
RIGOS, defendant-appellant. the sum of P1,510.00, a parcel of land situated in the barrios of
Abar and Sibot, municipality of San Jose, province of Nueva
Civil law; Obligations and Contracts; Sales; Consideration Ecija, and more particularly described in Transfer Certificate
not presumed in an accepted unilateral promise to buy or lo of Title No. NT-12528 of said province, within two (2) years
sell.—Article 1354 of the Civil Code which presumes the from said date with the understanding that said option shall be
existence of a consideration in every contract applies to deemed “terminated and elapsed.” if “Sanchez shall fail to
contracts in general, whereas the second paragraph of Article exercise his right to buy the property” within the stipulated
1479 thereof refers to “sales” in particular, and, more period. Inasmuch as several tenders of payment of the sum of
specifically, to “an accepted unilateral promise to buy or to P1,510.00. made by Sanchez within said period, were rejected
sell.” It is Article 1479 that controls defendant’s unilateral by Mrs. Rigos, on March 12, 1963, the former deposited said
promise to sell her property to the plaintiff. amount with the Court of First Instance of Nueva Ecija and
commenced against the latter the present action, for specific
Same; Same; Same; Promisee in an accepted unilateral performance and damages.
promise to sell must prove existence of consideration.—In
order that said unilateral promise may be “binding” upon the After the filing of defendant’s answer—admitting some
promisor, Article 1479 requires the concurrence of a allegations of the complaint, denying other allegations thereof,
condition, namely, that the promise be “supported by a and alleging, as special defense, that the contract between the
consideration distinct from the price.” Accordingly, the parties “is a unilateral promise to sell, and the same being
promisee can not compel the promisor to comply with the unsupported by any valuable consideration, by force of the
promise, unless the former establishes the existence of said New Civil Code, is null and void”—on February 11, 1964,
distinct consideration. In other words, the promisee has the both parties, assisted by their respective counsel, jointly
burden of proving such consideration, moved for a judgment on the pleadings. Accordingly, on
February 28, 1964, the lower court rendered judgment for
Same; Same; Same; Accepted promise to sell is an offer to Sanchez, ordering Mrs. Rigos to accept the sum judicially
sell and when accepted becomes a contract of sale.—In consigned by him and to execute, in his favor, the requisite
accepted unilateral promise to sell, since there may be no valid deed of conveyance. Mrs. Rigos was, likewise, sentenced to
contract without a cause or consideration, the promisor is not pay P200.00, as attorney’s fees, and the costs. Hence, this
bound by his promise and may, accordingly, withdraw it. appeal by Mrs. Rigos.
Pending notice of its withdrawal, his accepted promise
partakes, however, of the nature of an offer to sell which, if This case admittedly hinges on the proper application of
accepted, results in a perfected contract of sale. Article 1479 of our Civil Code, which provides:
Same; Statutory construction; Provisions of same law
should be reconciled.—This view has the advantage of “ART. 1479. A promise to buy and sell a determinate thing for
avoiding a conflict between Article 1324—on the general a price certain is reciprocally demandable.
principles of contracts—and 1479—on sales—of the Civil
Code, in line with the cardinal rule of statutory construction “An accepted unilateral promise to buy or to sell a determinate
that, in construing different provisions of one and the same thing for a price certain is binding upon the promissor if the
law or code, such interpretation should be favored as will promise is supported by a consideration distinct from the
reconcile or harmonize said provision and avoid a conflict price.”
between the same.
In his complaint plaintiff alleges that, by virtue of the option
Same; Same, Exceptions not favored unless dearly intended. under consideration, “defendant agreed and committed to sell”
—The decision in Southwestern Sugar So Molasses Co. vs. and “the plaintiff agreed and committed to buy” the land
Atlantic Gulf and Pacific Co., holding that Art. 1324 described in the option, copy of which was annexed to said
is modified by Art. 1479 of the Civil Code, in effect, considers pleading as Annex A thereof and is quoted on the
the latter as an exception to the former, and exceptions are not margin.1 Hence, plaintiff maintains that the promise contained
favored, unless the intention to the contrary is clear, and it is in the contract is “reciprocally demandable,” pursuant to the
not so. insofar as said two articles are concerned. first paragraph of said Article 1479. Although defendant had
really “agreed, promised and committed” herself to sell the
APPEAL from a decision of the Court of land to the plaintiff, it is not true that the latter had, in turn,
“agreed and committed himself” to buy said property. Said
Appeal from a decision of the Court of case to Us, upon the Annex A does not bear out plaintiffs allegation to this effect.
ground that it involves a question purely of law. What is more, since Annex A has been made “an integral part”
of his complaint, the provisions of said instrument form part
CONCEPCION, C.J.: “and parcel”2 of said pleading.
MIDTERM SALES CASES Page 1 of 96

The option did not impose upon plaintiff the obligation to not supported by any consideration and in support thereof it
purchase defendant’s property. Annex A is not a “contract to invokes article 1479 of the new Civil Code.
buy and sell.” It merely granted plaintiff an “option” to buy.
And both parties so understood it, as indicated by the caption, The article provides :
“Option to Purchase,” given by them to said instrument. Under
the provisions thereof, the defendant “agreed, promised and ‘ART. 1479. A promise to buy and sell a determinate thing for
committed” herself to sell the land therein described to the a price certain is reciprocally demandable.
plaintiff for P1,510.00, but there is nothing in the contract to
indicate that her aforementioned agreement, promise and ‘An accepted unilateral promise to buy or sell a determinate
undertaking is supported by a consideration “distinct from the thing for a price certain is binding upon the promisor if the
price” stipulated for the sale of the land. promise is supported by a consideration distinct from the
Relying upon Article 1354 of our Civil Code, the lower price.’
court presumed the existence of said consideration, and this
would seem to be the main factor that influenced its decision “On the other hand, appellee contends that, even granting that
in plaintiffs favor. It should be noted, however, that: the ‘offer of option’ is not supported by any consideration, that
option became binding on appellant when the appellee gave
(1) Article 1354 applies to contracts in general, whereas the notice to it of its acceptance, and that having accepted it within
second paragraph of Article 1479 refers to “sales” in the period of option, the offer can no longer be withdrawn and
particular, and, more specifically, to “an accepted unilateral in any event such withdrawal is ineffective. In support of this
promise to buy or to sell.” In other words, Article 1479 is contention, appellee invokes article 1324 of the Civil Code
controlling in the case at bar. which provides:
(2) In order that said unilateral promise may be “binding” ART. 1324. When the offerer has allowed the offeree a certain
upon the promisor, Article 1479 requires the concurrence of a period to accept, the offer may be withdrawn at any time
condition, namely, that the promise be “supported by a before acceptance by communicating such withdrawal, except
consideration distinct from the price.” Accordingly, the when the option is founded upon consideration, as something
promisee cannot compel the promisor to comply with the paid or promised.’
promise, unless the former establishes the existence of said
distinct consideration. In other words, the promisee has the “There is no question that under article 1479 of the new Civil
burden of proving such consideration. Plaintiff herein has not Code ‘an option to sell,’ or ‘a promise to buy or to sell,’ as
even allegedthe existence thereof in his complaint. used in said article, to be valid must be ‘supported by a con.
sideration distinct from the price.’ This is clearly inferred from
(3) Upon the other hand, defendant explicitly averred in her the context of said article that a unilateral promise to buy or to
answer, and pleaded as a special defense, the absence of said sell, even if accepted, is only binding if supported by a
consideration for her promise to sell and,by joining in the consideration. In other words, ‘an accepted unilateral promise’
petition for a judgment on the pleadings, plaintiff has can only have a binding effect if supported by a consideration,
impliedly admitted the truth of said averment in defendant’s which means that the option can still be withdrawn, even if
answer. Indeed, as early as March 14, 1908, it had been accepted, if the same is not supported by any consideration.
held Bauermann v. Casas,3that: Here it is not disputed that the option is without
consideration. It can therefore be withdrawn notwithstanding
“One who prays for judgment on the pleadings without the acceptance made of it by appellee.
offering proof as to the truth of his own allegations, and
without giving- the opposing party an opportunity to introduce “It is true that under article 1324 of the new Civil Code, the
evidence, must be understood to admit the truth of all the general rule regarding offer and acceptance is that, when the
material and revelant allegations of the opposing party, and offerer gives to the offeree a certain period to accept, ‘the offer
to rest his motion for judgment on those allegations taken may be withdrawn at any time before acceptance’ except when
together with such of his own as are admitted in the the option is founded upon consideration, but this general rule
pleadings. (La Yebana Company vs. Sevilla, 9 Phil. 210).” must be interpreted as modified by the provision of article
(Italics supplied.) 1479 above referred to, which applies to ‘a promise to buy and
sell’ specifically. As already stated, this rule requires that a
This view was reiterated in Evangelista v. De la promise to sell to be valid must be supported by a
Rosa4and Mercy’s Incorporated v. Herminia Verde.5 consideration distinct from the price.
Squarely in point is Southwestern Sugar & Molasses Co. v. “We are not oblivious of the existence of American authorities
Atlantic Gulf & Pacific Co.,« from which We quote: which hold that an offer, once accepted, cannot be withdrawn,
regardless of whether it is supported or not by a consideration
“The main contention of appellant is that the option granted to (12 Am. Jur. 528). These authorities, we note, uphold
appellee to sell to it barge No, 10 for the sum of P30,000 the general ruleapplicable to offer and acceptance as
under the terms stated above has no legal effect because it is contained in our new Civil Code. But we are prevented from

applying them in view of the specific provision embodied in
article 1479. This view has the advantage of avoiding a conflict between
Articles 1824—on the general principles on contracts—and
While under the ‘offer of option’ in question appellant has 1479—on sales—of the Civil Code, in line with the cardinal
assumed a cleai’ obligation to sell its barge to appellee and the rule of statutory construction that, in construing different
option has been exercised in accordance with its terms, and provisions of one and the same law or code, such
there appears to be no valid or justifiable reason for appellant interpretation should be favored as will reconcile or harmonize
to withdraw its offer, this Court cannot adopt a different at. said provisions and avoid a conflict between the same. Indeed,
tiude became the law on the master is clear. Our imperative the presumption is that, in the process of drafting the Code, its
duty is to apply it unless modified by Congress.”‘7 author has maintained a consistent philosophy or
position. Moreover, the decision in Southwestern Sugar &
However, this Court itself, in the case of Atkins, Kroll and Molasses Co. v. Atlantic Gulf & Pacific Co.,10holding that Art.
Co., Inc. v, Cua Hian Tek,8decided later than Southwestern 1324 is modified by Art. 1479 of the Civil Code, in effect,
Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 9 saw no considers the latter as an exception to the former, and
distinction between Articles 1324 and 1479 of the Civil Code exceptions are not favored, unless the intention to the contrary
and applied the former where a unilateral promise to sell is clear, and it is not so, insofar as said two (2) articles are
similar to the one sued upon here was involved, treating such concerned. What is more, the reference, in both the second
promise as an option which, although not binding as a contract paragraph of Art. 1479 and Art. 1324, to an option or promise
in itself for lack of a separate consideration, nevertheless supported by or founded upon a consideration, strongly
generated a bilateral contract of purchase and sale upon suggests that the two (2) provisions intended to enforce or
acceptance. Speaking through Associate Justice, later Chief implement the same principle.
Justice, Cesar Bengzon, this Court said:
Upon mature deliberation, the Court is of the considered
“Furthermore, an option is unilateral: a promise to sell at the opinion that it should, as it hereby reiterates the doctrine laid
price fixed whenever the offeree should decide to exercise his down in the Atkins, Kroll & Co. case, and that, insofar as
option within the specified time. After accepting the promise inconsistent therewith, the view adhered to in the
and before he exercises his option, the holder of the option is Southwestern Sugar & Molasses Co. case should be deemed
not bound to buy. He is free either to buy or not to buy later. abandoned or modified.
In this case however, upon accepting herein petitioner’s offer a
bilateral promise to sell and to buy ensued, and the FALLO WHEREFORE, the decision appealed from is hereby
respondent ipso facto assumed the obligation of a purchaser. affirmed, with costs against defendant-appellant Severina
He did not just get the right subsequently to buy or not to buy. Rigos. It is so ordered.
It was not a mere option then; it was bilateral contract of sale.
Notes.—The negotiations as thus related in the complaint
“Lastly, even supposing that Exh. A granted an option which merely amounted to an undertaking: by defendant that if
is not binding for lack of consideration, the authorities hold plaintiffs had the amount of P4,500.00 on or before May 6,
that 1961, she would sell the lot to them for that sum upon the
‘If the option is given without a consideration, it is a mere execution of the contract; , and that plaintiffs, accepted or
offer of a contract of sale, which is not binding until accepted. agreed to such promise. ‘The new Civil Code provides that
If, however, acceptance is made before a withdrawal, it such promise is binding upon the promisor if the promise is
constitutes a binding contract of sale, even though the option supported by a consideration distinct from the price (Art.
was not supported by a sufficient consideration. * * *.’ (77 1479). Now, as there was no such distinct
Corpus Juris Secundum p. 652. See also 27 Ruling Case Law consideration (no allegation as to it), the defendant was not
339 and cases cited.’) bound to stand by her promise even if accepted, before
withdrawal. The lower court applied and followed our
‘It can be taken for granted, as contended by the defendant, decisions in Southwestern Sugar & Molasses Co. vs. Atlantic,
that the option contract was not valid for lack of consideration. Gulf & Pacific Co., 51 Off. Gaz. 3447 and Navarro vs. Sugar
But it was, at least, an offer to sell, which wa« accepted by Producers Association, 60 Off. Gaz. 511. We are satisfied that
letter, and of the acceptance the offerer had knowledge before on the facts and the law, both said cases enunciated principles
said offer was withdrawn. The concurrence of both acts—the conclusive on this litigation. Mendoza vs. Comple, L-19311,
offer and the acceptance—could at all events have generated a October 29, 1965, 15 SCRA 162, 163.
contract, if none there was before (acts. 1254 and 1202 of the
Civil Code).’ (Zayco vs. Serra, 44 Phil. 331.)”
No. L-47968. May 9, 1988.*
LINA MONTILLA, petitioner, vs. COURT OF APPEALS
In other words, since there may be no valid contract without a
and EMILIO ARAGON, JR, respondents.
cause or consideration, the promisor is not bound by his
promise and may, accordingly, withdraw it. Pending notice of
Res Adjudicata; An interlocutory order cannot become final
its withdrawal, his accepted promise partakes, however, of the
and executory, and cannot bring the doctrine of res adjudicata
nature of an offer to sell which, if accepted, results in a
into play at all.—What the Court is saying is that its
perfected contract of sale.
interlocutory order of December 5, 1972 had become
conclusive, i.e., conclusive on Montilla “with respect to the NARVASA, J.:
matter directly adjudged or as to any other matter that could
have been raised in relation thereto.” Obviously, it escaped The proceeding at bar traces its origin to an action initiated in
His Honor’s attention, or, what would be more regrettable, it the Court of First Instance of Iloilo on April 27, 1972 by
was not with-in his knowledge, that the doctrine of res Emilio Aragon, Jr., to compel Lina Montilla to comply with a
judicataor bar by prior judgment (or, for that matter, verbal contract to sell to him a piece of land situated at
conclusiveness of judgment or estoppel by judgment) has Poblacion, Iloilo City, known as Lot No. 4 of the Consolidated
relevance to, and will become operative only on the basis of a Subdivision plan (LRC) Psc-11605. In his complaint, Aragon
final judgment or final order, the qualifying term “final” being claimed that in the last week of June, 1969, Montilla had
used in the sense of “final and executory,” i.e., not only final orally offered to sell the Iot to him at a price of P57,650.00 (at
—because finally disposing of the case and leaving nothing the rate of P50.00 per square meter), the price being payable at
more to be done by the adjudging court relative to its merits, any time within a three-year period from June, 1969 provided
but also executory—because the period for appeal has expired that Aragon constructed on the lot a house of strong materials
without an appeal having been taken, or an appeal having been and paid a nominal monthly rental in the meantime; but
perfected, the judgment or order has otherwise attained despite Aragon’s acceptance of the offer, fulfilment by him of
finality. Quite elementary is that an order such as that rendered the specified conditions, and his seasonable tender of the
on December 5, 1972, being interlocutory, cannot become purchase price, Montilla had refused to comply with her
final and executory in the sense just described, and cannot obligation.
bring the doctrine of res adjudicatainto play at all. Indeed, the
correctness of such an interlocutory order may subsequently In her answer Montilla categorically denied ever having
be impugned on appeal by any party adversely affected entered into such an agreement, and set up the affirmative
thereby, regardless of whether or not he had presented a defenses of (1) unenforceability of the alleged agreement
motion for the reconsideration thereof, if he has otherwise under the Statute of Frauds; and (2) failure of the complaint to
made of record his position thereon. state a cause of action, no allegation having been made therein
of any consideration for the promise to sell distinct and
Same; Same; Statute of Frauds; The action should have separate from the price, as required by Article 1479 of the
been dismissed pursuant to the Statute of Fraud, in relation Civil Code.
to Rule 16 of the Rules of Court; Reasons.—There being
therefore no admission whatever on Montilla’s part of the At Montilla’s instance, a preliminary hearing was had on her
existence or ratification of the claimed contract to sell, and affirmative defenses in accordance with Section 5, Rule 16 of
taking account of her disavowal in her pleadings and in her the Rules of Court,3 “as if a motion to dismiss had been filed.”
evidence of that contract, and necessarily of any fulfillment of Thereafter, by Order dated December 5, 1972, the Court
the terms thereof, it is clear that the action for its enforcement denied the implicit motion to dismiss, opining that since
should have been dismissed pursuant to the Statute of Frauds, Montilla’s answer “shows that x x (she had) admitted the offer
in relation to Rule 16 of the Rules of Court. to sell, and plaintiffs desire to buy the land in question,” that
admission amounted to a ratification of the oral contract to sell
Same; Same; Same; Sales; Montilla’s promise to sell was and operated to place the case beyond the scope of the Statute
not binding upon her in view of the absence of any of Frauds.
consideration therefor distinct from the stipulated price.—
The action is also dismissible upon another legal ground. After trial, the Court rendered judgment under date of August
Assuming arguendo veritability of the oral promise to sell by 22, 1974 sentencing Montilla "(a) to execute the requisite deed
Montilla, the promise was nevertheless not binding upon her of conveyance of Lot No. 4, covered by Transfer Certificate of
in view of the absence of any consideration therefor distinct Title No. T-29976 in favor of the plaintiff upon full payment
from the stipulated price. This is the principle laid down by the by plaintiff to defendant of the total consideration thereof in
second paragraph of Article 1479: “An accepted unilateral the aggregate sum of Fifty Seven Thousand Six Hundred Fifty
promise to x x sell a determinate thing for a price certain is Pesos (P57,650.00); (b) to pay to plaintiff P2,000.00 as
binding upon the promissor if the promise is supported by a attorney’s fees, and (c) to pay the costs.” This decision, as
consideration distinct from the price.” aforestated, was affirmed by the Court of Appeals. The latter’s
adjudgment has, in turn, been duly brought up to this Court by
APPEAL by certiorari to review the decision of the Court Montilla, on appeal by certiorari under Rule 45 of the Rules
of Appeals. of Court. And to the Appellate Court, Montilla ascribes the
following errors:
Errors in the application of elementary legal principles—as
regards admissions in the pleadings, the Statute of Frauds, 1)“x x holding as correct the trial court’s finding that
promises to sell, and interlocutory orders in relation to res petitioner’s answer admitted the existence of the alleged
adjudicata—as well as palpable mistakes in factual verbal contract to sell the land to respondent Aragon;
conclusions—because contrary to or in unaccountable
disregard of facts of record, impel reversal of the judgment of 2)“x x holding as correct the x x conclusion that for
the Court of Appeals1 which affirmed that of the Trial Court.2 petitioner’s failure to file demurrer to or motion for
reconsideration of its order of December 5, 1972, the alleged leaving nothing more to be done by the adjudging court
verbal contract became an established fact;” and relative to its merits, but also executory—because the period
for appeal has expired without an appeal having been taken, or
3)failing “to consider and appreciate significant evidences an appeal having been perfected, the judgment or order has
which were deliberately overlooked, misapplied, or otherwise attained finality.8Quite elementary is that an order
misunderstood by the trial court.” such as that rendered on December 5, 1972,
The record discloses that the imputed errors have indeed been being interlocutory, cannot become final and executory in the
committed, and they are of sufficient gravity to warrant sense just described,9and cannot bring the doctrine of res
reversal of the judgments in question. adjudicatainto play at all. Indeed, the correctness of such
an interlocutory order may subsequently be impugned on
It is, in the first place, difficult to see by what process of appeal by any party adversely affected thereby, regardless of
ratiocination the Trial Court arrived at the conclusion that whether or not he had presented a motion for the
Montilla’s answer had “admitted the offer to sell.” Any such reconsideration thereof, if he has otherwise made of record his
admission is absolutely precluded by the specific and position thereon.10
unequivocal denial by Montilla of the claimed verbal contract
to sell. She in fact branded the allegations to that effect in the Also quite inexplicable is the Trial Court’s glossing over the
complaint as “outrageously false, fantastically rediculous and failure of Aragon to identify Montilla during the trial.
despicable fabrications of plaintiff.” Nor may any admission Aragon’s recorded testimony contains the claim that he had
be inferred from the circumstance that Montilla, apart from “personally met x x Montilla x x sometime in the last week of
unqualifiedly denying the contract to sell, had also asserted in June, 1969," and that he could identify her. He had thereupon
her responsive pleading that the contract was unenforceable been asked to make the identification, and he had pointed to “a
because violative of the Statute of Frauds and because not woman x x (in a) brown dress” in the courtroom, stoutly
supported by any consideration distinct from the price. For declaring thereafter that he was “quite sure” of his
while those defenses imply an acceptance by the pleader of the identification, that he was very certain that he was “not
truth of the agreement at which the defenses are directed, the mistaken.” As it turned out, the person pointed to by him was
acceptance is at best hypothetical, assumed only for purposes not Montilla at all, but a lady named Rosario Mendoza
of determining the validity of the defenses, but cannot in any Valdez.11 The Trial Judge however dismissed this
sense be taken as an unconditional and irretrievably binding embarrassing inability of Aragon to identify Montilla as
factual admission. The import of the answer, couched in “innocuous.” According to him, “the fact of her being the very
language that could not be made any plainer, is that there was person who offered to sell Lot No. 4 to the plaintiff is
no verbal contract to sell ever agreed to by Montilla, but that, corroborated not only by the testimonies of Asst. City Fiscal
even assuming hypothetically, or for the sake of argument that Jose Jacela, Jr. and Enrique Castelo but by the very testimony
there was, the agreement was unenforceable because in breach in court of defendant herself who, when asked by her counsel,
of the Statute of Frauds. It was therefore reversible error for admitted she is the defendant in this case.” The lack of logic in
the Trial Court to have burdened Montilla with an admission the Court’s reasoning is evident. Montilla’s acknowledgment
of the verbal contract to sell sued upon. of being the defendant in the case can not in any manner
whatsoever be considered an admission that she had gone to
Also tainted by serious error is the ruling that after rendition of see Aragon to offer her property for sale. Non
the Order of December 5, 1972, denying the motion to dismiss sequitur. Aragon’s disconcerting failure to identify Montilla is
because of Montilla’s “admission” of the verbal contract, cogent confutation of his allegation that he personally knew
Montilla and had negotiated with her for his purchase of the
“the inaction by the defendant in not taking any exception or property in question, and strongly indicative of the inaccuracy
demurrer thereto by filing a motion for reconsideration or of the testimony of the witnesses who corroborated his
amending her answer for the purpose had the legal effect of dubious tale.
making such order binding and conclusive upon her, in
contemplation of Rule 131, Section 3 (c), in relation to Rule There being therefore no admission whatever on Montilla’s
39, Section 49 (b) of the Rules of Court.” part of the existence or ratification of the claimed contract to
sell, and taking account of her disavowal in her pleadings and
What the Court is saying is that its interlocutory order of in her evidence of that contract, and necessarily of any fulof
December 5, 1972 had become conclusive,4 i.e., conclusive on the terms thereof, it is clear that the for its enforcement should
Montilla “with respect to the matter directly adjudged or as to have been dismissed pursuant to the Statute of Frauds,12 in
any other matter that could have been raised in relation relation to Rule 16 of the Rules of Court.13
thereto."5Obviously, it escaped His Honor’s attention, or, what
would be more regrettable, it was not within his knowledge, The action is also dismissible upon another legal ground.
that the doctrine of res judicata or bar by prior judgment6 (or, Assuming arguendo veritability of the oral promise to sell by
for that matter, conclusiveness of judgment or estoppel by Montilla, the promise was nevertheless not binding upon her
judgment7) has relevance to, and will become operative only in view of the absence of any consideration therefor distinct
on the basis of a finaljudgment or final order, the qualifying from the stipulated price. This is the principle laid down by the
term “final” being used in the sense of “final and executory,” second paragraph of Article 1479: “An accepted unilateral
i.e,, not only final—because finally disposing of the case and promise to x x sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by a avowedly made in June, 1969, Lot 4 still formed part of the
consideration distinct from the price.” amorphous mass of property constituting the “Montilla
estate;” at any rate, that particular lot had not been allotted to
There is another item of proof which the Trial Court Lina Montilla yet.
completely failed to consider. This is a document marked
Exhibit 1, executed by Aragon on July 9, 1969—some 9 or 10 The uncertainty of the eventual ownership of said Lot 4,
days after Montilla had supposedly promised to sell the lot in considered conjointly with the ostensible status of Aragon as a
question to him. It reads as follows: mere supplicant of favors from “the owners of the Montilla
estate,” make it very improbable indeed that Montilla would
TO WHOM IT MAY CONCERN: personally go to him and promise to sell the lot to him,
This is to certify that I promise to abide by the decision of the Incredibly, however, the Trial Court interpreted the document,
owners of the Montilla Estate upon which my house is being Exhibit 5, as proof that Lina Montilla, had not only offered to
constructed, in any eventuality. sell to Aragon that particular Lot 4 at a time when it could not
yet be known to which heir it would ultimately be allotted, but
This is in connection with the kind permission granted me by also made an additional promise that she would make certain
their authorized representative, Leodegario Manaloto, which I that the property would at all events eventually “pertain to her
am exceedingly grateful inasmuch as my children could live as her share and the corresponding certificate of title issued in
near their school, the Colegio Sagrado Corazon de Jesus, I am her name.” A more extreme case of leaning over backwards in
therefore imploring the consideration of the owners and Mr. stubborn advocacy of a pre-conceived theory can scarcely be
Manaloto to give my children ample time to finish their found.
schooling there. For the duration, I am willing to meet the
prescribed rental obligations of said lot.” On the whole, the evidence adequately demonstrates the
falsity of Aragon’s claim of an oral promise to sell said Lot
The document reveals several things. For one, the lot on which No. 4 in his favor, and consequently the unfounded character
Aragon’s house was being built was obviously part of the of his action against Montilla.
“Montilla estate,” and did not as yet belong to any particular
heir or person entitled thereto. For another, Aragon had been FALLO WHEREFORE, the Decision of the Court of Appeals
given permission by the representative of the estate, Mr. dated January 18, 1978 and that of the Court of First Instance
Manaloto, to stay on the lot in consideration of a prescribed dated August 22, 1974 thereby affirmed, are REVERSED
rental, and he was imploring said Mr. Manaloto and the AND SET ASIDE, and a new one entered DISMISSING
owners for leave to stay in the premises until his children Aragon’s complaint, with costs against him.
could finish their schooling, promising to “meet the prescribed
rental obligations.” Again, and this is quite significant as Note.—A judgment to be a bar to a subsequent case, the
regards his claim of a promise to sell by one of the Montillas, following requisites must concur: (1) it must be final
since that promise is not referred to or even hinted at in any judgment; (2) the court which rendered it had jurisdiction over
manner whatsoever, the genuineness of the claim is strongly the subject matter and the parties; (3) it must be a judgment on
suspect; for surely, Aragon would never have “implored” for the merits; (4) there must be identity between the two cases, as
“consideration of the owners and Mr. Manaloto” to stay in the to parties, subject matter and cause of action. (Cuano vs.
premises until his children could finish their schooling, Court of Appeals,143 SCRA 417.)
as lessee, if it be true that he had accepted a promise for the
sale thereof to him. The document cannot therefore be
G.R, No. 53820. June 15, 1992.*
interpreted otherwise than as denoting the concession to him
YAO KA SIN TRADING, owned and operated by YAO KA
of the privilege to build a house on a lot belonging to the
SIN, petitioner, vs.HONORABLE COURT OF APPEALS
Montillas, and a solicitation by him of the owners’ permission
and PRIME WHITE CEMENT CORPORATION,
to lease the lot to him for a longer, and more or less
represented by its President-Chairman, CONSTANCIO B.
determinable term, and as an implied, though nonetheless
MAGLANA, respondents.
clear, negation of any right on his part to purchase the
property.
Actions; A sole proprietorship does not have legal capacity to
sue. Its owner shall be deemed the plaintiff.—The complaint
Another document, marked Exhibit 5, further underscores the
then should have been amended to implead Yao Ka Sin as
improbability of Aragon’s story. It is a Court Order issued on
plaintiff in substitution of Yao Ka Sin Trading. However, it is
June 17, 1971 in the judicial proceedings for the settlement of
now too late in the history of this case to dismiss this petition
the Montilla Estate, obviously the same “Montilla estate”
and, in effect, nullify all proceedings had before the trial court
referred to by Aragon in his certification of July 9, 1969 just
and the respondent Court on the sole ground of petitioner's
described. That Order approved the project of partition of said
lack of capacity to sue, Considering that private respondent
estate, presented on May 5, 1971; and it states that Lot 4,
did not pursue this issue before the respondent Court and this
subject of the case at bar, was adjudicated to Lina Montilla on
Court; that, as We held in Juasing, the defect is merely formal
June 17, 1971, more than two (2) years after she had
and not substantial, and an amendment to cure such defect is
supposedly offered to sell the property to Aragon.Thus, as
expressly authorized by Section 4, Rule 10 of the Rules of
already intimated, at the time of the alleged promise to sell,
Court which provides that "[a] defect in the designation of the constructive knowledge thereof, whether within or without the
parties may be summarily corrected at any stage of the action scope of his ordinary powers."
provided no prejudice is caused thereby to the adverse party;"
and that "[a] sole proprietorship does not, of course, possess Same; Same; Petitioner failed to prove President of herein
any juridical personality separate and apart from the corporation clothe with apparent authority to contract with it.
personality of the owner of the enterprise and the personality —lt was incumbent upon the petitioner to prove that indeed the
of the persons acting in the name of such proprietorship," We private respondent had clothed Mr. Maglana with the apparent
hold and declare that Yao Ka Sin should be deemed as the power to execute Exhibit "A" or any similar contract. This
plaintiff in Civil Case No. 5064 and the petitioner in the could have been easily done by evidence of similar acts
instant case. executed either in its favor or in favor of other parties.
Petitioner miserably failed to do that. Upon the other hand,
Corporations; Contracts; A contract signed by the President private respondent's evidence overwhelmingly shows that no
and Board Chairman without authority from the Board of contract can be signed by the president without first being
Directors is void; Exceptions.—While there can be no approved by the Board of Directors; such approval may only
question that Mr, Maglana was an officer—the President and be given after the contract passes through, at least, the
Chairman—of private respondent corporation at the time he comptroller, who is the NIDC representative, and the legal
signed Exhibit "A", the above provisions of said private counsel.
respondent's By-Laws do not in any way confer upon the
President the authority to enter into contracts for the Same; Same; Acceptance of goods and receipt therefor
corporation independently of the Board of Directors. That without protest, resulted in a new transaction.—The second
power is exclusively lodged in the latter. Nevertheless, to ground is based on a wrong premise. It assumes, contrary to
expedite or facilitate the execution of the contract, only the Our conclusion above, that Exhibit "A" is a valid contract
President—and not all the members of the Board, or so much binding upon the private respondent. It was effectively
thereof as are required for the act—shall sign it for the disapproved and rejected by the Board of Directors which, at
corporation. This is the import of the words through the the same time, considered the amount of P243,000.00 received
president in Exhibit "8-A" and the clear intent of the power of by Maglana as payment for 10,000 bags of white cement,
the chairman "to execute and sign for and in behalf of the treated as an entirely different contract, and forthwith notified
corporation all contracts and agreements which the petitioner of its decision that "If within ten (10) days from date
corporation may enter into" in Exhibit "1-1". Both powers hereof we will not hear from you but you will withdraw
presuppose a prior act of the corporation exercised through cement at P24.30 per bag from our plant, then we will deposit
the Board of Directors. No greater power can be implied from your check of P243,000.00 dated June 7, 1973 issued by the
such express, but limited, delegated authority. Neither can it Producers Bank of the Philippines, per instruction of the
be logically claimed that any power greater than that expressly Board." Petitioner received a copy of this notification and
conferred is inherent in Mr. Maglana's position as president thereafter accepted without any protest the Delivery Receipt
and chairman of the corporation. covering the 10,000 bags and the Official Receipt for the
P243,000.00. The respondent Court thus correctly ruled that
Same; Same; Same.—Petitioner's last refuge then is his petitioner had in fact agreed to a new transaction involving
alternative proposition, namely, that private respondent had only 10,000 bags of white cement.
clothed Mr. Maglana with the apparent power to act for it and
had caused persons dealing with it to believe that he was Same; Same; Option given without consideration is void.—
conferred with such power. The rule is of course settled that The third ground must likewise fail. Exhibit "A" being
"[a]lthough an officer or agent acts without, or in excess of, unenforceable, the option to renew it would have no leg to
his actual authority if he acts within the scope of an apparent stand on. The river cannot rise higher than its source. In any
authority with which the corporation has clothed him by event, the option granted in this case is without any
holding him out or permitting him to appear as having such consideration. Article 1324 of the Civil Code expressly
authority, the corporation is bound thereby in favor of a person provides that: "When the offerer has allowed the offeree a
who deals with him in good faith in reliance on such apparent certain period to accept, the offer may be withdrawn at any
authority, as where an officer is allowed to exercise a time before acceptance by communicating such withdrawal,
particular authority with respect to the business, or a particular except when the option is founded upon a consideration, as
branch of it, continuously and publicly, for a considerable something paid or promised."
time." Also, "if a private corporation intentionally or
negligently clothes its officers or agents with apparent power Actions; Sec. 8, Rule 8 of the Rules of Court on how to contest
to perform acts for it, the corporation will be estopped to deny genuineness of a document does not apply to a person not
that such apparant authority is real, as to innocent third privy thereto.—lt is clear that the petitioner is not a party to
persons dealing in good faith with such officers or agents." any of the documents attached to the private respondent's
This "apparent authority may result from (1) the general Answer. Thus, the above quoted rule is not applicable. While
manner by which the corporation holds out an officer or agent the respondent Court erred in holding otherwise, the
as having power to act or, in other words, the apparent challenged decision must, nevertheless, stand in view of the
authority with which it clothes him to act in general, or (2) the above disquisitions on the first to the third grounds of the
acquiescence in his acts of a particular nature, with actual or petition.
PETITION for review from the decision of the Court of Please countersign on the space provided for below as your
Appeals. acknowledgement and confirmation of the above transaction.
Thank You.
Assailed in this petition for review is the decision of the
respondent Court of Appeals in C.A.-G.R. No. 61072- Very truly yours,
R,1promul-gated on 21 December 1979, reversing the PRIME WHlTE CEMENT CORPORATION
decision2 of the then Court of First Instance (now Regional BY: (SGD) CONSTANCIO B. MAGLANA
Trial Court) of Leyte dated 20 November 1975 in Civil Case President & Chairman
No. 5064 entitled "Yao Ka Sin Trading versus Prime White
Cement Corporation." CONFORME:
YAO KA SIN TRADING
DAVIDE, JR., J.: BY: (SGD) HENRY YAO
The root of this controversy is the undated letter-offer of WITNESSES:

Constancio B. Maglana, President and Chairman of the Board (SGD) T. CATINDIG
of private respondent Prime White Cement Corporation, (SGD) ERNESTO LIM
hereinafter referred to as PWCC, to Yao Ka Sin Trading,
hereinafter referred to as YKS, which describes itself as "a RECEIVED from Mr. Henry Yao of Yao Ka Sin Trading, in
business concern of single proprietorship," 3and is represented pursuance of the above offer, the sum of Pesos: TWO
by its manager, Mr. Henry Yao; the letter reads as follows: HUNDRED FORTY THREE THOUSAND ONLY
'PRIME WHITE CEMENT CORPORATION (P243,000.00) in the form of Producers' Bank of the
602 Cardinal Life Building Philippines Check No. C-153576 dated June 7, 1973.
Herran Street, Manila PRIME WHITE CEMENT CORPORATION
BY:
Yao Ka Sin (SGD) CONSTANCIO B. MAGLANA
Tacloban City President & Chairman" 4
Gentlemen:
We have the pleasure to submit hereby our firm offer to you This letter-offer, hereinafter referred to as Exhibit "A", was
under the following quotations, terms, and conditions, to wit: prepared, typed and signed on 7 June 1973 in the office of Mr.
Teodoro Catindig, Senior Vice-President of the Consolidated
1)Commodity—Prime White Cement Bank and Trust Corporation (Solid Bank).5
2)Price—At your option: a) P24.30 per 94 Ibs. bag net, FOB
Cebu City; and b) P23.30 per 94 Ibs. bag net, FOB Asturias The principal issue raised in this case is whether or not the
Cebu. aforesaid letter-offer, as accepted by YKS, is a contract
3)Quality—As fully specified in certificate No. 224-73 by that binds the PWCC. The trial court ruled in favor of the
Bureau of Public Works, Republic of the Philippines. petitioner, but the respondent Court held otherwise.
4)Quantity—Forty-five Thousand (45,000) bags at 94 Ibs. net
per bag withdrawable in guaranteed monthly quantity of The records disclose the following material operative facts:
Fifteen Thousand (15,000) bags minimum effective from June, In its meeting in Cebu City on 30 June 1973, or twenty-three
1973 to August 1973. (23) days after the signing of Exhibit "A", the Board of
5)Delivery Schedule—Shipment be made within four (4) days Directors of PWCC disapproved the same; the rejection is
upon receipt of your shipping instruction. evidenced by the following Minutes (Exhibit "10"):
6)Bag/Container—a) All be made of Standard Kraft (water
resistant paper, 4 ply, with bursting strength of 220 pounds, "the 10,000 bags of white cement sold to Yao Ka Sin Trading
and b) Breakage allowance—additional four percent (4%) is sold not because of the alleged letter -contract adhered to by
over the quantity of each shipment. them, but must be understood as a new separate contract, and
7)Terms of Payment—Down payment of PESOS: TWO has in no way to do with the letter-offer which they (sic)
HUNDRED FORTY-THREE THOUSAND (P243,000.00) distinct consideration, as the letter-contract which they now
payable on the signing of this contract and the balance to be hang on (sic) as consummated is by this resolution totally
paid upon presentation of corresponding shipping documents. disapproved and is unacceptable to the corporation."
It is understood that in the event of a delay in our shipment, On 5 July 1973, PWCC wrote a letter (Exhibit "1") to YKS
you hold the option to discount any price differential resulting informing it of the disapproval of Exhibit "A". Pursuant,
from a lower market price vis-a-vis the contract price. In however, to its decision with respect to the 10,000 bags of
addition, grant (sic) you the option to extend this contract until cement, it issued the corresponding Delivery Order (Exhibit
the complete delivery of Forty-Five Thousand (45,000) bags "4") and Official Receipt No. 0394 (Exhibit "5") for the
of 94 Ibs. each is made by us. You are also hereby granted the payment of the same in the amount of P243,000.00. This is the
option to renew this contract under the same price, terms and same amount received and acknowledged by Maglana in
conditions. Exhibit "A".
YKS accepted without protest both the Delivery and Official On 4 March 1974, YKS filed with the then Court of First
Receipts. Instance of Leyte a complaint for Specific Performance with
Damages against PWCC. The complaint16 was based on
While YKS denied having received a copy of Exhibit "1", it Exhibit "A" and was docketed as Civil Case No. 5064.
was established that the original thereof was shown to Mr.
Henry Yao; since no one would sign a receipt for it, the In its Answer with Counterclaim17 filed on 1 July 1974,
original was left at the latter's office and this fact was duly PWCC denied under oath the material averments in the
noted in Exhibit "1" (Exhibit "1-A"). complaint and alleged that: (a) YKS "has no legal personality
to sue having no legal personality even by fiction to represent
On 4 August 1973, PWCC wrote a letter (Exhibit "2") to YKS itself;" (b) Mr. Maglana, its President and Chairman, was
in answer to the latter's 4 August 1973 letter stating that it is lured into signing Exhibit "A"; (c) such signing was subject to
"withdrawing or taking delivery of not less than 10,000 bags the condition that Exhibit "A" be approved by the Board of
of white cement on August 6-7,1973 at Asturias, Cebu, thru Directors of PWCC, as corporate commitments are made
M/V Taurus." In said reply, PWCC reminded YKS of its through it; (d) the latter disapproved it, hence Exhibit "A" was
(PWCC's) 5 July 1973 letter (Exhibit "1") and told the latter never consummated and is not enforceable against PWCC; (e)
that PWCC "only committed to you and which you it agreed to sell 10,000 bags of white cement, not under
correspondingly paid 10,000 bags of white cement of which Exhibit "A", but under a separate contract prepared by the
4,150 bags were already delivered to you as of August 1, Board; (f) the rejection by the Board of Exhibit "A" was made
1973."6Unfortunately, no copy of the said 4 August 1973 letter known to YKS through various letters sent to it, copies of
of YKS was presented in evidence. which were attached to the Answer as Annexes 1, 2 and
3;18 (g) YKS knew, per Delivery Order 19 and Official
On 21 August 1973, PWCC wrote another letter (Exhibit Receipt20 issued by PWCC, that only 10,000 bags were sold to
"3")7 to YKS in reply to the latter's letter of 15 August 1973. it, without any terms or conditions, at P24.30 per bag FOB
Enclosed in the reply was a copy of Exhibit "2". While the Asturias, Cebu; (h) YKS is solely to blame for the failure to
records reveal that YKS received this reply also on 21 August take complete delivery of 10,000 bags for it did not send its
1973 (Exhibit "3-A"),8 it still denied having received it. boat or truck to PWCC's plant; and (i) YKS has, therefore, no
Likewise, no copy of the so-called 15 August 1973 letter was cause of action.
presented in evidence.
In its Counterclaim, PWCC asks for moral damages in the
On 10 September 1973, YKS, through Henry Yao, wrote a amount of not less than P10,000.00, exemplary damages in the
letter9 to PWCC as a follow-up to the letter of 15 August sum of P500,000.00 and attorney's fees in the sum of
1973; YKS insisted on the delivery of 45,000 bags of white P10,000.00,
cement.10 On 24 July 1974, YKS filed its Answer to the Counterclaim.21
On 12 September 1973, Henry Yao sent a letter (Exhibit "G") Issues having been joined, the trial court conducted a
to PWCC calling the latter's attention to the statement of pretrial.22 On that occasion, the parties admitted that according
delivery dated 24 August 1973, particularly the price change to the By-Laws of PWCC, the Chairman of the Board, who is
from P23.30 to P24.30 per 94 Ibs. bag net FOB Asturias, also the President of the corporation, "has the power to
Cebu.11 execute and sign, for and in behalf of the corporation, all
contracts or agreements which the corporation enters into,"
On 2 November 1973, YKS sent a telegram (Exhibit "C") 12 to subject to the qualification that "all the president's actuations,
PWCC insisting on the full compliance with the terms of prior to and after he had signed and executed said contracts,
Exhibit "A" and informing the latter that it is exercising the shall be given to the board of directors of defendant
option therein stipulated. Corporation." Furthermore, it was likewise stated for the
record "that the corporation is a semi-subsidiary of the
On 3 November 1973, YKS sent to PWCC a letter (Exhibit government because of the NIDC participation in the same,
"D") as a follow-up to the 2 November 1973 telegram, but this and that all contracts of the corporation should meet the
was returned to sender as unclaimed.13 approval of the NIDC and/or the PNB Board because of an
exposure and financial involvement of around P10 million
As of 7 December 1973, PWCC had delivered only 9,775 bags therein."23
of white cement.
During the trial, PWCC presented evidence to prove that
On 9 February 1974, YKS wrote PWCC a letter (Exhibit "H") Exhibit "A" is not binding upon it because Mr. Maglana was
requesting, for the last time, compliance by the latter with its not authorized to make the offer and sign the contract in behalf
obligation under Exhibit "A".14 of the corporation. Per its By-Laws (Exhibit "8"), only the
Board of Directors has the power "x x x (7) To enter into (sic)
On 27 February 1974, PWCC sent an answer (Exhibit "7") to agreement or contract of any kind with any person in the name
the aforementioned letter of 9 February 1974; PWCC and for and in behalf of the corporation through its President,
reiterated the unenforceability of Exhibit "A".15 subject only to the declared objects and purpose of the
corporation and the existing provisions of law." 24 Among the the By-Laws does not require that Exhibit "A" be approved by
powers of the President is "to operate and conduct the business the Board of Directors. Finally, in the light of the Chairman's
of the corporation according to his own judgment and power to "execute and sign for and in behalf of the corporation
discretion, whenever the same is not expressly limited by such all contracts or agreements which the corporation may enter
orders, directives or resolutions."25 Per standard practice of the into" (Exhibit "1-1"), it concluded that Mr. Maglana merely
corporation, contracts should first pass through the marketing followed the By-Laws "presumably both as president and
and intelligence unit before they are finalized. Because of its chairman of the board thereof." 30 Hence, Exhibit "A" was
interest in the PWCC, the NIDC, through its comptroller, goes validly entered into by Maglana and thus binds the
over contracts involving funds of and white cement produced corporation.
by the PWCC. Finally, among the duties of its legal counsel is
to review proposed contracts before they are submitted to the The trial court, however, ruled that the option to sell is not
Board. While the president may be tasked with the preparation valid because it is not supported by any consideration distinct
of a contract, it must first pass through the legal counsel and from the price; it was exercised before compliance with the
the comptroller of the corporation.26 original contract by PWCC; and the repudiation of the original
contract by PWCC was deemed a withdrawal of the option
On 20 November 1975, after trial on the merits, the court before acceptance by the petitioner.
handed down its decision in favor of herein petitioner, the
dispositive portion of which reads: Both parties appealed from the said decision to the respondent
Court of Appeals before which petitioner presented the
"WHEREFORE, in view of the foregoing, judgment is hereby following Assignment of Errors:
rendered:
"I THE TRIAL COURT ERRED IN HOLDING THAT THE
(1) Ordering defendant to complete the delivery of OPTION TO RENEW THE CONTRACT OF SALE IS NOT
45,000 bags of prime white cement at 94 Ibs. net per ENFORCEABLE BECAUSE THE OPTION WAS MADE
bag at the price agreed, with a breakage allowance of EVEN BEFORE THE COMPLIANCE OF (sic) THE
empty bags at 4% over the quantity agreed; ORIGINAL CONTRACT BY DEFENDANT AND THAT
(2) Ordering defendant to pay P50,000.00 as moral DEFENDANT'S PROMISE TO SELL IS NOT SUPPORTED
damages; P5,000.00 as exemplary damages; BY ANY CONSIDERATION DISTINCT FROM THE
P3,000.00 as attorney's fees; and the costs of these PRICE.
proceedings.
SO ORDERED."27 II THE TRIAL COURT ERRED IN NOT AWARDING TO
THE PLAINTIFF ACTUAL DAMAGES, SUFFICIENT
In disregarding PWCC's theory, the trial court interpreted the EXEMPLARY DAMAGES AND ATTORNEY'S FEES AS
provision of the By-Laws—granting its Board of Directors the ALLEGED IN THE COMPLAINT AND PROVEN DURING
power to enter into an agreement or contract of any kind with THE TRIAL."31
any person through the President—to mean that the latter may while the private respondent cited the following errors:
enter into such contract or agreement at any time and that the
same is not subject to the ratification of the board of directors "I THE TRIAL COURT ERRED IN HOLDING THAT
but "subject only to the declared objects and purpose of the EXHIBIT "A" IS A VALID CONTRACT OR PLAINTIFF
corporation and existing laws." It then concluded: CAN CLAIM THAT THE PROPOSED LETTER-
"It is obvious therefore, that it is not the whole membership of CONTRACT, EXHIBIT "A" IS LEGALLY
the board of directors who actually enters into any contract ENFORCEABLE, AS THE SAME IS A MERE
with any person in the name and for and in behalf of the UNACCEPTED PROPOSAL, NOT HAVING BEEN
corporation, but only its president. It is likewise crystal clear PREVIOUSLY AUTHORIZED TO BE ENTERED INTO OR
that this automatic representation of the board by the president LATER ON RATIFIED BY THE DEFENDANTS BOARD
is limited only by the 'declared objects and purpose of the OF DIRECTORS; IN FACT EXHIBIT "A" WAS TOTALLY
corporation and existing provisions of law.'"28 REJECTED AND DISAPPROVED IN TOTO BY THE
DEFENDANTS BOARD OF DIRECTORS IN CLEAR,
It likewise interpreted the provision on the power of the PLAIN LANGUAGE AND DULY INFORMED AND
president to "operate and conduct the business of the TRANSMITTED TO PLAINTIFF.
corporation according to the orders, directives or resolutions
of the board of directors and according to his own judgment II THE TRIAL COURT ERRED IN HOLDING THAT
and discretion whenever the same is not expressly limited by PLAINTIFF CAN LEGALLY UTILIZE THE COURTS AS
such orders, directives and resolutions," to mean that the THE FORUM TO GIVE LIFE AND VALIDITY TO A
president can operate and conduct the business of the TOTALLY UNENFORCEABLE OR NONEXISTING
corporation according to his own judgment and discretion as CONTRACT.
long as it is not expressly limited by the orders, directives or
resolutions of the board of directors. 29 The trial court found no III THE TRIAL COURT ERRED IN ALLOWING YAO KA
evidence that the board had set a prior limitation upon the SIN TO IMPUGN AND CONTRADICT HIS VERY OWN
exercise of such judgment and discretion; it further ruled that ACTUATIONS AND REPUDIATE HIS ACCEPTANCE
AND RECEIPTS OF BENEFITS FROM THE COUNTER- 5.Receipt from plaintiff (sic) P243,000.00 in payment of
OFFER OF DEFENDANT FOR 10,000 BAGS OF CEMENT 10,000 bags of white cement at 24.30 per bag (Annex "5" to
ONLY, UNDER THE PRICE, TERMS AND CONDITIONS defendant's Answer).
TOTALLY FOREIGN TO AND WHOLLY DIFFERENT
FROM THOSE WHICH APPEAR IN EXHIBIT "A". plaintiff is deemed to have admitted, not only the due
execution and genuineness (sic) of said documents, (Rule 8,
IV THE TRIAL COURT ERRED IN DISMISSING Sec. 8, Rules of Court) but also the allegations therein (Rule 9,
DEFENDANTS COUNTER-CLAIMS AS THE SAME ARE Sec. 1, Rules of Court). All of the foregoing documents tend to
DULY SUPPORTED BY CLEAR AND INDUBITABLE prove that the letter-offer, Exhibit "A", was rejected by
EVIDENCE."32 defendant corporation's Board of Directors and plaintiff was
duly notified thereof and that the P243,000.00 check was
In its decision33 promulgated on 21 December 1979, the considered by both parties as payment of the 10,000 bags of
respondent Court reversed the decision of the trial court, thus: cement under a separate transaction. As proof of which
plaintiff did not complain nor protest until February 9, 1974,
"WHEREFORE, the judgment appealed from is REVERSED when he threatened legal action.
and set aside, Plaintiff s complaint is dismissed with costs.
Plaintiff is ordered to pay defendant corporation P25,000.00 Third. Maglana's signing the letter-offer prepared for him in
exemplary damages, and P10,000.00 attorney's fees. the Solidbank was made clearly upon the condition that it was
SO ORDERED." subject to the approval of the board of directors of defendant
corporation. We find consistency herein because according to
Such conclusion is based on its findings, to wit: the Corporation Law, and the By-Laws of defendant
corporation, all corporate commitments and business are
"Before resolving the issue, it is helpful to bring out some conducted by, and contracts entered into through, the express
preliminary facts. First, the defendant corporation is authority of the Board of Directors (Sec. 28, Corp. Law, Exh.
supervised and principally financed by the National "I" or "8").
Investment and Development Corporation (NIDC), a
subsidiary investment of the Philippine National Bank (PNB), Fourth. What Henry Yao and Maglana agreed upon as
with cash financial exposure of some P10,000,000.00. PNB is embodied in Exhibit "A", insofar as defendant corporation is
a government financial institution whose Board is chairmaned concerned, was an unauthorized contract (Arts. 1317 and 1403
(sic) by the Minister of National Defense. This fact is very (1), Civil Code). And because Maglana was not authorized by
material to the issue of whether defendant corporation's the Board of Directors of defendant corporation nor was his
president can bind the corporation with his own act. actuation ratified by the Board, the agreement is unenforceable
(Art. 1403 (1), Civil Code; Raquiza et al. vs, Lilles et al,, 13
Second, for failure to deny under oath the following actionable CA Rep. 343; Gana vs. Archbishop of Manila, 43 O.G. 3224).
documents in support of defendant's counterclaim:
While it may be true that Maglana is President of defendant
1. The resolution contained in defendant's letter to plaintiff corporation nowhere in the Articles of Incorporation nor in the
dated July 5, 1973, on the 10,000 bags of white cement ByLaws of said corporation was he empowered to enter into
delivered to plaintiff was not by reason of the letter contract, any contract all by himself and bind the corporation without
Exhibit "A", which was totally disapproved by defendant first securing the authority and consent of the Board of
corporation's board of directors, clearly stating that 'If within Directors. Whatever authority Maglana may have must be
ten (10) days from date hereof, we will not hear from you but derived from the Board of Directors of defendant corporation.
you will withdraw cement at P24.30 per bag from our plant, A corporate officer's power as an agent must be sought from
then we will deposit your check of P243,000.00 dated June 7, the law, the articles of incorporation and the By-Laws or from
1973 issued by the Producers Bank of the Philippines, per a resolution of the Board (Vicente vs. Geraldez, 52 SCRA
instruction of the Board.' (Annex "1" to defendant's Answer). 227, Board of Liquidators vs. Kalaw, 20 SCRA 987).
2.Letter of defendant to plaintiff dated August 4, 1973 that It clearly results from the foregoing that the judgment
defendant 'only committed to you and which you accordingly appealed from is untenable. Having no cause of action against
paid 10,000 bags of white cement of which 4,150 bags were defendant corporation, plaintiff is not entitled to any relief. We
already delivered to you as of August 1, 1973' (Annex "2" of see no justification, therefore, for the court a quo'sawards in
defendant's Answer). its favor. x x x"34
3.Letter dated August 21, 1973 to plaintiff reiterating Its motion for reconsideration having been denied by the
defendant's letter of August 4, 1973 (Annex "3" to defendant's respondent Court in its resolution35dated 15 April 1980,
Answer). petitioner filed the instant petition based on the following
grounds:
4.Letter to stores dated August 21, 1973,
"1. That the contract (Exh. "A") entered into by the President
and Chairman of the Board of Directors Constancio B.
Maglana in behalf of the respondent corporation binds the said Accordingly, the proper party plaintiff/petitioner should be
corporation. YAO KA SIN.46
2.That the contract (Exh. "A") was never novated nor The complaint then should have been amended to implead
superceded (sic) by a subsequent contract. Yao Ka Sin as plaintiff in substitution of Yao Ka Sin Trading.
However, it is now too late in the history of this case to
3.That the option to renew the contract as contained in Exhibit dismiss this petition and, in effect, nullify all proceedings had
"A" is enforceable. before the trial court and the respondent Court on the sole
ground of petitioner's lack of capacity to sue. Considering that
4.That Sec. 8, Rule 8 of the Rules of Court only applies when private respondent did not pursue this issue before the
the adverse party appear (sic) to be a party to the instrument respondent Court and this Court; that, as We held
but not to one who is not a party to the instrument and Sec. 1, in Juasing, the defect is merely formal and not substantial, and
Rule 9 of the said Rules with regards (sic) to denying under an amendment to cure such defect is expressly authorized by
oath refers only to allegations of usury."36 Section 4, Rule 10 of the Rules of Court which provides that
"[a] defect in the designation of the parties may be summarily
We gave due course37 to the petition after private respondent corrected at any stage of the action provided no prejudice is
filed its Comment38 and required the parties to submit caused thereby to the adverse party;" and that "[a] sole
simultaneously their Memoranda, which the parties proprietorship does not, of course, possess any juridical
subsequently complied with.39 personality separate and apart from the personality of the
owner of the enterprise and the personality of the persons
Before going any further, this Court must first resolve an issue acting in the name of such proprietorship," 47 We hold and
which, although raised in the Answer of private respondent, declare that Yao Ka Sin should be deemed as the plaintiff in
was neither pursued in its appeal before the respondent Court Civil Case No. 5064 and the petitioner in the instant case. As
nor in its Comment and Memorandum in this case. It also this Court stated nearly eighty (80) years ago in Alonso vs.
eluded the attention of the trial court and the respondent Court. Villamor:48
The issue, which is of paramount importance, concerns the
lack of capacity of plaintiff/petitioner to sue. In the caption of "No one has been misled by the error in the name of the party
both the complaint and the instant petition, the plaintiff and plaintiff. If we should by reason of this error send this case
the petitioner, respectively, is: back for amendment and new trial, there would be on the
retrial the same complaint, the same answer, the same defense,
YAO KA SIN TRADING, the same interests, the same witnesses, and the same evidence.
owned and operated by The name of the plaintiff would constitute the only difference
YAO KA SIN.40 between the old trial and the new. In our judgment there is not
enough in a name to justify such action."
and is described in the body thereof as "a business concern of
single proprietorship owned and operated by Yao Ka Sin." 41 In And now to the merits of the petition.
the body of the petition, it is described as "a single The respondent Court correctly ruled that Exhibit "A" is
proprietorship business concern."42 It also appears that, as not binding upon the private respondent. Mr. Maglana, aglana,
gathered from the decision of the trial court, no Yao Ka its President and Chairman, was not empowered to execute it.
Sin testified. Instead, one Henry Yao took the witness stand Petitioner, on the other hand, maintains that it is a valid
and testified that he is the "manager of Yao Ka Sin Trading" contract because Mr. Maglana has the power to enter into
and "it was in representation of the plaintiff" that he signed contracts for the corporation as implied from the following
Exhibit "A".43 Under Section 1, Rule 3 of the Rules of Court, provisions of the By-Laws of private respondent:
only natural or juridical persons or entities authorized by law
may be parties in a civil action. In Juasing Hardware vs. a)The power of the Board of Directors to ". . . enter into (sic)
Mendoza,44 this Court held that a single proprietorship is agreement or contract of any kind with any person in the name
neither a natural person nor a juridical person under Article 44 and for and in behalf of the corporation through its President,
of the Civil Code; it is not an entity authorized by law to bring subject only to the declared objects and purpose of the
suit in court: corporation and the existing provisions of law" (Exhibit "8-
A"); and
"The law merely recognizes the existence of a sole
proprietorship as a form of business organization conducted b)The power of the Chairman of the Board of Directors to
for profit by a single individual, and requires the proprietor or "execute and sign, for and in behalf of the corporation, all
owner thereof to secure licenses and permits, register the contracts or agreements which the corporation may enter into"
business name, and pay taxes to the national government. It (Exhibit "1-1").
does not vest juridical or legal personality upon the sole
proprietorship nor empower it to file or defend an action in And even admitting, for the sake of argument, that Mr.
court."45 Maglana was not so authorized under the By-Laws, the private
respondent, pursuant to the doctrine laid down by this Court
in Francisco vs. Government Service Insurance
System49 and Board of Liquidators vs. Kalaw,50 is still bound did not have a direct and active hand in the management of the
by his act for clothing him with apparent authority. business and operations of the corporation. Besides, no
evidence was adduced to show that Mr. Maglana had, in the
We are not persuaded. past, entered into contracts similar to that of Exhibit "A" either
with the petitioner or with other parties.
Since a corporation, such as the private respondent, can act
only through its officers and agents, "all acts within the Petitioner's last refuge then is his alternative proposition,
powers of said corporation may be performed by agents of its namely, that private respondent had clothed Mr. Maglana with
selection; and, except so far as limitations or restrictions may the apparent power to act for it and had caused persons dealing
be imposed by special charter, by-law, or statutory provisions, with it to believe that he was conferred with such power. The
the same general principles of law which govern the relation rule is of course settled that "[a]lthough an officer or agent
of agency for a natural person govern the officer or agent of a acts without, or in excess of, his actual authority if he acts
corporation, of whatever status or rank, in respect to his power within the scope of an apparent authority with which the
to act for the corporation; and agents when once appointed, or corporation has clothed him by holding him out or permitting
members acting in their stead, are subject to the same rules, him to appear as having such authority, the corporation is
liabilities and incapacities as are agents of individuals and bound thereby in favor of a person who deals with him in good
private persons."51 Moreover, "x x x a corporate officer or faith in reliance on such apparent authority, as where an
agent may represent and bind the corporation in transactions officer is allowed to exercise a particular authority with
with third persons to the extent that authority to do so has been respect to the business, or a particular branch of it,
conferred upon him, and this includes powers which have been continuously and publicly, for a considerable time." 54 Also, "if
intentionally conferred, and also such powers as, in the usual a private corporation intentionally or negligently clothes its
course of the particular business, are incidental to, or may be officers or agents with apparent power to perform acts for it,
implied from, the powers intentionally conferred, powers the corporation will be estopped to deny that such apparent
added by custom and usage, as usually pertaining to the authority is real, as to innocent third persons dealing in good
particular officer or agent, and such apparent powers as the faith with such officers or agents."55This "apparent authority
corporation has caused persons dealing with the officer or may result from (1) the general manner by which the
agent to believe that it has conferred."52 corporation holds out an officer or agent as having power to
act or, in other words, the apparent authority with which it
While there can be no question that Mr. Maglana was an clothes him to act in general, or (2) the acquiescence in his
officer—the President and Chairman—of private respondent acts of a particular nature, with actual or constructive
corporation at the time he signed Exhibit "A", the above knowledge thereof, whether within or without the scope of his
provisions of said private respondent's By-Laws do not in any ordinary powers."56
way confer upon the President the authority to enter into
contracts for the corporation independently of the Board of It was incumbent upon the petitioner to prove that indeed the
Directors. That power is exclusively lodged in the latter. private respondent had clothed Mr. Maglana with the apparent
Nevertheless, to expedite or facilitate the execution of the power to execute Exhibit "A" or any similar contract. This
contract, only the President—and not all the members of the could have been easily done by evidence of similar acts
Board, or so much thereof as are required for the act—shall executed either in its favor or in favor of other parties.
sign it for the corporation. This is the import of the Petitioner miserably failed to do that. Upon the other hand,
words through the president in Exhibit "8-A" and the clear private respondent's evidence overwhelmingly shows that no
intent of the power of the chairman "to execute and sign for contract can be signed by the president without first being
and in behalf of the corporation all contracts and agreements approved by the Board of Directors; such approval may only
which the corporation may enter into" in Exhibit "1-1". Both be given after the contract passes through, at least, the
powers presuppose a prior act of the corporation exercised comptroller, who is the NIDC representative, and the legal
through the Board of Directors. No greater power can be counsel.
implied from such express, but limited, delegated authority.
Neither can it be logically claimed that any power greater than The cases then of Francisco vs. GSIS and Board of
that expressly conferred is inherent in Mr. Maglana's position Liquidators vs. Kalaw are hopelessly unavailing to the
as president and chairman of the corporation. petitioner. In said cases, this Court found sufficient evidence,
Although there is authority "that if the president is given based on the conduct and actuations of the corporations
general control and supervision over the affairs of the concerned, of apparent authority conferred upon the officer
corporation, it will be presumed that he has authority to make involved which bound the corporations on the basis of
contracts and do acts within the course of its ordinary ratification. In the first case, it was established that the offer of
business,"53 We find such inapplicable in this case. We note compromise made by plaintiff in the letter, Exhibit "A", was
that the private corporation has a general manager who, under validly accepted by the GSIS. The terms of the offer were
its By-Laws has, inter alia, the following powers: "(a) to have clear, and over the signature of defendant's general manager,
the active and direct management of the business and Rodolfo Andal, plaintiff was informed telegraphically that her
operation of the corporation, conducting the same according to proposal had been accepted. It was sent by the GSIS' Board
the order, directives or resolutions of the Board of Directors or Secretary and defendant did not disown the same. Moreover,
of the president." It goes without saying then that Mr. Maglana in a letter remitting the payment of P30,000 advanced by her
father, plaintiff quoted verbatim the telegram of acceptence. Receipt for the P243,000.00. The respondent Court thus
This was in itself notice to the corporation of the terms of the correctly ruled that petitioner had in fact agreed to a new
allegedly unauthorized telegram. Notwithstanding this notice, transaction involving only 10,000 bags of white cement.
GSIS pocketed the amount and kept silent about the telegram.
This Court then ruled that: The third ground must likewise fail. Exhibit "A" being
unenforceable, the option to renew it would have no leg to
"This silence, taken together with the unconditional stand on. The river cannot rise higher than its source. In any
acceptance of three other subsequent remittances from event, the option granted in this case is without any
plaintiff, constitutes in itself a binding ratification of the consideration. Article 1324 of the Civil Code expressly
original agreement (Civil Code, Art 1393). provides that:
'ART. 1393. Ratification may be effected expressly or tacitly.
It is understood that there is a tacit ratification if, with "When the offerer has allowed the offeree a certain period to
knowledge of the reason which renders the contract voidable accept, the offer may be withdrawn at any time before
and such reason having ceased, the person who has a right to acceptance by communicating such withdrawal, except when
invoke it should execute an act which necessarily implies an the option is founded upon a consideration, as something paid
intention to waive his right.' " or promised."
In the second case, this Court found: while Article 1749 of the same Code provides:
"In the case at bar, the practice of the corporation has been to
allow its general manager to negotiate and execute contracts in "A promise to buy and sell a determinate thing for a price
its copra trading activities for and in NACOCO's certain is reciprocally demandable.
behalf without prior board approval. If the by-laws were to be
literally followed, the board should give its stamp of prior An accepted unilateral promise to buy or to sell a determinate
approval on all corporate contracts. But that board itself, by its thing for a price certain is binding upon the promissor if the
acts and through acquiescence, practically laid aside the by- promise is supported by a consideration distinct from the
law requirement of prior approval. price."
Accordingly, even if it were accepted, it can not validly bind
Under the given circumstances, the Kalaw contracts are valid the private respondent.58
corporate acts."
The fourth ground is, however, meritorious.
The inevitable conclusion then is that Exhibit "A" is an
unenforceable contract under Article 1317 of the Civil Code Section 8, Rule 8 of the Rules of Court provides:
which provides as follows:
"SECTION 8. How to contest genuineness of such documents.
"ARTICLE 1317. No one may contract in the name of another —When an action or defense is founded upon a written
without being authorized by the latter, or unless he has by law instrument, copied in or attached to the corresponding
a right to represent him. pleading as provided in the preceding section, the genuineness
and due execution of the instrument shall be deemed admitted
A contract entered into in the name of another by one who has unless the adverse party, under oath, specifically denies them,
no authority or legal representation, or who has acted beyond and sets forth what he claims to be the facts; but this provision
his powers, shall be unenforceable, unless it is ratified, does not apply when the adverse party does not appear to be a
expressly or impliedly, by the person on whose behalf it has party to the instrument or when compliance with an order for
been executed, before it is revoked by the other contracting an inspection of the original instrument is refused."
party."
It is clear that the petitioner is not a party to any of the
The second ground is based on a wrong premise. It assumes, documents attached to the private respondent's Answer. Thus,
contrary to Our conclusion above, that Exhibit "A" is a valid the above quoted rule is not applicable.59 While the respondent
contract binding upon the private respondent. It was Court erred in holding otherwise, the challenged decision
effectively disapproved and rejected by the Board of Directors must, nevertheless, stand in view of the above disquisitions on
which, at the same time, considered the amount of the first to the third grounds of the petition.
P243,000.00 received by Maglana as payment for 10,000 bags FALLO WHEREFORE, judgment is hereby rendered
of white cement, treated as an entirely different contract, and AFFIRMING the decision of respondent Court of Appeals in
forthwith notified petitioner of its decision that "If within ten C.A.-G.R. No. 61072-R promulgated on 21 December
(10) days from date hereof we will not hear from you but you 1979. Costs against petitioner. SO ORDERED.
will withdraw cement at P24.30 per bag from our plant, then
we will deposit your check of P243,000.00 dated June 7, 1973 Note.—If a private corporation intentionally or negligently
issued by the Producers Bank of the Philippines, per clothes its officers or agents with apparent power to perform
instruction of the Board."57 Petitioner received a copy of this acts for it, the corporation will be estopped to deny that such
notification and thereafter accepted without any protest the apparent authority is real, as to innocent third persons dealing
Delivery Receipt covering the 10,000 bags and the Official in good faith with such officers or agents (Francisco vs.
Government Service Insurance System, L-18287 and L-18155, obligation to convey title from acquiring an obligatory force.
March 30, 1963, 7 SCRA 577). —When the sale is not absolute but conditional, such as in a
“Contract to Sell” where invariably the ownership of the thing
G.R. No. 109125. December 2, 1994.* sold is retained until the fulfillment of a positive suspensive
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, condition (normally, the full payment of the purchase price),
petitioners, vs. THE HON. COURT OF APPEALS and the breach of the condition will prevent the obligation to
BUEN REALTY DEVELOPMENT CORPORATION, convey title from acquiring an obligatory force. In Dignos vs.
respondents. Court of Appeals (158 SCRA 375), we have said that,
although denominated a “Deed of Conditional Sale,” a sale is
Obligations; Essential elements of an obligation.—An still absolute where the contract is devoid of any proviso that
obligation is a juridical necessity to give, to do or not to do title is reserved or the right to unilaterally rescind is stipulated,
(Art. 1156, Civil Code). The obligation is constituted upon the e.g., until or unless the price is paid. Ownership will then be
concurrence of the essential elements thereof, viz: (a) transferred to the buyer upon actual or constructive delivery
The vinculum juris or juridical tiewhich is the efficient cause (e.g., by the execution of a public document) of the property
established by the various sources of obligations (law, sold. Where the condition is imposed upon the perfection of
contracts, quasi-contracts, delicts and quasi-delicts); (b) the contract itself, the failure of the condition would prevent
the object which is the prestation or conduct, required to be such perfection. If the condition is imposed on the obligation
observed (to give, to do or not to do); and (c) the subject- of a party which is not fulfilled, the other party may either
persons who, viewed from the demandability of the obligation, waive the condition or refuse to proceed with the sale (Art.
are the active (obligee) and the passive (obligor) subjects. 1545, Civil Code).
Same; Contracts; Various stages of a contract.—Among the Same; Same; Same; An unconditional mutual promise to

sources of an obligation is a contract (Art. 1157, Civil Code), buy and sell, with an object that is determinate and the price
which is a meeting of minds between two persons whereby fixed, can be obligatory on the parties.—An unconditional
one binds himself, with respect to the other, to give something mutual promise to buy and sell, as long as the object is made
or to render some service (Art. 1305, Civil Code). A contract determinate and the price is fixed, can be obligatory on the
undergoes various stages that include its negotiation or parties, and compliance therewith may accordingly be exacted.
preparation, its perfection and, finally, its
consummation. Negotiation covers the period from the time Same; Same; Same; Options; An accepted unilateral
the prospective contracting parties indicate interest in the promise which specifies the thing to be sold and the price to
contract to the time the contract is concluded (perfected). be paid, when coupled with a valuable consideration distinct
The perfection of the contract takes place upon the and separate from the price, may be termed a perfected
concurrence of the essential elements thereof. A contract contract of option.—An accepted unilateral promise which
which is consensual as to perfection is so established upon a specifies the thing to be sold and the price to be paid, when
mere meeting of minds, i.e., the concurrence of offer and coupled with a valuable consideration distinct and separate
acceptance, on the object and on the cause thereof. A contract from the price, is what may properly be termed a perfected
which requires, in addition to the above, the delivery of the contract of option. This contract is legally binding, and in
object of the agreement, as in a pledge or commodatum, is sales, it conforms with the second paragraph of Article 1479
commonly referred to as a realcontract. In a solemn contract, of the Civil Code. Observe, however, that the option is not the
compliance with certain formalities prescribed by law, such as contract of sale itself. The optionee has the right, but not the
in a donation of real property, is essential in order to make the obligation, to buy. Once the option is exercised timely, i.e., the
act valid, the prescribed form being thereby an essential offer is accepted before a breach of the option, a bilateral
element thereof. The stage of consummationbegins when the promise to sell and to buy ensues and both parties are then
parties perform their respective undertakings under the reciprocally bound to comply with their respective
contract culminating in the extinguishment thereof. undertakings.
Same; Same; Sales; In sales, the contract is perfected when Same; Same; Same; Same; Rules applicable where a period
the seller obligates himself, for a price certain, to deliver and is given to the offeree within which to accept the offer.—
to transfer ownership of a thing or right to the buyer, over Where a period is given to the offeree within which to accept
which the latter agrees.—Until the contract is perfected, it the offer, the following rules generally govern: (1) If the
cannot, as an independent source of obligation, serve as a period is not itself founded upon or supported by a
binding juridical relation. In sales, particularly, to which the consideration, the offeror is still free and has the right to
topic for discussion about the case at bench belongs, the withdraw the offer before its acceptance, or, if an acceptance
contract is perfected when a person, called the seller, obligates has been made, before the offeror’s coming to know of such
himself, for a price certain, to deliver and to transfer fact, by communicating that withdrawal to the offeree. The
ownership of a thing or right to another, called the buyer, over right to withdraw, however, must not be exercised whimsically
which the latter agrees. or arbitrarily; otherwise, it could give rise to a damage claim
under Article 19 of the Civil Code; (2) If the period has a
Same; Same; Same; When the sale is not absolute but separate consideration, a contract of “option” is deemed
conditional, the breach of the condition will prevent the perfected, and it would be a breach of that contract to
withdraw the offer during the agreed period. The option, in Civil Case No. 87-41058, it must be stressed, has merely
however, is an independent contract by itself, and it is to be accorded a “right of first refusal” in favor of petitioners. The
distinguished from the projected main agreement (subject consequence of such a declaration entails no more than what
matter of the option) which is obviously yet to be concluded. has heretofore been said. In fine, if, as it is here so conveyed to
If, in fact, the optioner-offeror withdraws the offer before its us, petitioners are aggrieved by the failure of private
acceptance (exercise of the option) by the optionee-offeree, respondents to honor the right of first refusal, the remedy is
the latter may not sue for specific performance on the not a writ of execution on the judgment, since there is none to
proposed contract (“object” of the option) since it has failed to execute, but an action for damages in a proper forum for the
reach its own stage of perfection. The optionee-offeror, purpose.
however, renders himself liable for damages for breach of the
option. In these cases, care should be taken on the real nature Due Process; Actions; A party not impleaded in an action
of the consideration given, for if, in fact, it has been intended cannot be held subject to the writ of execution issued therein.
to be part of the consideration for the main contract with a —Furthermore, whether private respondent Buen Realty
right of withdrawal on the part of the optionee, the main Development Corporation, the allegedpurchaser of the
contract could be deemed perfected; a similar instance would property, has acted in good faith or bad faith and whether or
be an “earnest money” in a contract of sale that can evidence not it should, in any case, be considered bound to respect the
its perfection (Art. 1482, Civil Code). registration of the lis pendens in Civil Case No. 87-41058 are
matters that must be independently addressed in appropriate
Same; Same; Same; Same; Words and Phrases; “Right of proceedings. Buen Realty, not having been impleaded in Civil
First Refusal,” Explained; In the law on sales, the so-called Case No. 87-41058, cannot be held subject to the writ of
“right of first refusal” is an innovative juridical relation, but execution issued by respondent Judge, let alone ousted from
it cannot be deemed a perfected contract of sale under the ownership and possession of the property, without first
Article 1458 of the Civil Code.—In the law on sales, the so- being duly afforded its day in court.
called “right of first refusal” is an innovative juridical relation.
Needless to point out, it cannot be deemed a perfected contract PETITION for review of a decision of the Court of
of sale under Article 1458 of the Civil Code, Neither can the Appeals.
right of first refusal, understood in its normal concept, per
se be brought within the purview of an option under the Assailed, in this petition for review, is the decision of the
second paragraph of Article 1479, aforequoted, or possibly of Court of Appeals, dated 04 December 1991, in CA-G.R. SP
an offer under Article 1319 of the same Code. An option or an No. 26345 setting aside and declaring without force and effect
offer would require, among other things, a clear certainty on the orders of execution of the trial court, dated 30 August 1991
both the object and the cause or consideration of the and 27 September 1991, in Civil Case No. 87-41058.
envisioned contract. In a right of first refusal, while the object
might be made determinate, the exercise of the right, however, VITUG, J.:
would be dependent not only on the grantor’s eventual
intention to enter into a binding juridical relation with another The antecedents are recited in good detail by the appellate
but also on terms, including the price, that obviously are yet to court thusly:
be later firmed up. Prior thereto, it can at best be so described “On July 29, 1987 a Second Amended Complaint for Specific
as merely belonging to a class of preparatory juridical Performance was filed by Ann Yu Asuncion and Keh Tiong,
relations governed not by contracts (since the essential et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose
elements to establish the vinculum juriswould still be Tan before the Regional Trial Court, Branch 31, Manila in
indefinite and inconclusive) but by, among other laws of Civil Case No. 87-41058, alleging, among others, that
general application, the pertinent scattered provisions of the plaintiffs are tenants or lessees of residential and commercial
Civil Code on human conduct. spaces owned by defendants described as Nos. 630-638
Ongpin Street, Binondo, Manila; that they have occupied said
Same; Same; Same; Same; Same; Same; Breach of a right spaces since 1935 and have been religiously paying the rental
of first refusal decreed under a final judgment does not and complying with all the conditions of the lease contract;
entitle the aggrieved party to a writ of execution of the that on several occasions before October 9, 1986, defendants
judgment but to an action for damages.—Even on the informed plaintiffs that they are offering to sell the premises
premise that such right of first refusal has been decreed under and are giving them priority to acquire the same; that during
a final judgment, like here, its breach cannot justify the negotiations, Bobby Cu Unjieng offered a price of P6-
correspondingly an issuance of a writ of execution under a million while plaintiffs made a counter offer of P5-million;
judgment that merely recognizes its existence, nor would it that plaintiffs thereafter asked the defendants to put their offer
sanction an action for specific performance without thereby in writing to which request defendants acceded; that in reply to
negating the indispensable element of consensuality in the defendants’ letter, plaintiffs wrote them on October 24, 1986
perfection of contracts. It is not to say, however, that the right asking that they specify the terms and conditions of the offer
of first refusal would be inconsequential for, such as already to sell; that when plaintiffs did not receive any reply, they sent
intimated above, an unjustified disregard thereof, given, for another letter dated January 28, 1987 with the same request;
instance, the circumstances expressed in Article 19 of the Civil that since defendants failed to specify the terms and conditions
Code, can warrant a recovery for damages. The final judgment of the offer to sell and because of information received that
defendants were about to sell the property, plaintiffs were ‘SO ORDERED.’
compelled to file the complaint to compel defendants to sell
the property to them. “The decision of this Court was brought to the Supreme Court
by petition for review on certiorari. The Supreme Court denied
“Defendants filed their answer denying the material the appeal on May 6, 1991 ‘for insufficiency in form and
allegations of the complaint and interposing a special defense substance’ (Annex H, Petition).
of lack of cause of action.
“On November 15, 1990, while CA-G.R. CV No. 21123was
“After the issues were joined, defendants filed a motion for pending consideration by this Court, the Cu Unjieng spouses
summary judgment which was granted by the lower court. The executed a Deed of Sale (Annex D, Petition) transferring the
trial court found that defendants’ offer to sell was never property in question to herein petitioner Buen Realty and
accepted by the plaintiffs for the reason that the parties did not Development Corporation, subject to the following terms and
agree upon the terms and conditions of the proposed sale, conditions:
hence, there was no contract of sale at all. Nonetheless, the
lower court ruled that should the defendants subsequently “‘1. That for and in consideration of the sum of FIFTEEN
offer their property for sale at a price of P11-million or below, MILLION PESOS (P15,000,000.00), receipt of which in full
plaintiffs will have the right of first refusal. Thus the is hereby acknowledged, the VENDORS hereby sells,
dispositive portion of the decision states: transfers and conveys for and in favor of the VENDEE, his
heirs, executors, administrators or assigns, the above-
“‘WHEREFORE, judgment is hereby rendered in favor of the described property with all the improvements found therein
defendants and against the plaintiffs summarily dismissing the including all the rights and interest in the said property free
complaint subject to the aforementioned condition that if the from all liens and encumbrances of whatever nature, except
defendants subsequently decide to offer their property for sale the pending ejectment proceeding;
for a purchase price of Eleven Million Pesos or lower, then the ‘2. That the VENDEE shall pay the Documentary Stamp Tax,
plaintiffs has the option to purchase the property or of first registration fees for the transfer of title in his favor and other
refusal, otherwise, defendants need not offer the property to expenses incidental to the sale of above-described property
the plaintiffs if the purchase price is higher than Eleven including capital gains tax and accrued real estate taxes.’
Million Pesos.
“‘SO ORDERED.’ “As a consequence of the sale, TCT No. 105254/T-881 in the
name of the Cu Unjieng spouses was cancelled and, in lieu
“Aggrieved by the decision, plaintiffs appealed to this Court thereof, TCT No. 195816 was issued in the name of petitioner
in CA-G.R. CV No. 21123. In a decision promulgated on on December 3, 1990.
September 21, 1990 (penned by Justice Segundino G. Chua
and concurred in by Justices Vicente V. Mendoza and “On July 1, 1991, petitioner as the new owner of the subject
Fernando A. Santiago), this Court affirmed with modification property wrote a letter to the lessees demanding that the latter
the lower court’s judgment, holding: vacate the premises.
“‘In resume, there was no meeting of the minds between the “On July 16, 1991, the lessees wrote a reply to petitioner
parties concerning the sale of the property. Absent such stating that petitioner brought the property subject to the
requirement, the claim for specific performance will not lie. notice of lis pendens regarding Civil Case No. 87-
Appellants’ demand for actual, moral and exemplary damages 41058 annotated on TCT No. 105254/T-881 in the name of the
will likewise fail as there exists no justifiable ground for its Cu Unjiengs.
award. Summary judgment for defendants was properly
granted. Courts may render summary judgment when there is “The lessees filed a Motion for Execution dated August 27,
no genuine issue as to any material fact and the moving party 1991 of the decision in Civil Case No. 87-41058 as modified
is entitled to a judgment as a matter of law (Garcia vs. Court by the Court of Appeals in CA-G.R. CV No. 21123.
of Appeals, 176 SCRA 815). All requisites obtaining, the
decision of the court a quo is legally justifiable. “On August 30, 1991, respondent Judge issued an order
(Annex A, Petition) quoted as follows:
‘WHEREFORE, finding the appeal unmeritorious, the
judgment appealed from is hereby AFFIRMED, but subject to “‘Presented before the Court is a Motion for Execution filed
the following modification: The court a quo in the aforestated by plaintiff represented by Atty. Antonio Albano. Both
decision gave the plaintiffs-appellants the right of first refusal defendants Bobby Cu Unjieng and Rose Cu Unjieng
only if the property is sold for a purchase price of Eleven represented by Atty. Vicente Sison and Atty. Anacleto Magno
Million pesos or lower; however, considering the mercurial respectively were duly notified in today’s consideration of the
and uncertain forces in our market economy today. We find no motion as evidenced by the rubber stamp and signatures upon
reason not to grant the same right of first refusal to herein the copy of the Motion for Execution.
appellants in the event that the subject property is sold for a
price in excess of Eleven Million pesos. No pronouncement as ‘The gist of the motion is that the Decision of the Court dated
to costs. September 21, 1990 as modified by the Court of Appeals in its
decision in CA G.R. CV-21123, and elevated to the Supreme by virtue of the notice of lis pendens, carried over on TCT No.
Court upon the petition for review and that the same was 195816 issued in the name of Buen Realty, at the time of the
denied by the highest tribunal in its resolution dated May 6, latter’s purchase of the property on 15 November 1991 from
1991 in G.R. No. L-97276, had now become final and the Cu Unjiengs.
executory. As a consequence, there was an Entry of Judgment We affirm the decision of the appellate court.
by the Supreme Court as of June 6, 1991, stating that the
aforesaid modified decision had already become final and A not too recent development in real estate transactions is the
executory. adoption of such arrangements as the right of first refusal, a
purchase option and a contract to sell. For ready reference, we
‘It is the observation of the Court that this property in dispute might point out some fundamental precepts that may find
was the subject of the Notice of Lis Pendens and that the some relevance to this discussion.
modified decision of this Court promulgated by the Court of
Appeals which had become final to the effect that should the An obligation is a juridical necessity to give, to do or not to do
defendants decide to offer the property for sale for a price of (Art. 1156, Civil Code). The obligation is constituted upon the
P11 Million or lower, and considering the mercurial and concurrence of the essential elements thereof, viz: (a)
uncertain forces in our market economy today, the same right The vinculum juris or juridical tie which is the efficient cause
of first refusal to herein plaintiffs/appellants in the event that established by the various sources of obligations (law,
the subject property is sold for a price in excess of Eleven contracts, quasicontracts, delicts and quasi-delicts); (b)
Million pesos or more. the objectwhich is the prestation or conduct, required to be
observed (to give, to do or not to do); and (c) the subject-
‘WHEREFORE, defendants are hereby ordered to execute the persons who, viewed from the demandability of the obligation,
necessary Deed of Sale of the property in litigation in favor of are the active (obligee) and the passive (obligor) subjects.
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15 Million pesos in recognition of plaintiffs’ Among the sources of an obligation is a contract (Art. 1157,
right of first refusal and that a new Transfer Certificate of Title Civil Code), which is a meeting of minds between two persons
be issued in favor of the buyer. whereby one binds himself, with respect to the other, to give
‘All previous transactions involving the same property something or to render some service (Art. 1305, Civil Code).
notwithstanding the issuance of another title to Buen Realty A contract undergoes various stages that include its
Corporation, is hereby set aside as having been executed in negotiation or preparation, its perfection and, finally, its
bad faith. consummation. Negotiationcovers the period from the time the
‘SO ORDERED.’ prospective contracting parties indicate interest in the
contract tothe time the contract is concluded (perfected).
“On September 22, 1991 respondent Judge issued another The perfection of the contract takes place upon the
order, the dispositive portion of which reads: concurrence of the essential elements thereof. A contract
which is consensual as to perfection is so established upon a
“‘WHEREFORE, let there be Writ of Execution issue in the mere meeting of minds, i.e., the concurrence of offer and
above-entitled case directing the Deputy Sheriff Ramon acceptance, on the object and on the cause thereof. A contract
Enriquez of this Court to implement said Writ of Execution which requires, in addition to the above, the delivery of the
ordering the defendants among others to comply with the object of the agreement, as in a pledge or commodatum, is
aforesaid Order of this Court within a period of one (1) week commonly referred to as a real contract. In a solemn
from receipt of this Order and for defendants to execute the contract, compliance with certain formalities prescribed
necessary Deed of Sale of the property in litigation in favor of by law, such as in a donation of real property, is essential
the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for in order to make the act valid, the prescribed form being
the consideration of P15,000,000.00 and ordering the Register thereby an essential element thereof. The stage
of Deeds of the City of Manila, to cancel and set aside the title of consummation begins when the parties perform their
already issued in favor of Buen Realty Corporation which was respective undertakings under the contract culminating in
previously executed between the latter and defendants and to the extinguishment thereof.
register the new title in favor of the aforesaid plaintiffs Ang
Yu Asuncion, Keh Tiong and Arthur Go. Until the contract is perfected, it cannot, as an independent
‘SO ORDERED.’ source of obligation, serve as a binding juridical relation. In
sales, particularly, to which the topic for discussion about the
“On the same day, September 27, 1991 the corresponding writ case at bench belongs, the contract is perfected when a person,
of execution (Annex C, Petition) was issued.”1 called the seller, obligates himself, for a price certain, to
deliver and to transfer ownership of a thing or right to another,
On 04 December 1991, the appellate court, on appeal to it by called the buyer, over which the latter agrees. Article 1458 of
private respondent, set aside and declared without force and the Civil Code provides:
effect the above questioned orders of the court a quo.
“Art. 1458. By the contract of sale one of the contracting
In this petition for review on certiorari, petitioners contend parties obligates himself to transfer the ownership of and to
that Buen Realty can be held bound by the writ of execution
deliver a determinate thing, and the other to pay therefor a withdrawn; the withdrawal is effective immediately after its
price certain in money or its equivalent. manifestation, such as by its mailing and not necessarily when
the offeree learns of the withdrawal (Laudico vs. Arias, 43
“A contract of sale may be absolute or conditional.” Phil. 270). Where a period is given to the offeree within which
to accept the offer, the following rules generally govern:
When the sale is not absolute but conditional, such as in a
“Contract to Sell” where invariably the ownership of the thing (1) If the period is not itself founded upon or supported by a
sold is retained until the fulfillment of a positive suspensive consideration, the offeror is still free and has the right to
condition (normally, the full payment of the purchase price), withdraw the offer before its acceptance, or, if an acceptance
the breach of the condition will prevent the obligation to has been made, before the offeror’s coming to know of such
convey title from acquiring an obligatory force. 2 In Dignos vs. fact, by communicating that withdrawal to the offeree
Court of Appeals (158 SCRA 375), we have said that, (see Art. 1324, Civil Code;see also Atkins, Kroll & Co. vs.
although denominated a “Deed of Conditional Sale,” a sale is Cua, 102 Phil. 948,holding that this rule is applicable to a
still absolute where the contract is devoid of any proviso that unilateral promise to sell under Art. 1479, modifying the
title is reserved or the right to unilaterally rescind is stipulated, previous decision in South Western Sugar vs. Atlantic Gulf, 97
e.g., until or unless the price is paid. Ownership will then be Phil. 249; see also Art. 1319, Civil Code; Rural Bank of
transferred to the buyer upon actual or constructive delivery Parañaque, Inc. vs. Remolado, 135 SCRA 409; Sanchez vs.
(e.g., by the execution of a public document) of the property Rigos, 45 SCRA 368). The right to withdraw, however, must
sold. Where the condition is imposed upon the perfection of not be exercised whimsically or arbitrarily otherwise, it could
the contract itself, the failure of the condition would prevent give rise to a damage claim under Article 19 of the Civil Code
such perfection.3 If the condition is imposed on the obligation which ordains that “every person must, in the exercise of his
of a party which is not fulfilled, the other party may either rights and in the performance of his duties, act with justice,
waive the condition or refuse to proceed with the sale (Art. give everyone his due, and observe honesty and good faith.”
1545, Civil Code).4
(2) If the period has a separate consideration, a contract of
An unconditional mutual promise to buy and sell, as long as “option” is deemed perfected, and it would be a breach of that
the object is made determinate and the price is fixed, can contract to withdraw the offer during the agreed period. The
be obligatory on the parties, and compliance therewith option, however, is an independent contract by itself, and it is
may accordingly be exacted.5 to be distinguished from the projected main agreement
(subject matter of the option) which is obviously yet to be
An accepted unilateral promise which specifies the thing to concluded. If, in fact, the optioner-offeror withdraws the offer
be sold and the price to be paid, when coupled with a before its acceptance (exercise of the option) by the optionee-
valuable consideration distinct and separate from the price, offeree, the latter may not sue for specific performance on the
is what may properly be termed a perfected contract proposed contract (“object” of the option) since it has failed to
of option. This contract is legally binding, and in sales, it reach its own stage of perfection. The optioner-offeror,
conforms with the second paragraph of Article 1479 of the however, renders himself liable for damages for breach of the
Civil Code, viz: option. In these cases, care should be taken of the real nature
of the consideration given, for if, in fact, it has been intended
“ART. 1479. x x x. to be part of the consideration for the main contract with a
right of withdrawal on the part of the optionee, the main
“An accepted unilateral promise to buy or to sell a determinate contract could be deemed perfected; a similar instance would
thing for a price certain is binding upon the promissor if the be an “earnest money” in a contract of sale that can evidence
promise is supported by a consideration distinct from the its perfection (Art. 1482, Civil Code).
price. (1451a).”6
In the law on sales, the so-called “right of first refusal” is an
Observe, however, that the option is not the contract of sale innovative juridical relation. Needless to point out, it cannot
itself.7 The optionee has the right, but not the obligation, to be deemed a perfected contract of sale under Article 1458 of
buy. Once the option is exercised timely, i.e., the offer is the Civil Code. Neither can the right of first refusal,
accepted before a breach of the option, a bilateral promise to understood in its normal concept, per se be brought within the
sell and to buy ensues and both parties are then reciprocally purview of an option under the second paragraph of Article
bound to comply with their respective undertakings.8 1479, aforequoted, or possibly of an offer under Article
13199of the same Code. An option or an offer would require,
Let us elucidate a little. A negotiation is formally initiated by among other things,10 a clear certainty on both the object and
an offer. An imperfect promise (policitacion) is merely an the cause or consideration of the envisioned contract. In a right
offer. Public advertisements or solicitations and the like are of first refusal, while the object might be made determinate,
ordinarily construed as mere invitations to make offers or only the exercise of the right, however, would be dependent not
as proposals. These relations, until a contract is perfected, are only on the grantor’s eventual intention to enter into a binding
not considered binding commitments. Thus, at any time prior juridical relation with another but also on terms, including the
to the perfection of the contract, either negotiating party may price, that obviously are yet to be later firmed up. Prior
stop the negotiation. The offer, at this stage, may be thereto, it can at best be so described as merely belonging to a
class of preparatory juridical relations governed not by FALLO WHEREFORE, we UPHOLD the Court of Appeals
contracts (since the essential elements to establish in ultimately setting aside the questioned Orders, dated 30
the vinculum juris would still be indefinite and inconclusive) August 1991 and 27 September 1991, of the court a quo. Costs
but by, among other laws of general application, the pertinent against petitioners. SO ORDERED.
scattered provisions of the Civil Code on human conduct.
Note.—Unilateral cancellation of a contract to sell is not
Even on the premise that such right of first refusal has been warranted if the breach is slight or casual. (Siska Development
decreed under a final judgment, like here, its breach cannot Corporation vs. Office of the President of the Philippines, 231
justify correspondingly an issuance of a writ of execution SCRA 674 [1994])
under a judgment that merely recognizes its existence, nor
would it sanction an action for specific performance without G.R. No. 124791. February 10, 1999.*
thereby negating the indispensable element of consensuality in JOSE RAMON CARCELLER, petitioner, vs.COURT OF
the perfection of contracts.11 It is not to say, however, that the APPEALS and STATE INVESTMENT HOUSES, INC.,
right of first refusal would be inconsequential for, such as respondents.
already intimated above, an unjustified disregard thereof,
given, for instance, the circumstances expressed in Article Civil Law; Contracts; An option is a separate agreement
1912 of the Civil Code, can warrant a recovery for damages. distinct from the contract which the parties may enter into
upon the consummation of the option.—An option is a
The final judgment in Civil Case No. 87-41058, it must be preparatory contract in which one party grants to the other, for
stressed, has merely accorded a “right of first refusal” in favor a fixed period and under specified conditions, the power to
of petitioners. The consequence of such a declaration entails decide, whether or not to enter into a principal contract. It
no more than what has heretofore been said. In fine, if, as it is binds the party who has given the option, not to enter into the
here so conveyed to us, petitioners are aggrieved by the failure principal contract with any other person during the period
of private respondents to honor the right of first refusal, the designated, and, within that period, to enter into such contract
remedy is not a writ of execution on the judgment, since there with the one to whom the option was granted, if the latter
is none to execute, but an action for damages in a proper should decide to use the option. It is a separate agreement
forum for the purpose. distinct from the contract which the parties may enter into
upon the consummation of the option.
Furthermore, whether private respondent Buen Realty
Development Corporation, the alleged purchaser of the Same; Same; Statutory Construction; Analysis and
property, has acted in good faith or bad faith and whether or construction should not be limited to the words used in the
not it should, in any case, be considered bound to respect the contract, as they may not accurately reflect the parties’ true
registration of the lis pendens in Civil Case No. 87-41058 are intent.—The contracting parties’ primary intent in entering
matters that must be independently addressed in appropriate into said lease contract with option to purchase confirms, in
proceedings. Buen Realty, not having been impleaded in Civil our view, the correctness of respondent court’s ruling.
Case No. 87-41058, cannot be held subject to the writ of Analysis and construction, however, should not be limited to
execution issued by respondent Judge, let alone ousted from the words used in the contract, as they may not accurately
the ownership and possession of the property, without first reflect the parties’ true intent. The reasonableness of the result
being duly afforded its day in court. obtained, after said analysis, ought likewise to be carefully
considered.
We are also unable to agree with petitioners that the Court of
Appeals has erred in holding that the writ of execution varies Same; Same; Same; It is well-settled that in construing a
the terms of the judgment in Civil Case No. 87-41058, later written agreement, the reason behind and the circumstances
affirmed in CA-G.R. CV-21123. The Court of Appeals, in this surrounding its execution are of paramount importance.—It
regard, has observed: is well-settled in both law and jurisprudence, that contracts are
the law between the contracting parties and should be fulfilled,
“Finally, the questioned writ of execution is in variance with if their terms are clear and leave no room for doubt as to the
the decision of the trial court as modified by this Court. As intention of the contracting parties. Further, it is well-settled
already stated, there was nothing in said decision13 that that in construing a written agreement, the reason behind and
decreed the execution of a deed of sale between the Cu the circumstances surrounding its execution are of paramount
Unjiengs and respondent lessees, or the fixing of the price of importance. Sound construction requires one to be placed
the sale, or the cancellation of title in the name of petitioner mentally in the situation occupied by the parties concerned at
(Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng the time the writing was executed. Thereby, the intention of
Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 the contracting parties could be made to prevail, because their
SCRA 730; Pastor vs. CA, 122 SCRA 885).” agreement has the force of law between them.
It is likewise quite obvious to us that the decision in Civil Case Same; Same; Same; To ascertain the intent of the parties in a
No. 87-41058 could not have decreed at the time the execution contractual relationship, it is imperative that the various
of any deed of sale between the Cu Unjiengs and petitioners. stipulations provided for in the contract be construed
together, consistent with the parties’ contemporaneous and
subsequent acts as regards the execution of the contract.— at a monthly rental of Ten Thousand (P10,000.00) pesos for a
Moreover, to ascertain the intent of the parties in a contractual period of eighteen (18) months, beginning on August 1, 1984
relationship, it is imperative that the various stipulations until January 30, 1986. The pertinent portion of the lease
provided for in the contract be construed together, consistent contract subject of the dispute reads in part:
with the parties’ contemporaneous and subsequent acts as
regards the execution of the contract. And once the intention “4.As part of the consideration of this agreement, the LESSOR
of the parties has been ascertained, that element is deemed as hereby grants unto the LESSEE the exclusive right, option and
an integral part of the contract as though it has been originally privilege to purchase, within the lease period, the leased
expressed in unequivocal terms. premises thereon for the aggregate amount of P1,800,000.00
payable as follows:
Same; Same; Same; Court found the delay neither
“substantial” nor “fundamental” and did not amount to a a. Upon the signing of the Deed of Sale, the LESSEE shall
breach that would defeat the intention of the parties when immediately pay P360,000.00.
they executed the lease contract with option to purchase.—
The lease contract provided that to exercise the option, b. The balance of P1,440,000.00 shall be paid in equal
petitioner had to send a letter to SIHI, manifesting his intent to installments of P41,425.87 over sixty (60) consecutive months
exercise said option within the lease period ending January 30, computed with interest at 24% per annum on the diminishing
1986. However, what petitioner did was to request on January balance; Provided, that the LESSEE shall have the right to
15, 1986, for a six-month extension of the lease contract, for accelerate payments at anytime in which event the stipulated
the alleged purpose of raising funds intended to purchase the interest for the remaining installments shall no longer be
property subject of the option. It was only after the request imposed.
was denied on February 14, 1986, that petitioner notified SIHI
of his desire to exercise the option formally. This was by letter . . . The option shall be exercised by a written notice to the
dated February 18, 1986. In private respondent’s view, there LESSOR at anytime within the option period and the
was already a delay of 18 days, fatal to petitioner’s cause. But document of sale over the afore-described properties has to be
respondent court found the delay neither “substantial” nor consummated within the month immediately following the
“fundamental” and did not amount to a breach that would month when the LESSEE exercised his option under this
defeat the intention of the parties when they executed the lease contract.”6
contract with option to purchase.
On January 7, 1986, or approximately three (3) weeks before
PETITION for review on certiorari of a decision and the expiration of the lease contract, SIHI notified petitioner of
resolution of the Court of Appeals. the impending termination of the lease agreement, and of the
short period of time left within which he could still validly
Before us is a petition for review of the Decision 1 dated exercise the option. It likewise requested petitioner to advise
September 21, 1995 of the Court of Appeals 2 in CA-G.R. CV them of his decision on the option, on or before January 20,
No. 37520, as well as its Resolution3 dated April 25, 1996, 1986.7
denying both parties’ motion for partial reconsideration or
clarification. The assailed decision affirmed with modification In a letter dated January 15, 1986, which was received by SIHI
the judgment4of the Regional Trial Court of Cebu City, Branch on January 29, 1986, petitioner requested for a six-month
5, in Civil Case No. CEB 4700, and disposed of the extension of the lease contract, alleging that he needs ample
controversy as follows: time to raise sufficient funds in order to exercise the option.
“However, We do not find it just that the appellee, in To support his request, petitioner averred that he had already
exercising his option to buy, should pay appellant SIHI only made a substantial investment on the property, and had been
P1,800,000.00. In fairness to appellant SIHI, the purchase punctual in paying his monthly rentals.8
price must be based on the prevailing market price of real
property in Bulacao, Cebu City.” (Emphasis supplied) On February 14, 1986, SIHI notified petitioner that his request
was disapproved. Nevertheless, it offered to lease the same
QUISUMBING, J.: property to petitioner at the rate of Thirty Thousand
(P30,000.00) pesos a month, for a period of one (1) year. It
The factual background of this case is quite simple. further informed the petitioner of its decision to offer for sale
said leased property to the general public.9
Private respondent State Investment Houses, Inc. (SIHI) is the
registered owner of two (2) parcels of land with a total area of On February 18, 1986, petitioner notified SIHI of his decision
9,774 square meters, including all the improvements thereon, to exercise the option to purchase the property and at the same
located at Bulacao, Cebu City, covered by Transfer Certificate time he made arrangements for the payment of the
of Titles Nos. T-89152 and T-89153 of the Registry of Deeds downpayment thereon in the amount of Three Hundred Sixty
of Cebu City. Thousand (P360,000.00) pesos.10
On January 10, 1985, petitioner and SIHI entered into a lease On February 20, 1986, SIHI sent another letter to petitioner,
contract with option to purchase 5 over said two parcels of land, reiterating its previous stand on the latter’s offer, stressing that
the period within which the option should have been exercised despite the alleged delay in giving the required notice to
had already lapsed. SIHI asked petitioner to vacate the private respondent?
property within ten (10) days from notice, and to pay rental
and penalty due.11 An option is a preparatory contract in which one party
grants to the other, for a fixed period and under specified
Hence, on February 28, 1986, a complaint for specific conditions, the power to decide, whether or not to enter
performance and damages12was filed by petitioner against into a principal contract. It binds the party who has given the
SIHI before the Regional Trial Court of Cebu City, to compel option, not to enter into the principal contract with any other
the latter to honor its commitment and execute the person during the period designated, and, within that period, to
corresponding deed of sale. enter into such contract with the one to whom the option was
granted, if the latter should decide to use the option. 15 It is a
After trial, the court a quo promulgated its decision dated separate agreement distinct from the contract which the parties
April 1, 1991, the dispositive portion of which reads: may enter into upon the consummation of the option.16
“In the light of the foregoing considerations, the Court hereby
renders judgment in Civil Case No. CEB 4700, ordering the Considering the circumstances in this case, we find no reason
defendant to execute a deed of sale in favor of the plaintiff, to disturb the findings of respondent court, that petitioner’s
covering the parcels of land together with all the letter to SIHI, dated January 15, 1986, was fair notice to the
improvements thereon, covered by Transfer Certificates of latter of the former’s intent to exercise the option, despite the
Title Nos. 89152 and 89153 of the Registry of Deeds of Cebu request for the extension of the lease contract. As stated in said
City, in accordance with the lease contract executed on letter to SIHI, petitioner was requesting for an extension (of
January 10, 1984 between the plaintiff and the defendant, but the contract) for six months “to allow us to generate sufficient
the purchase price may be by “one shot payment” of funds in order to exercise our option to buy the subject
P1,800,000.00; and the defendant to pay attorney’s fee of property.”17 The analysis by the Court of Appeals of the
P20,000.00. evidence on record and the process by which it arrived at its
findings on the basis thereof, impel this Court’s assent to said
No damages awarded.”13 findings. They are consistent with the parties’ primary intent,
as hereafter discussed, when they executed the lease contract.
Not satisfied with the judgment, SIHI elevated the case to the As respondent court ruled:
Court of Appeals by way of a petition for review.
“We hold that the appellee [herein petitioner] acted with
On September 21, 1995, respondent court rendered its honesty and good faith. Verily, We are in accord with the trial
decision, affirming the trial court’s judgment, but modified the court that he should be allowed to exercise his option to
basis for assessing the purchase price. While respondent court purchase the lease property. In fact, SIHI will not be
affirmed appellee’s option to buy the property, it added that, prejudiced. A contrary ruling, however, will definitely cause
“the purchase price must be based on the prevailing market damage to the appellee, it appearing that he has introduced
price of real property in Bulacao, Cebu City.”14 considerable improvements on the property and has borrowed
huge loan from the Technology Resources Center.”17a
Baffled by the modification made by respondent court, both
parties filed a motion for reconsideration and/or clarification, The contracting parties’ primary intent in entering into said
with petitioner, on one hand, praying that the prevailing lease contract with option to purchase confirms, in our view,
market price be the value of the property in February 1986, the the correctness of respondent court’s ruling. Analysis and
time when the sale would have been consummated. SIHI, on construction, however, should not be limited to the words used
the other hand, prayed that the market price of the property be in the contract, as they may not accurately reflect the parties’
based on the prevailing price index at least 10 years later, that true intent. The reasonableness of the result obtained, after
is, 1996. said analysis, ought likewise to be carefully considered.
Respondent court conducted further hearings to clarify the It is well-settled in both law and jurisprudence, that contracts
matter, but no agreement was reached by the parties. Thus, on are the law between the contracting parties and should be
April 25, 1996, respondent court promulgated the assailed fulfilled, if their terms are clear and leave no room for doubt
resolution, which denied both parties’ motions, and directed as to the intention of the contracting parties. 18Further, it is
the trial court to conduct further hearings to ascertain the well-settled that in construing a written agreement, the reason
prevailing market value of real properties in Bulacao, Cebu behind and the circumstances surrounding its execution are of
City and fix the value of the property subject of the paramount importance. Sound construction requires one to be
controversy.14a placed mentally in the situation occupied by the parties
concerned at the time the writing was executed. Thereby, the
Hence, the instant petition for review. intention of the contracting parties could be made to prevail,
because their agreement has the force of law between them.19
The fundamental issue to be resolved is, should petitioner be
allowed to exercise the option to purchase the leased property, Moreover, to ascertain the intent of the parties in a contractual
relationship, it is imperative that the various stipulations
provided for in the contract be construed together, consistent property. For this letter made mention of the fact that, “said
with the parties’ contemporaneous and subsequent acts as property is now for sale to the general public.”
regards the execution of the contract.20 And once the intention
of the parties has been ascertained, that element is deemed as Petitioner’s determination to purchase said property is equally
an integral part of the contract as though it has been originally indubitable. He introduced permanent improvements on the
expressed in unequivocal terms. leased property, demonstrating his intent to acquire dominion
in a year’s time. To increase his chances of acquiring the
As sufficiently established during the trial, SIHI, prior to its property, he secured an P8 Million loan from the Technology
negotiation with petitioner, was already beset with financial Resources Center (TRC), thereby augmenting his capital. He
problems. SIHI was experiencing difficulty in meeting the averred that he applied for a loan since he planned to pay the
claims of its creditors. Thus, in order to reprogram the purchase price in one single payment, instead of paying in
company’s financial investment plan and facilitate its installment, which would entail the payment of additional
rehabilitation and viability, SIHI, being a quasi-banking interest at the rate of 24% per annum, compared to 7 3/4% per
financial institution, had been placed under the supervision annum interest for the TRC loan. His letter earlier requesting
and control of the Central Bank (CB). It was in dire need of extension was premised, in fact, on his need for time to secure
liquidating its assets, so to speak, in order to stay afloat the needed financing through a TRC loan.
financially.
In contractual relations, the law allows the parties reasonable
Thus, SIHI was compelled to dispose some of its assets, leeway on the terms of their agreement, which is the law
among which is the subject leased property, to generate between them.21 Note that by contract SIHI had given
sufficient funds to augment its badly-depleted financial petitioner 4 periods: (a) the option to purchase the property for
resources. This then brought about the execution of the lease P1,800,000.00 within the lease period, that is, until January
contract with option to purchase between SIHI and the 30, 1986; (b) the option to be exercised within the option
petitioner. period by written notice at anytime; (c) the “document of sale .
. . to be consummated within the month immediately
The lease contract provided that to exercise the option, following the month” when petitioner exercises the option;
petitioner had to send a letter to SIHI, manifesting his intent to and (d) the payment in equal installments of the purchase price
exercise said option within the lease period ending January 30, over a period of 60 months. In our view, petitioner’s letter of
1986. However, what petitioner did was to request on January January 15, 1986 and his formal exercise of the option on
15, 1986, for a six-month extension of the lease contract, for February 18, 1986 were within a reasonable time-frame
the alleged purpose of raising funds intended to purchase the consistent with periods given and the known intent of the
property subject of the option. It was only after the request parties to the agreement dated January 10, 1985. A contrary
was denied on February 14, 1986, that petitioner notified SIHI view would be harsh and inequituous indeed.
of his desire to exercise the option formally. This was by letter
dated February 18, 1986. In private respondent’s view, there In Tuason, Jr., etc. vs. De Asis,22 this Court opined that “in a
was already a delay of 18 days, fatal to petitioner’s cause. But contract of lease, if the lessor makes an offer to the lessee to
respondent court found the delay neither “substantial” nor purchase the property on or before the termination of the lease,
“fundamental” and did not amount to a breach that would and the lessee fails to accept or make the purchase on time, the
defeat the intention of the parties when they executed the lease lessee losses the right to buy the property later on the terms
contract with option to purchase.20a and conditions set in the offer.” Thus, on one hand, petitioner
herein could not insist on buying the said property based on
In allowing petitioner to exercise the option, however, both the price agreed upon in the lease agreement, even if his
lower courts are in accord in their decision, rationalizing that a option to purchase it is recognized. On the other hand, SIHI
contrary ruling would definitely cause damage to the could not take advantage of the situation to increase the selling
petitioner, as he had the whole place renovated to make the price of said property by nearly 90% of the original price.
same suitable and conducive for the business he established Such leap in the price quoted would show an opportunistic
there. Moreover, judging from the subsequent acts of the intent to exploit the situation as SIHI knew for a fact that
parties, it is undeniable that SIHI really intended to dispose of petitioner badly needed the property for his business and that
said leased property, which petitioner indubitably intended to he could afford to pay such higher amount after having
buy. secured an P8 Million loan from the TRC. If the courts were to
allow SIHI to take advantage of the situation, the result would
SIHI’s agreement to enter first into a lease contract with have been an injustice to petitioner, because SIHI would be
option to purchase with herein petitioner, is a clear proof of its unjustly enriched at his expense. Courts of law, being also
intent to promptly dispose said property although the full courts of equity, may not countenance such grossly unfair
financial returns may materialize only in a year’s time. results without doing violence to its solemn obligation to
Furthermore, its letter dated January 7, 1986, reminding the administer fair and equal justice for all.
petitioner of the short period of time left within which to
consummate their agreement, clearly showed its desire to sell FALLO WHEREFORE, the appealed decision of respondent
that property. Also, SIHI’s letter dated February 14, 1986 court, insofar as it affirms the judgment of the trial court in
supported the conclusion that it was bent on disposing said granting petitioner the opportunity to exercise the option to
purchase the subject property, is hereby AFFIRMED. counter-offer and is therefore not an acceptance of the offer of
However, the purchase price should be based on the fair Lourdes. Article 1319 of the Civil Code provides: “Consent is
market value of real property in Bulacao, Cebu City, as of manifested by the meeting of the offer and
February 1986, when the contract would have been the acceptance upon the thing and the cause which are to
consummated. Further, petitioner is hereby ordered to pay constitute the contract. The offer must be certain and
private respondent SIHI legal interest on the said purchase the acceptance absolute. A qualified acceptanceconstitutes a
price beginning February 1986 up to the time it is actually counter-offer.” (Emphasis supplied.)
paid, as well as the taxes due on said property, considering
that petitioner have enjoyed the beneficial use of said property. PETITION for review on certiorari of a decision of the
The case is hereby remanded to Regional Trial Court of Cebu, Court of Appeals.
Branch 5, for further proceedings to determine promptly the
fair market value of said real property as of February 1986, in In a situation where the lessor makes an offer to sell to the
Bulacao, Cebu City. Costs against private respondent. SO lessee a certain property at a fixed price within a certain
ORDERED. period, and the lessee fails to accept the offer or to purchase
on time, then the lessee loses his right to buy the property and
Note.—In order to judge the intention of the contracting the owner can validly offer it to another.
parties, their contemporaneous and subsequent acts shall be
principally considered. (Matanguihan vs. Court of This Petition for Review on Certiorari1 assails the
Appeals, 275 SCRA 380[1997]) Decision2 dated May 30, 2005 of the Court of Appeals (CA) in
G.R. No. 168325. December 13, 2010.* CA-G.R. CV No. 78870, which affirmed the Decision 3 dated
ROBERTO D. TUAZON, petitioner, vs. LOURDES Q. November 18, 2002 of the Regional Trial Court (RTC),
DEL ROSARIO-SUAREZ, CATALINA R. SUAREZ-DE Branch 101, Quezon City in Civil Case No. Q-00-42338.
LEON, WILFREDO DE LEON, MIGUEL LUIS S. DE
LEON, ROMMEL LEE S. DE LEON, and GUILLERMA DEL CASTILLO, J.:
L. SANDICO-SILVA, as attorney-in-fact of the defendants,
except Lourdes Q. Del Rosario-Suarez, respondents. Factual Antecedents
Civil Law; Option Contract; Right of First Refusal; An Respondent Lourdes Q. Del Rosario-Suarez (Lourdes) was the
option contract is entirely different and distinct from a right owner of a parcel of land, containing more or less an area of
of first refusal in that in the former, the option granted to 1,211 square meters located along Tandang Sora
the offeree is for a fixed period and at a determined price; Street, Barangay Old Balara, Quezon City and previously
Lacking these two essential requisites, what is involved is covered by Transfer Certificate of Title (TCT) No. RT-
only a right of first refusal.—From the foregoing, it is thus 561184 issued by the Registry of Deeds of Quezon City.
clear that an option contract is entirely different and distinct
from a right of first refusal in that in the former, the option On June 24, 1994, petitioner Roberto D. Tuazon (Roberto) and
granted to the offeree is for a fixed period and at Lourdes executed a Contract of Lease5 over the
a determined price. Lacking these two essential requisites, abovementioned parcel of land for a period of three years. The
what is involved is only a right of first refusal. lease commenced in March 1994 and ended in February 1997.
During the effectivity of the lease, Lourdes sent a letter 6 dated
Same; Same; Same; If the option is without any January 2, 1995 to Roberto where she offered to sell to the
consideration, the offeror may withdraw his offer by latter subject parcel of land. She pegged the price at
communicating such withdrawal to the offeree at any time P37,541,000.00 and gave him two years from January 2, 1995
before acceptance; if it is founded upon a consideration, the to decide on the said offer.
offeror cannot withdraw his offer before the lapse of the
period agreed upon.—It is clear from the provision of Article On June 19, 1997, or more than four months after the
1324 0that there is a great difference between the effect of an expiration of the Contract of Lease, Lourdes sold subject
option which is without a consideration from one which is parcel of land to her only child, Catalina Suarez-De Leon, her
founded upon a consideration. If the option is without any son-in-law Wilfredo De Leon, and her two grandsons, Miguel
consideration, the offeror may withdraw his offer by Luis S. De Leon and Rommel S. De Leon (the De Leons), for
communicating such withdrawal to the offeree at anytime a total consideration of only P2,750,000.00 as evidenced by a
before acceptance; if it is founded upon a consideration, the Deed of Absolute Sale7 executed by the parties. TCT No.
offeror cannot withdraw his offer before the lapse of the 1779868 was then issued by the Registry of Deeds of Quezon
period agreed upon. City in the name of the De Leons.
Same; Same; Same; Roberto’s act of negotiating for a much The new owners through their attorney-in-fact, Guillerma S.
lower price was a counter-offer and is therefore not an Silva, notified Roberto to vacate the premises. Roberto refused
acceptance of the offer of Lourdes.—In this case, it is hence, the De Leons filed a complaint for Unlawful Detainer
undisputed that Roberto did not accept the terms stated in the before the Metropolitan Trial Court (MeTC) of Quezon City
letter of Lourdes as he negotiated for a much lower price. against him. On August 30, 2000, the MeTC rendered a
Roberto’s act of negotiating for a much lower price was a
Decision9 ordering Roberto to vacate the property for non- THE PROPERTY WAS SOLD LATER TO A THIRD
payment of rentals and expiration of the contract. PERSON, UNDER
FAVORABLE TERMS AND CONDITIONS WHICH THE
Ruling of the Regional Trial Court FORMER BUYER CAN MEET.
II. WHAT IS THE STATUS OR SANCTIONS OF AN
On November 8, 2000, while the ejectment case was on APPELLEE IN THE COURT OF APPEALS WHO HAS
appeal, Roberto filed with the RTC of Quezon City a NOT FILED OR FAILED TO FILE AN APPELLEE’S
Complaint10 for Annulment of Deed of Absolute Sale, BRIEF?17
Reconveyance, Damages and Application for Preliminary
Injunction against Lourdes and the De Leons. On November Petitioner’s Arguments
13, 2000, Roberto filed a Notice of Lis Pendens11 with the
Registry of Deeds of Quezon City. Roberto claims that Lourdes violated his right to buy subject
property under the principle of “right of first refusal” by not
On January 8, 2001, respondents filed An Answer with giving him “notice” and the opportunity to buy the property
Counterclaim12 praying that the Complaint be dismissed for under the same terms and conditions or specifically based on
lack of cause of action. They claimed that the filing of such the much lower price paid by the De Leons.
case was a mere leverage of Roberto against them because of
the favorable Decision issued by the MeTC in the ejectment Roberto further contends that he is enforcing his “right of first
case. refusal” based on Equatorial Realty Development, Inc. v.
Mayfair Theater, Inc.18 which is the leading case on the “right
On September 17, 2001, the RTC issued an Order 13declaring of first refusal.”
Lourdes and the De Leons in default for their failure to appear
before the court for the second time despite notice. Upon a Respondents’ Arguments
Motion for Reconsideration,14 the trial court in an
Order15 dated October 19, 2001 set aside its Order of default. On the other hand, respondents posit that this case is not
covered by the principle of “right of first refusal” but an
After trial, the court a quo rendered a Decision declaring the unaccepted unilateral promise to sell or, at best, a contract of
Deed of Absolute Sale made by Lourdes in favor of the De option which was not perfected. The letter of Lourdes to
Leons as valid and binding. The offer made by Lourdes to Roberto clearly embodies an option contract as it grants the
Roberto did not ripen into a contract to sell because the price latter only two years to exercise the option to buy the subject
offered by the former was not acceptable to the latter. The property at a price certain of P37,541,000.00. As an option
offer made by Lourdes is no longer binding and effective at contract, the said letter would have been binding upon Lourdes
the time she decided to sell the subject lot to the De Leons without need of any consideration, had Roberto accepted the
because the same was not accepted by Roberto. Thus, in a offer. But in this case there was no acceptance made neither
Decision dated November 18, 2002, the trial court dismissed was there a distinct consideration for the option contract.
the complaint. Its dispositive portion reads:
Our Ruling
“WHEREFORE, premises considered, judgment is hereby
rendered dismissing the above-entitled Complaint for lack of The petition is without merit.
merit, and ordering the Plaintiff to pay the Defendants, the
following: This case involves an option contract
and not a contract of a right of first
1. the amount of P30,000.00 as moral damages; refusal
2. the amount of P30,000.00 as exemplary damages;
3. the amount of P30,000.00 as attorney’s fees; and In Beaumont v. Prieto,19the nature of an option contract is
4. cost of the litigation. explained thus:
SO ORDERED.”16
“In his Law Dictionary, edition of 1897, Bouvier defines an
Ruling of the Court of Appeals option as a contract, in the following language:
On May 30, 2005, the CA issued its Decision dismissing
Roberto’s appeal and affirming the Decision of the RTC. ‘A contract by virtue of which A, in consideration of the
payment of a certain sum to B, acquires the privilege of
Hence, this Petition for Review on Certiorari filed by Roberto buying from, or selling to, B certain securities or properties
advancing the following arguments: within a limited time at a specified price. (Story vs. Salamon,
71 N. Y., 420.)’
I. THE TRIAL COURT AND THE COURT OF APPEALS
HAD DECIDED THAT THE “RIGHT OF FIRST From Vol. 6, page 5001, of the work “Words and Phrases,”
REFUSAL” EXISTS ONLY WITHIN THE PARAMETERS citing the case of Ide vs. Leiser(24 Pac., 695; 10 Mont., 5; 24
OF AN “OPTION TO BUY,” AND DID NOT EXIST WHEN Am. St. Rep., 17) the following quotation has been taken:

‘An agreement in writing to give a person the ‘option’ to
purchase lands within a given time at a named price is neither From the foregoing, it is thus clear that an option contract is
a sale nor an agreement to sell. It is simply a contract by entirely different and distinct from a right of first refusal in
which the owner of property agrees with another person that in the former, the option granted to the offeree is for
that he shall have the right to buy his property at a fixed a fixed period and at a determined price. Lacking these two
price within a certain time. He does not sell his land; he does essential requisites, what is involved is only a right of first
not then agree to sell it; but he does sell something; that is, the refusal.
right or privilege to buy at the election or option of the other
party. The second party gets in praesenti, not lands, nor an In this case, the controversy is whether the letter of Lourdes to
agreement that he shall have lands, but he does get something Roberto dated January 2, 1995 involved an option contract or
of value; that is, the right to call for and receive lands if he a contract of a right of first refusal. In its entirety, the said
elects. The owner parts with his right to sell his lands, except letter-offer reads:
to the second party, for a limited period. The second party 206 Valdes Street
receives this right, or rather, from his point of view, he Josefa Subd. Balibago
receives the right to elect to buy. Angeles City 2009
January 2, 1995
But the two definitions above cited refer to the contract of Tuazon Const. Co.
option, or, what amounts to the same thing, to the case where 986 Tandang Sora Quezon City
there was cause or consideration for the obligation x x x.”
(Emphasis supplied.) Dear Mr. Tuazon,
On the other hand, in Ang Yu Asuncion v. Court of I received with great joy and happiness the big box of sweet
Appeals,20 an elucidation on the “right of first refusal” was grapes and ham, fit for a king’s party. Thanks very much.
made thus:
I am getting very old (79 going 80 yrs. old) and wish to live in
“In the law on sales, the so-called ‘right of first refusal’ is an the U.S.A. with my only family. I need money to buy a house
innovative juridical relation. Needless to point out, it cannot and lot and a farm with a little cash to start.
be deemed a perfected contract of sale under Article 1458 of
the Civil Code. Neither can the right of first refusal, I am offering you to buy my 1211 square
understood in its normal concept, per se be brought within the meter at P37,541,000.00 you can pay me in dollars in the
purview of an option under the second paragraph of Article name of my daughter. I never offered it to anyone. Please
1479, aforequoted, or possibly of an offer under Article shoulder the expenses for the transfer. I wish the Lord God
1319 of the same Code. An option or an offer would require, will help you buy my lot easily and you will be very lucky
among other things, a clear certainty on both the object and the forever in this place. You have all the time to decide when
cause or consideration of the envisioned contract. In a right of you can, but not for 2 years or more.
first refusal, while the object might be made determinate,
the exercise of the right, however, would be dependent not I wish you long life, happiness, health, wealth and great
only on the grantor's eventual intention to enter into a fortune always!
binding juridical relation with another but also on terms,
including the price, that obviously are yet to be later I hope the Lord God will help you be the recipient of multi-
firmed up. Prior thereto, it can at best be so described as billion projects aid from other countries.
merely belonging to a class of preparatory juridical relations
governed not by contracts (since the essential elements to Thank you,
establish the vinculum juris would still be indefinite and Lourdes Q. del Rosario vda de Suarez
inconclusive) but by, among other laws of general application,
the pertinent scattered provisions of the Civil Code on human It is clear that the above letter embodies an option contract
conduct. as it grants Roberto a fixed period of only two years to buy
the subject property at a price certain of P37,541,000.00. It
Even on the premise that such right of first refusal has been being an option contract, the rules applicable are found in
decreed under a final judgment, like here, its breach cannot Articles 1324 and 1479 of the Civil Code which provide:
justify correspondingly an issuance of a writ of execution
under a judgment that merely recognizes its existence, nor “Art. 1324. When the offerer has allowed the offeree a certain
would it sanction an action for specific performance without period to accept, the offer may be withdrawn at any time
thereby negating the indispensable element of consensuality in before acceptance by communicating such withdrawal, except
the perfection of contracts. It is not to say, however, that the when the option is founded upon a consideration, as something
right of first refusal would be inconsequential for, such as paid or promised.
already intimated above, an unjustified disregard thereof,
given, for instance, the circumstances expressed in Article Art. 1479. A promise to buy and sell a determinate thing for
19 of the Civil Code, can warrant a recovery for damages.” a price certain is reciprocally demandable.
(Emphasis supplied.)
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the Even if the promise was accepted, private respondent was
promissor if the promise is supported by a consideration not bound thereby in the absence of a distinct
distinct from the price.” consideration.” (Emphasis ours.)
It is clear from the provision of Article 1324 that there is a In this case, it is undisputed that Roberto did not accept the
great difference between the effect of an option which is terms stated in the letter of Lourdes as he negotiated for a
without a consideration from one which is founded upon a much lower price. Roberto’s act of negotiating for a much
consideration. If the option is without any consideration, the lower price was a counter-offer and is therefore not an
offeror may withdraw his offer by communicating such acceptance of the offer of Lourdes. Article 1319 of the Civil
withdrawal to the offeree at anytime before acceptance; if it is Code provides:
founded upon a consideration, the offeror cannot withdraw his
offer before the lapse of the period agreed upon. “Consent is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to
The second paragraph of Article 1479 declares that “an constitute the contract. The offer must be certain and
accepted unilateral promise to buy or to sell a determinate the acceptance absolute. A qualified acceptanceconstitutes a
thing for a price certain is binding upon the promissor if the counter-offer.” (Emphasis supplied.)
promise is supported by a consideration distinct from the
price.” Sanchez v. Rigos21 provided an interpretation of the The counter-offer of Roberto for a much lower price was not
said second paragraph of Article 1479 in relation to Article accepted by Lourdes. There is therefore no contract that was
1324. Thus: perfected between them with regard to the sale of subject
property. Roberto, thus, does not have any right to demand
“There is no question that under Article 1479 of the new Civil that the property be sold to him at the price for which it was
Code “an option to sell,” or “a promise to buy or to sell,” as sold to the De Leons neither does he have the right to demand
used in said article, to be valid must be “supported by a that said sale to the De Leons be annulled.
consideration distinct from the price.” This is clearly inferred
from the context of said article that a unilateral promise to buy Equatorial Realty Development, Inc. v.
or to sell, even if accepted, is only binding if supported by Mayfair Theater, Inc. is not applicable
consideration. In other words, “an accepted unilateral promise here
can only have a binding effect if supported by a consideration,
which means that the option can still be withdrawn, even if It is the position of Roberto that the facts of this case and that
accepted, if the same is not supported by any consideration. of Equatorial are similar in nearly all aspects. Roberto is a
Hence, it is not disputed that the option is without lessee of the property like Mayfair Theater in Equatorial.
consideration. It can therefore be withdrawn notwithstanding There was an offer made to Roberto by Lourdes during the
the acceptance made of it by appellee. effectivity of the contract of lease which was also the case
in Equatorial. There were negotiations as to the price which
It is true that under Article 1324 of the new Civil Code, the did not bear fruit because Lourdes sold the property to the De
general rule regarding offer and acceptance is that, when the Leons which was also the case in Equatorial wherein Carmelo
offerer gives to the offeree a certain period to accept, “the and Bauermann sold the property to Equatorial. The existence
offer may be withdrawn at any time before acceptance” except of the lease of the property is known to the De Leons as they
when the option is founded upon consideration, but this are related to Lourdes while in Equatorial, the lawyers of
general rule must be interpreted as modified by the provision Equatorial studied the lease contract of Mayfair over the
of Article 1479 above referred to, which applies to “a promise property. The property in this case was sold by Lourdes to the
to buy and sell” specifically. As already stated, this rule De Leons at a much lower price which is also the case
requires that a promise to sell to be valid must be supported by in Equatorial where Carmelo and Bauerman sold to
a consideration distinct from the price.” Equatorial at a lesser price. It is Roberto’s conclusion that as
in the case of Equatorial, there was a violation of his right of
In Diamante v. Court of Appeals,22 this Court further declared first refusal and hence annulment or rescission of the Deed of
that: Absolute Sale is the proper remedy.
“A unilateral promise to buy or sell is a mere offer, which Roberto’s reliance in Equatorial is misplaced. Despite his
is not converted into a contract except at the moment it is claims, the facts in Equatorial radically differ from the facts
accepted. Acceptance is the act that gives life to a juridical of this case. Roberto overlooked the fact that in Equatorial,
obligation, because, before the promise is accepted, the there was an express provision in the Contract of Lease that—
promissor may withdraw it at any time. Upon acceptance,
however, a bilateral contract to sell and to buy is created, and “(i)f the LESSOR should desire to sell the leased properties,
the offeree ipso facto assumes the obligations of a purchaser; the LESSEE shall be given 30-days exclusive option to
the offeror, on the other hand, would be liable for damages if purchase the same.”
he fails to deliver the thing he had offered for sale.
x x x x
There is no such similar provision in the Contract of Lease for reconsideration did not suspend the period for filing the
between Roberto and Lourdes. What is involved here is a appellee’s brief. Petitioner was therefore properly deemed
separate and distinct offer made by Lourdes through a letter to have waived his right to file appellee’s brief.”(Emphasis
dated January 2, 1995 wherein she is selling the leased supplied.)
property to Roberto for a definite price and which gave the
latter a definite period for acceptance. Roberto was not given a In the above cited case, De Leon was the plaintiff in a
right of first refusal. The letter-offer of Lourdes did not form Complaint for a sum of money in the RTC. He obtained a
part of the Lease Contract because it was made more than six favorable judgment and so defendant went to the CA. The
months after the commencement of the lease. appeal of defendant-appellant was taken cognizance of by the
CA but De Leon filed a Motion to Dismiss the Appeal with
It is also very clear that in Equatorial, the property was sold Motion to Suspend Period to file Appellee’s Brief. The CA
within the lease period. In this case, the subject property was denied the Motion to Dismiss. De Leon filed a Motion for
sold not only after the expiration of the period provided in the Reconsideration which actually did not suspend the period to
letter-offer of Lourdes but also after the effectivity of the file the appellee’s brief. De Leon therefore failed to file his
Contract of Lease. brief within the period specified by the rules and hence he was
deemed by the CA to have waived his right to file appellee’s
Moreover, even if the offer of Lourdes was accepted by brief.
Roberto, still the former is not bound thereby because of the
absence of a consideration distinct and separate from the price. The failure of the appellee to file his brief would not result to
The argument of Roberto that the separate consideration was the rendition of a decision favorable to the appellant. The
the liberality on the part of Lourdes cannot stand. A perusal of former is considered only to have waived his right to file the
the letter-offer of Lourdes would show that what drove her to Appellee’s Brief. The CA has the jurisdiction to resolve the
offer the property to Roberto was her immediate need for case based on the Appellant’s Brief and the records of the case
funds as she was already very old. Offering the property to forwarded by the RTC. The appeal is therefore considered
Roberto was not an act of liberality on the part of Lourdes but submitted for decision and the CA properly acted on it.
was a simple matter of convenience and practicality as he was
the one most likely to buy the property at that time as he was FALLO WHEREFORE, the instant petition for review
then leasing the same. on certiorari is DENIED. The assailed Decision of the Court
of Appeals in CA-G.R. CV No. 78870, which affirmed the
All told, the facts of the case, as found by the RTC and the Decision dated November 18, 2002 of the Regional Trial
CA, do not support Roberto’s claims that the letter of Lourdes Court, Branch 101, Quezon City in Civil Case No. Q-00-
gave him a right of first refusal which is similar to the one 42338 is AFFIRMED.
given to Mayfair Theater in the case of Equatorial. Therefore,
there is no justification to annul the deed of sale validly MUTUAL PROMISES TO BUY AND SELL
entered into by Lourdes with the De Leons.
G.R. No. 97332. October 10, 1991.*
What is the effect of the failure of Lourdes to file SPOUSES JULIO D. VILLAMOR AND MARINA
her appellee’s brief at the CA? VILLAMOR, petitioners, vs.THE HON. COURT OF
Lastly, Roberto argues that Lourdes should be sanctioned for APPEALS AND SPOUSES MACARIA LABINGISA
her failure to file her appellee’s brief before the CA. REYES AND ROBERTO REYES, respondents.
Certainly, the appellee’s failure to file her brief would not Civil Law; Contracts; Sales; As expressed in Gonzales v.
mean that the case would be automatically decided against her. Trinidad, 67 Phil. 682, consideration is "the why of the
Under the circumstances, the prudent action on the part of the contracts, the essential reason which moves the contracting
CA would be to deem Lourdes to have waived her right to file parties to enter into the contract."—As expressed in
her appellee’s brief. De Leon v. Court of Appeals,23 is Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why
instructive when this Court decreed: of the contracts, the essential reason which moves the
contracting parties to enter into the contract." The cause or the
“On the second issue, we hold that the Court of Appeals did impelling reason on the part of private respondent in executing
not commit grave abuse of discretion in considering the appeal the deed of option as appearing in the deed itself is the
submitted for decision. The proper remedy in case of denial of petitioners' having agreed to buy the 300 square meter portion
the motion to dismiss is to file the appellee’s brief and proceed of private respondents' land at P70.00 per square meter "which
with the appeal. Instead, petitioner opted to file a motion for was greatly higher than the actual reasonable prevailing price."
reconsideration which, unfortunately, was pro forma. All the
grounds raised therein have been discussed in the first Same; Same; Same; The acceptance of an offer to sell for a
resolution of the respondent Court of Appeals. There is no price certain created a bilateral contract to sell and buy and
new ground raised that might warrant reversal of the upon acceptance, the offeree, ipso facto assumes obligations
resolution. A cursory perusal of the motion would readily of a vendee.—In the instant case, the option offered by private
show that it was a near verbatim repetition of the grounds respondents had been accepted by the petitioner, the promisee,
stated in the motion to dismiss; hence, the filing of the motion in the same document. The acceptance of an offer to sell for a
price certain created a bilateral contract to sell and buy and Macaria Labingisa Reyes was the owner of a 600-square meter
upon acceptance, the offeree, ipso facto assumes obligations of lot located at Baesa, Caloocan City, as evidenced by Transfer
a vendee (See Atkins, Kroll & Co. v. Cua Mian Tek, 102 Phil. Certificate of Title No. (18431) 18938, of the Register of
948). Demandability may be exercised at any time after the Deeds of Rizal.
execution of the deed. In July 1971, Macaria sold a portion of 300 square meters of
the lot to the Spouses Julio and Marina Villamor for the total
Same; Same; Same; A contract of sale is perfected at the amount of P21,000.00. Earlier, Macaria borrowed P2,000.00
moment there is a meeting of minds upon the thing which is from the spouses which amount was deducted from the total
the object of the contract and upon the price.—A contract of purchase price of the 300 square meter lot sold. The portion
sale is, under Article 1475 of the Civil Code," perfected at the sold to the Villamor spouses is now covered by TCT No.
moment there is a meeting of minds upon the thing which is 39935 while the remaining portion which is still in the name
the object of the contract and upon the price. From that of Macaria Labing-isa is covered by TCT No. 39934 (pars. 5
moment, the parties may reciprocally demand performance, and 7, Complaint). On November 11, 1971, Macaria executed
subject to the provisions of the law governing the form of a "Deed of Option" in favor of Villamor in which the
contracts." Since there was, between the parties, a meeting of remaining 300 square meter portion (TCT No. 39934) of the
minds upon the object and the price, there was already a lot would be sold to Villamor under the conditions stated
perfected contract of sale. What was, however, left to be done therein. The document reads:
was for either party to demand from the other their respective
undertakings under the contract. It may be demanded at any "DEED OF OPTION
time either by the private respondents, who may compel the "This Deed of Option, entered into in the City of Manila,
petitioners to pay for the property or the petitioners, who may Philippines, this 11th day of November, 1971, by and between
compel the private respondents to deliver the property. Macaria Labing-isa, of age, married to Roberto Reyes,
likewise of age, and both residing on Reparo St., Baesa,
Same; Same; Same; Prescription; Failure of either parties to Caloocan City, on the one hand, and on the other hand the
demand performance of the obligation of the other for an spouses Julio Villamor and Marina V. Villamor, also of age
unreasonable length of time renders the contract ineffective.— and residing at No. 552 Reparo St., corner Baesa Road, Baesa,
However, the Deed of Option did not provide for the period Caloocan City.
within which the parties may demand the performance of their "W I T N E S S E T H
respective undertakings in the instrument. The parties could "That, I Macaria Labingisa, am the owner in fee simple of a
not have contemplated that the delivery of the property and the parcel of land with an area of 600 square meters, more or less,
payment thereof could be made indefinitely and render more particularly described in TCT No. (18431) 18938 of the
uncertain the status of the land. The failure of either parties to Office of the Register of Deeds for the province of Rizal,
demand performance of the obligation of the other for an issued in my name, I having inherited the same from my
unreasonable length of time renders the contract ineffective. deceased parents, for which reason it is my paraphernal
property;
Same; Same; Same; Same; Actions upon a written contract "That I, with the conformity of my husband, Roberto Reyes,
must be brought within ten (10) years.—Under Article 1144 have sold one-half thereof to the aforesaid spouses Julio
(1) of the Civil Code, actions upon a written contract must be Villamor and Marina V. Villamor at the price of P70.00 per
brought within ten (10) years. The Deed of Option was sq. meter, which was greatly higher than the actual reasonable
executed on November 11, 1971. The acceptance, as already prevailing value of lands in that place at the time, which
mentioned, was also accepted in the same instrument. The portion, after segregation, is now covered by TCT No. 39935
complaint in this case was filed by the petitioners on July 13, of the Register of Deeds for the City of Caloocan, issued on
1987, seventeen (17) years from the time of the execution of August 17, 1971 in the name of the aforementioned spouses
the contract. Hence, the right of action had prescribed. vendees;
"That the only reason why the Spouses-vendees Julio Villamor
PETITION for certiorari to review the decision of the and Marina V. Villamor, agreed to buy the said one-half
Court of Appeals. portion at the above-stated price of about P70.00 per square
meter, is because I, and my husband Roberto Reyes, have
This is a petition for review on certiorari of the decision of the agreed to sell and convey to them the remaining one-half
Court of Appeals in CA-G.R. CV. No. 24176entitled, portion still owned by me and now covered by TCT No. 39935
"Spouses Julio Villamor and Marina Villamor, Plaintiffs- of the Register of Deeds for the City of Caloocan, whenever
Appellees, versus Spouses Macaria Labing-isa Reyes and the need of such sale arises, either on our part or on the part of
Roberto Reyes, Defendants-Appellants," which reversed the the spouses (Julio) Villamor and Marina V. Villamor, at the
decision of the Regional Trial Court (Branch 121) at Caloocan same price of P70.00 per square meter, excluding whatever
City in Civil Case No. C-12942. improvement may be found thereon;
'That I am willing to have this contract to sell inscribed on my
MEDIALDEA, J.: aforesaid title as an encumbrance upon the property covered
thereby, upon payment of the corresponding fees; and
The facts of the case are as follows:

"That we, Julio Villamor and Marina V. Villamor, hereby Book No. 38;
agree to, and accept, the above provisions of this Deed of
Series of 1971."
Option.
"IN WITNESS WHEREOF, this Deed of Option is signed in (pp. 25-29, Rollo)
the City of Manila, Philippines, by all the persons concerned,
this 11th day of November, 1971. According to Macaria, when her husband, Roberto Reyes,
retired in 1984, they offered to repurchase the lot sold by them
"JULIO "MACARIA
to the Villamor spouses but Marina Villamor refused and
VILLAMOR LABINGISA reminded them instead that the Deed of Option in fact gave
With My them the option to purchase the remaining portion of the lot
Conformity: The Villamors, on the other hand, claimed that they had
expressed their desire to purchase the remaining 300 square
"MARINA "ROBERTO
meter portion of the lot but the Reyeses had been ignoring
VILLAMOR REYES them. Thus, on July 13, 1987, after conciliation proceedings in
the barangay level failed, they filed a complaint for specific
"Signed in the Presence Of: performance against the Reyeses.
On July 26, 1989, judgment was rendered by the trial court in

"MARIANO Z. SUNIGA favor of the Villamor spouses, the dispositive portion of which
"ROSALINDA S. EUGENIO states:
"WHEREFORE, and (sic) in view of the foregoing, judgment

"ACKNOWLEDGMENT
is hereby rendered in favor of the plaintiffs and against the
defendants ordering the defendant MACARIA LABING-ISA
"REPUBLIC OF THE PHILIPPINES) REYES and ROBERTO REYES, to sell unto the plaintiffs the
CITY OF MANILA ) land covered by T.C.T. No. 39934 of the Register of Deeds of
Caloocan City, to pay the plaintiffs the sum of P3,000.00 as
S.S.
and for attorney's fees and to pay the cost of suit,
"The counterclaim is hereby DISMISSED, for LACK OF
"At the City of Manila, on the 11th day of November, 1971,
MERIT.
personally appeared before me Roberto Reyes, Macaria
"SO ORDERED." (pp. 24-25, Rollo)
Labingisa, Julio Villamor and Marina Ventura-Villamor,
known to me as the same persons who executed the foregoing
Not satisfied with the decision of the trial court, the Reyes
Deed of Option, which consists of two (2) pages including the
spouses appealed to the Court of Appeals on the following
page whereon this acknowledgment is written, and signed at
assignment of errors:
the left margin of the first page and at the bottom of the
instrument by the parties and their witnesses, and sealed with
"1. HOLDING THAT THE DEED OF OPTION EXECUTED
my notarial seal, and said parties acknowledged to me that the
ON NOVEMBER 11, 1971 BETWEEN THE PLAINTIFF-
same is their free act and deed. The Residence Certificates of
APPELLEES AND DEFENDANT-APPELLANTS IS STILL
the parties were exhibited to me as follows: Roberto Reyes, A-
VALID AND BINDING DESPITE THE LAPSE OF MORE
22494, issued at Manila on Jan. 27, 1971, and B-502025,
THAN THIRTEEN (13) YEARS FROM THE EXECUTION
issued at Makati, Rizal on Feb. 18, 1971; Macaria Labingisa,
OF THE CONTRACT;
A-3339130 and B-1 266104, both issued at Caloocan City on
"2. FAILING TO CONSIDER THAT THE DEED OF
April 15, 1971, their joint Tax Acct. Number being 3028-767-
OPTION CONTAINS OBSCURE WORDS AND
6; Julio Villamor, A-804, issued at Manila on Jan. 14, 1971,
STIPULATIONS WHICH SHOULD BE RESOLVED
and B-138, issued at Manila on March 1, 1971; and Marina
AGAINST THE PLAINTIFF-APPELLEES WHO
Ventura-Villamor, A-803, issued at Manila on Jan. 14, 1971,
UNILATERALLY DRAFTED AND PREPARED THE
their joint Tax Acct. Number being 608-202-6.
SAME;
"ARTEMIO M. "3. HOLDING THAT THE DEED OF OPTION
MALUBAY EXPRESSED THE TRUE INTENTION AND PURPOSE OF
Notary Public THE PARTIES DESPITE ADVERSE,
CONTEMPORANEOUS AND SUBSEQUENT ACTS OF
Until December
THE PLAINTIFF-APPELLEES;
31, 1972 "4. FAILING TO PROTECT THE DEFENDANT-
PTR No. 338203, APPELLANTS ON ACCOUNT OF THEIR IGNORANCE
Manila PLACING THEM AT A DISADVANTAGE IN THE DEED
January 15, 1971 OF OPTION;
"5. FAILING TO CONSIDER THAT EQUITABLE
"Doc. No. 1526; CONSIDERATION TILT IN FAVOR OF THE
Page No. 24; DEFENDANT-APPELLANTS; and
"6. HOLDING DEFENDANT-APPELLANTS LIABLE TO such terms, and therefore, there can be, between the parties
PAY PLAINTIFF-APPELLEES THE AMOUNT OF and their successors in interest no evidence of the terms of the
P3,000.00 FOR AND BY WAY OF ATTORNEY'S FEES." agreement, other than the contents of the writing. x x x
(pp. 31-32, Rollo) (Section 7 Rule 130 Revised Rules of Court) Likewise, it is a
general and most inflexible rule that wherever written
On February 12, 1991, the Court of Appeals rendered a instruments are appointed either by the requirements of law, or
decision reversing the decision of the trial court and by the contract of the parties, to be the repositories and
dismissing the complaint. The reversal of the trial court's memorials of truth, any other evidence is excluded from being
decision was premised on the finding of respondent court that used, either as a substitute for such instruments, or to
the Deed of Option is void for lack of consideration. contradict or alter them. This is a matter both of principle and
of policy; of principle because such instruments are in their
The Villamor spouses brought the instant petition for review nature and origin entitled to a much higher degree of credit
on certiorari on the following grounds: than parol evidence, of policy, because it would be attended
with great mischief if those instruments upon which man's
"I.THE COURT OF APPEALS GRAVELY ERRED IN rights depended were liable to be impeached by loose
FINDING THAT THE PHRASE WHENEVER THE NEED collateral evidence. Where the terms of an agreement are
FOR SUCH SALE ARISES ON OUR (PRIVATE reduced to writing, the document itself, being constituted by
RESPONDENT) PART OR ON THE PART OF THE the parties as the expositor of their intentions, it is the only
SPOUSES JULIO D. VILLAMOR AND MARINA V. instrument of evidence in respect of that agreement which the
VILLAMOR' CONTAINED IN THE DEED OF OPTION law will recognize so long as it exists for the purpose of
DENOTES A SUSPENSIVE CONDITION; evidence." (Starkie, EV. pp. 648, 655 cited in Kasheenath vs.
"II.ASSUMING FOR THE SAKE OF ARGUMENT THAT Chundy, W.R. 68, cited in Francisco's Rules of Court, Vol.
THE QUESTIONED PHRASE IS INDEED A CONDITION, VII Part I p. 153) (Italic supplied, pp. 126-127, Records).
THE COURT OF APPEALS ERRED IN NOT FINDING,
THAT THE SAID CONDITION HAD ALREADY BEEN The respondent appellate court, however, ruled that the said
FULFILLED; deed of option is void for lack of consideration. The appellate
"III.ASSUMING FOR THE SAKE OF ARGUMENT THAT court made the following disquisitions:
THE QUESTIONED PHRASE IS INDEED A CONDITION, "Plaintiff-appellees say they agreed to pay P70.00 per square
THE COURT OF APPEALS ERRED IN HOLDING THAT meter for the portion purchased by them although the
THE IMPOSITION OF SAID CONDITION PREVENTED prevailing price at that time was only P25.00 in consideration
THE PERFECTION OF THE CONTRACT OF SALE of the option to buy the remainder of the land. This does not
DESPITE THE EXPRESS OFFER AND ACCEPTANCE seem to be the case. In the first place, the deed of sale was
CONTAINED IN THE DEED OF OPTION; never produced by them to prove their claim. Defendant-
"IV.THE COURT OF APPEALS ERRED IN FINDING appellants testified that no copy of the deed of sale had ever
THAT THE DEED OF OPTION IS VOID FOR LACK OF been given to them by the plaintiff-appellees. In the second
CONSIDERATION; place, if this was really the condition of the prior sale, we see
"V.THE COURT OF APPEALS ERRED IN HOLDING no reason why it should be reiterated in the Deed of Option.
THAT A DISTINCT CONSIDERATION IS NECESSARY On the contrary, the alleged overprice paid by the plaintiff-
TO SUPPORT THE DEED OF OPTION DESPITE THE appellees is given in the Deed as reason for the desire of the
EXPRESS OFFER AND ACCEPTANCE CONTAINED Villamors to acquire the land rather than as a consideration for
THEREIN." (p. 12, Rollo) the option given to them, although one might wonder why
they took nearly 13 years to invoke their right if they really
The pivotal issue to be resolved in this case is the validity were in due need of the lot.
of the Deed of Option whereby the private respondents
agreed to sell their lot to petitioners "whenever the need of "At all events, the consideration needed to support a unilateral
such sale arises, either on our part (private respondents) or on promise to sell is a distinct one, not something that is as
the part of Julio Villamor and Marina Villamor (petitioners)." uncertain as P70.00 per square meter which is allegedly
The court a quo, rule that the Deed of Option was a 'greatly higher than the actual prevailing value of lands.' A sale
valid writtenagreement between the parties and made the must be for a price certain (Art. 1458). For how much the
following conclusions: portion conveyed to the plaintiff-appellees was sold so that the
"x x x x x x x x x balance could be considered the consideration for the promise
to sell has not been shown, beyond a mere allegation that it
"It is interesting to state that the agreement between the was very much below P70.00 per square meter.
parties are evidenced by a writing, hence, the controverting
oral testimonies of the herein defendants cannot be any better "The fact that plaintiff-appellees might have paid P18.00 per
than the documentary evidence, which, in this case, is the square meter for another land at the time of the sale to them of
Deed of Option. (Exh. 'A' and 'A-a') a portion of defendant-appellant's lot does not necessarily
prove that the prevailing market price at the time of the sale
'The law provides that when the terms of an agreement have was P18.00 per square meter. (In fact they claim it was
been reduced to writing it is to be considered as containing all P25.00). It is improbable that plaintiff-appellees should pay
P52.00 per square meter for the privilege of buying when the made "whenever the need of such sale arises, either on our
value of the land itself was allegedly P18.00 per square (Reyeses) part or on the part of the Spouses Julio Villamor and
meter." (pp. 34-35, Rollo) Marina V. Villamor. It appears that while the option to buy
was granted to the Villamors, the Reyeses were likewise
As expressed in Gonzales v. Trinidad, 67 Phil. 682, granted an option to sell. In other words, it was not only the
consideration is "the why of the contracts, the essential reason Villamors who were granted an option to buy for which they
which moves the contracting parties to enter into the contract." paid a consideration. The Reyeses as well were granted an
The cause or the impelling reason on the part of private option to sell should the need for such sale on their part arise.
respondent in executing the deed of option as appearing in the
deed itself is the petitioners' having agreed to buy the 300 In the instant case, the option offered by private respondents
square meter portion of private respondents' land at P70.00 per had been accepted by the petitioner, the promisee, in the same
square meter "which was greatly higher than the actual document. The acceptance of an offer to sell for a price certain
reasonable prevailing price." This cause or consideration is created a bilateral contract to sell and buy and upon
clear from the deed which stated: acceptance, the offeree, ipso facto assumes obligations of a
vendee (See Atkins, Kroll & Co. v. Cua Mian Tek, 102 Phil.
"That the only reason why the spouses-vendees Julio Villamor 948). Demandability may be exercised at any time after the
and Marina V. Villamor agreed to buy the said one-half execution of the deed. In Sanchez v. Rigos, No. L-25494, June
portion at the above stated price of about P70.00 per square 14, 1972, 45 SCRA 368, 376, We held:
meter, is because I, and my husband Roberto Reyes, have
agreed to sell and convey to them the remaining one-half "In other words, since there may be no valid contract without a
portion still owned by me x x x." (p. 26, Rollo) cause of consideration, the promisor is not bound by his
promise and may, accordingly withdraw it. Pending notice of
The respondent appellate court failed to give due consideration its withdrawal, his accepted promise partakes, however, of the
to petitioners' evidence which shows that in 1969 the Villamor nature of an offer to sell which, if accepted, results in a
spouses bought an adjacent lot from the brother of Macaria perfected contract of sale."
Labing-isa for only P18.00 per square meter which the private
respondents did not rebut. Thus, expressed in terms of money, A contract of sale is, under Article 1475 of the Civil Code,
the consideration for the deed of option is the difference "perfected at the moment there is a meeting of minds upon the
between the purchase price of the 300 square meter portion of thing which is the object of the contract and upon the price.
the lot in 1971 (P70.00 per sq. m.) and the prevailing From that moment, the parties may reciprocally demand
reasonable price of the same lot in 1971. Whatever it is, performance, subject to the provisions of the law governing
(P25.00 or P18.00) though not specifically stated in the deed the form of contracts." Since there was, between the parties, a
of option, was ascertainable. Petitioners' allegedly paying meeting of minds upon the object and the price, there was
P52.00 per square meter for the option may, as opined by the already a perfected contract of sale. What was, however, left
appellate court, be improbable but improbabilities does not to be done was for either party to demand from the other their
invalidate a contract freely entered into by the parties. respective undertakings under the contract. It may be
demanded at any time either by the private respondents, who
The "deed of option" entered into by the parties in this case may compel the petitioners to pay for the property or the
had unique features. Ordinarily, an optional contract is a petitioners, who may compel the private respondents to deliver
privilege existing in one person, for which he had paid a the property.
consideration and which gives him the right to buy, for
example, certain merchandise or certain specified property, However, the Deed of Option did not provide for the period
from another person, if he chooses, at any time within the within which the parties may demand the performance of their
agreed period at a fixed price (Enriquez de la Cavada v. respective undertakings in the instrument. The parties could
Diaz, 37 Phil. 982). If We look closely at the "deed of option" not have contemplated that the delivery of the property and the
signed by the parties, We will notice that the first part covered payment thereof could be made indefinitely and render
the statement on the sale of the 300 square meter portion of the uncertain the status of the land. The failure of either parties to
lot to Spouses Villamor at the price of P70.00 per square meter demand performance of the obligation of the other for an
"which was higher than the actual reasonable prevailing value unreasonable length of time renders the contract ineffective.
of the lands in that place at that time (of sale)." The second Under Article 1144 (1) of the Civil Code, actions upon a
part stated that the only reason why the Villamor spouses written contract must be brought within ten (10) years. The
agreed to buy the said lot at a much higher price is because the Deed of Option was executed on November 11, 1971. The
vendor (Reyeses) also agreed to sell to the Villamors the other acceptance, as already mentioned, was also accepted in the
half-portion of 300 square meters of the land. Had the deed same instrument. The complaint in this case was filed by the
stopped there, there would be no dispute that the deed is really petitioners on July 13, 1987, seventeen (17) years from the
an ordinary deed of option granting the Villamors the option to time of the execution of the contract. Hence, the right of action
buy the remaining 300 square meter-half portion of the lot in had prescribed. There were allegations by the petitioners that
consideration for their having agreed to buy the other half of they demanded from the private respondents as early as 1984
the land for a much higher price. But, the "deed of option" the enforcement of their rights under the contract. Still, it was
went on and stated that the sale of the other half would be beyond the ten (10) year period prescribed by the Civil Code,
In the case of Santos v. Ganayo, L-31854, September From the above disquisition in Galang and applying Article
9,1982,116 SCRA 431, this Court affirming and subscribing to 1306 of the Civil Code, the contracting parties are accorded
the observations of the court a quo held, thus: the liberality and freedom to establish such stipulations,
clauses, terms and conditions as they may deem convenient,
"x x x. Assuming that Rosa Ganayo, the oppositor herein, had provided the same are not contrary to law, morals, good
the right based on the Agreement to Convey and Transfer as custom, public order or public policy. In the law on contracts,
contained in Exhibits '1' and '1-A', her failure or the such fundamental principle is known as the autonomy of
abandonment of her right to file an action against Pulmano contracts.
Molintas when he was still a co-owner of the one-half (1/2)
portion of the 10,000 square meters is now barred by laches Same; Same; Same; Although unsigned, the Contract to Sell,
and/or prescribed by law because she failed to bring such in addition to the provisions of the Resolution 16-A,
action within ten (10) years from the date of the written constitutes the law between the contracting parties.—In the
agreement in 1941, pursuant to Art. 1144 of the New Civil instant case, we uphold the Contract to Sell, duly annexed and
Code, so that when she filed the adverse claim through her attached to Resolution 16-A, which explicitly provides for
counsel in 1959 she had absolutely no more right whatsoever additional terms and conditions upon which the lot awardees
on the same, having been barred by laches. are bound. Although unsigned, the Contract to Sell, in addition
to the provisions of Resolution 16-A, constitutes the law
It is of judicial notice that the price of real estate in Metro between the contracting parties. After all, under the law there
Manila is continuously on the rise. To allow the petitioner to exists a binding contract between the parties whose minds
demand the delivery of the property subject of this case have met on a certain matter notwithstanding that they did not
thirteen (13) years or seventeen (17) years after the execution affix their signatures to its written form.
of the deed at the price of only P70.00 per square meter is
inequitous. For reasons also of equity and in consideration of Same; Same; Same; Contracts, in general, are perfected by
the fact that the private respondents have no other decent place mere consent which is manifested by the meeting of the offer
to live, this Court, in the exercise of its equity jurisdiction is and the acceptance upon the thing and the cause which are
not inclined to grant petitioners' prayer. to constitute the contract.—For a contract, like a contract to
sell, involves a meeting of minds between two persons
FALLO ACCORDINGLY, the petition is DENIED. The whereby one binds himself, with respect to the other, to give
decision of respondent appellate court is AFFIRMED for something or to render some service. Contracts, in general, are
reasons cited in this decision, Judgment is rendered dismissing perfected by mere consent, which is manifested by the meeting
the complaint in Civil Case No. C-12942 on the ground of of the offer and the acceptance upon the thing and the cause
prescription and laches. SO ORDERED. which are to constitute the contract. The offer must be certain
and the acceptance absolute.
Note.—From the moment the contract of sale is perfected, it is
incumbent upon the parties to comply with their mutual Same; Same; Same; A stipulation that breach would result
obligations or the parties may reciprocally demand to the automatic cancellation of the vendee’s rights upheld
performance thereof. (National Grains Authority vs. in Adelfa case.—The contract provides in no uncertain terms,
Intermediate AppellateCourt, 171 SCRA 131.) that the abovementioned terms and conditions shall bind the
heirs, executors and administrators of the vendee. The contract
CONSENT THAT PERFECTS A SALE further states that breach thereof would result to the automatic
cancellation of the vendee’s rights thereunder, x x x Such kind
G.R. No. 120747. September 21, 2000.* of stipulation was upheld by this Court in the Adelfa case
VICENTE GOMEZ, as successor-in-interest of awardee where we categorically declared that Article 1592 of the Civil
LUISA GOMEZ, petitioner, vs. COURT OF APPEALS, Code, which requires rescission either by judicial action, or
City of MANILA acting thru the City Tenants Security notarial act, does not apply to a contract to sell.
Committee now the Urban Settlement Office, Register of
Deeds of Manila, respondents. Same; Same; Same; Judicial action for rescission of a
contract not necessary where the contract provides for
Civil Law; Contracts; Sales; A contract of sale may either automatic rescission in case of breach.—Moreover, judicial
be absolute or conditional.—To be sure, a contract of sale action for rescission of a contract is not necessary where the
may either be absolute or conditional. One form of conditional contract provides for automatic rescission in case of breach, as
sales is what is now popularly termed as a “Contract to Sell,” in the contract involved in the present controversy.
where ownership or title is retained until the fulfillment of a
positive suspensive condition normallythe payment of the PETITION for review on certiorari of a decision of the
purchase price in the manner agreed upon. Court of Appeals.
Same; Same; Same; Contracting parties are accorded the Sought to be reversed in this petition for review on certiorari
liberality and freedom to establish such stipulations, clauses, under Rule 45 of the Rules of Court is the decision 1 of the
terms and conditions deem convenient and not contrary to Court of Appeals in CA. G.R. Sp. No. 32101 promulgated on
law, morals, good custom, public order or public policy.— 22 February 1995 which annulled and set aside the decision of
the Regional Trial Court of Manila, Branch 12 in Civil Case Thus, on 23 November 1984, a team headed by Pfc. Reynaldo
No. 51930. Cristobal of the Western Police District, proceeded to the
former Ampil-Gorospe estate where the subject lots are
Impugned similarly is the resolution2 of the Court of Appeals located, and conducted an investigation of alleged violations
dated 29 June 1995 denying petitioner’s motion for thereat.
reconsideration. On 19 December 1984, team leader Pfc. Reynaldo Cristobal
rendered an investigation report10addressed to the City Mayor
BUENA,J.: of Ma-nila, as Chairman of the CTSC, stating, among others,
the follow-ing findings:
From the records, we find the following antecedents: “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
Pursuant to the Land for the Landless Program of the City of to have violated the terms and conditions of their respective
Manila and in accordance with City Ordinance No. 6880, the awards as indicated opposite their names, to wit:
Office of City Mayor issued Resolution No. 16-A, 3 Series of
1978, dated 17 May 1978, which effectively set guidelines and “x x Name of awardee: Daniel Gomez x 2.
criteria for the award of city home lots to qualified and No. 2557-C Juan Luna St. Tondo, Manila Address:
deserving applicants. Attached to said resolution and made as
integral part thereof was a Contract to Sell 4 that further laid The place was found actually occupied by Mrs. Er-linda Perez
down terms and conditions which the lot awardee must and her family together with Mr. Mignony Lorghas and
comply with. family, who are paying monthly rentals of P210.00 each to
Vicente Gomez, brother of awardee. Daniel Gomez is now
On 30 June 1978, the City of Manila, through the City Tenants presently residing in the United States of America and only
Security Committee (CTSC) presently known as the Urban returns for vacation once in a while as a ‘Balikbayan’ x x x.”
Settlement Office (URBAN), passed Resolution 17-78 5 which
in effect awarded to 46 applicants, 37 homelots in the former Thus, on 01 July 1986, the CTSC, headed by then City Mayor
Ampil-Gorospe estate located in Tondo, Manila. Luisa Gemiliano Lopez, Jr. as Chairman, issued Resolution No. 015-
Gomez, predeces-sor-in-interest of herein petitioner Vicente 86,11adopting the findings of the investigation report submitted
Gomez, was awarded Lot 4, Block 1, subject to the provisions by Pfc. Cristobal, and ordering the cancellation of the lot
of Resolution No. 3-78 of the CTSC and building, subdivision awards of Daniel Gomez and other awardees who were found
and zoning rules and regulations. to have committed violations, and further declaring the
forfeiture of payments made by said awardees as reasonable
Consequently, a certificate of award 6 dated 02 July 1978 was compensation for the use of the homelots.
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 In a letter12 dated 04 August 1986, herein petitioner Vicente
installment basis,7 said payments being duly covered by Gomez, acting as attorney-in-fact13 of his brother Daniel
official receipts. Gomez (spouse of Luisa Gomez) asked for reconsideration of
the CTSC resolution revoking the award of the lot.
In 1979, Luisa Gomez traveled to the United States of
America but returned to the Philippines in the same year. On 28 June 1988, Daniel Gomez, spouse of awardee Luisa
Gomez, died in the United States of America. Eventually, on
On 18 January 1980, Luisa Gomez finally paid in full the 01 February 1989, the surviving children of the deceased
P3,556.00 purchase price of the lot. Despite the full payment, spouses, who were American citizens and residents of the
Luisa still paid in installment an amount of P8,244.00, in United States of America, executed an affidavit of
excess of the purchase price, which the City of Manila, adjudication with deed of dona-tion14disposing gratuitously
through the CTSC, accepted. Additionally, the lot was Lot No. 1, Block 4, in favor of their uncle Vicente Gomez.
declared for taxation purposes and the corresponding real
estate taxes thereon paid from 1980-1988. In 1982, Luisa, On 20 February 1989, petitioner Vicente Gomez filed a
together with her spouse Daniel, left again for the United memo-randum15before the CTSC praying that Resolution 15-
States of America where she died8 on 09 January 1983. She is 86 be set aside and that the award of the lot be restored to
survived by her husband and four children, namely, Ramona Luisa Gomez, or her heirs or successor-in-interest, preferably
G. Takorda, Edgardo Gomez, Erlinda G. Pena, and Rebecca Vicente Gomez.
G. Dizon.9
Thereafter, two supplemental memoranda, dated 26 July
Subsequently, in a memorandum dated 07 February 1984, the 198916 and 10 January 1990,17 were submitted by petitioner
Urban Settlements Officer and Member-Executive Secretary before the CTSC reiterating the prayer in the initial
of the CTSC directed the Western Police District, City Hall memorandum.
Detachment, to conduct an investigation regarding reported
violations of the terms and conditions of the award committed On 05 February 1990, herein petitioner filed before the
by the lot awardees. 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- exercised within the bounds of law and contractual stipulation
interest of Awardee, Luisa Gomez, petitioner, versus City between the parties.
Tenant’s Security Committee (now Urban Settlement Office)
and Register of Deeds of Manila, respon-dents.” Viewed broadly, petitioner anchors his case on the premise,
albeit erroneous, that upon full payment of the purchase price
In an order18 dated 24 April 1990, the lower court directed the of the lot in January 1980, Luisa Gomez, actual awardee,
petitioner to amend its petition so as to implead the proper already acquired a vested right over the real property subject
government agency. of the present controversy. Thus, according to petitioner, upon
the death of Luisa Gomez on 09 January 1983, the alleged
Hence, petitioner filed an amended petition19impleading the vested right was transmitted by operation of law to her lawful
City of Manila as respondent, to which the latter submitted an heirs, pursuant to Article 777 of the Civil Code. Additionally,
answer.20 petitioner submits that by virtue of the affidavit of
adjudication with Deed of Donation executed on 01 February
Accordingly, after the presentation of evidence, the lower 1989 in his favor by the surviving children of Luisa, he, in
court promulgated its decision21 dated 20 January 1993, the effect, became the successor-in-interest of Luisa and thus
decretal portion of which reads: entitled to whatever rights enjoyed by the latter over the
property.
‘Wherefore, the petition is hereby granted:
In the light of existing law and jurisprudence and based on the
Ordering the City of Manila through its agency the City Ten- evidence adduced, this Court finds difficulty giving credence
“1. ants Security Committee (now Urban Settlement Office) to and weight to petitioner’s submissions. We therefore rule that
set aside the order of cancellation of the award for Lot No. 4, the cancellation of the award of Lot 4, Block 1, through the
Block 1 (formerly of the Ampil-Gorospe estate) in favor of expediency of Resolution No. 015-86, was proper.
Luisa Gomez, her heirs and successor-in-interest, the herein
petitioner; Primarily, it must be stressed that the contract entered into
between the City of Manila and awardee Luisa Gomez was not
Prohibiting the City of Manila through its agency including one of sale but a contract to sell, which, under both statutory
the “2. Register of Deeds of Manila from awarding the same and case law, has its own attributes, peculiarities and effects.
lot and issuing the corresponding certificate of title therefor to
any other person; Ordering the City of Manila through its Speaking through Mr. Justice Florenz Regalado, this Court
agency the City Ten- “3. ant’s Security Committee (now in Adelfa Properties, Inc. vs. Court of Appeals,22 mapped out
Urban Settlement Office) to execute a Deed of Absolute Sale the bold distinctions between these species of contracts, to wit:
over the aforementioned lot in favor of the petitioner as “In a contract of sale, the title passes to the vendee upon the
successor-in-interest of the awardee and further ordering them delivery of the thing sold; whereas in a contract to sell, by
to stop and/or refrain from disturbing the peaceful physical agreement, the ownership is reserved in the vendor and is not
possession thereof of (sic) the petitioner; and to pass until the full payment of the price. In a contract of sale,
the vendor has lost and cannot recover ownership until and
“4. Ordering the City of Manila through its agency the City unless the contract is resolved or rescinded; whereas in a
Ten-ant’s Security Committee (now Urban Settlement Office) contract to sell, title is retained by the vendor until the full
to refund to the petitioner his overpayments amounting to payment of the purchase price, such payment being a positive
P8,244.00 and to pay the costs of suit.” suspensive condition and failure of which is not a breach but
an event that prevents the obligation of the vendor to convey
On appeal, the Court of Appeals reversed the lower court’s title from being effective. Thus, a deed of sale is considered
decision prompting petitioner to file a motion for absolute in nature where there is neither a stipulation in the
reconsideration which the appellate court denied via its deed that title to the property sold is reserved in the seller until
assailed resolution dated 29 June 1995. the full payment of the price, nor one giving the vendor the
right to unilaterally resolve the contract the moment the buyer
Hence, the instant appeal where the core of controversy fails to pay within a fixed period.”
revolves around the propriety of CTSC’s act of canceling the
lot award, through Resolution No. 015-86, and further To our mind, however, this pronouncement should not curtail
declaring the forfeiture of amounts paid by the awardee, as the right of the parties in a contract to sell to provide
reasonable compensation for the use of the home lot. additional stipulations, nor bar them from imposing conditions
relative to the transfer of ownership.
The petition is unmeritorious.
To be sure, a contract of sale may either be absolute or
A thorough scrutiny of the records and an even more conditional. One form of conditional sales is what is now
exhaustive perusal of the evidence, both documentary and popularly termed as a “Contract to Sell,” where ownership or
testimonial, would lead to the inevitable conclusion that the title is retained until the fulfillment of a positive suspensive
fact of cancellation of the award covering Lot 4, Block 1, by condition normally the payment of the purchase price in the
the City of Manila, acting through the CTSC, was properly manner agreed upon.23(Emphasis ours)
“a)Occupancy—The applicant must be the legal and actual or
From the above disquisition in Galang and applying Article physical occupant of the lot in question at the time of its
1306 of the Civil Code, the contracting parties are accorded acquisition by the City. He must be the owner of the house and
the liberality and freedom to establish such stipulations, lot, must be using the same for his residential purposes, and
clauses, terms and conditions as they may deem convenient, must have had a lessee-lessor relationship with the previous
provided the same are not contrary to law, morals, good owner of the land or landed estate of which the subject lot is a
custom, public order or public policy. In the law on contracts, part.
such fundamental principle is known as the autonomy of
contracts. “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
Under the present circumstances, we see no hindrance that Manila, Metropolitan Manila or elsewhere in the Philippines.
prohibits the parties from stipulating other lawful conditions, Neither must he and/or his spouse be a prospective owner or a
aside from full payment of the purchase price, which they buyer on installment basis of any lot other than that which he
pledge to bind themselves and upon which transfer of is occupying and for which he is applying for award from the
ownership depends. City.
In the instant case, we uphold the Contract to Sell, duly “c)Capacity to pay—The applicant must have such financial
annexed and attached to Resolution 16-A, which explicitly means and/or support as will enable him to make regular
provides for additional terms and conditions upon which the payments of amortiza-tions or installments for the lot if the
lot awardees are bound. Although unsigned, the Contract to same is awarded to him.”
Sell, in addition to the provisions of Resolution 16-A,
constitutes the law between the contracting parties. After all, Of equal importance are the essential terms and conditions
under the law there exists a binding contract between the embraced in the Contract to Sell, which awardee Luisa
parties whose minds have met on a certain matter Gomez, her heirs and successors-in-interest, violated, to wit:
notwithstanding that they did not affix their signatures to its
written form.24 “x x x Par. (3). The vendee shall occupy and use the lot
exclusively for his/her residential purpose, x x x
For a contract, like a contract to sell, involves a meeting of
minds between two persons whereby one binds himself, with “x x x Par. (5). The vendee hereby warrants and declares
respect to the other, to give something or to render some under oath that he/she is a bona fide and actual occupant and
service. Contracts, in general, are perfected by mere consent, tenant of the lot; x x x and that he/she fully understands that
which is manifested by the meeting of the offer and the any false statement or misrepresentation hereof (sic) shall be
acceptance upon the thing and the cause which are to sufficient cause for the automatic cancellation of his/her rights
constitute the contract. The offer must be certain and the under this agreement as well as ground for criminal
acceptance absolute.25 prosecution.
As to the matter of acceptance, the same may be evidenced by “Par. (6).Until complete payment of the purchase price and
some acts, or conduct, communicated to the offeror, either in a compliance with all the vendee’s obligations herein, title to
formal or an informal manner, that clearly manifest the the lot remains in the name of the owner. During the
intention or determination to accept the offer to buy or sell.26 effectivity of this agreement, however, the owner may transfer
its title or assign its rights and interest under this agreement to
In the case at bar, acceptance on the part of the vendee was any person, corporation, bank or financial institution. “Title
manifested through a plethora of acts, such as payment of the shall pass to the vendee upon execution of a final deed of sale
purchase price, declaration of the property for taxation in his/her favor. x x x
purposes, and payment of real estate taxes thereon, and similar
acts showing vendee’s assent to the contract. “Par. (8).In order not to defeat the purpose of this social land
reform program of the City of Manila, and to prevent real
Verily, Resolution 16-A and the Contract to Sell which was estate speculations within twenty years from complete
annexed, attached and made to form part of said resolution, payment of the purchase price and execution of the final deed
clearly laid down the terms and conditions which the awardee- of sale, the lot and residential house or improvement thereon
vendee must comply with. Accordingly, as an awardee, Luisa shall not be sold, transferred, mortgaged, leased or otherwise
Gomez, her heirs and successors-in-interest alike, are duty- alienated or encumbered without the written consent of the
bound to perform the correlative obligations embodied in City Mayor.
Resolution 16-A and the Contract to Sell.
“Par. (9).During the effectivity of this agreement, the
Resolution 16-A, Series of 1978, explicitly provides that aside residential house or improvement thereon shall not be leased,
from the requirement of Filipino citizenship and legal age, the sold, transferred or otherwise alienated by the vendee without
basic criteria for award of the lot pursuant to the Land for the the written consent of the owner.
Landless Program of the City of Manila shall be the following: xxx

“Par. (14). In the event that the vendee dies before full Such kind of stipulation was upheld by this Court in the
payment of the purchase price of the lot, his/her surviving Adelfa case where we categorically declared that Article 1592
spouse, children heirs and/or successors-in-interest shall of the Civil Code, which requires rescission either by judicial
succeed in all his/her rights and interest, as well as assume action, or notarial act, does not apply to a contract to sell.28
all/his/her obligations under this agreement. “Par. (15). This
agreement shall be binding upon the heirs, executors and Moreover, judicial action for rescission of a contract is not
administrators of the vendee.”(emphasis ours) necessary where the contract provides for automatic rescission
in case of breach,29 as in the contract involved in the present
Petitioner urges that awardee Luisa Gomez did not commit controversy.
any violation of the lot award. On the contrary, the records
would indubitably show that Luisa Gomez, including her heirs Likewise, this Court sustains the forfeiture of the payments
and successors-in-interest, have performed acts that constitute made by awardee as reasonable compensation for the use of
gross, if not bra-zen, violation of the aforementioned terms the lot. At this juncture, par. (1) of the Contract to Sell
and conditions of the award, as evidenced by the investigation furnishes support to this conclusion:
report submitted by Pfc. Cristobal, dated 19 December 1984.
“x x x In case of the cancellation of the vendee’s rights under
Results of the investigation conducted on 23 November 1984, this agreement as hereinafter stipulated, all payments made by
reveal that the lot was actually occupied and leased by a him/her shall be forfeited and considered as rentals for the use
certain Erlinda Perez and Mignony Lorghas, together with of the lot x x x.”
their respective families, who were paying rentals to petitioner
Vicente Gomez for the lease of the subject premises. Further, Article 1486 of the Civil Code provides that a
stipulation that the installments or rents paid shall not be
Moreover, in a conference held on 13 January 1989 at the returned to the vendee or lessee shall be valid insofar as the
Office of the Acting Urban Settlement Officer, Lorghas same may not be un-conscionable under the circumstances.30
admitted that she has been leasing the property and paying rent
to petitioner Vicente Gomez, thus:27 Applying the foregoing, we are of the considered view that the
payment of the purchase price of P3,556.00, constitutes fair
“Atty. Bernardo: Mrs. Lorghas, how long and reasonable rental for the period in which said property was
have you been renting the property? under the control of awardee Luisa Gomez, her heirs and
successors-in-interest. Undeniably, the awardee together with
Mrs. Lorghas: I was living there since 1960 until today. I was her heirs and successors-in-interest, have gained benefits,
renting a small room downfloor (sic). When the family of Mr. financial or otherwise, for a period of eight years—from the
Gomez died, kami na ang tumira sa itaas until now. time of actual award of the lot to the time of cancellation
Atty. Bernardo: Magkano ang upa mo? thereof (1978-1986).
Mrs. Lorghas: P300 a month.
Atty. Bernardo: Kanino? Nonetheless, we ought to stress that in the present case,
Mrs. Lorghas: Kay Vicente Gomez. forfeiture of the installments paid as rentals, only applies to
Atty. Bernardo: Meron bang resibo? Mrs. Lorghas: Wala po. the purchase price of P3,556.00 and not to the overpayment of
Atty. Bernardo: Noong 1973, kayo na rin ang nakatira sa lugar the amount of P8,244.00.
ni Gomez.
Mrs. Lorghas: Opo.” Under these circumstances, the vendor should refund the
amount of P8,244.00 representing the overpayment made, plus
Certainly, said acts constitute a brazen transgression of interest, to be computed in accordance with the “rule of
Resolution 16-A and clear contravention of the Contract to thumb” enunciated in the landmark case of Eastern Shipping
Sell, specifically pars. (3), (8) and (9) thereof. Lines, Inc. vs. Court of Appeals31 and reiterated in the case
of Philippine National Bank vs. Court of Appeals.32
The contract provides in no uncertain terms, that the
abovemen-tioned terms and conditions shall bind the heirs, For us to uphold the forfeiture of the amount representing the
executors and administrators of the vendee. The contract overpayment would be to revolt against the dictates of justice
further states that breach thereof would result to the automatic and fairness. A contrary ruling would unjustly enrich the
cancellation of the vendee’s rights thereunder. vendor to the prejudice of the vendee.
In the same vein, the provisions of Article 777 of the Civil
Thus, par. (10) (b) (a) of the Contract to Sell, which reads: Code notwithstanding, we hold that the surviving children of
awardee Luisa Gomez are not qualified transferees of Lot 4,
“x x x any violation of the terms and conditions of this Block 1 for failure to conform with the prerequisites set by
agreement shall automatically cause the cancellation of the Resolution 16-A, to wit, Filipino citizenship and actual
vendee’s rights under this agreement without necessity of prior occupancy, which in the present case, are basic criteria for the
notice or judicial declaration x x x.” 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 LORENZO ZAYCO, DIONISIO INZA, and SEVERINO
Ameri-can citizens and permanent residents of the United LIZARRAGA, plaintiffs and appellants, vs.SALVADOR
States of America. Notably, Resolution 16-A specifically SERRA, VENANCIO CONCEPCION, and PHIL. C.
enumerates Filipino citizenship and actual occupancy of the WHITAKER, defendants and appellees.
lot for residential purposes, as qualifications for entitlement to
the lot award. For this court to consider said surviving children 1.CONTRACTS; CONSIDERATION.—Although in an
as qualified awardee-transferees would render illusory the option contract for the purchase of a sugar central which is the
purposes for which Resolution 16-A and the “Land for the subject-matter of the litigation, no consideration is expressly
Landless Program” of the City of Manila were adopted. mentioned, it is presumed that consideration exists in all
contracts (art. 1277, Civ. Code). The consideration of a
Even assuming arguendo that the surviving children of Luisa contract may be proved, and, once proven, the contract is
Gomez are entitled to the lot by virtue of Article 777 of the binding.
Civil Code, said heirs nevertheless abandoned their right when
they violated the terms and conditions of the award by 2.ID.; ACCEPTANCE.—In order for an acceptance to
donating the subject property to petitioner Vicente Gomez. have the effect of converting an offer to sell into a perfect
contract, it must be plain and unconditional, and it will not
As paragraph (15) of the agreement provides that the heirs of be so, if it involves any new proposition, for in that case, it
the vendee shall be bound thereby, it is then incumbent upon will not be the acceptant’s conformity with the offer which
said heirs to render strict compliance with the provisions is what gives rise to the birth of a contract. In this case the
thereof. acceptance of the offer was not sufficient to give life to the
contract and is no ground for compelling the offerer to
In particular, paragraph (8) of the Contract proscribes the sale, execute the sale offered.
transfer, mortgage, lease, alienation or encumbrance of the lot,
residential house, or improvement thereon, without the written APPEAL from a judgment of the Court of First Instanceof
consent of the City Mayor, within a period of twenty (20) Occidental Negros.
years from complete payment of the purchase price and
execution of the final deed of sale. The execution of the Deed AVANCEÑA, J.:
of Donation by the surviving children of Luisa Gomez on
February 1, 1989, in favor of Vicente Gomez, was clearly On November 7, 1918, the plaintiff, Lorenzo Zayco, and the
within the prohibited period of 20 years from the full payment defendant, Salvador Serra, entered into a contract, the
of the purchase price on January 18, 1980. pertinent clauses of which are the following:
Without doubt, the prohibition applies to them. "1. That the party of the first part shall give the party of the
second part an option to buy the Palma Central for the sum of
Furthermore, the subject lot and residential house were one million pesos (P1,000,000).
occupied by, and leased to, third persons, in crystalline and * * * * * * *
evident derogation of the terms of the award. "4. That in case the purchase of the Palma Central is made
and the party of the second part cannot pay the whole price in
FALLO WHEREFORE, premises considered, the instant cash, then he will be given a period not exceeding three years
petition is DISMISSED for lack of merit, and the assailed within which to make the full payment, computed from the
decision of the Court of Appeals with respect to the day of the execution of the contract of sale, provided that the
cancellation of the award of Lot 4, Block 1, is AFFIRMED party of the second part gives a security or bond to the
SUBJECT TO MODIFICATION as to the forfeiture of satisfaction of the party of the first part to guarantee the
amounts paid by the vendee. payment of the balance of the purchase price, with interest
thereon at a reasonable rate.
As modified, the City of Manila, is hereby ordered to refund * * * * * * *
with dispatch the amount of P8,244.00 representing the "6. That this option of the party of the second part to purchase
overpayment made by petitioner plus interest. SO ORDERED. the Palma Central, or to become a partner of, or join, the party
of the first part, expires on the 30th of June, 1919.
Note.—There is nothing in Article 1191 of the New Civil "7. That hereafter, in case of the sale of the Palma Central,or
Code which prohibits the parties from entering into an the formation of a partnership to operate the same, the party of
agreement that a violation of the terms of the contract would the second part shall have preference to make such sale, or
cause its cancellation even without intervention. (Pangilinan become a partner, over any other persons desiring to purchase
vs. Court of Appeals, 279 SCRA 590 [1997]) the central or enter into partnership."
ACCEPTANCE MUST BE “ABSOLUTE” Under date of June 28, 1919, the plaintiff, Lorenzo Zayco,
through his attorney, wrote a letter (Exhibit A) to the
[No. 18335. January 10, 1923] defendant, Salvador Serra, accepting the foregoing contract
and placing at his disposal a cash order of the Bank of the
Philippine Islands of Iloilo in the amount of P100,000, in part
payment of the price of the Palma Central and Estate. In this
letter, notice was also given to Serra that the Philippine On March 19, 1920, the plaintiff filed a supplemental
National Bank agreed to transfer his long term loan of complaint in which Philip Whitaker, Venancio Concepcion,
P600,000, to the account of Zayco and to hold the latter and Eusebio R. de Luzuriaga were included as defendants, and
responsible for all the amounts had and received on account of it was alleged that, without the knowledge of the plaintiff
this loan, Serra to be completely relieved from all Zayco, the defendant Serra sold the Palma Central and Estate
responsibility arising therefrom. Offer was further made in this to said Messrs. Philip Whitaker, Venancio Concepcion, and
letter to give the bond required by the contract of November 7, Eusebio R. de Luzuriaga on January 29, 1920, for the sum of
1918, to secure the payment of the balance of the price of P1,500,000 on the terms and conditions specified in said
the Palma Central and Estate. The letter ended with a demand contract. It is prayed in this complaint that, at all events, the
by Zayco on Serra to execute the deed of sale. Serra had plaintiff Zayco be declared entitled to purchase from the
knowledge of this letter, on June 30, 1919, as may be inferred defendant, Serra, the Palma Central and Estate on the same
from his answer bearing that date (Exhibit C). On the terms and conditions as those of the sale to Messrs. Whitaker,
following 15th of July, Serra wrote to Zayco's attorney, stating Concepcion, and Luzuriaga.
that the option contract of November 7, 1918, was cancelled
and annulled. Later Mr. Eusebio R. de Luzuriaga was excluded from this
complaint. The plaintiff Zayco having assigned his rights to
On the Same day, June 30, 1919, Zayco brought suit against Dionisio Inza and Severino Lizarraga, these parties were
Serra to compel him to execute the deed of sale and admitted to intervene as plaintiffs. The cause having been
conveyance of the Palma Central and Estate and to pay, in tried, the court below rendered judgment absolving the
addition, P500,000 as damages. defendants from the complaint.
It might be well to make a brief statement of the proceedings By the terms of the contract of November 7, 1918, Zayco was
had thereafter until the holding of the trial. granted the right: (a) To purchase the Palma Centraland Estate
until June 30, 1919, and (b) to have preference, after that date,
To this complaint the defendant demurred on the ground, over any other purchaser making the same terms.
among others, that the contract of November 7, 1918, does not
specify the part of the price that was to be paid in cash and the The court below holds that this contract of November 7, 1918,
part that was to be paid within a period not exceeding three has no consideration and is, f or this reason, null and void.
years. This conclusion, however, is not supported by the evidence.
Before the court could pass upon this demurrer, Zayco filed an It is true that the contract does not state any consideration on
amended complaint on September 9, 1919, which was later the part of Serra, but it is presumed that there is a
withdrawn, and substituted by another one dated October 21, consideration in all contracts (art. 1277, Civ. Code). Besides, a
1919. consideration can be proved and, in this case, there is evidence
showing its existence.
To this amended complaint of October 21, 1919, another
demurrer was filed, one of its grounds being the same as that The Palma Central was in competition with the Bearin
alleged in the first demurrer, to wit, that the contract of Central of Lizarraga Hermanos and both were doing their best
November 7, 1918, does not stipulate what part of the price to gain the greatest number of supporters, which, as is well-
was to be paid in cash and what part within a period not known, constitutes the basis and measure of their
exceeding three years. The court sustained this demurrer and development. Zayco owned an estate containing 350 hectares
granted the plaintiff a period within which to amend his used for cultivating cane, situated between both centrals in
complaint. such a way as to constitute an opening to them from the
adjacent estates. Owing to this circumstance, Zayco has been
On January 23, 1920, the last amended complaint was filed in the subject of solicitations of both centrals, each making the
which, for the first time, an allegation is made that subsequent most favorable offers to win him. Lizarraga Hermanos went so
to the contract of November 7, 1918, and prior to June 28, far as to offer to remit his debt, amounting to P40,000, if he
1919, a stipulation was made by the plaintiff, Zayco, and the became a supporter of their central. Serra, in turn, offered to
defendant, Serra, that the sum to be paid in cash on account of give him 60 per cent of the sugar of his cane milled in
the total price of the sale was P100,000. the Palma Centralinstead of 55 per cent, as allowed by the
other centrals, and besides, they promised to assist him in
A demurrer was also interposed to this last amended acquiring this central. Zayco, at last, decided to become, as he
complaint, which was overruled. in fact became, a supporter of the Palma Central.
The defendant filed his answer on February 27, 1920, All this, which preceded and led to the execution of the
containing a general and specific denial of all and each of the contract of November 7, 1918, is evidently a sufficient
allegations of the complaint and a special defense consisting in consideration to give life to the contract. It meant, on the part
that the contract of November 7, 1918, did not specify a of Zayco, the waiver of positive benefits which he would have
sufficient consideration on the part of the plaintiff Zayco. obtained f rom Lizarraga Hermanos. It meant at the same time,
on the part of Serra, an expansion of his central and the their veracity as not to be considered sufficient to prove either
consequent increase in his production and profit. Under such the loss of the alleged letter, or its existence and contents.
circumstances Zayco's support to the Palma, Central was a Moreover, it is strange, if that stipulation ever existed, that
prestation of thing or service which positively benefited Serra. Zayco, in accepting the offer, not only agreed to pay P100,000
in cash, but agreed also, as part of his acceptance, to assume
As has been stated, Zayco prays in this action that Serra be Serra's obligations in connection with the credit of P600,000
compelled to sell to him the Palma, Central in accordance given him by the National Bank. It is stranger still that this
with the contract of November 7, 1918. It having been stipulation, being so important a part of the contract, was not
determined that there exists a consideration for this contract, alleged in the original complaint, and notwithstanding that in
the same is binding upon the parties. the demurrer to this complaint attention was called to the fact
that this stipulation was lacking, this allegation was not made
However, it is not necessary to view the question from this in the two successive amended complaints but only in the
standpoint. It can be taken for granted, as contended by the fourth, after the court had sustained the demurrer filed on this
defendants, that the option contract was not valid for lack of ground.
consideration. But it was, at least, an offer to sell, which was
accepted by letter, and of this acceptance the offerer had Our conclusion is that the acceptance made by Zayco of
knowledge before said offer was withdrawn. The concurrence Serra's offer was not sufficient to give life to a contract and is
of both acts—the offer and the acceptance—could at all events no ground for compelling Serra to execute the sale offered.
have generated a contract, if none there was before (arts. 1254
and 1262 of the Civil Code). As to plaintiffs' claim that they have preference over the
defendants, Messrs. Venancio Concepcion and Phil. C.
However, Zayco's acceptance, as his letter of June 28, 1919, Whitaker in the purchase of the Palma Central, two members
indicates, could not, in itself, convert the offer of sale made by of this court and the writer of this opinion believe that the
Serra in the document of November 7, 1918, into a perfect plaintiffs are entitled to this preference, but the majority of the
contract. In order for the acceptance to have this effect, it must court hold otherwise, for the reason that the plaintiffs have not
be plain and unconditional, and it will not be so if it involves formally offered to repay the defendants Concepcion and
any new proposal, for in that case it would not mean Whitaker the price paid by them, and to assume their
conformity with the offer, which is what gives rise to the obligations incurred under the contract.
generation of the contract. The letter of acceptance of Zayco
lacks these requisites. FALLO For the foregoing reasons, the judgment appealed
from is affirmed with the costs against the appellants. So
It should be noted that, according to the terms of the offer, in ordered.
case the total of the agreed price of P1,000,000 could not be
paid in cash, the balance was to be paid within a period not
G.R. No. 118509. December 1, 1995.*
exceeding three years. This means that a part of this price was
LIMKETKAI SONS MILLING, INC.,
to be paid in cash. But the amount of this first payment was
petitioner, vs. COURT OF APPEALS, BANK OF THE
not determined. Consequently, when Zayco accepted the offer,
PHILIPPINE ISLANDS and NATIONAL BOOK STORE,
tendering the sum of P100,000 as first payment, his
respondents.
acceptance involved a proposal, not contained in the offer, that
this precisely, and not any other, should be the amount of the
Sales; Agency; Brokers; Banks and Banking; If a bank could
first payment. This proposal, in turn, required acceptance on
give the authority to sell to a licensed broker, the Court sees
the part of Serra. For this reason, Zayco's acceptance did not
no reason to doubt the authority to sell of two of the bank’s
imply conformity with the offer of Serra, but only when the
vice-presidents whose precise job therein was to manage and
latter shall, in turn, have accepted his proposal that the amount
administer real estate property.—At the start of the
to be paid in cash was P100,000. Not only was this not
transactions, broker Revilla by himself already had full
accepted by Serra, but Serra cancelled his offer on July 15,
authority to sell the disputed lot. Exhibit B dated June 23,
1919.
1988 states, “this will serve as your authority to sell on an as
is, where is basis, the property located at Pasig Blvd., Bagong
An attempt was made to prove the allegation contained in the
Ilog x x x.” We agree with Revilla’s testimony that the
last amended complaint to the effect that subsequent to the
authority given to him was to sell and not merely to look for a
execution of the contract of November 7, 1918, Zayco and
buyer, as contended by respondents. Revilla testified that at
Serra agreed, as a suppletory stipulation, that the amount of
the time he perfected the agreement to sell the litigated
the first payment to be made in cash should be P100,000. It is
property, he was acting for and in behalf of the BPI as if he
said that this stipulation is contained in a letter sent by Serra to
were the Bank itself. This notwithstanding and to firm up the
Zayco. This letter, however, was not introduced in evidence,
sale of the land, Revilla saw it fit to bring BPI officials into the
but was alleged to have been lost, and secondary evidence of
transaction. If BPI could give the authority to sell to a licensed
its contents was presented which consisted in the testimonies
broker, we see no reason to doubt the authority to sell of the
of Zayco, his son, Rafael, and Antonio Velez. Upon
two BPI Vice-Presidents whose precise job in the Bank was to
examination of the testimony of these witnesses, the same is
manage and administer real estate property.
found so uncertain and contradictory on many points affecting
Same; Same; Same; An exception to the unenforceability of
Same; Contracts; The Phases in Contract-Making.—The contracts pursuant to the Statute of Frauds is the existence
phases that a contract goes through may be summarized as of a written note or memorandum evidencing the contract,
follows: a. preparation, conception or generation, which is the which memorandum may be found in several writings, not
period of negotiation and bargaining, ending at the moment of necessarily in one document.—Moreover, under Article 1403
agreement of the parties; b. perfection or birth of the contract, of the Civil Code, an exception to the unenforceability of
which is the moment when the parties come to agree on the contracts pursuant to the Statute of Frauds is the existence of a
terms of the contract; and c. consummation or death, which is written note or memorandum evidencing the contract. The
the fulfillment or performance of the terms agreed upon in the memorandum may be found in several writings, not
contract (Toyota Shaw, Inc. vs. Court of Appeals, G.R. No. necessarily in one document. The memorandum or
116650, May 23, 1995). memoranda is/are written evidence that such a contract was
entered into.
Same; Same; Statute of Frauds; The fact that the deed of
sale still has to be signed and notarized does not mean that Same; Evidence; Witnesses; It is a settled principle of civil
no contract has already been perfected—the requisite form procedure that the conclusions of the trial court regarding the
under Article 1458 of the Civil Code is merely for greater credibility of witnesses are entitled to great respect from the
efficacy or convenience and the failure to comply therewith appellate courts.—On the matter of credibility of witnesses
does not affect the validity and binding effect of the act where the findings or conclusions of the Court of Appeals and
between the parties.—In the case at bench, the allegation of the trial court are contrary to each other, the pronouncement of
NBS that there was no concurrence of the offer and acceptance the Court in Serrano vs. Court of Appeals(196 SCRA 107
upon the cause of the contract is belied by the testimony of the [1991]) bears stressing: It is a settled principle of civil
very BPI official with whom the contract was perfected. procedure that the conclusions of the trial court regarding the
Aromin and Albano concluded the sale for BPI. The fact that credibility of witnesses are entitled to great respect from the
the deed of sale still had to be signed and notarized does not appellate courts because the trial court had an opportunity to
mean that no contract had already been perfected. A sale of observe the demeanor of witnesses while giving testimony
land is valid regardless of the form it may have been entered which may indicate their candor or lack thereof. While the
into (Claudel vs. Court of Appeals, 199 SCRA 113, 119 Supreme Court ordinarily does not rule on the issue of
[1991]). The requisite form under Article 1458 of the Civil credibility of witnesses, that being a question of fact not
Code is merely for greater efficacy or convenience and the properly raised in a petition under Rule 45, the Court has
failure to comply therewith does not affect the validity and undertaken to do so in exceptional situations where, for
binding effect of the act between the parties instance, as here, the trial court and the Court of Appeals
(Vitug, Compendium of Civil Law and Jurisprudence, 1993 arrived at divergent conclusions on questions of fact and the
Revised Edition, p. 552). If the law requires a document or credibility of witnesses.
other special form, as in the sale of real property, the
contracting parties may compel each other to observe that Same; Badges of Fraud; A buyer could not be considered
form, once the contract has been perfected. Their right may be an innocent purchaser for value where it ignored the notice
exercised simultaneously with action upon the contract of lis pendens on the title when it bought the lot.—On the
(Article 1359, Civil Code). fourth question of whether or not NBS is an innocent
purchaser for value, the record shows that it is not. It acted in
Same; Same; Same; Cross-examination on the contract is bad faith. Respondent NBS ignored the notice of lis
deemed a waiver of the defense of the Statute of Fraud.—In pendens annotated on the title when it bought the lot. It was
any event, petitioner cites Abrenica vs. Gonda (34 Phil. 739 the willingness and design of NBS to buy property already
[1916]) wherein it was held that contracts infringing the sold to another party which led BPI to dishonor the contract
Statute of Frauds are ratified when the defense fails to object, with Limketkai.
or asks questions on cross-examination. In the instant case, Same; Same; The circumstance that in the deed of absolute
counsel for respondents cross-examined petitioner’s witnesses sale, instead of the vendee insisting that the vendor
at length on the contract itself, the purchase price, the tender guarantee its title to the land and recognize the right of the
of cash payment, the authority of Aromin and Revilla, and vendee to proceed against the vendor if the title to the land
other details of the litigated contract. Under the Abrenica rule turns out to be defective, the reverse is found, clearly negates
(reiterated in a number of cases, among them Talosig vs. Vda. any allegation of good faith on the part of the buyer.—It is
De Nieba, 43 SCRA 472 [1972]), even assuming that parol the very nature of the deed of absolute sale between BPI and
evidence was initially inadmissible, the same became NBS which, however, clearly negates any allegation of good
competent and admissible because of the cross-examination, faith on the part of the buyer. Instead of the vendee insisting
which elicited evidence proving the evidence of a perfected that the vendor guarantee its title to the land and recognize the
contract. The cross-examination on the contract is deemed a right of the vendee to proceed against the vendor if the title to
waiver of the defense of the Statute of Frauds (Vitug, the land turns out to be defective as when the land belongs to
Compendium of Civil Law and Jurisprudence, 1993 Revised another person, the reverse is found in the deed of sale
Edition, supra, p. 563). between BPI and NBS. Any losses which NBS may incur in
the event the title turns out to be vested in another person are
to be borne by NBS alone. BPI is expressly freed under the
contract from any recourse of NBS against it should BPFs title of the Civil Code. The decision of the trial court was reversed
be found defective. and the complaint dismissed.
Same; Same; There are innumerable situations where fraud is Hence, the instant petition.
manifested—one enumeration in a 1912 decision cannot
possibly cover all indications of fraud from that time up to the Shorn of the interpretations given to the acts of those who
present and into the future.—NBS, in its reply memorandum, participated in the disputed sale, the findings of facts of the
does not refute or explain the above circumstance squarely. It trial court and the Court of Appeals narrate basically the same
simply cites the badges of fraud mentioned in Oria v. events and occurrences. The records show that on May 14,
McMicking(21 Phil. 243 [1912]) and argues that the 1976, Philippine Remnants Co., Inc. constituted BPI as its
enumeration there is exclusive. The decision in said case trustee to manage, administer, and sell its real estate property.
plainly states “the following are some of the circumstances One such piece of property placed under trust was the disputed
attending sales which have been denominated by courts (as) lot, a 33,056square meter lot at Barrio Bagong Hog, Pasig,
badges of fraud.” There are innumerable situations where Metro Manila covered by Transfer Certificate of Title No.
fraud is manifested. One enumeration in a 1912 decision 493122.
cannot possibly cover all indications of fraud from that time
up to the present and into the future. On June 23, 1988, Pedro Revilla, Jr., a licensed real estate
broker was given formal authority by BPI to sell the lot for
Same; Damages; The profits and the use of the land which P1,000.00 per square meter. This arrangement was concurred
were denied to vendee because of the non-compliance or in by the owners of the Philippine Remnants.
interference with a solemn obligation by the vendor and a
third party is somehow made up by the appreciation of the Broker Revilla contacted Alfonso Lim of petitioner company
land values in the meantime.—The Court of Appeals did not who agreed to buy the land. On July 8, 1988, petitioner’s
discuss the issue of damages. Petitioner cites the fee for filing officials and Revilla were given permission by Rolando V.
the amended complaint to implead NBS, sheriff’s fees, Aromin, BPI Assistant Vice-President, to enter and view the
registration fees, place fare and hotel expenses of Cebu-based property they were buying.
counsel. Petitioner also claimed, and the trial court awarded,
damages for the profits and opportunity losses caused to On July 9, 1988, Revilla formally informed BPI that he had
petitioner’s business in the amount of P10,000,000.00. We procured a buyer, herein petitioner. On July 11, 1988,
rule that the profits and the use of the land which were denied petitioner’s officials, Alfonso Lim and Albino Limketkai,
to petitioner because of the non-compliance or interference went to BPI to confirm the sale. They were entertained by
with a solemn obligation by respondents is somehow made up Vice-President Merlin Albano and Asst. Vice-President
by the appreciation in land values in the meantime. Aromin. Petitioner asked that the price of P1,000.00 per
square meter be reduced to P900.00 while Albano stated the
PETITION for review on certiorari of a decision of the price to be P1,100.00. The parties finally agreed that the lot
Court of Appeals. would be sold at P1,000.00 per square meter to be paid in
cash. Since the authority to sell was on a first come, first
MELO, J.: served and non-exclusive basis, it may be mentioned at this
juncture that there is no dispute over petitioner’s being the first
The issue in the petition before us is whether or not there was comer and the buyer to be first served.
a perfected contract between petitioner Limketkai Sons
Milling, Inc. and respondent Bank of the Philippine Islands Notwithstanding the final agreement to pay P1,000.00 per
(BPI) covering the sale of a parcel of land, approximately 3.3 square meter on a cash basis, Alfonso Lim asked if it was
hectares in area, and located in Barrio Bagong Hog, Pasig possible to pay on terms. The bank officials stated that there
City, Metro Manila. was no harm in trying to ask for payment on terms because in
previous transactions, the same had been allowed. It was the
Branch 151 of the Regional Trial Court of the National Capital understanding, however, that should the term payment be
Judicial Region stationed in Pasig ruled that there was a disapproved, then the price shall be paid in cash.
perfected contract of sale between petitioner and BPI. It stated
that there was mutual consent between the parties; the subject It was Albano who dictated the terms under which the
matter is definite; and the consideration was determined. It installment payment may be approved, and acting thereon,
concluded that all the elements of a consensual contract are Alfonso Lim, on the same date, July 11, 1988, wrote BPI
attendant. It ordered the cancellation of a sale effected by BPI through Merlin Albano embodying the payment initially of
to respondent National Book Store (NBS) while the case was 10% and the remaining 90% within a period of 90 days.
pending and the nullification of a title issued in favor of said
respondent NBS. Two or three days later, petitioner learned that its offer to pay
on terms had been frozen. Alfonso Lim went to BPI on July
Upon elevation of the case to the Court of Appeals, it was held 18, 1988 and tendered the full payment of P33,056,000.00 to
that no contract of sale was perfected because there was no Albano. The payment was refused because Albano stated that
concurrence of the three requisites enumerated in Article 1318 the authority to sell that particular piece of property in Pasig
had been withdrawn from his unit. The same check was (1) Was there a meeting of the minds between petitioner
tendered to BPI Vice-President Nelson Bona who also refused Limketkai and respondent BPI as to the subject matter of the
to receive payment. contract and the cause of the obligation?
(2) Were the bank officials involved in the transaction
An action for specific performance with damages was authorized by BPI to enter into the questioned contract?
thereupon filed on August 25, 1988 by petitioner against BPI. (3) Is there competent and admissible evidence to support the
In the course of the trial, BPI informed the trial court that it alleged meeting of the minds?
had sold the property under litigation to NBS on July 14, (4) Was the sale of the disputed land to the NBS during the
1989. The complaint was thus amended to include NBS. pendency of trial effected in good faith?
On June 10, 1991, the trial court rendered judgment in the case
as follows: There is no dispute in regard to the following: (a) that BPI as
trustee of the property of Philippine Remnant Co. authorized a
WHEREFORE, judgment is hereby rendered in favor of licensed broker, Pedro Revilla, to sell the lot for P1,000.00 per
plaintiff and against defendants Bank of the Philippine Islands square meter; (b) that Philippine Remnants confirmed the
and National Book Store, Inc.:— authority to sell of Revilla and the price at which he may sell
the lot; (c) that petitioner and Revilla agreed on the former
1.Declaring the Deed of Sale of the property covered by buying the property; (d) that BPI Assistant Vice-President
T.C.T. No. 493122 in the name of the Bank of the Philippine Rolando V. Aromin allowed the broker and the buyer to
Islands, situated in Barrio Bagong Ilog, Pasig, Metro Manila, inspect the property; and (e) that BPI was formally informed
in favor of National Book Store, Inc., null and void; about the broker having procured a buyer.
2.Ordering the Register of Deeds of the Province of Rizal to
cancel the Transfer Certificate of Title which may have been The controversy revolves around the interpretation or the
issued in favor of National Book Store, Inc. by virtue of the significance of the happenings or events at this point.
aforementioned Deed of Sale dated July 14, 1989;
3.Ordering defendant BPI, upon receipt by it from plaintiff of Petitioner states that the contract to sell and to buy was
the sum of P33,056,000.00, to execute a Deed of Sale in favor perfected on July 11, 1988 when its top officials and broker
of plaintiff of the aforementioned property at the price of Revilla finalized the details with BPI Vice-Presidents Merlin
P1,000.00 per square meter, in default thereof, the Clerk of Albano and Rolando V. Aromin at the BPI offices.
this Court is directed to execute the said deed;
4.Ordering the Register of Deeds of Pasig, upon registration of Respondents, however, contend that what transpired on this
the said deed, whether executed by defendant BPI or the Clerk date were part of continuing negotiations to buy the land and
of Court and payment of the corresponding fees and charges, not the perfection of the sale. The arguments of respondents
to cancel said T.C.T. No. 493122 and to issue, in lieu thereof, center on two propositions—(1) Vice-Presidents Aromin and
another transfer certificate of title in the name of plaintiff; Albano had no authority to bind BPI on this particular
5.Ordering defendants BPI and National Book Store, Inc. to transaction and (2) the subsequent attempts of petitioner to pay
pay, jointly and severally, to the plaintiff the sums of under terms instead of full payment in cash constitutes a
P10,000,000.00 as actual and consequential damages and counter-offer which negates the existence of a perfected
P150,000.00 as attorney’s fees and litigation expenses, both contract.
with interest at 12% per annum from date hereof;
6.On the cross-claim of defendant bank against National Book The alleged lack of authority of the bank officials acting in
Store, ordering the latter to indemnify the former of whatever behalf of BPI is not sustained by the record.
amounts BPI shall have paid to the plaintiff by reason hereof;
and At the start of the transactions, broker Revilla by himself
7.Dismissing the counterclaims of the defendants against the already had full authority to sell the disputed lot. Exhibit-B
plaintiff and National Book Store’s cross-claim against dated June 23, 1988 states, “this will serve as your authority to
defendant bank. sell on an as is, where is basis, the property located at Pasig
Costs against defendants. Blvd., Bagong Ilog x x x.” We agree with Revilla’s testimony
(pp. 44-45, Rollo.) that the authority given to him was to sell and not merely to
look for a buyer, as contended by respondents.
As earlier intimated, upon the decision being appealed, the
Court of Appeals (Buena [P], Rasul, and Mabutas, JJ.),on Revilla testified that at the time he perfected the agreement to
August 12, 1994, reversed the trial court’s decision and sell the litigated property, he was acting for and in behalf of
dismissed petitioner’s complaint for specific performance and the BPI as if he were the Bank itself. This notwithstanding and
damages. to firm up the sale of the land, Revilla saw it fit to bring BPI
officials into the transaction. If BPI could give the authority to
The issues raised by the parties revolve around the sell to a licensed broker, we see no reason to doubt the
following four questions: authority to sell of the two BPI Vice-Presidents whose precise
job in the Bank was to manage and administer real estate
property.

Respondent BPI alleges that sales of trust property need the own ultimate benefit. BPI later dismissed Aromin because it
approval of a Trust Committee made up of top bank officials. appeared that a top official of the bank was personally
It appears from the record that this trust committee meets interested in the sale of the Pasig property and did not like
rather infrequently and it does not have to pass on regular Aromin’s testimony. Aromin was charged with poor
transactions. performance but his dismissal was only sometime after he
testified in court. More than two long years after the disputed
Rolando Aromin was BPI Assistant Vice-President and Trust transaction, he was still Assistant Vice-President of BPI.
Officer. He directly supervised the BPI Real Property
Management Unit. He had been in the Real Estate Division The records show that the letter of instruction dated June 14,
since 1985 and was the head supervising officer of real estate 1988 from the owner of Philippine Remnants Co. regarding
matters. Aromin had been with the BPI Trust Department the sale of the firm’s property was addressed to Aromin. The
since 1968 and had been involved in the handling of properties P1,000.00 figure on the first page of broker Revilla’s authority
of beneficial owners since 1975 (tsn., December 3, 1990, p. 5). to sell was changed to P1,100.00 by Aromin. The price was
later brought down again to P1,000.00, also by Aromin. The
Exhibit 10 of BPI, the February 15, 1989 letter from Senior permission given to petitioner to view the lot was signed by
Vice-President Edmundo Barcelon, while purporting to inform Aromin and honored by the BPI guards. The letter dated July
Aromin of his poor performance, is an admission of BPI that 9, 1988 from broker Revilla informing BPI that he had a buyer
Aromin was in charge of Torrens titles, lease contracts, was addressed to Aromin. The conference on July 11, 1988
problems of tenants, insurance policies, installment when the contract was perfected was with Aromin and Vice-
receivables, management fees, quitclaims, and other matters President Albano. Albano and Aromin were the ones who
involving real estate transactions. His immediate superior, assured petitioner Limketkai’s officers that term payment was
Vice-President Merlin Albano had been with the Real Estate possible. It was Aromin who called up Miguel Bicharra of
Division for only one week but he was present and joined in Philippine Remnants to state that the BPI rejected payment on
the discussions with petitioner. terms and it was to Aromin that Philippine Remnants gave the
go signal to proceed with the cash sale. Everything in the
There is nothing to show that Alfonso Lim and Albino record points to the full authority of Aromin to bind the bank,
Limketkai knew Aromin before the incident. Revilla brought except for the self-serving memoranda or letters later produced
the brothers directly to Aromin upon entering the BPI by BPI that Aromin was an inefficient and undesirable officer
premises. Aromin acted in a perfectly natural manner on the and who, in fact, was dismissed after he testified in this case.
transaction before him with not the slightest indication that he But, of course, Aromin’s alleged inefficiency is not proof that
was acting ultra vires. This shows that BPI held Aromin out to he was not fully clothed with authority to bind BPI.
the public as the officer routinely handling real estate
transactions and, as Trust Officer, entering into contracts to Respondents’ second contention is that there was no perfected
sell trust properties. contract because petitioner’s request to pay on terms
constituted a counter-offer and that negotiations were still in
Respondents state and the record shows that the authority to progress at that point.
buy and sell this particular trust property was later withdrawn
from Trust Officer Aromin and his entire unit. If Aromin did Asst. Vice-President Aromin was subpoenaed as a hostile
not have any authority to act as alleged, there was no need to witness for petitioner during trial. Among his statements is one
withdraw authority which he never possessed. to the effect that—
. . . Mr. Lim offered to buy the property at P900.00 per square
Petitioner points to Areola vs. Court of Appeals (236 SCRA meter while Mr. Albano counter-offered to sell the property at
643 [1994]) which cited Prudential Bank vs. Court of P1,100.00 per square meter but after the usual haggling, we
Appeals (22 SCRA 350 [1993]), which in turn relied finally agreed to sell the property at the price of P1,000.00 per
upon Mclntosh vs. Dakota Trust Co. (52 ND 752, 204 NW square meter . . . (tsn, 12-3-90, p. 17; Emphasis supplied.)
818, 40 ALR 1021), to wit: Asked if there was a meeting of the minds between the buyer
and the bank in respect to the price of P1,000.00 per square
Accordingly a banking corporation is liable to innocent third meter, Aromin answered:
persons where the representation is made in the course of its
business by an agent acting within the general scope of his Yes, sir, as far as my evaluation there was a meeting of the
authority even though, in the particular case, the agent is minds as far as the price is concerned, sir. (ibid, p. 17.)
secretly abusing his authority and attempting to perpetrate a
fraud upon his principal or some other person for his own The requirements in the payment of the purchase price on
ultimate benefit. (at pp. 652-653.) terms instead of cash were suggested by BPI Vice-President
Albano. Since the authority given to broker Revilla specified
In the present case, the position and title of Aromin alone, not cash payment, the possibility of paying on terms was referred
to mention the testimony and documentary evidence about his to the Trust Committee but with the mutual agreement that “if
work, leave no doubt that he had full authority to act for BPI the proposed payment on terms will not be approved by our
in the questioned transaction. There is no allegation of fraud, Trust Committee, Limketkai should pay in cash . . . the
nor is there the least indication that Aromin was acting for his amount was no longer subject to the approval or disapproval
of the Committee, it is only on the terms.” (ibid, p. 19). This is Emphasis supplied.)
incontrovertibly established in the following testimony of
Aromin: The record shows that if payment was in cash, either broker
Revilla or Aromin had full authority. But because petitioner
A. After you were able to agree on took advantage of the suggestion of Vice-President Albano,
the price of P1,000.00/sq m., since the matter was sent to higher officials. Immediately upon
learning that payment on terms was frozen and/or denied,
the letter or authority says the
Limketkai exercised his right within the period given to him
payment must be in cash basis, and tendered payment in full. The BPI rejected the payment.
what transpired later on?
B. After we have agreed on the In its Comment and Memorandum, respondent NBS cites Ang
Yu Asuncion vs. Court of Appeals (238 SCRA 602 [1994]) to
price, the Lim brothers inquired
bolster its case. Contrarywise, it would seem that the legal
on how to go about submitting the principles found in said case strengthen and support
covering proposal if they will be petitioner’s submission that the contract was perfected upon
allowed to pay on terms.They the meeting of the minds of the parties.
requested us to give them a guide
The negotiation or preparation stage started with the authority
on how to prepare the given by Philippine Remnants to BPI to sell the lot, followed
corresponding letter of proposal. I by (a) the authority given by BPI and confirmed by Philippine
recall that, upon the request of Mr. Remnants to broker Revilla to sell the property, (b) the offer to
sell to Limketkai, (c) the inspection of the property and finally
Albino Limketkai, we dictated a
(d) the negotiations with Aromin and Albano at the BPI
guide on how to word a written offices.
firm offer that was to be submitted
by Mr. Lim to the bank setting out The perfection of the contract took place when Aromin and
Albano, acting for BPI, agreed to sell and Alfonso Lim with
the terms of payment but with the
Albino Limketkai, acting for petitioner Limketkai, agreed to
mutual agreement that if his buy the disputed lot at P1,000.00 per square meter. Aside from
proposed payment on terms will this there was the earlier agreement between petitioner and the
not be approved by our trust authorized broker. There was a concurrence of offer and
committee, Limketkai should pay acceptance, on the object, and on the cause thereof.
the price in cash. The phases that a contract goes through may be summarized as
Q And did buyer Limketkai agree to follows:
pay in cash in case the offer of
terms will be cash (disapproved). a. preparation, conception or generation, which is the period of
negotiation and bargaining, ending at the moment of
A Yes, sir. agreement of the parties;
Q At the start, did they show their b. perfection or birth of the contract, which is the moment
willingness to pay in cash? when the parties come to agree on the terms of the contract;
A Yes, sir. and
c. consummation or death, which is the fulfillment or
Q You said that the agreement on performance of the terms agreed upon in the contract (Toyota
terms was to be submitted to the Shaw, Inc. vs. Court of Appeals, G.R. No. 116650, May 23,
trust committee for approval, are 1995).
you telling the Court that what
But in more graphic prose, we turn to Ang Yu Asuncion, per
was to be approved by the trust Justice Vitug:
committee was the provision on
the payment on terms? . . . A contract undergoes various stages that include its
A Yes, sir. negotiation or preparation, its perfection and, finally, its
consummation. Negotiation covers the period from the time
Q So the amount was no longer the prospective contracting parties indicate interest in the
subject to the approval or contract to the time the contract is concluded (perfected).
disapproval of the committee, it is The perfection of the contract takes place upon the
only on the terms? concurrence of the essential elements thereof. A contract
which is consensual as to perfection is so established upon a
A Yes, sir. mere meeting of minds, i.e., the concurrence of offer and
(tsn, Dec. 3, 1990, pp. 18-19; acceptance, on the object and on the cause thereof. A contract
which requires, in addition to the above, the delivery of the In the case at bench, the allegation of NBS that there was no
object of the agreement, as in a pledge or commodatum, is concurrence of the offer and acceptance upon the cause of the
commonly referred to as a real contract. In a solemn contract, contract is belied by the testimony of the very BPI official
compliance with certain formalities prescribed by law, such as with whom the contract was perfected. Aromin and Albano
in a donation of real property, is essential in order to make the concluded the sale for BPI. The fact that the deed of sale still
act valid, the prescribed form being thereby an essential had to be signed and notarized does not mean that no contract
element thereof. The stage of consummation begins when the had already been perfected. A sale of land is valid regardless
parties perform their respective undertakings under the of the form it may have been entered into (Claudel v. Court of
contract culminating in the extinguishment thereof. Appeals,199 SCRA 113, 119 [1991]). The requisite form
under Article 1458 of the Civil Code is merely for greater
Until the contract is perfected, it cannot, as an independent efficacy or convenience and the failure to comply therewith
source of obligation, serve as a binding juridical relation. In does not affect the validity and binding effect of the act
sales, particularly, to which the topic for discussion about the between the parties (Vitug, Compendium of Civil Law and
case at bench belongs, the contract is perfected when a person, Jurisprudence, 1993 Revised Edition, p. 552). If the law
called the seller, obligates himself, for a price certain, to requires a document or other special form, as in the sale of real
deliver and to transfer ownership of a thing or right to another, property, the contracting parties may compel each other to
called the buyer, over which the latter agrees. (238 SCRA 602; observe that form, once the contract has been perfected. Their
611 [1994].) right may be exercised simultaneously with action upon the
contract (Article 1359, Civil Code).
In Villonco Realty Company vs. Bormaheco (65 SCRA
352[1975]), bearing factual antecedents similar to this case, Regarding the admissibility and competence of the evidence
the Court, through Justice Aquino (later to be Chief Justice), adduced by petitioner, respondent Court of Appeals ruled that
quoting authorities, upheld the perfection of the contract of because the sale involved real property, the statute of frauds is
sale thusly: applicable.
“The contract of sale is perfected at the moment there is a In any event, petitioner cites Abrenica v. Gonda (34 Phil.
meeting of minds upon the thing which is the object of the 739 [1916]) wherein it was held that contracts infringing the
contract and upon the price. From that moment, the parties Statute of Frauds are ratified when the defense fails to object,
may reciprocally demand performance, subject to the or asks questions on cross-examination. The succinct words of
provisions of the law governing the form of contracts.” (Art. Justice Araullo still ring in judicial cadence:
1475, Ibid.).
xxx As no timely objection or protest was made to the admission
xxx of the testimony of the plaintiff with respect to the contract;
xxx and as the motion to strike out said evidence came too late;
“Consent is manifested by the meeting of the offer and the and, furthermore, as the defendants themselves, by the cross-
acceptance upon the thing and the cause which are to questions put by their counsel to the witnesses in respect to
constitute the contract. The offer must be certain and the said contract, tacitly waived their right to have it stricken out,
acceptance absolute. A qualified acceptance constitutes a that evidence, therefore, cannot be considered either
counter-offer” (Art. 1319, Civil Code). “An acceptance may inadmissible or illegal, and court, far from having erred in
be express or implied” (Art. 1320, Civil Code). taking it into consideration and basing his judgment thereon,
xxx notwithstanding the fact that it was ordered to be stricken out
xxx during the trial, merely corrected the error he committed in
xxx ordering it to be so stricken out and complied with the rules of
“It is true that an acceptance may contain a request for procedure hereinbefore cited. (at p. 748.)
certain changes in the terms of the offer and yet be a binding
acceptance. ‘So long as it is clear that the meaning of the In the instant case, counsel for respondents cross-examined
acceptance is positively and unequivocally to accept the offer, petitioner’s witnesses at length on the contract itself, the
whether such request is granted or not, a contract is purchase price, the tender of cash payment, the authority of
formed.”(Stuart vs. Franklin Life Ins. Co., 105 Fed. 2nd 965, Aromin and Revilla, and other details of the litigated contract.
citing Sec. 79, Williston on Contracts). Under the Abrenicarule (reiterated in a number of cases,
xxx among them Talosig vs. Vda. De Nieba,43 SCRA 472 [1972]),
xxx even assuming that parol evidence was initially inadmissible,
xxx the same became competent and admissible because of the
. . . the vendor’s change in a phrase of the offer to purchase, cross-examination, which elicited evidence proving the
which change does not essentially change the terms of the evidence of a perfected contract. The cross-examination on the
offer, does not amount to a rejection of the offer and the tender contract is deemed a waiver of the defense of the Statute of
or a counter-offer.” (Stuart v. Franklin Life Ins. Co., supra.) Frauds (Vitug, Compendium of Civil Law and Jurisprudence,
(at pp. 362-363; 365-366.) 1993 Revised Edition, supra, p. 563).

The reason for the rule is that as pointed out in Abrenica “if unaccepted offer by Technoland. After the letter authority was
the answers of those witnesses were stricken out, the issued to Mr. Revilla, a letter authority was signed by Mr.
crossexamination could have no object whatsoever, and if the Aromin allowing the buyer to enter the premises of the
questions were put to the witnesses and answered by them, property to inspect the same (Exh. C). On July 9, 1988, Pedro
they could only be taken into account by connecting them with Revilla, Jr., acting as agent of BPI, wrote a letter to BPI
the answers given by those witnesses on direct examination” informing it that he had procured a buyer in the name of
(pp. 747-748). Limketkai Sons Milling, Inc. with offices at Limketkai Bldg.,
Moreover, under Article 1403 of the Civil Code, an exception Greenhills, San Juan, Metro Manila, represented by its Exec.
to the unenforceability of contracts pursuant to the Statute of Vice-President, Alfonso Lim (Exh. D). On July 11, 1988, the
Frauds is the existence of a written note or memorandum plaintiff, through Alfonso Lim, wrote a letter to the bank,
evidencing the contract. The memorandum may be found in through Merlin Albano, confirming their transaction regarding
several writings, not necessarily in one document. The the purchase of the subject property (Exh. E). On July 18,
memorandum or memoranda is/arewritten evidence that such a 1988, the plaintiff tendered upon the officials of the bank a
contract was entered into. check for P33,056,000.00 covered by Check No. CA510883,
dated July 18, 1988. On July 1, 1988, Alfonso Zamora
We cite the findings of the trial court on this matter: instructed Mr. Aromin in a letter to resubmit new offers only if
there is no transaction closed with Assetrade Co. (Exh. S).
In accordance with the provisions of Art. 1403 of the Civil Combining all these notes and memoranda, the Court is
Code, the existence of a written contract of the sale is not convinced of the existence of perfected contract of sale. Aptly,
necessary so long as the agreement to sell real property is the Supreme Court, citing American cases with approval, held:
evidenced by a written note or memorandum, embodying the
essentials of the contract and signed by the party charged or “No particular form of language or instrument is necessary to
his agent. Thus, it has been held: constitute a memorandum or note in writing under the statute
“The Statute of Frauds, embodied in Article 1403 of the Civil of frauds; any document or writing, formal or informal,
Code of the Philippines, does not require that the contract written either for the purpose of furnishing evidence of the
itself be written. The plain test of Article 1403, paragraph (2) contract or for another purpose, which satisfies all the
is clear that a written note or memorandum, embodying the requirements of the statute as to contents and signature, as
essentials of the contract and signed by the party charged, or discussed respectively infra secs. 178-200, and infra secs. 201-
his agent suffices to make the verbal agreement enforceable, 205, is a sufficient memorandum or note. A memorandum
taking it out of the operation of the statute.(Italics supplied) may be written as well with lead pencil as with pen and ink. It
xxx may also be filled in on a printed form.’ (37 C.J.S, 653-654).
“In the case at bar the complaint in its paragraph 3 pleads that
the deal had been closed by letter and telegram (Record on “The note or memorandum required by the statute of frauds
Appeal, p. 2), and the letter referred to was evidently the one need not be contained in a single document, nor, when
copy of which was appended as Exhibit A to plaintiff’s contained in two or more papers, need each paper be sufficient
opposition to the motion to dismiss. The letter, transcribed as to contents and signature to satisfy the statute. Two or more
above in part, together with the one marked as Appendix B, writings properly connected may be considered together,
constitute an adequate memorandum of the transaction. They matters missing or uncertain in one may be supplied or
are signed by the defendant-appellant; refer to the property rendered certain by another, and their sufficiency will depend
sold as a Lot in Puerto Princesa, Palawan, covered by T.C.T. on whether, taken together, they meet the requirements of the
No. 62, give its area as 1,825 square meters and the purchase statute as to contents and the requirements of the statutes as to
price of four (P4.00) pesos per square meter payable in cash. signature, as considered respectively infra secs. 179-200 and
We have in them, therefore, all the essential terms of the secs. 201-215.’ ” (pp. 460-463, Original RTC Record).
contract and they satisfy the requirements of the Statute of The credibility of witnesses is also decisive in this case. The
Frauds. ([Footnote 26, Paredes vs. Espino, 22 SCRA 1000 trial court directly observed the demeanor and manner of
[1968]). testifying of the witnesses while the Court of Appeals relied
merely on the transcript of stenographic notes.
While there is no written contract of sale of the Pasig property
executed by BPI in favor of plaintiff, there are abundant notes In this regard, the court of origin had this to say:
and memoranda extant in the records of this case evidencing
the elements of a perfected contract. There is Exhibit P, the Apart from weighing the merits of the evidence of the parties,
letter of Kenneth Richard Awad addressed to Roland Aromin, the Court had occasion to observe the demeanor of the
authorizing the sale of the subject property at the price of witnesses they presented. This is one important factor that
P1,000.00 per square meter giving 2% commission to the inclined the Court to believe in the version given by the
broker and instructing that the sale be on cash basis. plaintiff because its witnesses, including hostile witness
Concomitantly, on the basis of the instruction of Mr. Awad, Roland V. Aromin, an assistant vice-president of the bank,
(Exh. P), an authority to sell, (Exh. B) was issued by BPI to were straightforward, candid and unhesitating in giving their
Pedro Revilla, Jr., representing Assetrade Co., authorizing the respective testimonies. Upon the other hand, the witnesses of
latter to sell the property at the initial quoted price of BPI were evasive, less than candid and hesitant in giving their
P1,000.00 per square meter which was altered on an answers to cross-examination questions. Moreover, the
witnesses for BPI and NBS contradicted each other. Fernando
Sison III insisted that the authority to sell issued to Mr. Revilla 1.The sale was supposed to be done through an authorized
was merely an evidence by which a broker may convince a broker, but top officials of BPI personally and directly took
prospective buyer that he had authority to offer the property over this particular sale when a close friend became interested.
mentioned therein for sale and did not bind the bank. On the 2.BPI Senior Vice President Edmundo Barcelon admitted that
contrary, Alfonso Zamora, a Senior Vice-President of the NBS’s President, Alfredo Ramos, was his friend; that they had
bank, admitted that the authority to sell issued to Mr. Pedro lunch meetings before this incident and discussed NBS’s
Revilla, Jr. was valid, effective and binding upon the bank purchase of the lot. Barcelon’s father was a business associate
being signed by two class “A” signatories and that the bank of Ramos.
cannot back out from its commitment in the authority to sell to 3.George Feliciano, in behalf of NBS, offered P5 million and
Mr. Revilla. later P7 million if petitioner would drop the case and give up
the lot. Feliciano went to petitioner’s office and haggled with
While Alfredo Ramos of NBS insisted that he did not know Alfonso Lim but failed to convince him inspite of various and
personally and was not acquainted with Edmundo Barcelon, increasing offers.
the latter categorically admitted that Alfredo Ramos was his 4.In a place where big and permanent buildings abound, NBS
friend and that they have even discussed in one of the had constructed only a warehouse marked by easy portability.
luncheon meetings the matter of the sale of the Pasig property The warehouse is bolted to its foundations and can easily be
to NBS. George Feliciano emphatically said that he was not a dismantled.
consultant of Mr. Ramos nor was he connected with him in
any manner, but his calling card states that he was a consultant It is the very nature of the deed of absolute sale between BPI
to the chairman of the Pacific Rim Export and Holdings Corp. and NBS which, however, clearly negates any allegation of
whose chairman is Alfredo Ramos. This deliberate act of Mr. good faith on the part of the buyer. Instead of the vendee
Feliciano of concealing his being a consultant to Mr. Alfredo insisting that the vendor guarantee its title to the land and
Ramos evidently was done by him to avoid possible recognize the right of the vendee to proceed against the vendor
implication that he committed some underhanded maneuvers if the title to the land turns out to be defective as when the land
in manipulating to have the subject property sold to NBS, belongs to another person, the reverse is found in the deed of
instead of being sold to the plaintiff. (pp. 454-455, Original sale between BPI and NBS. Any losses which NBS may incur
RTC Record.) in the event the title turns out to be vested in another person
are to be borne by NBS alone. BPI is expressly freed under the
On the matter of credibility of witnesses where the findings or contract from any recourse of NBS against it should BPF’s
conclusions of the Court of Appeals and the trial court are title be found defective.
contrary to each other, the pronouncement of the Court
in Serrano v. Court of Appeals (196 SCRA 107[1991]) bears NBS, in its reply memorandum, does not refute or explain the
stressing: above circumstance squarely. It simply cites the badges of
fraud mentioned in Oria v. McMicking (21 Phil. 243[1912])
It is a settled principle of civil procedure that the conclusions and argues that the enumeration there is exclusive. The
of the trial court regarding the credibility of witnesses are decision in said case plainly states “the following are some of
entitled to great respect from the appellate courts because the the circumstances attending sales which have been
trial court had an opportunity to observe the demeanor of denominated by courts (as) badges of fraud.” There are
witnesses while giving testimony which may indicate their innumerable situations where fraud is manifested. One
candor or lack thereof. While the Supreme Court ordinarily enumeration in a 1912 decision cannot possibly cover all
does not rule on the issue of credibility of witnesses, that being indications of fraud from that time up to the present and into
a question of fact not properly raised in a petition under Rule the future.
45, the Court has undertaken to do so in exceptional situations
where, for instance, as here, the trial court and the Court of The Court of Appeals did not discuss the issue of damages.
Appeals arrived at divergent conclusions on questions of fact Petitioner cites the fee for filing the amended complaint to
and the credibility of witnesses. (at p. 110.) implead NBS, sheriff’s fees, registration fees, plane fare and
hotel expenses of Cebu-based counsel. Petitioner also claimed,
On the fourth question of whether or not NBS is an innocent and the trial court awarded, damages for the profits and
purchaser for value, the record shows that it is not. It acted in opportunity losses caused to petitioner’s business in the
bad faith. amount of P10,000,000.00.
Respondent NBS ignored the notice of lis pendens annotated We rule that the profits and the use of the land which were
on the title when it bought the lot. It was the willingness and denied to petitioner because of the non-compliance or
design of NBS to buy property already sold to another party interference with a solemn obligation by respondents is
which led BPI to dishonor the contract with Limketkai. somehow made up by the appreciation in land values in the
meantime.
Petitioner cites several badges of fraud indicating that BPI and
NBS conspired to prevent petitioner from paying the agreed Prescinding from the above, we rule that there was a perfected
price and getting possession of the property: contract between BPI and petitioner Limketkai; that the BPI
officials who transacted with petitioner had full authority to subdivision plan with an area of 2,608.7 (2,503.7) square
bind the bank; that the evidence supporting the sale is meters located at Diliman, Quezon City.
competent and admissible; and that the sale of the lot to NBS
during the trial of the case was characterized by bad faith. AQUINO, J.:
FALLO WHEREFORE, the questioned judgment of the Court The PHHC board of directors on February 18, 1960 passed
of Appeals is hereby REVERSED and SET ASIDE. The June Resolution No. 513 wherein it stated “that subject to the
10, 1991 judgment of Branch 151 of the Regional Trial Court approval of the Quezon City Council of the above-mentioned
of The National Capital Judicial Region stationed in Pasig, Consolidation Subdivision Plan, Lot 4, containing 4,182.2
Metro Manila is REINSTATED except for the award of Ten square meters be, as it is hereby awarded to Spouses Rizalino
Million Pesos (P10,000,000.00) damages which is hereby Mendoza and Adelaida Mendoza, at a price of twenty-one
DELETED. SO ORDERED. pesos (P21.00) per square meter” and “that this award shall
be subject to the approval of the OEC (PHHC) Valuation
Notes.—In case of fraud, bad faith, malice or wanton attitude, Committee and higher authorities”.
the guilty party is liable for all damages which may be
reasonably attributed to the non-performance of the The city council disapproved the proposed consolidation
obligations. (Legaspi Oil Co., Inc. vs. Court of Appeals, 224 subdivision plan on August 20, 1961 (Exh. 2). The said
SCRA 213 [1993]) spouses were advised by registered mail of the disapproval of
the plan (Exh. 2-PHHC). Another subdivision plan was
It is imperative for a purchaser of land which is possessed by prepared and submitted to the city council for approval. The
persons not the vendor to inquire and investigate into the revised plan, which included Lot 4, with a reduced area of
rights or title of those in possession. (Bautista vs. Court of 2,608.7, was approved by the city council on February 25,
Appeals, 230 SCRA 446[1994]) 1964 (Exh. H).
ACCEPTANCE SUBJECT TO SUSPENSIVE
CONDITION On April 26, 1965 the PHHC board of directors passed a
resolution recalling all awards of lots to persons who failed to
pay the deposit or down payment for the lots awarded to them
No. L-61623. December 26, 1984.*
(Exh. 5). The Mendozas never paid the price of the lot nor
PEOPLE’S HOMESITE & HOUSING CORPORATION,
made the 20% initial deposit.
petitioner-appellant, vs.COURT OF APPEALS,
RIZALINO L. MENDOZA and ADELAIDA R.
On October 18, 1965 the PHHC board of directors passed
MENDOZA, respondents-appellees.
Resolution No. 218, withdrawing the tentative award of Lot 4
to the Mendoza spouses under Resolution No. 513 and
Sale; P.H.H.C.; There is no perfected sale of a subdivision
reawarding said lot jointly and in equal shares to Miguela Sto.
lot where award thereof was expressly made subject to
Domingo, Enrique Esteban, Virgilio Pinzon, Leonardo
approval by higher authorities and there was no acceptance
Redublo and Jose Fernandez, subject to existing PHHC rules
manifested by the supposed awardee.—We hold that there
and regulations. The prices would be the same as those of the
was no perfected sale of Lot 4. It was conditionally or
adjoining lots. The awardees were required to deposit an
contingently awarded to the Mendozas subject to the approval
amount equivalent to 20% of the total selling price (Exh. F).
by the city council of the proposed consolidation subdivision
plan and the approval of the award by the valuation committee
The five awardees made the initial deposit. The corresponding
and higher authorities.
deeds of sale were executed in their favor. The subdivision of
Lot 4 into five lots was approved by the city council and the
Same; Same; Same.—The city council did not approve the
Bureau of Lands.
subdivision plan. The Mendozas were advised in 1961 of the
disapproval. In 1964, when the plan with the area of Lot 4
On March 16, 1966 the Mendoza spouses asked for
reduced to 2,608.7 square meters was approved, the Mendozas
reconsideration of the withdrawal of the previous award to
should have manifested in writing their acceptance of the
them of Lot 4 and for the cancellation of the re-award of said
award for the purchase of Lot 4 just to show that they were
lot to Sto. Domingo and four others. Before the request could
still interested in its purchase although the area was reduced
be acted upon, the spouses filed the instant action for specific
and to obviate any doubt on the matter. They did not do so.
performance and damages.
The PHHC board of directors acted within its rights in
withdrawing the tentative award.
The trial court sustained the withdrawal of the award. The
Mendozas appealed. The Appellate Court reversed that
APPEAL from the decision of the Court of Appeals.
decision and declared void the re-award of Lot 4 and the deeds
of sale and directed the PHHC to sell to the Mendozas Lot 4
The question in this case is whether the People’s Homesite &
with an area of 2,603.7 square meters at P21 a square meter
Housing Corporation bound itself to sell to the Mendoza
and pay to them P4,000 as attorney’s fees and litigation
spouses Lot 4 (Road) Pcs-4564 of the revised consolidation
expenses. The PHHC appealed to this Court.

The issue is whether there was a perfected sale of Lot 4, with Ownership is not transferred by perfection of the contract but
the reduced area, to the Mendozas which they can enforce by delivery, either actual or constructive. (Sampaguita
against the PHHC by an action for specific performance. Pictures, Inc. vs. Jalwindor Manufacturer, Inc., 93 SCRA
We hold that there was no perfected sale of Lot 4. It was 420.)
conditionally or contingently awarded to the Mendozas subject
to the approval by the city council of the proposed
[No. 23630. August 25, 1925]
consolidation subdivision plan and the approval of the award
TIBURCIO LEOQUINCO, plaintiff and
by the valuation committee and higher authorities.
appellant, vs.THE POSTAL SAVINGS BANK ET AL.,
defendants and appellees.
The city council did not approve the subdivision plan. The
Mendozas were advised in 1961 of the disapproval. In 1964,
SALE; PUBLIC AUCTION; RIGHT OF VENDOR, IN A
when the plan with the area of Lot 4 reduced to 2,608.7 square
PUBLIC AUCTION, TO IMPOSE CONDITIONS AS TO
meters was approved, the Mendozas should have manifested
SALE.—The defendant offered for sale at public auction
in writing their acceptance of the award for the purchase of
certain property, reserving the right to reject any and all
Lot 4 just to show that they were still interested in its purchase
bids. Held: That the owner of property which is offered for
although the area was reduced and to obviate any doubt on the
sale, either at public or private auction, has the right to
matter. They did not do so. The PHHC board of directors
prescribe the manner, conditions, and terms of such sale. He
acted within its rights in withdrawing the tentative award.
may provide that all of the purchase price should be paid at the
time of the sale, or any portion thereof, or that time will be
“The contract of sale is perfected at the moment there is a
given for the payment, or that any and all bids may be
meeting of minds upon the thing which is the object of the
rejected. The conditions of a public sale announced by an
contract and upon the price. From that moment, the parties
auctioneer or by the owner of the property at the time and
may reciprocally demand performance, subject to the law
place of the sale, are binding upon all bidders, whether they
governing the form of contracts.” (Art. 1475, Civil Code).
knew of such conditions or not.
“Son, sin embargo, exception a esta regla los casos en que por
virtud de la voluntad de las partes o de la ley, se celebra la
APPEAL from a judgment of the Court of First Instance of
venta bajo una condición suspensiva, y en los cuales no se
Manila. Imperial, J.
perfecciona la venta hasta el cumplimiento de la
condición” (4 Castan Tobeñas, Derecho Civil Español 8th ed.
This action was commenced in the Court of First Instance of
p. 81).
the City of Manila on the 15th day of May, 1924, against the
“In conditional obligations, the acquisition of rights, as well as
Postal Savings Bank (El Banco Postal de Ahorros) and its
the extinguishment or loss of those already acquired, shall
board of directors composed of Cipriano Unson, Miguel
depend upon the happening of the event which constitutes the
Unson, Antonio Villa-Real, Jose Topacio, Ben F. Wright, and
condition”. (Art. 1181, Civil Code). “Se llama suspensive la
Jose Alba.
condición de la que depende la perfeccion, o sea el principio
del contrato”. (9 Giorgi, Teoria de las Obligaciones, p. 57).
JOHNSON, J.:
Under the facts of this case, we cannot say there was a
Plaintiff alleged that he was the highest bidder at a public
meeting of minds on the purchase of Lot 4 with an area of
auction held by the defendants on March 31, 1924, for the sale
2,608.7 square meters at P21 a square meter.
of a piece or parcel of land belonging to the Bank, situated at
Navotas, Province of Rizal, having offered P27,000 for said
The case of Lapinig vs. Court of Appeals, 115 SCRA 213 is
property; that in Resolution No. 31 of the board of directors of
not in point because the awardee in that case applied for the
the Bank, authorizing the sale of said property at public
purchase of the lot, paid the 10% deposit and a conditional
auction, as well as in the public notice announcing said sale,
contract to sell was executed in his favor. The PHHC could
the board of directors have expressly reserved to themselves
not reaward that lot to another person.
the right to reject any and all bids; that as such highest bidder
at said auction, he wrote a letter to the defendants on May 9,
FALLO: WHEREFORE, the decision of the Appellate Court
1924, advising that he was ready to tender payment for the
is reversed and set aside and the judgment of the trial court is
land as soon as the deed of sale of the same in his favor is
affirmed. No costs.SO ORDERED.
executed and delivered by the defendants; that the defendants
Notes.—There is no perfected contract where the alleged
refused to execute the deed in spite of requests made therefor
contract was signed by only one party and the record shows
by him; that said refusal caused him damages in the sum of
that the other party did not execute or sign the said contract
P25,000 more or less. Plaintiff prayed that said defendants be
form. (Guardiano vs. Encarnacion,29 SCRA 326.)
ordered to execute and deliver the deed of sale of said land in
his favor, and to pay him damages amounting to P25,000, and
A contract of sale is perfected the moment there is agreement
the costs.
upon the thing object of the contract and upon the price.
(Philippine Virginia Tobacco Administration vs. De los
The defendants answered, admitting the allegations of the
Angeles, 87 SCRA 197.)
complaint, except the conclusions of law therein set forth and

the damages alleged to have been suffered by plaintiff. As a binding upon a purchaser, whether he knew them or not.
special defense, the defendants alleged that in Resolution No. (Kennell vs. Boyer, 144 Iowa, 303; Vanleer vs. Fain, 6
31 of the board of directors of the Postal Savings Bank, Humphrey [Tenn.], 104.)
authorizing the sale at public auction of the property in
question, as well as in the notice announcing said sale, the FALLO: Therefore, the sentence appealed from should be and
defendants expressly reserved to themselves "the right to is hereby affirmed, with costs against the appellant. So
reject any and all bids," and that they never accepted the bid or ordered.
offer of the plaintiff. The defendants prayed for relief from the
complaint, with costs against the plaintiff. FUNCTION OF EARNEST MONEY
Upon the issue thus presented the cause was brought on for
trial, at the conclusion of which and after a careful G.R. No. 119580. September 26, 1996.*
consideration of the evidence adduced pro and con, the PHILIPPINE NATIONAL BANK, petitioner, vs. COURT
Honorable C. A. -Imperial, judge, rendered a judgment OF APPEALS and LAPAZ KAW NGO, respondents.
holding that the plaintiff had not established his case, and
dismissed the complaint without costs. From said judgment Civil Law; Property; Sales; A contract to sell is akin to a
the plaintiff appealed, and now raises several questions of both conditional sale where the efficacy or obligatory force of the
fact and law. vendor’s obligation to transfer title is subordinated to the
happening of a future and uncertain event.—A contract to
There is no dispute as to the facts of this case which are sell is akin to a conditional sale where the efficacy or
essential to the decision thereof. They are clearly set forth in obligatory force of the vendor’s obligation to transfer title is
the pleadings and admitted .by both parties. It only remains to subordinated to the happening of a future and uncertain event
be added that the defendants not only did not accept the so that if the suspensive condition does not take place, the
plaintiff's bid, but on May 10, 1924, they wrote him a letter, parties would stand as if the conditional obligation had never
advising him that his bid was rejected by the board of directors existed. The suspensive condition is commonly full payment
at its meeting of May 6, 1924. of the purchase price.
There is absolutely no merit in this appeal. It may be Same; Same; Same; Distinction Between a Contract to Sell
summarily disposed of, without need for a discussion of the and a Contract of Sale.—The differences between a contract
errors assigned by appellant's counsel. Appellant set f orth and to sell and a contract of sale are well-settled in jurisprudence.
admitted in his pleadings that in the resolution adopted by the As early as 1951, we have held that: “x x x [a] distinction must
board of directors authorizing the sale at public auction of the be made between a contract of sale in which title passes to the
land, as well as in the notice announcing the auction, the buyer upon delivery of the thing sold and a contract to sell x x
appellees had expressly reserved to themselves the right to x where by agreement the ownership is reserved in the seller
reject any and all bids. By taking part in the auction and and is not to pass until the full payment of the purchase price
offering his bid, the appellant voluntarily submitted to the is made. In the first case, non-payment of the price is a
terms and conditions of the auction sale, announced in the negative resolutory condition; in the second case, full payment
notice, and clearly acknowledged the right so reserved to the is a positive suspensive condition. Being contraries, their
appellees. The appellees, making use of that right, rejected his effect in law cannot be identical. In the first case, the vendor
offer. Clearly, the appellant has no ground of action to compel has lost and cannot recover the ownership of the land sold
them to execute a deed of sale of the land in his favor, nor to until and unless the contract of sale is itself resolved and set
compel them to accept his bid or offer. "The owner of property aside. In the second case, however, the title remains in the
offered for sale at auction has the right to prescribe the vendor if the vendee does not comply with the condition
manner, conditions and terms of sale, and where these are precedent of making payment at the time specified in the
reasonable and are made known to the buyer, they are binding contract.” In other words, in a contract to sell, ownership is
upon him, and he cannot acquire a title in opposition to them, retained by the seller and is not to pass to the buyer until full
and against the consent of the owner. * * *" (Farr vs. John, 23 payment of the price or the fulfillment of some other
Iowa, 286; Batemann, on Auctions, p. 2; 6 Corpus Juris, p. conditions either of which is a future and uncertain event the
827.) non-happening of which is not a breach, casual or serious, but
simply an event that prevents the obligation of the vendor to
The owner of property offered for sale either at public or convey title from acquiring binding force.
private auction has the right to prescribe the manner,
conditions and terms of such sale. He may provide that all of Same; Same; Same; It is not enough to say that the contract
the purchase price shall be paid at the time of the sale or any of sale, being consensual became automatically and
portion thereof, or that time will be given for the payment. immediately effective.—We have often stated that it is not
(Blossom vs.Milwaukee and Chicago Railroad Co., 3 Wallace enough to say that the contract of sale, being consensual,
[U. S.], 196.) became automatically and immediately effective.
The conditions of a public sale, announced by an auctioneer or Same; Same; Same; Earnest money given in a sale
the owner of the property at the time and place of the sale, are transaction is considered part of the purchase price and
proof of the perfection of the sale.—Indeed under Article x x x your offer to purchase the Bank-acquired property x x x
1482 of the Civil Code, earnest money given in a sale was approved by the Bank, subject to the following terms and
transaction is considered part of the purchase price and proof conditions:
of the perfection of the sale. This provision, however, gives no
more than a disputable presumption that prevails in the 1.That the selling price shall be P5,394,300.00 (P100,000.00
absence of contrary or rebuttal evidence. In the instant case, already deposited) x x x
the letter-agreements themselves are the evidence of an 2.(a) That upon your failure to pay the additional deposit of
intention on the part of herein private parties to enter into P978,860.00 upon receipt of advice accepting your offer, your
negotiations leading to a contract of sale that is mutually P100,000.00 initial deposit shall be forfeited and for this
acceptable as to absolutely bind them to the performance of purpose the Bank shall be authorized to sell the property to
their obligations thereunder. The letter-agreements are replete other interested parties. x x x
with substantial condition precedents, acceptance of which on 3. The the Bank sells only whatever rights, interests and
the part of private respondent must first be made in order for participation it may have in the property and you are charged
petitioner to proceed to the next step in the negotiations. The with full knowledge of the nature and extent of said rights,
initial deposits under the two letter-agreements, therefore, interests and participation and waives [sic] your right to
should rather be construed, not strictly as earnest money, but warranty against eviction. x x x
as part of the consideration for petitioner’s promise to reserve 4.That the property shall be cleared of its present
the subject property for private respondent. tenants/occupants but all expenses to be incurred in connection
with the ejectment proceedings shall be for your account.
PETITION for review on certiorari of a decision of the Court 6.That the sale shall be subject to such other terms and
of Appeals. conditions that the Legal Department may impose to protect
the interest of the Bank. x x x’
The question at issue, one of law, is whether or not from the
undisputed facts there was entered between the Philippine On December 15, 1983, the plaintiff [private respondent]
National Bank and Lapaz Kaw Ngo a perfected contract of signified her conformity to the above letter-agreement by
sale of prime real property located in the heart of downtown affixing her signature thereon x x x.
Manila.
One of the conditions in the agreement was to clear the subject
Before us is a petition for review on certiorari seeking the property of its then occupants; thus, Lapaz undertook the
reversal of the decision1of the respondent Court of Appeals2 ejectment of the squatters/tenants at her own expense. In a
in an action for specific performance3 filed in the Regional letter dated January 23, 1984, Lapaz, citing the then prevailing
Trial Court (RTC)4 by private respondent Lapaz Kaw Ngo credit squeeze, requested for adjustments of payment
against petitioner Philippine National Bank (hereafter, proposals x x x.
“PNB”). Except for the award of P610,000.00 as actual
damages which was deleted, respondent appellate court On February 28, 1984, PNB wrote Lapaz reminding her of her
affirmed in all other respects the judgment5 rendered by the failure to remit the amount of P978,860.00 as embodied in its
RTC in favor of private respondent Ngo. letter dated December 6, 1983 x x x and of her refusal to send
her letter of conformity to the letter-agreement. Lapaz was
HERMOSISIMA, JR., J.: likewise advised to remit her cash payment of the full price
amounting to P5,378,902.50; otherwise, the subject property
The facts of this case, as narrated by respondent appellate shall be sold to other interested party/ies and her deposit
court, are undisputed: forfeited. Lapaz’s request for adjustment of payments was
likewise denied x x x.
“The subject matter of the case is a parcel of land containing a
net area of 1,190.72 square meters (1391.70 square meters In a letter dated March 1, 1984 x x x Lapaz, due to a
minus 200.98 square meters reserved for road widening and significant reduction in the land area being purchased,
Light Rail Transit) situated at the corner of Carlos Palanca and requested for the reduction of the selling price from
Helios Streets, Sta. Cruz, Manila, covered by and embraced in P5,394,300.00 to P5,135,599.17 on cash basis or a total of
Transfer Certificate of Title No. 134695 of the Registry of P6,066,706.49 on installment x x x.
Deeds of Manila x x x owned and registered in the name of x x
x the Philippine National Bank x x x. x x x On May 15, 1984, PNB favorably acted on Lapaz’s request x
x x.
On July 14, 1983 Lapaz made a formal offer to purchase the
parcel of land consisting of 1,250.70 [square meters] located at However, when no further payment was received by PNB
the corner of Carlos Palanca and Helios Streets, Sta. Cruz, from Lapaz, the former notified the latter by telegram that it
Manila, owned by and registered in the name of x x x PNB x x was giving her a last chance to pay the balance of the required
x PNB advised Lapaz of its approval of the latter’s offer to downpayment of P563,341.29; failure of which shall cause the
purchase the subject property subject to the terms and cancellation of the sale in her favor and the forfeiture of her
conditions stated in its official communication to the plaintiff P100,000.00 deposit x x x.
[private respondent] dated September 8, 1983, viz: ‘x x x
The sale in favor of Lapaz never materialized because of her A copy of the said letter appears to have been received by the
failure to remit the required amount agreed upon; hence, the plaintiff [private respondent] herself on May 20, 1986 x x x.
proposed sale was cancelled x x x and the plaintiff’s [private
respondent’s] deposit of P100,000.00 was forfeited by the In a letter dated May 23, 1986 x x x Lapaz informed the PNB
defendant [petitioner]. PNB then leased the property to a management that the terms and conditions set forth in its letter
certain Morse Rivera x x x. of May 14, 1986 were acceptable to her except condition no. 6
which says:
On October 3, 1984 Lapaz requested for a refund of her
deposit in the total amount of P660,000.00 (P550,000.00) with 6. That the property shall be cleared of its present
a further request that since the Bank was willing to refund her tenants/occupants but all expenses to be incurred in connection
deposit provided that the P100,000.00 is forfeited in favor of with the ejectment proceedings shall be for your account.’
the Bank, the amount of P100,000.00 be reduced to
P30,000.00 because her deposit of P660,000.00 (P550,000.00) She therefore requested for the deletion of the above condition
had, after all, already accumulated to a sizeable amount of because she had already defrayed the expenses for the
interest and, besides there was a delay in the approval of the ejectment of the previous occupants of the premises in
contract or proposal. Lapaz further intimated that her request compliance with the condition in the original approved offer to
for refund shall be subject to the release of the fund within one purchase. Besides, the present occupants are not squatters, but
(1) week from receipt thereof; otherwise, she would insist on lessees of PNB x x x Lapaz’s request for modification was not
purchasing the property subject to mutually agreed grace acceptable to the Bank, thus, she was given up to July 10,
period x x x. 1986 to submit, duly signed, the letter-conforme dated May
14, 1986 and to remit the initial amount of P827,119.83 to
On October 16, 1984, PNB released in favor of Lapaz the comply with the approved terms and conditions; otherwise, the
amount of P550,000.00 representing the refund of deposit approved sale will be cancelled and her deposit of
made on the offer to purchase the subject property x x x. P200,000.00 forfeited x x x.
In a letter dated January 14, 1987, Lapaz through counsel
On August 30, 1985, [Lapaz] wrote a letter to the former informed PNB that she was willing to pay and remit the
President of the Philippines, Ferdinand E. Marcos, requesting amount of P827,119.83 representing the balance of the 20%
for the lifting of the directive suspending the sale of the down payment of the approved purchase price as soon as the
subject property, which letter was transmitted to the then subject property was cleared of its present tenants/occupants.
President of the PNB for comment and/or action. However, the bank in its letter dated January 30, 1987
informed Lapaz that it could no longer grant her any extension
In its letter dated May 14, 1986, PNB advised Lapaz of the to pay the above stated amount, and cancelled on January 30,
approval of her request for revival of the previously approved 1987 the approved sale in plaintiff’s [private respondent’s]
offer to purchase the subject property subject to the terms and favor for being stale and unimplemented and forfeited her
conditions as follows: deposit of P200,000.00 x x x.]
‘1.That the selling price shall be P5,135,599.17 (P200,000.00)
already deposited x x x To demonstrate her protest over the cancellation, Lapaz
2.a.That upon your failure to pay the additional deposit of through counsel sent the letter dated February 6, 1987 asking
P827,119.83 upon receipt of advice of approval, your for a reconsideration of bank’s position on the matter by
P200,000.00 deposit shall be forfeited and for this purpose, the honoring the approved sale in plaintiff’s [private respondent’s]
Bank can sell the property to other interested parties; x x x favor as well as her deposit x x x. In reply, the Bank denied
3.That your previous deposit of P100,000.00 which was any further extension in favor of the plaintiff [private
forfeited by the Bank due to your failure to consummate the respondent] and likewise informed her that it had already
previously-approved sale, shall not be considered as part of the decided to sell the property for not less than P7,082,972.00
purchase price; through negotiated or sealed bidding x x x.
4.That the Bank sells only whatever rights, interests and
participation it may have in the property and you are charged As a consequence of the cancellation of the approved offer to
with full knowledge of the nature and extent of said rights, purchase in her favor, Lapaz filed [an] action for Specific
interests and participation and waives [sic] your right to Performance and Damages with Prayer for a Writ of
warranty against eviction; x x x Preliminary Injunction and Temporary Restraining Order.
6.That the property shall be cleared of its present
tenants/occupants but all expenses to be incurred in connection After trial, the lower court, on November 15, 1990, rendered
with the ejectment proceedings shall be for your account; judgment in favor of the plaintiff [private respondent] x x x.”6
7.That the sale shall be subject to all terms and conditions In the decretal portion of the trial court’s judgment, petitioner
covering sale of similar acquired real estate properties; was ordered to comply with the approved sale of the subject
8.That the sale shall also be subject to all terms and conditions property but without the right to impose the condition that
that the Legal Department may impose to protect the interest private respondent shall bear the expenses for ejecting the
of the Bank.’ x x x occupants of the subject property. Petitioner was also ordered
to pay P610,000.00 as actual expenses, P100,000.00 as

attorney’s fees, plus P1,000.00 per appearance, and the costs The agreement nonetheless was subsequently revived,
of suit. pursuant to which, another letter-agreement dated May 14,
1986 was sent by appellant [petitioner] to appellee [private
The aforecited judgment of the court a quo, totally respondent] x x x. The latter did not sign the letter-agreement
unacceptable to petitioner, was appealed to the respondent but instead sent a letter to the appellant [petitioner] dated May
court. Petitioner took exception to the following postulations 23, 1986 expressing her conformity to the terms and
of the trial court: (1) that there was a perfected contract of sale conditions stipulated therein except for the condition which
between herein private parties notwithstanding the suspensive states that the subject ‘property shall be cleared of its present
condition imposed upon private respondent for her to bear the tenants/occupants’ at her expense. x x x. On the other hand,
expenses for ejecting the occupants of the subject property; (2) appellant [petitioner] posits the view that since the approval of
that the deposit of P200,000.00 given by private respondent the revival of the offer to purchase was made subject to the
was earnest money which is proof of the perfection of the terms and conditions stated therein, which conditions were
contract of sale albeit the said condition imposed thereon; and necessary for the enforceability of the obligation against the
(3) that the cancellation of the second sale was baseless appellant [petitioner], and there being no absolute acceptance
notwithstanding proof of private respondent’s refusal to pay by the plaintiff [private respondent] of such terms and
the balance of the 20% down payment of the purchase price of conditions, then no contract of sale was perfected between the
the subject property. parties.
The respondent court disagreed with and answered each of, the Appellant’s [petitioner’s] view is devoid of merit.
aforegoing asseverations of petitioner in this wise:
We note that the appellant [petitioner] itself admitted that the
“The plaintiff-appellee’s [private respondent’s] offer to second agreement was merely a revival of the first agreement
purchase the subject property was originally approved by the which was duly approved by the bank, and the terms and
defendant-appellant [petitioner] on September 8, 1983 subject conditions thereof accepted by the appellee [private
however to the terms and conditions enumerated therein. x x x respondent] x x x. Although there were some changes in the
second agreement, such changes were not substantial so as to
From the moment the plaintiff-appellee [private respondent] make it a different contract of sale from that of the first
signed the letter-agreement signifying her conformity thereto, agreement of the parties. x x x
which simply means that she was accepting the terms and
conditions therein absolutely, there was created between the Considering that there was already an ejectment case filed by
parties, a perfected contract of sale. x x x the appellant [petitioner] against its lessees, then there was no
longer any need for the plaintiff-appellee [private respondent]
The failure of the plaintiff [private respondent] to remit the to initiate another ejectment case at her expense, much less
required downpayment does not negate the perfection of the was there a need to incorporate condition no. 6 in the
first contract of sale between the parties. The failure of the agreement. Thus, the forfeiture of the plaintiff’s [private
vendee x x x to pay the price agreed upon in the contract only respondent’s] deposit of P200,000.00 and the subsequent
gives the vendor x x x the right to exact the fulfillment or to unilateral cancellation of the agreement have no legal basis at
rescind the contract (Art. 1191, supra; Jacinto vs. all. Such cancellation was made without the appellant’s
Kaparaz, 209 SCRA 246). [petitioner’s] action on the appellee’s [private respondent’s]
request for reconsideration of the PNB’s denial of her request
The terms and conditions in the letter-agreement need not be for deletion of condition No. 6 x x x.
complied with before it could be said that the contract had
already attained its perfection. A reading of the letter- Appellant [petitioner] likewise argues that the deposits given
agreement would reveal that the perfection of the contract by the appellate [private respondent] were expressly subject to
does not depend on the fulfillment of the terms and conditions conditions agreed upon by the parties; hence, cannot be
therein. Since there was a meeting of the minds between the deemed as earnest money contemplated in Article 1482 of the
parties upon the object of the contract and upon the price, the New Civil Code.
contract of sale had already been perfected. Thus, whether or A close scrutiny of the two letters-agreement shows that the
not the conditions were fulfilled, the agreement remains to be deposits of P100,000.00 x x x and P200,000.00 x x x were
valid and each party may reciprocally demand for its made part of the selling/purchase price. x
performance x x x.
On the basis of the above, there can be no other conclusion
Admittedly, the x x x [private respondent] failed to remit the than that the deposits made x x x were actually earnest money,
required downpayment for the first contract after several such that from the total selling price the arras (earnest money)
notices for payment thereof x x x Thus, it was just proper for must be deducted and the balance is all that has to be paid
the defendant-Bank [petitioner] to cancel the agreement to
protect its interests. Anyway, it was merely exercising its right The appellant [petitioner] likewise assigns as error the findings
under Article 1191 of the New Civil Code which right was of the lower court on the absence of proof that the appellee
clearly stipulated in the agreement x x x. [private respondent] refused to pay the x x x downpayment in
the second agreement x x x.
appellate court held that “[t]hus, it was just proper for the
x x x The only reason which prevented the appellee [private [petitioner] Bank to cancel the agreement to protect its
respondent] from paying the required downpayment was the interests,9” as it did so on October 16, 1984. Notwithstanding
stipulation in the agreement requiring her to eject the present such ruling, however, respondent court theorized that because
occupants of the premises when in fact she already spent for private respondent accepted the terms and conditions in that
the eviction of its previous tenants x x x. However x x x there first letter-agreement, and petitioner approved the revival
is no need for such stipulation because anyway the appellant thereof in another letter-agreement, dated May 14, 1986,
[petitioner] had already instituted an action against its tenants conformity to this second letter-agreement by private
x x x Besides, the protest letter sent by appellee’s [private respondent would be superfluous, the letter-agreement dated
respondent’s] lawyer x x x as well as the filing of this case are May 14, 1986 being “merely a revival of the first agreement
eloquent proofs of the appellee’s [private respondent’s] desire, which was duly approved by the bank and the terms and
capacity and willingness to proceed with the sale of the conditions thereof accepted by the appellee [private
property. As we noted above, the appellant [petitioner] never respondent].”10 Needless to say, this postulation of respondent
replied to the appellee’s [private respondent’s] request for court is in complete disregard of the status of the first letter-
reconsideration of its perusal to delete condition no. 6. PNB’s agreement as being non-existent and totally inefficacious as a
inaction must have made Lapaz to suspend payment.”7 result of its cancellation.
Likewise rebuffed by the respondent Court of Appeals which, Respondent court then proceeded to state that petitioner
however, deleted the P610,000.00 award for actual damages having already complied with the condition that she shoulder
granted by the trial court to private respondent, petitioner all expenses for the ejectment of the occupants of the subject
prays that the herein assailed decision be set aside because the property under the first letter-agreement, “it would have been
respondent court apparently decided questions of substance too cumbersome and inequitable if the plaintiff-appellee
not in accord with statutory and case law: [private respondent] were again made to shoulder the expenses
for the eviction of the subsequent tenants/occupants of the
“THE COURT OF APPEALS ERRED: subject property.”11Evidently, respondent court perceived the
two letter-agreements to be a single transaction such that it
I IN HOLDING THAT THERE WAS A PERFECTED justified private respondent’s non-compliance with condition
CONTRACT BETWEEN PNB AND MS. NGO DESPITE No. 6 in the second letter-agreement by invoking her earlier
THEIR CLEAR DISAGREEMENT ON THE compliance with the same condition in the first letter-
SUBSTANTIVE CONDITION THAT THE LATTER agreement.
SHOULDER THE EXPENSES FOR THE EJECTMENT OF
THE OCCUPANTS OF THE LOT TO BE SOLD This is confused sophism. When the first letter-agreement was
cancelled by petitioner, and private respondent agreed to that
A.PNB’s acceptance of Ms. Ngo’s offer to revive her purchase cancellation upon receiving P550,000.00 as refund of her
of subject lot was subject to certain substantive conditions. aggregate deposit, all the effects of that agreement were
B.PNB’s acceptance of Ms. Ngo’s offer was in fact a counter- terminated. Upon mutual assent to that cancellation, the
offer which she rejected by her insistence that PNB delete agreement so cancelled thereafter no longer existed. Thus,
condition number 6. compliance by private respondent with the terms and
C.PNB’s Condition Number 6 is material and should be conditions of that first agreement served the purposes of that
agreed upon at inception of contract. agreement and cannot be made to serve the purposes of the
D.The area of agreement in PNB’s counter-offer/acceptance second letter-agreement. Respondent court fallaciously tacked
extends to Condition number 6 together with all other the two agreements with each other and commingled their
conditions PNB specified. effects; it incorrectly considered petitioner’s successful
ejectment of the subject property’s 1983 occupants under the
II IN HOLDING THAT MS. NGO’S REFUSAL TO PAY first letter-agreement to be sufficient compliance with the
THE P827,199.83 DOWNPAYMENT IS NOT A VALID condition under the second letter-agreement that the subject
BASIS FOR PNB’S CANCELLATION OF THE property be cleared of its 1986 occupants.
‘APPROVED’ SALE.”8
The records attest to the fact that private respondent refused to
The petition is meritorious. accept condition No. 6 of the second letter-agreement, dated
May 14, 1986. Private respondent offered, for the second time,
There are two separate transactions in the after the first letter-agreement was cancelled, to buy the
instant case; the first having been subject property from petitioner who accepted such offer but
unconditionally cancelled, effects thereof subject to specified terms and conditions. Thus, petitioner’s
cannot be deemed applicable to the acceptance of private respondent’s offer was a qualified
second transaction acceptance, which in effect, is a counter-offer necessitating
-------------------------------------------------------- private respondent’s acceptance in return. Refusing to bind
Even private respondent admits in her pleadings that she failed herself to bear the expenses for a second ejectment suit
to remit the required down payment under the first letter- involving the subject property, private respondent in effect
agreement, dated September 8, 1983. On this basis, respondent rejected petitioner’s counter offer or at the least, accepted the
same subject to the deletion of condition No. 6. This, it has to converted from a contract to sell or at the most an executory
be noted, is another counter-offer necessitating acceptance this sale into an executed one.15
time by petitioner. Petitioner was unwilling to accept the same “x x x Where the seller promised to execute a deed of absolute
and demanded remittance of the remainder of the down sale upon completing payment of the price, it is a contract to
payment, the failure of which payment, petitioner warned sell. In the case at bar, the sale is still in the executory stage,
private respondent, would result in the forfeiture of the initial namely, that if private respondent is able to secure the needed
deposit of P200,000.00 and the ipso facto cancellation of the funds to be used in the purchase of the two lots owned by
second letter-agreement enabling petitioner to sell the subject petitioners. A mere executory sale, one where the sellers
property through sealed bidding. merely promise to transfer the property at some future date, or
From the foregoing, it is clear that private respondent and where some conditions have to be fulfilled before the contract
petitioner were negotiating for terms mutually acceptable to is converted from an executory to an executed one, does not
them. Unfortunately, a mutually acceptable set of terms was pass ownership over the real estate being sold.
not reached between them, and petitioner exercised its right
under the second letter-agreement to cancel the same. This In our jurisdiction, it has been held that an accepted bilateral
process of negotiation undertaken in 1986 by herein private promise to buy and sell is in a sense similar to, but not exactly
parties is undeniably distinct from and entirely independent of the same, as a perfected contract of sale because there is
the events that transpired in 1983 in the context of the first already a meeting of minds upon the thing which is the object
letter agreement. Precisely another negotiation was necessary of the contract and upon the price. But a contract of sale is
because this 1986 transaction is different and separate from consummated only upon delivery and payment. x
that undertaken by the said parties in 1983.
x x x Petitioners as promisors were never obliged to convey
Both letter-agreements are in the nature title before the happening of the suspensive condition. In fact,
of contracts to sell; non-compliance with nothing stood in the way of their selling the property to
the suspensive conditions set forth therein another after unsuccessful demand for said price upon the
prevents the obligation of the vendor to expiration of the time agreed upon.”16
convey title from having obligatory force
---------------------------------------------------------- The differences between a contract to sell and a contract of
The fundamental flaw in the reasoning of both the trial court sale are well-settled in jurisprudence. As early as 1951, we
and the respondent appellate court is their admitted premise have held that:
that both letter-agreements are contracts of sale the perfection
of which are proven by the earnest money tendered to and “x x x [a] distinction must be made between a contract of sale
accepted by petitioner in the form of deposits of P100,000.00 in which title passes to the buyer upon delivery of the thing
and P200,000.00 under the first and second letter-agreements, sold and a contract to sell x x x where by agreement the
respectively. ownership is reserved in the seller and is not to pass until the
full payment of the purchase price is made. In the first case,
A perusal of the letter-agreements shows that they are non-payment of the price is a negative resolutory condition; in
contracts to sell and not contracts of sale. the second case, full payment is a positive suspensive
condition. Being contraries, their effect in law cannot be
A contract to sell is akin to a conditional sale where the identical. In the first case, the vendor has lost and cannot
efficacy or obligatory force of the vendor’s obligation to recover the ownership of the land sold until and unless the
transfer title is subordinated to the happening of a future and contract of sale is itself resolved and set aside. In the second
uncertain event so that if the suspensive condition does not case, however, the title remains in the vendor if the vendee
take place, the parties would stand as if the conditional does not comply with the condition precedent of making
obligation had never existed.12 The suspensive condition is payment at the time specified in the contract.”17
commonly full payment of the purchase price.13
In other words, in a contract to sell, ownership is retained by
“Thus it has been held that a deed of sale is absolute in nature the seller and is not to pass to the buyer until full payment of
although denominated as a “Deed of Conditional Sale” where the price or the fulfillment of some other conditions either of
nowhere in the contract in question is a proviso or stipulation which is a future and uncertain event the non-happening of
to the effect that title to the property is sold is reserved in the which is not a breach, casual or serious, but simply an event
vendor until full payment of the purchase price, nor is there a that prevents the obligation of the vendor to convey title from
stipulation giving the vendor the right to unilaterally rescind acquiring binding force.18 To illustrate the effect of a positive
the contract the moment the vendee fails to pay within a fixed suspensive condition upon the nature of the transaction, as to
period x x x.”14 whether it is a contract to sell or a contract of sale, we have
held thus:
If it were not full payment of the purchase price upon which
depends the passing of title from the vendor to the vendee, it “In the agreement in question, entitled PURCHASE AND
may be some other condition or conditions that have been SALE OF SCRAP IRON, the seller bound and promised itself
stipulated and must be fulfilled before the contract is to sell the scrap iron upon the fulfillment by the private
respondent of his obligation to make or indorse an irrevocable
and unconditional letter of credit in payment of the purchase property anew to purchase offers, is in the nature of a
price. Its principal stipulation reads, to wit: x x x stipulation reserving title in the vendor until full payment of
the purchase price or giving the vendor the right to unilaterally
‘Witnesseth: rescind the contract the moment the vendee fails to pay within
a fixed period.
That the SELLER agrees to sell, and the BUYER agrees to
buy x x x on the following terms and conditions: We had already made the finding that the letter-agreements in
1.x x x question indeed bear the provisions reserving title in petitioner
2.To cover payment of the purchase price, BUYER will open, until payment of the additional deposit representing more or
make or indorse an irrevocable and unconditional letter of less 20% of the purchase price. We also find, however, that the
credit not later than May 15, 1983 at the Consolidated Bank intention of the private parties herein to make the sale
and Trust Company, Dumaguete City Branch, in favor of the dependent on private respondent’s compliance with certain
SELLER in the sum of x x x (P250,000.00) x x x other conditions, is undeniable and plainly evident in the
3.x x x letter-agreements. Identical provisions therein relating to
4.x x x.’ private respondent’s waiver of her right to warranty against
eviction and her accountability for the expenses for the
The petitioner corporation’s obligation to sell is unequivocally ejectment proceedings, are not so called “standard” provisions
subject to a positive suspensive condition, i.e., the private that are more of a rhetorical device than conditions genuinely
respondent’s opening, making or indorsing of an irrevocable meant by the parties to be suspensive conditions in the legal
and unconditional letter of credit. The former agreed to deliver sense. In fact we find the inclusion of these provisions to be
the scrap iron only upon payment of the purchase price by part of the consideration of petitioner in considering private
means of an irrevocable and unconditional letter of credit. respondent’s offer to purchase the subject property.
Otherwise stated, the contract is not one of sale where the Corollarily, we find condition No. 6 under the second letter-
buyer acquired ownership over the property subject to the agreement relating to the accountability of private respondent
resolutory condition that the purchase price would be paid for the expenses for the ejectment proceedings, to be a positive
after delivery. Thus, there was to be no actual sale until the suspensive condition, among the other positive suspensive
opening, making or indorsing of the irrevocable and conditions embodied in the letter-agreement, non-compliance
unconditional letter of credit. Since what obtains in the case at of which prevents petitioner’s obligation to proceed with the
bar is a mere promise to sell, the failure of the private sale and ultimately transfer title to private respondent, from
respondent to comply with the positive suspensive condition having obligatory force.
cannot even be considered a breach—casual or serious—but
simply an event that prevented the obligation of petitioner Moreover, no less revealing is the fact that the letter-
corporation to convey title from acquiring binding force. x x x agreements are not deeds of sale, thereunder no title having
been passed from petitioner to private respondent. Herein lies
In the instant case, x x x private respondent fail[ed] to open, another important distinction between a contract to sell and a
make or indorse an irrevocable and unconditional letter of contract of sale.
credit x x x “x x x The distinction between the two is important for in a
contract of sale, the title passes to the vendee upon the
Consequently, the obligation of the petitioner corporation to delivery of the thing sold, whereas in a contract to sell, by
sell did not arise; it therefore cannot be compelled by specific agreement, ownership is reserved in the vendor and is not to
performance to comply with its prestation. x x x.”19 pass until the full payment of the price. In a contract of sale,
the vendor has lost and cannot recover ownership until and
In the instant case, private respondent does not dispute the fact unless the contract is resolved or rescinded, whereas in a
that, under identical provisions in the two letter-agreements, contract to sell, title is retained by the vendor until the full
her obligation was to deposit an initial amount (P100,000.00 payment of the price, such payment being a positive
under the first letter-agreement and P200,000.00 under the suspensive condition, failure of which is not a breach but an
second letter-agreement) and then subsequently to deposit an event that prevented the obligation of the vendor to convey
additional amount representing roughly 20% of the purchase title from becoming effective.”21
price (P978,860.00 under the first letter agreement and
P827,119.83 under the second letter-agreement). Under both We have often stated that it is not enough to say that the
letter-agreements, the consequences of private respondent’s contract of sale, being consensual, became automatically and
failure to remit the additional deposit, are unequivocal and immediately effective.22
plainly comprehensible: “x x x deposit shall be forfeited and
for this purpose, the Bank can sell the property to other “Manuel v. Rodriguez, 109 Phil. 1, was one such occasion. In
interested parties x x x due to your [private respondent’s] Manuel, ‘only the price and the terms of payment were in
failure to consummate the previously-approved sale x x x.”20 writing,’ but the most important matter in the controversy, the
alleged transfer of title was never ‘reduced to any written
This right reserved in the petitioner to in effect cancel the document. It was held that the contract should not be
agreement to sell upon failure of private respondent to remit considered x x x a sale but a promise to sell; and that ‘the
the additional deposit and to consequently open the subject absence of a formal deed of conveyance’ was a strong
indication ‘that the parties did not intend immediate transfer of FALLO: WHEREFORE, the Petition for Review is HEREBY
title, but only a transfer after full payment of the price.’ Under GRANTED. The decision of the Court of Appeals in CA-G.R.
these circumstances, the Court ruled Article 1504 of the Civil CV No. 33490 and the decision of the Regional Trial Court of
Code of 1889 (Art. 1592 of the present Code) to be Manila, Branch XXVI, in Civil Case No. 87-39598, are hereby
inapplicable to the contract in controversy—a contract to sell reversed and set aside. Private respondent’s complaint for
or promise to sell—where title remains with the vendor until specific performance and damages in Civil Case No. 87-39598
fulfillment of a positive suspensive condition x x x.”23 is dismissed. No pronouncement as to costs. SO ORDERED.
Thus, we have applied the above doctrine not in a few cases
and looked into, in determining the true nature of an alleged Note.—A sale is at once perfected when a person obligates
sale transaction, whether or not there was transfer of title. In himself for a price certain to deliver and to transfer ownership
one case, we found that: of a specific thing or right to another over which the latter
agrees. (Romero vs. Court of Appeals, 250 SCRA 223 [1995])
“Applying these distinctions, the Court finds that the
agreement between PBC and the private respondents was only
G.R. No. 137290. July 31, 2000.*
a contract to sell, not a contract of sale. And the reasons are
SAN MIGUEL PROPERTIES PHILIPPINES, INC.,
obvious.
petitioner, vs. SPOUSES ALFREDO HUANG and GRACE
There was no immediate transfer of title to the private
HUANG, respondents.
respondents as would have happened if there had been a sale
at the outset. The supposed sale was never registered and TCT
Civil Law; Property; Sales; Amount given not as a part of
No. 218661 in favor of PBC was not replaced with another
the purchase price and as proof of the perfection of the
certificate of title in favor of the private respondents.
contract of sale but only as a guarantee that respondents
would not back out of the sale.—With regard to the alleged
In the instant case, there was apparently no transfer of title, not
payment and acceptance of earnest money, the Court holds
even mention of such a transfer in the future, considering that
that respondents did not give the P1 million as “earnest
all the parties were aware of the occupancy of the subject
money” as provided by Art. 1482 of the Civil Code. They
property by third persons. This circumstance all the more
presented the amount merely as a deposit of what would
reinforces our finding that the transaction contemplated under
eventually become the earnest money or downpayment should
the letter-agreements was a contract to sell or a conditional
a contract of sale be made by them. The amount was thus
sale which absolutely depends, for its efficacy, upon the
given not as a part of the purchase price and as proof of the
happening of the conditions specified in the said letter-
perfection of the contract of sale but only as a guarantee that
agreements.
respondents would not back out of the sale. Respondents in
fact described the amount as an “earnest-deposit.”
Private respondent also asseverates that the initial deposit of
P200,000.00 under the second letter-agreement is earnest
Same; Same; Same; Option giving respondents the
money, that is, by express provision of the Civil Code,
exclusive right to buy the properties within the period agreed
considered part of the purchase price and proof of the
upon is separate and distinct from the contract of sale which
perfection of the sale.
the parties may enter.—The first condition for an option
period of 30 days sufficiently shows that a sale was never
Indeed, under Article 1482 of the Civil Code, earnest money
perfected. As petitioner correctly points out, acceptance of this
given in a sale transaction is considered part of the purchase
condition did not give rise to a perfected sale but merely to an
price and proof of the perfection of the sale. This provision,
option or an accepted unilateral promise on the part of
however, gives no more than a disputable presumption that
respondents to buy the subject properties within 30 days from
prevails in the absence of contrary or rebuttal evidence. In the
the date of acceptance of the offer. Such option giving
instant case, the letter-agreements themselves are the evidence
respondents the exclusive right to buy the properties within the
of an intention on the part of herein private parties to enter into
period agreed upon is separate and distinct from the contract
negotiations leading to a contract of sale that is mutually
of sale which the parties may enter. All that respondents had
acceptable as to absolutely bind them to the performance of
was just the option to buy the properties which privilege was
their obligations thereunder. The letter-agreements are replete
not, however, exercised by them because there was a failure to
with substantial condition precedents, acceptance of which on
agree on the terms of payment. No contract of sale may thus
the part of private respondent must first be made in order for
be enforced by respondents.
petitioner to proceed to the next step in the negotiations. The
Same; Same; Same; Option secured by respondents from
initial deposits under the two letter-agreements, therefore,
petitioner was fatally defective; Consideration in an option
should rather be construed, not strictly as earnest money, but
contract may be anything of value, unlike in sale where it
as part of the consideration for petitioner’s promise to reserve
must be the price certain in money or its equivalent.—Even
the subject property for private respondent. Certainly in
the option secured by respondents from petitioner was fatally
excluding all other prospective buyers from bidding for the
defective. Under the second paragraph of Art. 1479, an
subject property, petitioner was in effect giving up what may
accepted unilateral promise to buy or sell a determinate thing
have been more lucrative offers or better deals.
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 equal monthly installments from May to December, 1994.
where it must be the price certain in money or its equivalent. However, petitioner refused the counter-offer.
There is no showing here of any consideration for the option.
Lacking any proof of such consideration, the option is On March 29, 1994, Atty. Dauz wrote another letter 3proposing
unenforceable. the following terms for the purchase of the properties, viz.:
This is to express our interest to buy your above-mentioned
Same; Same; Same; The manner of payment of the property with an area of 1,738 sq. meters. For this purpose, we
purchase price is an essential element before a valid and are enclosing herewith the sum of P1,000,000.00 representing
binding contract of sale can exist.—The appellate court earnest-deposit money, subject to the following conditions.
opined that the failure to agree on the terms of payment was
no bar to the perfection of the sale because Art. 1475 only 1.We will be given the exclusive option to purchase the
requires agreement by the parties as to the price of the object. property within the 30 days from date of your acceptance of
This is error. In Navarro v. Sugar Producers Cooperative this offer.
Marketing Association, Inc., we laid down the rule that the 2.During said period, we will negotiate on the terms and
manner of payment of the purchase price is an essential conditions of the purchase; SMPPI will secure the necessary
element before a valid and binding contract of sale can exist. Management and Board approvals; and we initiate the
Although the Civil Code does not expressly state that the documentation if there is mutual agreement between us.
minds of the parties must also meet on the terms or manner of 3.In the event that we do not come to an agreement on this
payment of the price, the same is needed, otherwise there is no transaction, the said amount of P1,000,000.00 shall be
sale. As held in Toyota Shaw, Inc. v. Court of Appeals, refundable to us in full upon demand....
agreement on the manner of payment goes into the price such Isidro A. Sobrecarey, petitioner’s vice-president and
that a disagreement on the manner of payment is tantamount to operations manager for corporate real estate, indicated his
a failure to agree on the price. conformity to the offer by affixing his signature to the letter
and accepted the “earnest-deposit” of P1 million. Upon
Same; Same; Same; It is not the giving of earnest money, request of respondent spouses, Sobrecarey ordered the
but the proof of the concurrence of all the essential elements removal of the “FOR SALE” sign from the properties.
of the contract of sale which establishes the existence of a
perfected sale.—It is not the giving of earnest money, but the Atty. Dauz and Sobrecarey then commenced negotiations.
proof of the concurrence of all the essential elements of the During their meeting on April 8, 1994, Sobrecarey informed
contract of sale which establishes the existence of a perfected Atty. Dauz that petitioner was willing to sell the subject
sale. properties on a 90-day term. Atty. Dauz countered with an
offer of six months within which to pay.
PETITION for review on certiorari of a decision of the Court
of Appeals. On April 14, 1994, the parties again met during which
Sobrecarey informed Atty. Dauz that petitioner had not yet
This is a petition for review of the decision,1 dated April 8, acted on her counter-offer. This prompted Atty. Dauz to
1997, of the Court of Appeals which reversed the decision of propose a four-month period of amortization.
the Regional Trial Court, Branch 153, Pasig City dismissing
the complaint brought by respondents against petitioner for On April 25, 1994, Atty. Dauz asked for an extension of 45
enforcement of a contract of sale. days from April 29, 1994 to June 13, 1994 within which to
MENDOZA, J.: exercise her option to purchase the property, adding that
within that period, “[we] hope to finalize [our] agreement on
The facts are not in dispute. the matter.”4 Her request was granted.
Petitioner San Miguel Properties Philippines, Inc. is a On July 7, 1994, petitioner, through its president and chief
domestic corporation engaged in the purchase and sale of real executive officer, Federico Gonzales, wrote Atty. Dauz
properties. Part of its inventory are two parcels of land informing her that because the parties failed to agree on the
totalling 1,738 square meters at the corner of Meralco Avenue terms and conditions of the sale despite the extension granted
and General Capinpin Street, Barrio Oranbo, Pasig City, by petitioner, the latter was returning the amount of P1 million
which are covered by TCT Nos. PT-82395 and PT-82396 of given as “earnest-deposit.”5
the Register of Deeds of Pasig City.
On July 20, 1994, respondent spouses, through counsel, wrote
On February 21, 1994, the properties were offered for sale for petitioner demanding the execution within five days of a deed
P52,140,000.00 in cash. The offer was made to Atty. Helena of sale covering the properties. Respondents attempted to
M. Dauz who was acting for respondent spouses as return the “earnest-deposit” but petitioner refused on the
undisclosed principals. In a letter 2 dated March 24, 1994, Atty. ground that respondents’ option to purchase had already
Dauz signified her clients’ interest in purchasing the properties expired.
for the amount for which they were offered by petitioner,
under the following terms: the sum of P500,000.00 would be On August 16, 1994, respondent spouses filed a complaint for
given as earnest money and the balance would be paid in eight specific performance against petitioner before the Regional
Trial Court, Branch 133, Pasig City where it was docketed as With regard to the alleged payment and acceptance of earnest
Civil Case No. 64660. money, the Court holds that respondents did not give the P1
million as “earnest money” as provided by Art. 1482 of the
Within the period for filing a responsive pleading, petitioner Civil Code. They presented the amount merely as a deposit of
filed a motion to dismiss the complaint alleging that (1) the what would eventually become the earnest money or down-
alleged “exclusive option” of respondent spouses lacked a payment should a contract of sale be made by them. The
consideration separate and distinct from the purchase price and amount was thus given not as a part of the purchase price and
was thus unenforceable and (2) the complaint did not allege a as proof of the perfection of the contract of sale but only as a
cause of action because there was no “meeting of the minds” guarantee that respondents would not back out of the sale.
between the parties and, therefore, no perfected contract of Respondents in fact described the amount as an “earnest-
sale. The motion was opposed by respondents. deposit.” In Spouses Doromal, Sr. v. Court of Appeals,9 it was
held:
On December 12, 1994, the trial court granted petitioner’s
motion and dismissed the action. Respondents filed a motion . . . While the P5,000 might have indeed been paid to Carlos in
for reconsideration, but it was denied by the trial court. They October, 1967, there is nothing to show that the same was in
then appealed to the Court of Appeals which, on April 8, 1997, the concept of the earnest money contemplated in Art. 1482 of
rendered a decision6 reversing the judgment of the trial court. the Civil Code, invoked by petitioner, as signifying perfection
The appellate court held that all the requisites of a perfected of the sale. Viewed in the backdrop of the factual milieu
contract of sale had been complied with as the offer made on thereof extant in the record, We are more inclined to believe
March 29, 1994, in connection with which the earnest money that the said P5,000.00 were paid in the concept of earnest
in the amount of P1 million was tendered by respondents, had money as the term was understood under the Old Civil Code,
already been accepted by petitioner. The court cited Art. 1482 that is, as a guarantee that the buyer would not back out,
of the Civil Code which provides that “[w]henever earnest considering that it is not clear that there was already a
money is given in a contract of sale, it shall be considered as definite agreement as to the price then and that petitioners
part of the price and as proof of the perfection of the contract.” were decided to buy 6/7 only of the property should
The fact the parties had not agreed on the mode of payment respondent Javellana refuse to agree to part with her 1/7
did not affect the contract as such is not an essential element share.10
for its validity. In addition, the court found that Sobrecarey
had authority to act in behalf of petitioner for the sale of the In the present case, the P1 million “earnest-deposit” could not
properties.7 have been given as earnest money as contemplated in Art.
1482 because, at the time when petitioner accepted the terms
Petitioner moved for reconsideration of the trial court’s of respondents’ offer of March 29, 1994, their contract had not
decision, but its motion was denied. Hence, this petition. yet been perfected. This is evident from the following
conditions attached by respondents to their letter, to wit: (1)
Petitioner contends that the Court of Appeals erred in finding that they be given the exclusive option to purchase the
that there was a perfected contract of sale between the parties property within 30 days from acceptance of the offer; (2) that
because the March 29, 1994 letter of respondents, which during the option period, the parties would negotiate the terms
petitioner accepted, merely resulted in an option contract, and conditions of the purchase; and (3) petitioner would
albeit it was unenforceable for lack of a distinct consideration. secure the necessary approvals while respondents would
Petitioner argues that the absence of agreement as to the mode handle the documentation.
of payment was fatal to the perfection of the contract of sale.
Petitioner also disputes the appellate court’s ruling that Isidro The first condition for an option period of 30 days sufficiently
A. Sobrecarey had authority to sell the subject real properties.8 shows that a sale was never perfected. As petitioner correctly
points out, acceptance of this condition did not give rise to a
Respondents were required to comment within ten (10) days perfected sale but merely to an option or an accepted unilateral
from notice. However, despite 13 extensions totalling 142 promise on the part of respondents to buy the subject
days which the Court had given to them, respondents failed to properties within 30 days from the date of acceptance of the
file their comment. They were thus considered to have waived offer. Such option giving respondents the exclusive right to
the filing of a comment. buy the properties within the period agreed upon is separate
and distinct from the contract of sale which the parties may
The petition is meritorious. enter.11 All that respondents had was just the option to buy the
properties which privilege was not, however, exercised by
In holding that there is a perfected contract of sale, the Court them because there was a failure to agree on the terms of
of Appeals relied on the following findings: (1) earnest money payment. No contract of sale may thus be enforced by
was allegedly given by respondents and accepted by petitioner respondents.
through its vice-president and operations manager, Isidro A.
Sobrecarey; and (2) the documentary evidence in the records Furthermore, even the option secured by respondents from
show that there was a perfected contract of sale. 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 perfection of any purchase and sale agreement between the
consideration. Consideration in an option contract may be parties herein under Art. 1482 of the new Civil Code, as the
anything of value, unlike in sale where it must be the price petitioners themselves admit that some essential matter—the
certain in money or its equivalent. There is no showing here of terms of the payment—still had to be mutually covenanted.18
any consideration for the option.Lacking any proof of such
consideration, the option is unenforceable. 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
Equally compelling as proof of the absence of a perfected sale which establishes the existence of a perfected sale.
is the second condition that, during the option period, the
parties would negotiate the terms and conditions of the In the absence of a perfected contract of sale, it is immaterial
purchase. The stages of a contract of sale are as follows: whether Isidro A. Sobrecarey had the authority to enter into a
(1) negotiation, covering the period from the time the contract of sale in behalf of petitioner. This issue, therefore,
prospective contracting parties indicate interest in the contract needs no further discussion.
to the time the contract is perfected; (2) perfection, which
takes place upon the concurrence of the essential elements of FALLO: WHEREFORE, the decision of the Court of Appeals
the sale which are the meeting of the minds of the parties as to is REVERSED and respondents’ complaint is DISMISSED.
the object of the contract and upon the price; and SO ORDERED.
(3) consummation, which begins when the parties perform
their respective undertakings under the contract of sale, Note.—In a contract of sale, the non-payment of the price is a
culminating in the extinguishment thereof. 12 In the present resolutory condition which extinguishes the transaction that,
case, the parties never got past the negotiation stage. The for a time, existed and discharges the obligations created
alleged “indubitable evidence”13 of a perfected sale cited by thereunder. (Heirs of Pedro Escanlar vs. Court of
the appellate court was nothing more than offers and counter- Appeals, 281 SCRA 176[1997])
offers which did not amount to any final arrangement
containing the essential elements of a contract of sale. While G.R. No. 166862. December 20, 2006.*
the parties already agreed on the real properties which were MANILA METAL CONTAINER CORPORATION,
the objects of the sale and on the purchase price, the fact petitioner, REYNALDO C. TOLENTINO,
remains that they failed to arrive at mutually acceptable terms intervenor, vs. PHILIPPINE NATIONAL BANK,
of payment, despite the 45-day extension given by petitioner. respondent, DMCI-PROJECT DEVELOPERS, INC.,
intervenor.
The appellate court opined that the failure to agree on the
terms of payment was no bar to the perfection of the sale Contracts; Requisites; Contracts are perfected by mere
because Art. 1475 only requires agreement by the parties as to consent which is manifested by the meeting of the offer and
the price of the object. This is error. In Navarro v. Sugar the acceptance upon the thing and the cause which are to
Producers Cooperative Marketing Association, Inc.,14 we laid constitute the contract.—A contract is a meeting of minds
down the rule that the manner of payment of the purchase between two persons whereby one binds himself, with respect
price is an essential element before a valid and binding to the other, to give something or to render some service.
contract of sale can exist. Although the Civil Code does not Under Article 1318 of the New Civil Code, there is no contract
expressly state that the minds of the parties must also meet on unless the following requisites concur: (1) Consent of the
the terms or manner of payment of the price, the same is contracting parties; (2) Object certain which is the subject
needed, otherwise there is no sale. As held in Toyota Shaw, matter of the contract; (3) Cause of the obligation which is
Inc. v. Court of Appeals,15 agreement on the manner of established. Contracts are perfected by mere consent which is
payment goes into the price such that a disagreement on the manifested by the meeting of the offer and the acceptance
manner of payment is tantamount to a failure to agree on the upon the thing and the cause which are to constitute the
price.16 In Velasco v. Court of Appeals, 17 the parties to a contract. Once perfected, they bind other contracting parties
proposed sale had already agreed on the object of sale and on and the obligations arising therefrom have the form of law
the purchase price. By the buyer’s own admission, however, between the parties and should be complied with in good faith.
the parties still had to agree on how and when the The parties are bound not only to the fulfillment of what has
downpayment and the installments were to be paid. It was been expressly stipulated but also to the consequences which,
held: according to their nature, may be in keeping with good faith,
usage and law.
. . . Such being the situation, it cannot, therefore, be said that
a definite and firm sales agreement between the parties had Same; Sales; A definite agreement as to the price is an
been perfected over the lot in question. Indeed, this Court has essential element of a binding agreement to sell personal or
already ruled before that a definite agreement on the manner real property because it seriously affects the rights and
of payment of the purchase price is an essential element in the obligations of the parties; When the contract of sale is not
formation of a binding and enforceable contract of sale. The perfected, it cannot, as an independent source of obligation,
fact, therefore, that the petitioners delivered to the respondent serve as a binding juridical relation between the parties.—By
the sum of P10,000 as part of the down-payment that they had the contract of sale, one of the contracting parties obligates
to pay cannot be considered as sufficient proof of the himself to transfer the ownership of and deliver a determinate
thing, and the other to pay therefor a price certain in money or that of the offer so as to produce consent or meeting of the
its equivalent. The absence of any of the essential elements minds.
will negate the existence of a perfected contract of sale. As the
Court ruled in Boston Bank of the Philippines v. Manalo, 482 Same; Same; Corporation Law; Board of
SCRA 108 (2006): A definite agreement as to the price is an Directors; Contracts or acts of a corporation must be made
essential element of either by the board of directors or by a corporate agent duly
a binding agreement to sell personal or real property because it authorized by the board—absent such valid
seriously affects the rights and obligations of the parties. Price delegation/authorization, the rule is that the declarations of
is an essential element in the formation of a binding and an individual director relating to the affairs of the
enforceable contract of sale. The fixing of the price can never corporation, but not in the course of, or connected with the
be left to the decision of one of the contracting parties. But a performance of authorized duties of such director, are held
price fixed by one of the contracting parties, if accepted by the not binding on the corporation.—There is no evidence that
other, gives rise to a perfected sale. A contract of sale is the SAMD was authorized by respondent’s Board of Directors
consensual in nature and is perfected upon mere meeting of to accept petitioner’s offer and sell the property for
the minds. When there is merely an offer by one party without P1,574,560.47. Any acceptance by the SAMD of petitioner’s
acceptance of the other, there is no contract. When the contract offer would not bind respondent. As this Court ruled in AF
of sale is not perfected, it cannot, as an independent source of Realty Development, Inc. vs. Diesehuan Freight Services, Inc.,
obligation, serve as a binding juridical relation between the 373 SCRA 385 (2002): Section 23 of the Corporation Code
parties. expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just
Same; Same; Stages of a Contract of Sale.—In San Miguel as a natural person may authorize another to do certain acts in
Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000), his behalf, so may the board of directors of a corporation
the Court ruled that the stages of a contract of sale are as validly delegate some of its functions to individual officers or
follows: (1) negotiation, covering the period from the time the agents appointed by it. Thus, contracts or acts of a corporation
prospective contracting parties indicate interest in the contract must be made either by the board of directors or by a corporate
to the time the contract is perfected; (2) perfection, which agent duly authorized by the board. Absent such valid
takes place upon the concurrence of the essential elements of delegation/authorization, the rule is that the declarations of an
the sale which are the meeting of the minds of the parties as to individual director relating to the affairs of the corporation, but
the object of the contract and upon the price; and not in the course of, or connected with the performance of
(3) consummation, which begins when the parties perform authorized duties of such director, are held not binding on the
their respective undertakings under the contract of sale, corporation.
culminating in the extinguishment thereof.
Same; Same; Earnest Money; Absent proof of the
Same; Same; Same; To convert an offer into a contract, the concurrence of all the essential elements of a contract of sale,
acceptance must be absolute and must not qualify the terms the giving of earnest money cannot establish the existence of a
of the offer—it must be plain, unequivocal, unconditional perfected contract of sale.—The P725,000.00 was merely a
and without variance of any sort from the proposal.—A deposit to be applied as part of the purchase price of the
negotiation is formally initiated by an offer, which, however, property, in the event that respondent would approve the
must be certain. At any time prior to the perfection of the recommendation of SAMD for respondent to accept
contract, either negotiating party may stop the negotiation. At petitioner’s offer to purchase the property for P1,574,560.47.
this stage, the offer may be withdrawn; the withdrawal is Unless and until the respondent accepted the offer on these
effective immediately after its manifestation. To convert the terms, no perfected contract of sale would arise. Absent proof
offer into a contract, the acceptance must be absolute and must of the concurrence of all the essential elements of a contract of
not qualify the terms of the offer; it must be plain, sale, the giving of earnest money cannot establish the
unequivocal, unconditional and without variance of any sort existence of a perfected contract of sale.
from the proposal.
PETITION for review on certiorari of the decision and
Same; Same; Same; A counter-offer is considered in law, a resolution of the Court of Appeals.
rejection of the original offer and an attempt to end the
negotiation between the parties on a different basis.—A Before us is a petition for review on certiorari of the Decision1
qualified acceptance or one that involves a new proposal of the Court of Appeals (CA) in CA-G.R. No. 46153 which
constitutes a counter-offer and a rejection of the original offer. affirmed the decision2 of the Regional Trial Court (RTC),
A counter-offer is considered in law, a rejection of the original Branch 71, Pasig City, in Civil Case No. 58551, and its Reso-
offer and an attempt to end the negotiation between the parties lution3 denying the motion for reconsideration filed by
on a different basis. Consequently, when something is desired petitioner Manila Metal Container Corporation (MMCC).
which is not exactly what is proposed in the offer, such
acceptance is not sufficient to guarantee consent because any CALLEJO, SR., J.:
modification or variation from the terms of the offer annuls the
offer. The acceptance must be identical in all respects with

remitted P725,000.00 to respondent PNB as “deposit to
repurchase,” and Official Receipt No. 978191 was issued to
The Antecedents
it.15
Petitioner was the owner of a 8,015 square meter parcel of
In the meantime, the SAMD recommended to the management
land located in Mandaluyong (now a City), Metro Manila. The
of respondent PNB that petitioner be allowed to repurchase the
property was covered by Transfer Certificate of Title (TCT)
property for P1,574,560.00. In a letter dated November 14,
No. 332098 of the Registry of Deeds of Rizal. To secure a
1984, the PNB management informed petitioner that it was
P900,000.00 loan it had obtained from respondent Philippine
rejecting the offer and the recommendation of the SAMD. It
National Bank (PNB), petitioner executed a real estate
was suggested that petitioner purchase the property for
mortgage over the lot. Respondent PNB later granted
P2,660,000.00, its minimum market value. Respondent PNB
petitioner a new credit accommodation of P1,000,000.00; and,
gave petitioner until December 15, 1984 to act on the
on November 16, 1973, petitioner executed an Amendment 4 of
proposal; otherwise, its P725,000.00 deposit would be
Real Estate Mortgage over its property. On March 31, 1981,
returned and the property would be sold to other interested
petitioner secured another loan of P653,000.00 from
buyers.16
respondent PNB, payable in quarterly installments of
P32,650.00, plus interests and other charges.5
Petitioner, however, did not agree to respondent PNB’s
proposal. Instead, it wrote another letter dated December 12,
On August 5, 1982, respondent PNB filed a petition for
1984 requesting for a reconsideration. Respondent PNB
extrajudicial foreclosure of the real estate mortgage and sought
replied in a letter dated December 28, 1984, wherein it
to have the property sold at public auction for P911,532.21,
reiterated its proposal that petitioner purchase the property for
petitioner’s outstanding obligation to respondent PNB as of
P2,660,000.00. PNB again informed petitioner that it would
June 30, 1982,6plus interests and attorney’s fees.
return the deposit should petitioner desire to withdraw its offer
to purchase the property.17 On February 25, 1985, petitioner,
After due notice and publication, the property was sold at
through counsel, requested that PNB reconsider its letter dated
public auction on September 28, 1982 where respondent PNB
December 28, 1984. Petitioner declared that it had already
was declared the winning bidder for P1,000,000.00. The
agreed to the SAMD’s offer to purchase the property for
Certificate of Sale7 issued in its favor was registered with the
P1,574,560.47, and that was why it had paid P725,000.00.
Office of the Register of Deeds of Rizal, and was annotated at
Petitioner warned respondent PNB that it would seek judicial
the dorsal portion of the title on February 17, 1983. Thus, the
recourse should PNB insist on the position.18
period to redeem the property was to expire on February 17,
1984.
On June 4, 1985, respondent PNB informed petitioner that the
PNB Board of Directors had accepted petitioner’s offer to
Petitioner sent a letter dated August 25, 1983 to respondent
purchase the property, but for P1,931,389.53 in cash less the
PNB, requesting that it be granted an extension of time to
P725,000.00 already deposited with it.19 On page two of the
redeem/repurchase the property.8 In its reply dated August 30,
letter was a space above the typewritten name of petitioner’s
1983, respondent PNB informed petitioner that the request had
President, Pablo Gabriel, where he was to affix his signature.
been referred to its Pasay City Branch for appropriate action
However, Pablo Gabriel did not conform to the letter but
and recommendation.9
merely indicated therein that he had received it. 20Petitioner did
not respond, so PNB requested petitioner in a letter dated June
In a letter10 dated February 10, 1984, petitioner reiterated its
30, 1988 to submit an amended offer to repurchase. Petitioner
request for a one year extension from February 17, 1984
rejected respondent’s proposal in a letter dated July 14, 1988.
within which to redeem/repurchase the property on installment
It maintained that respondent PNB had agreed to sell the
basis. It reiterated its request to repurchase the property on
property for P1,574,560.47, and that since its P725,000.00
installment.11Meanwhile, some PNB Pasay City Branch
down-payment had been accepted, respondent PNB was
personnel informed petitioner that as a matter of policy, the
proscribed from increasing the purchase price of the
bank does not accept “partial redemption.”12
property.21Petitioner averred that it had a net balance payable
in the amount of P643,452.34. Respondent PNB, however,
Since petitioner failed to redeem the property, the Register of
rejected petitioner’s offer to pay the balance of P643,452.34 in
Deeds cancelled TCT No. 32098 on June 1, 1984, and issued a
a letter dated August 1, 1989.22
new title in favor of respondent PNB.13Petitioner’s offers had
not yet been acted upon by respondent PNB.
On August 28, 1989, petitioner filed a complaint against
respondent PNB for “Annulment of Mortgage and Mortgage
Meanwhile, the Special Assets Management Department
Foreclosure, Delivery of Title, or Specific Performance with
(SAMD) had prepared a statement of account, and as of June
Damages.” To support its cause of action for specific
25, 1984 petitioner’s obligation amounted to P1,574,560.47.
performance, it alleged the following:
This included the bid price of P1,056,924.50, interest,
advances of insurance premiums, advances on realty taxes,
“34. As early as June 25, 1984, PNB had accepted the down
registration expenses, miscellaneous expenses and publication
payment from Manila Metal in the substantial amount of
cost.14 When apprised of the statement of account, petitioner
P725,000.00 for the redemption/repurchase price of
P1,574,560.47 as approved by its SMAD and considering the Plaintiff likewise prays for such further reliefs which may be
reliance made by Manila Metal and the long time that has deemed just and equitable in the premises.”24
elapsed, the approval of the higher management of the Bank to
confirm the agreement of its SMAD is clearly a potestative In its Answer to the complaint, respondent PNB averred, as a
condition which cannot legally prejudice Manila Metal which special and affirmative defense, that it had acquired ownership
has acted and relied on the approval of SMAD. The Bank over the property after the period to redeem had elapsed. It
cannot take advantage of a condition which is entirely claimed that no contract of sale was perfected between it and
dependent upon its own will after accepting and benefiting petitioner after the period to redeem the property had expired.
from the substantial payment made by Manila Metal.
During pre-trial, the parties agreed to submit the case for
35. PNB approved the repurchase price of P1,574,560.47 for decision, based on their stipulation of facts. 25The parties
which it accepted P725,000.00 from Manila Metal. PNB agreed to limit the issues to the following:
cannot take advantage of its own delay and long inaction in
demanding a higher amount based on unilateral computation “1. Whether or not the June 4, 1985 letter of the defendant
of interest rate without the consent of Manila Metal.” approving/accepting plaintiff’s offer to purchase the property
Petitioner later filed an amended complaint and supported its is still valid and legally enforceable.
claim for damages with the following arguments: 2.Whether or not the plaintiff has waived its right to purchase
the property when it failed to conform with the conditions set
“36. That in order to protect itself against the wrongful and forth by the defendant in its letter dated June 4, 1985.
malicious acts of the defendant Bank, plaintiff is constrained 3.Whether or not there is a perfected contract of sale between
to engage the services of counsel at an agreed fee of the parties.”26
P50,000.00 and to incur litigation expenses of at least
P30,000.00, which the defendant PNB should be condemned While the case was pending, respondent PNB demanded, on
to pay the plaintiff Manila Metal. September 20, 1989, that petitioner vacate the property within
15 days from notice,27 but petitioners refused to do so.
37. That by reason of the wrongful and malicious actuations of
defendant PNB, plaintiff Manila Metal suffered besmirched On March 18, 1993, petitioner offered to repurchase the
reputation for which defendant PNB is liable for moral property for P3,500,000.00.28 The offer was however rejected
damages of at least P50,000.00. by respondent PNB, in a letter dated April 13, 1993.
According to it, the prevailing market value of the property
38. That for the wrongful and malicious act of defendant PNB was approximately P30,000,000.00, and as a matter of policy,
which are highly reprehensible, exemplary damages should be it could not sell the property for less than its market
awarded in favor of the plaintiff by way of example or value.29 On June 21, 1993, petitioner offered to purchase the
correction for the public good of at least P30,000.00.”23 property for P4,250,000.00 in cash. 30 The offer was again
Petitioner prayed that, after due proceedings, judgment be rejected by respondent PNB on September 13, 1993.31
rendered in its favor, thus:
On May 31, 1994, the trial court rendered judgment
“a)Declaring the Amended Real Estate Mortgage (Annex “A”) dismissing the amended complaint and respondent PNB’s
null and void and without any legal force and effect. counterclaim. It ordered respondent PNB to refund the
b)Declaring defendant’s acts of extrajudicially foreclosing the P725,000.00 deposit petitioner had made.32 The trial court
mortgage over plaintiff’s property and setting it for auction ruled that there was no perfected contract of sale between the
sale null and void. parties; hence, petitioner had no cause of action for specific
c)Ordering the defendant Register of Deeds to cancel the new performance against respondent. The trial court declared that
title issued in the name of PNB (TCT NO. 43792)covering the respondent had rejected petitioner’s offer to repurchase the
property described in paragraph 4 of the Complaint, to property. Petitioner, in turn, rejected the terms and conditions
reinstate TCT No. 37025 in the name of Manila Metal and to contained in the June 4, 1985 letter of the SAMD. While
cancel the annotation of the mortgage in question at the back petitioner had offered to repurchase the property per its letter
of the TCT No. 37025 described in paragraph 4 of this of July 14, 1988, the amount of P643,422.34 was way below
Complaint. the P1,206,389.53 which respondent PNB had demanded. It
d)Ordering the defendant PNB to return and/or deliver further declared that the P725,000.00 remitted by petitioner to
physical possession of the TCT No. 37025 described in respondent PNB on June 4, 1985 was a “deposit,” and not a
paragraph 4 of this Complaint to the plaintiff Manila Metal. down-payment or earnest money.
e)Ordering the defendant PNB to pay the plaintiff Manila On appeal to the CA, petitioner made the following
Metal’s actual damages, moral and exemplary damages in the allegations:
aggregate amount of not less than P80,000.00 as may be
warranted by the evidence and fixed by this Honorable Court I THE LOWER COURT ERRED IN RULING THAT
in the exercise of its sound discretion, and attorney’s fees of DEFENDANT-APPELLEE’S LETTER DATED 4 JUNE
P50,000.00 and litigation expenses of at least P30,000.00 as 1985 APPROVING/ACCEPTING PLAINTIFF-
may be proved during the trial, and costs of suit. APPELLANT’S OFFER TO PURCHASE THE SUBJECT
PROPERTY IS NOT VALID AND ENFORCEABLE.
II THE LOWER COURT ERRED IN RULING THAT According to the appellate court, the claim for damages and
THERE WAS NO PERFECTED CONTRACT OF SALE the counterclaim were correctly dismissed by the court a quo
BETWEEN PLAINTIFF-APPELLANT AND DEFENDANT- for no evidence was presented to support it. Respondent
APPELLEE. PNB’s letter dated June 30, 1988 cannot revive the failed
III THE LOWER COURT ERRED IN RULING THAT negotiations between the parties. Respondent PNB merely
PLAINTIFF-APPELLLANT WAIVED ITS RIGHT TO asked petitioner to submit an amended offer to repurchase.
PURCHASE THE SUBJECT PROPERTY WHEN IT While petitioner reiterated its request for a lower selling price
FAILED TO CONFORM WITH CONDITIONS SET FORTH and that the balance of the repurchase be reduced, however,
BY DEFENDANT-APPELLEE IN ITS LETTER DATED 4 respondent rejected the proposal in a letter dated August 1,
JUNE 1985. 1989.
IV THE LOWER COURT ERRED IN DISREGARDING
THE FACT THAT IT WAS THE DEFENDANT-APPELLEE Petitioner filed a motion for reconsideration, which the CA
WHICH RENDERED IT DIFFICULT IF NOT IMPOSSIBLE likewise denied.
FOR PLAINTIFF-APPELLANT TO COMPLETE THE
BALANCE OF THEIR PURCHASE PRICE. Thus, petitioner filed the instant petition for review
V THE LOWER COURT ERRED IN DISREGARDING THE on certiorari, alleging that:
FACT THAT THERE WAS NO VALID RESCISSION OR
CANCELLATION OF SUBJECT CONTRACT OF I.THE COURT OF APPEALS ERRED ON A QUESTION
REPURCHASE. OF LAW WHEN IT RULED THAT THERE IS NO
VI THE LOWER COURT ERRED IN DECLARING THAT PERFECTED CONTRACT OF SALE BETWEEN THE
PLAINTIFF FAILED AND REFUSED TO SUBMIT THE PETITIONER AND RESPONDENT.
AMENDED REPURCHASE OFFER. II.THE COURT OF APPEALS ERRED ON A QUESTION
VII THE LOWER COURT ERRED IN DISMISSING THE OF LAW WHEN IT RULED THAT THE AMOUNT OF
AMENDED COMPLAINT OF PLAINTIFF-APPELLANT. PHP725,000.00 PAID BY THE PETITIONER IS NOT AN
VIII THE LOWER COURT ERRED IN NOT AWARDING EARNEST MONEY.
PLAINTIFF-APPELLANT ACTUAL, MORAL AND III.THE COURT OF APPEALS ERRED ON A QUESTION
EXEMPLARY DAMAGES, ATTOTRNEY’S FEES AND OF LAW WHEN IT RULED THAT THE FAILURE OF THE
LITIGATION EXPENSES.33 PETITIONER-APPELLANT TO SIGNIFY ITS
CONFORMITY TO THE TERMS CONTAINED IN PNB’S
Meanwhile, on June 17, 1993, petitioner’s Board of Directors JUNE 4, 1985 LETTER MEANS THAT THERE WAS NO
approved Resolution No. 3-004, where it waived, assigned and VALID AND LEGALLY ENFORCEABLE CONTRACT OF
transferred its rights over the property covered by TCT No. SALE BETWEEN THE PARTIES.
33099 and TCT No. 37025 in favor of Bayani Gabriel, one of IV.THE COURT OF APPEALS ERRED ON A QUESTION
its Directors.34 Thereafter, Bayani Gabriel executed a Deed of OF LAW THAT NON-PAYMENT OF THE PETITIONER-
Assignment over 51% of the ownership and management of APPELLANT OF THE BALANCE OF THE OFFERED
the property in favor of Reynaldo Tolentino, who later moved PRICE IN THE LETTER OF PNB DATED JUNE 4, 1985,
for leave to intervene as plaintiff-appellant. On July 14, 1993, WITHIN SIXTY (60) DAYS FROM NOTICE OF
the CA issued a resolution granting the motion,35 and likewise APPROVAL CONSTITUTES NO VALID AND LEGALLY
granted the motion of Reynaldo Tolentino substituting ENFORCEABLE CONTRACT OF SALE BETWEEN THE
petitioner MMCC, as plaintiff-appellant, and his motion to PARTIES.
withdraw as intervenor.36 V.THE COURT OF APPEALS SERIOUSLY ERRED WHEN
IT HELD THAT THE LETTERS OF PETITIONER-
The CA rendered judgment on May 11, 2000 affirming the APPELLANT DATED MARCH 18, 1993 AND JUNE 21,
decision of the RTC.37 It declared that petitioner obviously 1993, OFFERING TO BUY THE SUBJECT PROPERTY AT
never agreed to the selling price proposed by respondent PNB DIFFERENT AMOUNT WERE PROOF THAT THERE IS
(P1,931,389.53) since petitioner had kept on insisting that the NO PERFECTED CONTRACT OF SALE.38
selling price should be lowered to P1,574,560.47. Clearly The threshold issue is whether or not petitioner and
therefore, there was no meeting of the minds between the respondent PNB had entered into a perfected contract for
parties as to the price or consideration of the sale. petitioner to repurchase the property from respondent.
The CA ratiocinated that petitioner’s original offer to purchase Petitioner maintains that it had accepted respondent’s offer
the subject property had not been accepted by respondent made through the SAMD, to sell the property for
PNB. In fact, it made a counter-offer through its June 4, 1985 P1,574,560.00. When the acceptance was made in its letter
letter specifically on the selling price; petitioner did not agree dated June 25, 1984; it then deposited P725,000.00 with the
to the counter-offer; and the negotiations did not prosper. SAMD as partial payment, evidenced by Receipt No. 978194
Moreover, petitioner did not pay the balance of the purchase which respondent had issued. Petitioner avers that the
price within the sixty-day period set in the June 4, 1985 letter SAMD’s acceptance of the deposit amounted to an acceptance
of respondent PNB. Consequently, there was no perfected of its offer to repurchase. Moreover, as gleaned from the letter
contract of sale, and as such, there was no contract to rescind. of SAMD dated June 4, 1985, the PNB Board of Directors had
approved petitioner’s offer to purchase the property. It claims
that this was the suspensive condition, the fulfillment of which counter-offer; it is simply a recital of its total monetary claims
gave rise to the contract. Respondent could no longer against petitioner. Moreover, the amount stated therein could
unilaterally withdraw its offer to sell the property for not likewise be considered as the counter-offer since as
P1,574,560.47, since the acceptance of the offer resulted in a admitted by petitioner, it was only recommendation which was
perfected contract of sale; it was obliged to remit to subject to approval of the PNB Board of Directors.
respondent the balance of the original purchase price of
P1,574,560.47, while respondent was obliged to transfer Neither can the receipt by the SAMD of P725,000.00 be
ownership and deliver the property to petitioner, conformably regarded as evidence of a perfected sale contract. As gleaned
with Article 1159 of the New Civil Code. from the parties’ Stipulation of Facts during the proceedings
in the court a quo, the amount is merely an acknowledgment
Petitioner posits that respondent was proscribed from of the receipt of P725,000.00 as deposit to repurchase the
increasing the interest rate after it had accepted respondent’s property. The deposit of P725,000.00 was accepted by
offer to sell the property for P1,574,560.00. Consequently, respondent on the condition that the purchase price would still
respondent could no longer validly make a counter-offer of be approved by its Board of Directors. Respondent maintains
P1,931,789.88 for the purchase of the property. It likewise that its acceptance of the amount was qualified by that
maintains that, although the P725,000.00 was considered as condition, thus not absolute. Pending such approval, it cannot
“deposit for the repurchase of the property” in the receipt be legally claimed that respondent is already bound by any
issued by the SAMD, the amount constitutes earnest money as contract of sale with petitioner.
contemplated in Article 1482 of the New Civil Code.
Petitioner cites the rulings of this Court in Villonco v. According to respondent, petitioner knew that the SAMD has
Bormaheco39 and Topacio v. Court of Appeals.40 no capacity to bind respondent and that its authority is limited
to administering, managing and preserving the properties and
Petitioner avers that its failure to append its conformity to the other special assets of PNB. The SAMD does not have the
June 4, 1984 letter of respondent and its failure to pay the power to sell, encumber, dispose of, or otherwise alienate the
balance of the price as fixed by respondent within the 60-day assets, since the power to do so must emanate from its Board
period from notice was to protest respondent’s breach of its of Directors. The SAMD was not authorized by respondent’s
obligation to petitioner. It did not amount to a rejection of Board to enter into contracts of sale with third persons
respondent’s offer to sell the property since respondent was involving corporate assets. There is absolutely nothing on
merely seeking to enforce its right to pay the balance of record that respondent authorized the SAMD, or made it
P1,570,564.47. In any event, respondent had the option either appear to petitioner that it represented itself as having such
to accept the balance of the offered price or to cause the authority.
rescission of the contract.
Respondent reiterates that SAMD had informed petitioner that
Petitioner’s letters dated March 18, 1993 and June 21, 1993 to its offer to repurchase had been approved by the Board subject
respondent during the pendency of the case in the RTC were to the condition, among others, “that the selling price shall be
merely to compromise the pending lawsuit, they did not the total bank’s claim as of documentation date x x x payable
constitute separate offers to repurchase the property. Such in cash (P725,000.00 already deposited) within 60 days from
offer to compromise should not be taken against it, in notice of approval.” A new Statement of Account was attached
accordance with Section 27, Rule 130 of the Revised Rules of therein indicating the total bank’s claim to be P1,931,389.53
Court. less deposit of P725,000.00, or P1,206,389.00. Furthermore,
while respondent’s Board of Directors accepted petitioner’s
For its part, respondent contends that the parties never offer to repurchase the property, the acceptance was qualified,
graduated from the “negotiation stage” as they could not agree in that it required a higher sale price and subject to specified
on the amount of the repurchase price of the property. All that terms and conditions enumerated therein. This qualified
transpired was an exchange of proposals and counter- acceptance was in effect a counter-offer, necessitating
proposals, nothing more. It insists that a definite agreement on petitioner’s acceptance in return.
the amount and manner of payment of the price are essential
elements in the formation of a binding and enforceable
The Ruling of the Court
contract of sale. There was no such agreement in this case.
Primarily, the concept of “suspensive condition” signifies a
The ruling of the appellate court that there was no perfected
future and uncertain event upon the fulfillment of which the
contract of sale between the parties on June 4, 1985 is correct.
obligation becomes effective. It clearly presupposes the
existence of a valid and binding agreement, the effectivity of
A contract is a meeting of minds between two persons
which is subordinated to its fulfillment. Since there is no
whereby one binds himself, with respect to the other, to give
perfected contract in the first place, there is no basis for the
something or to render some service. 41 Under Article 1318 of
application of the principles governing “suspensive
the New Civil Code, there is no contract unless the following
conditions.”
requisites concur:
According to respondent, the Statement of Account prepared
(1) Consent of the contracting parties;
by SAMD as of June 25, 1984 cannot be classified as a
(2) Object certain which is the subject matter of the contract; “x x x The rule is that except where a formal acceptance is so
(3) Cause of the obligation which is established. required, although the acceptance must be affirmatively and
clearly made and must be evidenced by some acts or conduct
Contracts are perfected by mere consent which is manifested communicated to the offeror, it may be shown by acts,
by the meeting of the offer and the acceptance upon the thing conduct, or words of the accepting party that clearly manifest
and the cause which are to constitute the contract. 42 Once a present intention or determination to accept the offer to buy
perfected, they bind other contracting parties and the or sell. Thus, acceptance may be shown by the acts, conduct,
obligations arising therefrom have the form of law between or words of a party recognizing the existence of the contract of
the parties and should be complied with in good faith. The sale.”52
parties are bound not only to the fulfillment of what has been
expressly stipulated but also to the consequences which, A qualified acceptance or one that involves a new proposal
according to their nature, may be in keeping with good faith, constitutes a counter-offer and a rejection of the original
usage and law.43 offer.
By the contract of sale, one of the contracting parties obligates A counter-offer is considered in law, a rejection of the
himself to transfer the ownership of and deliver a determinate original offer and an attempt to end the negotiation
thing, and the other to pay therefor a price certain in money or between the parties on a different basis.53Consequently,
its equivalent.44The absence of any of the essential elements when something is desired which is not exactly what is
will negate the existence of a perfected contract of sale. As the proposed in the offer, such acceptance is not sufficient to
Court ruled in Boston Bank of the Philippines v. Manalo:45 guarantee consent because any modification or variation from
the terms of the offer annuls the offer. 54The acceptance must
“A definite agreement as to the price is an essential element of be identical in all respects with that of the offer so as to
a binding agreement to sell personal or real property because it produce consent or meeting of the minds.
seriously affects the rights and obligations of the parties. Price
is an essential element in the formation of a binding and In this case, petitioner had until February 17, 1984 within
enforceable contract of sale. The fixing of the price can never which to redeem the property. However, since it lacked the
be left to the decision of one of the contracting parties. But a resources, it requested for more time to redeem/repurchase the
price fixed by one of the contracting parties, if accepted by the property under such terms and conditions agreed upon by the
other, gives rise to a perfected sale.”46 parties.55 The request, which was made through a letter dated
August 25, 1983, was referred to the respondent’s main branch
A contract of sale is consensual in nature and is perfected for appropriate action.56Before respondent could act on the
upon mere meeting of the minds. When there is merely an request, petitioner again wrote respondent as follows:
offer by one party without acceptance of the other, there is no 1.Upon approval of our request, we will pay your goodselves
contract.47When the contract of sale is not perfected, it cannot, ONE HUNDRED & FIFTY THOUSAND PESOS
as an independent source of obligation, serve as a binding (P150,000.00);
juridical relation between the parties.48 2.Within six months from date of approval of our request, we
will pay another FOUR HUNDRED FIFTY THOUSAND
In San Miguel Properties Philippines, Inc. v. Huang,49the PESOS (P450,000.00); and
Court ruled that the stages of a contract of sale are as follows: 3.The remaining balance together with the interest and other
(1) negotiation, covering the period from the time the expenses that will be incurred will be paid within the last six
prospective contracting parties indicate interest in the contract months of the one year grave period requested for.”57
to the time the contract is perfected; (2) perfection, which
takes place upon the concurrence of the essential elements of When the petitioner was told that respondent did not allow
the sale which are the meeting of the minds of the parties as to “partial redemption,”58 it sent a letter to respondent’s
the object of the contract and upon the price; and President reiterating its offer to purchase the property. 59 There
(3) consummation, which begins when the parties perform was no response to petitioner’s letters dated February 10 and
their respective undertakings under the contract of sale, 15, 1984.
culminating in the extinguishment thereof.
The statement of account prepared by the SAMD stating that
A negotiation is formally initiated by an offer, which, the net claim of respondent as of June 25, 1984 was
however, must be certain.50At any time prior to the perfection P1,574,560.47 cannot be considered an unqualified acceptance
of the contract, either negotiating party may stop the to petitioner’s offer to purchase the property. The statement is
negotiation. At this stage, the offer may be withdrawn; the but a computation of the amount which petitioner was obliged
withdrawal is effective immediately after its manifestation. To to pay in case respondent would later agree to sell the
convert the offer into a contract, the acceptance must be property, including interests, advances on insurance premium,
absolute and must not qualify the terms of the offer; it must be advances on realty taxes, publication cost, registration
plain, unequivocal, unconditional and without variance of any expenses and miscellaneous expenses.
sort from the proposal. In Adelfa Properties, Inc. v. Court of
Appeals,51 the Court ruled that: There is no evidence that the SAMD was authorized by
respondent’s Board of Directors to accept petitioner’s offer
and sell the property for P1,574,560.47. Any acceptance by was accepted by PNB on the condition that the purchase
the SAMD of petitioner’s offer would not bind respondent. As price is still subject to the approval of the PNB Board.”62
this Court ruled in AF Realty Development, Inc. vs. Dieselman
Freight Services, Inc.:60 Thus, the P725,000.00 was merely a deposit to be applied as
part of the purchase price of the property, in the event that
“Section 23 of the Corporation Code expressly provides that respondent would approve the recommendation of SAMD for
the corporate powers of all corporations shall be exercised by respondent to accept petitioner’s offer to purchase the property
the board of directors. Just as a natural person may authorize for P1,574,560.47. Unless and until the respondent accepted
another to do certain acts in his behalf, so may the board of the offer on these terms, no perfected contract of sale would
directors of a corporation validly delegate some of its arise. Absent proof of the concurrence of all the essential
functions to individual officers or agents appointed by it. elements of a contract of sale, the giving of earnest money
Thus, contracts or acts of a corporation must be made either by cannot establish the existence of a perfected contract of sale.63
the board of directors or by a corporate agent duly authorized
by the board. Absent such valid delegation/authorization, the It appears that, per its letter to petitioner dated June 4, 1985,
rule is that the declarations of an individual director relating to the respondent had decided to accept the offer to purchase the
the affairs of the corporation, but not in the course of, or property for P1,931,389.53. However, this amounted to an
connected with the performance of authorized duties of such amendment of respondent’s qualified acceptance, or an
director, are held not binding on the corporation.” amended counter-offer, because while the respondent lowered
Thus, a corporation can only execute its powers and transact the purchase price, it still declared that its acceptance was
its business through its Board of Directors and through its subject to the following terms and conditions:
officers and agents when authorized by a board resolution or
its by-laws.61 “1.That the selling price shall be the total Bank’s claim as of
documentation date (pls. see attached statement of account as
It appears that the SAMD had prepared a recommendation for of 5-31-85), payable in cash (P725,000.00 already deposited)
respondent to accept petitioner’s offer to repurchase the within sixty (60) days from notice of approval;
property even beyond the one-year period; it recommended 2.The Bank sells only whatever rights, interests and
that petitioner be allowed to redeem the property and pay participation it may have in the property and you are charged
P1,574,560.00 as the purchase price. Respondent later with full knowledge of the nature and extent of said rights,
approved the recommendation that the property be sold to interests and participation and waive your right to warranty
petitioner. But instead of the P1,574,560.47 recommended by against eviction.
the SAMD and to which petitioner had previously conformed, 3.All taxes and other government imposts due or to become
respondent set the purchase price at P2,660,000.00. In fine, due on the property, as well as expenses including costs of
respondent’s acceptance of petitioner’s offer was qualified, documents and science stamps, transfer fees, etc., to be
hence can be at most considered as a counter-offer. If incurred in connection with the execution and registration of
petitioner had accepted this counter-offer, a perfected contract all covering documents shall be borne by you;
of sale would have arisen; as it turns out, however, petitioner 4.That you shall undertake at your own expense and account
merely sought to have the counter-offer reconsidered. This the ejectment of the occupants of the property subject of the
request for reconsideration would later be rejected by sale, if there are any;
respondent. 5.That upon your failure to pay the balance of the purchase
price within sixty (60) days from receipt of advice accepting
We do not agree with petitioner’s contention that the your offer, your deposit shall be forfeited and the Bank is
P725,000.00 it had remitted to respondent was “earnest thenceforth authorized to sell the property to other interested
money” which could be considered as proof of the perfection parties.
of a contract of sale under Article 1482 of the New Civil 6.That the sale shall be subject to such other terms and
Code. The provision reads: conditions that the Legal Department may impose to protect
the interest of the Bank.”64
“ART. 1482. Whenever earnest money is given in a contract It appears that although respondent requested petitioner to
of sale, it shall be considered as part of the price and as proof conform to its amended counter-offer, petitioner refused and
of the perfection of the contract.” instead requested respondent to reconsider its amended
This contention is likewise negated by the stipulation of facts counter-offer. Petitioner’s request was ultimately rejected and
which the parties entered into in the trial court: respondent offered to refund its P725,000.00 deposit.
“8. On June 8, 1984, the Special Assets Management
Department (SAMD) of PNB prepared an updated Statement In sum, then, there was no perfected contract of sale between
of Account showing MMCC’s total liability to PNB as of June petitioner and respondent over the subject property.
25, 1984 to be P1,574,560.47 and recommended this amount
as the repurchase price of the subject property. FALLO: IN LIGHT OF ALL THE FOREGOING, the
petition is DENIED. The assailed decision is AFFIRMED.
9. On June 25, 1984, MMCC paid P725,000.00 to PNB as Costs against petitioner Manila Metal Container Corporation.
deposit to repurchase the property. The deposit of P725,000 SO ORDERED.

Notes.—An option contract is a contract separate from and Same; Same; Same; An implied agreement that
preparatory to a contract of sale which if perfected, does not ownership shall not pass to the purchaser until he had fully
result in the perfection or consummation of the same—only paid the price is valid and therefore, binding and enforceable
when the option is exercised may a sale be perfected. (Cavite between the parties. A contract which contains this kind of
Development Bank vs. Lim, 324 SCRA 346[2000]) stipulation is considered a contract to sell.—In effect, there
was an implied agreement that ownership shall not pass to the
Earnest money is something of value to show that the purchaser until he had fully paid the price. Article 1478 of the
buyer was really in earnest, and given to the seller to bind Civil Code does not require that such a stipulation be
the bargain, and whenever earnest money is given in a expressly made. Consequently, an implied stipulation to that
contract of sale, it is considered as part of the purchase effect is considered valid and. therefore, binding and
price and proof of the perfection of the contract. (Laforteza enforceable between the parties. It should be noted that under
vs. Machuca, 33 SCRA 643[2000]) the law and jurisprudence, a contract which contains this kind
of stipulation is considered a contract to sell.
DISTINGUISHING EARNEST MONEY AND OPTION Same; Same; Same; Irrefragably, the controverted
MONEY document should legally be considered as a perfected contract
to sell.—Irrefragably,the controverted document should
legally be considered as a perfected contract to sell. On this
G.R. No. 111238. January 25, 1995.*
particular point, therefore, we reject the position and
ADELFA PROPERTIES, INC., petitioner, vs. COURT OF
ratiocination of respondent Court of Appeals which, while
APPEALS, ROSARIO JIMENEZ-CASTAÑEDA and SALUD
awarding the correct relief to private respondents, categorized
JIMENEZ, respondents.
the instrument as “strictly an option contract.”
Civil Law; Contracts; Contract to Sell; Contract of
Same; Same; Same; The important task in contract
Sale; In a contract of sale, the title passes to the vendee upon
interpretation is always the ascertainment of the intention of
the delivery of the thing sold; whereas in a contract to sell, by
the contracting parties.—Theimportant task in contract
agreement the ownership is reserved in the vendor and is not
interpretation is always the ascertainment of the intention of
to pass until the full payment of the price. In a contract of
the contracting parties and that task is, of course, to be
sale, the vendor has lost and cannot recover ownership until
discharged by looking to the words they used to project that
and unless the contract is resolved or rescinded; whereas in a
intention in their contract, all the words not just a particular
contract to sell, title is retained by the vendor until the full
word or two, and words in context not words standing alone.
payment of the price.—ln view of the extended disquisition
Moreover, judging from the subsequent acts of the parties
thereon by respondent court, it would be worthwhile at this
which will hereinafter be discussed, it is undeniable that the
juncture to briefly discourse on the rationale behind our
intention of the parties was to enter into a contract to sell. In
treatment of the alleged option contract as a contract to sell,
addition, the title of a contract does not necessarily determine
rather than a contract of sale. The distinction between the two
its true nature. Hence, the fact that the document under
is important for in a contract of sale, the title passes to the
discussion is entitled “Exclusive Option to
vendee upon the delivery of the thing sold; whereas in a
567
contract to sell, by agreement the ownership is reserved in the
vendor and is not to VOL. 240, 567
_______________ JANUARY 25, 1995
*
SECOND DIVISION. Adelfa Properties, Inc. vs. Court
566
of Appeals
566 SUPREME COURT Purchase” is not controlling where the text thereof
REPORTS ANNOTATED shows that it is a contract to sell.
Adelfa Properties, Inc. vs. Court Same; Same; Option Contract; Sales; An option is not
a sale of property but a sale of the right to purchase. It is
of Appeals
simply a contract by which the owner of property agrees with
pass until the full payment of the price. In a contract of
another person that he shall have the right to buy his property
sale, the vendor has lost and cannot recover ownership until
at a fixed price within a certain time. He does not sell his
and unless the contract is resolved or rescinded; whereas in a
land; he does not then agree to sell it; but he does sell
contract to sell, title is retained by the vendor until the full
something, that is, the right or privilege to buy at the election
payment of the price, such payment being a positive
or option of the other party.—Anoption, as used in the law on
suspensive condition and failure of which is not a breach but
sales, is a continuing offer or contract by which the owner
an event that prevents the obligation of the vendor to convey
stipulates with another that the latter shall have the right to
title from becoming effective. Thus, a deed of sale is
buy the property at a fixed price within a certain time, or
considered absolute in nature where there is neither a
under, or in compliance with, certain terms and conditions, or
stipulation in the deed that title to the property sold is reserved
which gives to the owner of the property the right to sell or
in the seller until the full payment of the price, nor one giving
demand a sale. It is also sometimes called an “unaccepted
the vendor the right to unilaterally resolve the contract the
offer.” An option is not of itself a purchase, but merely secures
moment the buyer fails to pay within a fixed period.
the privilege to buy. It is not a sale of property but a sale of the
right to purchase. It is simply a contract by which the owner of
property agrees with another person that he shall have the right specifically enforced.—The test in determining whether a
to buy his property at a fixed price within a certain time. He contract is a “contract of sale or purchase” or a mere “option”
does not sell his land; he does not then agree to sell it; but he is whether or not the agreement could be specifically enforced.
does sell something, that is, the right or privilege to buy at the There is no doubt that the obligation of petitioner to pay the
election or option of the other party. Its distinguishing purchase price is specific, definite and certain, and
characteristic is that it imposes no binding obligation on the consequently binding and enforceable. Had private
person holding the option, aside from the consideration for the respondents chosen to enforce the contract, they could have
offer. Until acceptance, it is not, properly speaking, a contract, specifically compelled petitioner to pay the balance of
and does not vest, transfer, or agree to transfer, any title to, or P2,806,150.00. This is distinctly made manifest in the contract
any interest or right in the subject matter, but is merely a itself as an integral stipulation, compliance with which could
contract by which the owner of property gives the optionee the legally and definitely be demanded from petitioner as a
right or privilege of accepting the offer and buying the consequence.
property on certain terms. Same; Same; Same; Same; An agreement is only an
Same; Same; Same; Same; An option is an unaccepted “option” when no obligation rests on the party to make any
offer. It states the terms and conditions on which the owner is payment except such as may be agreed on between the parties
willing to sell his land, if the holder elects to accept them as consideration to support the option until he has made up
within the time limited. A contract of sale, on the other hand, his mind within the time specified.—This is not a case where
fixes definitely the relative rights and obligations of both no right is as yet created nor an obligation declared, as where
parties at the time of its execution. The offer and the something further remains to be done before the buyer and
acceptance are concurrent.—Thedistinction between an seller obligate themselves, An agreement is only an “option”
“option” and a contract of sale is that an option is an when no obligation rests on the party to make any payment
unaccepted offer. It states the terms and conditions on which except such as may be agreed on between the parties as
the owner is willing to sell his land, if the holder elects to consideration to support the option until he has made up his
accept them within the time limited. If the holder does so mind within the time specified. An option, and
elect, he must give notice to the other party, and the accepted 569
offer thereupon becomes a valid and binding contract. If an VOL. 240, 569
acceptance is not made within the time fixed, the owner is no
JANUARY 25, 1995
longer bound by his offer, and the option is at an end. A
contract of sale, on the other hand, fixes definitely the relative Adelfa Properties, Inc. vs. Court
rights and obligations of both parties at the of Appeals
568 not a contract to purchase, is effected by an agreement to
568 SUPREME COURT sell real estate for payments to be made within a specified time
REPORTS ANNOTATED and providing for forfeiture of money paid upon failure to
make payment, where the purchaser does not agree to
Adelfa Properties, Inc. vs. Court purchase, to make payment, or to bind himself in any way
of Appeals other than the forfeiture of the payments made. As
time of its execution. The offer and the acceptance are hereinbefore discussed, this is not the situation obtaining in the
concurrent, since the minds of the contracting parties meet in case at bar.
the terms of the agreement. Same; Same; Same; Same; Earnest Money; It is a
Same; Same; Same; Same; Except where a formal statutory rule that whenever earnest money is given in a
acceptance is so required, it may be made either in a formal contract of sale, it shall be considered as part of the price and
or an informal manner, and may be shown by acts, conduct, as proof of the perfection of the contract It constitutes an
or words of the accepting party that clearly manifest a present advance payment and must, therefore be deducted from the
intention or determination to accept the offer to buy or sell.— total price.—In other words, the alleged option money of
Aperusal of the contract in this case, as well as the oral and P50,000.00 was actually earnest money which was intended to
documentary evidence presented by the parties, readily shows form part of the purchase price. The amount of P50,000.00
that there is indeed a concurrence of petitioner’s offer to buy was not distinct from the cause or consideration for the sale of
and private respondents’ acceptance thereof. The rule is that the property, but was itself a part thereof. It is a statutory rule
except where a formal acceptance is so required, although the that whenever earnest money is given in a contract of sale, it
acceptance must be affirmatively and clearly made and must shall be considered as part of the price and as proof of the
be evidenced by some acts or conduct communicated to the perfection of the contract. lt constitutes an advance payment
offeror, it may be made either in a formal or an informal and must, therefore, be deducted from the total price; Also,
manner, and may be shown by acts, conduct, or words of the earnest money is given by the buyer to the seller to bind the
accepting party that clearly manifest a present intention or bargain.
determination to accept the offer to buy or sell. Thus, Same; Same; Earnest Money; Option
acceptance may be shown by the acts, conduct, or words of a Money; Distinctions Between Earnest Money and Option
party recognizing the existence of the contract of sale. Money.—There are clear distinctions between earnest money
Same; Same; Same; Same; The test in determining and option money, viz.: (a) earnest money is part of the
whether a contract is a “contract of sale or purchase” or a purchase price, while option money is the money given as a
mere “option” is whether or not the agreement could be distinct consideration for an option contract; (b) earnest money
is given only where there is already a sale, while option money (to buy, redeem or repurchase) rather than the discharge of an
applies to a sale not yet perfected; and (c) when earnest money obligation, hence tender of payment would be sufficient to
is given, the buyer is bound to pay the balance, while when the preserve the right or privilege. This is because the provisions
would-be buyer gives option money, he is not required to buy. on consignation are not applicable when there is no obligation
Same; Same; Same; In a perfected contract to sell, to pay. A contract to sell, as ;in the case before us, involves the
Article 1590 would properly apply.—Tojustify its failure to performance of an obligation, not merely the exercise of a
pay the purchase price within the agreed period, petitioner privilege or a right. Consequently, performance or payment
invokes Article 1590 of the Civil Code which provides: “ART, may be effected not by tender of payment alone but by both
1590. Should the vendee be disturbed in the possession or tender and consignation.
ownership of the thing acquired, or should he have reasonable Same; Same; Same; Judicial action for rescission of a
grounds to fear such disturbance, by a vindicatory action or a contract is not necessary where the contract provides for
foreclosure of mortgage, he may suspend the payment of the automatic rescission in case of breach.—By reason of
price until the vendor has caused the disturbance or danger to petitioner’s failure to comply with its
cease, unless the latter gives security for the return of the price 571
in a proper case, or it has been stipulated that, notwithstanding VOL. 240, 571
any such contingency, the vendee shall be bound to make the
JANUARY 25, 1995
payment. A mere act of trespass shall not authorize the
suspension of the payment of the price.” Respon- Adelfa Properties, Inc. vs. Court
570 of Appeals
570 SUPREME COURT obligation, private respondents elected to resort to and
REPORTS ANNOTATED did announce the rescission of the contract through its letter to
petitioner dated July 27, 1990. That written notice of
Adelfa Properties, Inc. vs. Court rescission is deemed sufficient under the circumstances.
of Appeals Article 1592 of the Civil Code which requires rescission either
dent court refused to apply the aforequoted provision of by judicial action or notarial act is not applicable to a contract
law on the erroneous assumption that, the true agreement to sell. Furthermore, judicial action for rescission of a contract
between the parties was a contract of option, As we have is not necessary where the contract provides for automatic
hereinbefore discussed, it was not an option contract but a rescission in case of breach, as in the contract involved in the
perfected contract to sell. Verily, therefore, Article 1590 present controversy.
would properly apply, Same; Same; Same; Resolution of reciprocal contracts
Same; Same; Sales; In Article 1590, the vendor is may be made extrajudicially unless successfully impugned in
bound to make payment even with the existence of a court If the debtor impugns the declaration, it shall be subject
vindicatory action if the vendee should give a security for the to judicial determination. Otherwise, if said party does not
return of the price.—Petitioner was justified in suspending oppose it, the extrajudicial rescission shall have legal effect.—
payment of the balance of the purchase price by reason of the We are not unaware of the ruling in University of the
aforesaid vindicatory action filed against it. The assurance Philippines vs. De los Angeles, etc. that the right to rescind is
made by private respondents that petitioner did not have to not absolute, being ever subject to scrutiny and review by the
worry about the case because it was pure and simple proper court. It is our considered view, however, that this rule
harassment is not the . kind of guaranty contemplated under applies to a situation where the extrajudicial rescission is
the exceptive clause in Article 1590 wherein the vendor is contested by the defaulting party. In other words, resolution of
bound to make payment even with the , existence of a reciprocal contracts may be made extrajudicially unless
vindicatory action if the vendee should give a security for the successfully impugned in court. If the debtor impugns the
return of the price. declaration, it shall be subject to judicial determination.
Same; Same; Same; It is consignation which is Otherwise, if said party does not oppose it, the extrajudicial
essential in order to extinguish petitioner’s obligation to pay rescission shall have legal effect.
the balance of the purchase price. A contract to sell involves PETITION for review on certiorari of a decision of the Court
the performance of an obligation, not merely the exercise of a of Appeals.
privilege or a right. Consequently, performance of payment The facts are stated in the opinion of the Court. ,
may be effected not by tender of payment alone but by both Bayani L. Bernardo for petitioner.
tender and consignation.—The mere sending of a letter by the Lucas C. Carpio, Jr.for private respondents Jimenezes.
vendee expressing the intention to pay, without the Danilo B. Banares for Emylene S. Chua.
accompanying payment, is not considered a valid tender of REGALADO, J.:
payment. Besides, a mere tender of payment is not sufficient The main issues presented for resolution in this petition for
to compel private respondents to deliver the property and review on certiorari of the judgment of respondent Court of
execute the deed of absolute sale. It is consignation which is Appeals, dated April 6, 1993, in CA-G.R. CV No. 347671 are
essential in order to extinguish petitioner’s obligation to pay (1)
the balance of the purchase price. The rule is different in case _______________
1
of an option contract or in legal redemption or in a sale with Penned by Associate Justice Antonio M. Martinez, with
right to repurchase, wherein consignation is not necessary Associate Justices Artemon D. Luna and Buenaventura J.
because these cases involve an exercise of a right or privilege Guerrero, concurring; Annex C, Petition; Rollo, 84.
572 Adelfa Properties, Inc. vs. Court of
572 SUPREME COURT REPORTS Appeals
ANNOTATED 1. DRED FIFTY PESOS (P2,806,150.00) to be paid on
Adelfa Properties, Inc. vs. Court of or before November 30, 1989;
Appeals 2. 3.In case of default on the part of ADELFA
PROPERTIES, INC. to pay said balance in
whether or not the “Exclusive Option to Purchase” executed
accordance with paragraph 2 hereof, this option
between petitioner Adelfa Properties, Inc. and private
shall be cancelled and 50% of the option money to
respondents Rosario Jimenez-Castañeda and Salud Jimenez is
be forfeited in our favor and we will refund the
an option contract; and (2) whether or not there was a valid
remaining 50% of said option money upon the sale
suspension of payment of the purchase price by said petitioner,
of said property to a third party;
and the legal effects thereof on the contractual relations of the
3. 4.All expenses including the corresponding capital
parties.
gains tax, cost of documentary stamps are for the
The records disclose the following antecedent facts which
account of the VENDORS, and expenses for the
culminated in the present appellate review, to wit:
registration of the deed of sale in the Registry of
1. 1.Herein private respondents and their brothers, Jose Deeds are for the account of ADELFA
and Dominador Jimenez, were the registered co- PROPERTIES, INC."
owners of a parcel of land consisting of 17,710 Considering, however, that the owner's copy of the certificate
square meters, covered by Transfer Certificate of of title issued to respondent Salud Jimenez had been lost, a
Title (TCT) No. 309773,2situated in Barrio Culasi, petition for the re-issuance of anew owner's copy of said
Las Piñas, Metro Manila. certificate of title was filed in court through Atty. Bayani L.
2. 2.On July 28, 1988, Jose and Dominador Jimenez Bernardo, who acted as private respondents' counsel.
sold their share consisting of one-half of said parcel Eventually, a new owner's copy of the certificate of title was
of land, specifically the eastern portion thereof, to issued but it remained in the possession of Atty. Bernardo
herein petitioner pursuant to a “Kasulatan sa until he turned it over to petitioner Adelfa Properties, Inc.
Bilihan ng Lupa.”3Subsequently, a “Confirmatory 1. 4.Before petitioner could make payment, it received
Extrajudicial Partition Agreement” 4 was executed summons6on November 29,1989, together with a
by the Jimenezes. wherein the eastern portion of the copy of a complaint filed by the nephews and nieces
subject lot, with an area of 8,855 square meters was of private respondents against the latter, Jose and
adjudicated to Jose and Dominador Jimenez, while Dominador Jimenez, and herein petitioner in the
the western portion was allocated to herein private Regional Trial Court of Makati, docketed as Civil
respondents. Case No. 89-5541, for annulment of the deed of sale
3. 3.Thereafter, herein petitioner expressed interest in in favor of Household Corporation and recovery of
buying the western portion of the property from ownership of the property covered by TCT No.
private respondents. Accordingly, on November 25, 309773.7
1989, an “Exclusive Option to Purchase”5 was 2. 5.As a consequence, in a letter dated November 29,
executed between petitioner and private 1989, petitioner informed private respondents that it
respondents, under the following terms and would hold payment of the full purchase price and
conditions: suggested that private respondents settle the case
1. “1.The selling price of said 8,655 square meters of with their nephews and nieces, adding that "x x x if
the subject property is TWO MILLION EIGHT possible, although November 30, 1989 is a holiday,
HUNDRED FIFTY SIX THOUSAND ONE we will be waiting for you and said plaintiffs at our
HUNDRED FIFTY PESOS ONLY office up to 7:00 p.m."8 Another letter of the same
(P2,856,150.00); tenor and of even date was sent by petitioner to Jose
2. 2.The sum of P50,000.00 which we received from and Dominador Jimenez.9
ADELFA PROPERTIES, INC. as an option money _______________
shall be credited as partial payment upon the 6
Exhibit 2; ibid., 151.
consummation of the sale and the balance in the 7
sum of TWO MILLION EIGHT HUNDRED SIX 8
THOUSAND ONE HUN 9
_______________ 574
2
Exhibit A; Original Record, 8.
3
Exhibits B and 7; ibid., 9. 574 SUPREME COURT REPORTS
4
Exhibits C and 8; ibid., 12. ANNOTATED
5
Exhibit D; ibid., 17. Adelfa Properties, Inc. vs. Court of
573 Appeals
VOL. 240, JANUARY 25, 573 1. Respondent Salud Jimenez refused to heed the
1995 suggestion of petitioner and attributed the

suspension of payment of the purchase price to among others, that the exclusive option to purchase
“lack of word of honor.” be declared null and void; that defendant, herein
2. 6.On December 7, 1989, petitioner caused to be petitioner, be ordered to return the owner’s
annotated on the title of the lot its option contract duplicate certificate of title; and that the annotation
with private respondents, and its contract of sale of the option contract on TCT No. 309773 be
with Jose and Dominador Jimenez, as Entry No. cancelled. Emylene Chua, the subsequent purchaser
1437–4 and Entry No. 1438–4, respectively. ; of the lot, filed a complaint in intervention.
3. 7.On December 14,1989, private respondents sent 2. 12.The trial court rendered judgment13therein on
Francisca Jimenez to see Atty. Bernardo, in his September 5, 1991 holding that the agreement
capacity as petitioner’s counsel, and to inform the entered into by the parties was merely an option
latter that they were cancelling the transaction. In contract, and declaring that the suspension of
turn, Atty. Bernardo offered to pay the purchase payment by herein petitioner constituted a
price provided that P500,000.00 be deducted counteroffer which, therefore, was tantamount to a
therefrom for the settlement of the civil case. This rejection of the option. It likewise ruled that herein
was rejected by private respondents. On December petitioner could not validly suspend payment in
22, 1989, Atty. Bernardo wrote private respondents favor of private respondents on the ground that the
on the same matter but this time reducing the vindicatory action filed by the latter’s kin did not
amount from P500,000.00 to P300,000.00, and this involve the western portion of the land covered by
was also rejected by the latter. the contract between petitioner and private
4. 8.On February 23, 1990, the Regional Trial Court of respondents, but the eastern portion thereof which
Makati dismissed Civil Case No. 89–5541. Thus, on was the subject of the sale between petitioner and
February 28, 1990, petitioner caused to be annotated the brothers Jose and Dominador Jimenez. The trial
anew on TCT No. 309773 the exclusive option to court then directed the cancellation of the exclusive
purchase as Entry No. 4442–4. option to purchase, declared the sale to intervenor
5. 9.On the same day, February 28,1990, private Emylene Chua as valid and binding, and ordered
respondents executed a Deed of Conditional petitioner to pay damages and attorney’s fees to
Sale10 in favor of Emylene Chua over the same private respondents, with costs.
parcel of land for P3,029,250.00, of which 3. 13.On appeal, respondent Court of Appeals
P1,500,000.00 was paid to private respondents on affirmed in toto the decision of the court a quo and
said date, with the balance to be paid upon the held that the failure of petitioner to pay the purchase
transfer of title to the specified one-half portion. price within the period agreed upon was tantamount
6. 10.On April 16, 1990, Atty. Bernardo wrote private to an election by petitioner not to buy the property;
respondents informing the latter that in view of the that the suspension of payment constituted an
dismissal of the case against them, petitioner was imposition of a condition which was actually a
willing to pay the purchase price, and he requested counter-offer amounting to a rejection of the option;
that the corresponding deed of absolute sale be and that Article 1590 of the Civil Code on
executed.11 This was ignored by private suspension of payments applies only to a contract of
respondents. sale or a contract to sell, but not to an option
7. 11.On July 27, 1990, private respondents’ counsel contract which it opined was
sent a letter to petitioner enclosing therein a check _______________
12
for P25,000.00 representing the refund of fifty Exhibit F; ibid., 125.
13
percent of the option money paid under the Original Record, 179; per Judge Baltazar Relativo
exclusive option to purchase. Private respondents Dizon.
_______________ 576
10
Exhibit G; ibid., 67. 576 SUPREME COURT REPORTS
11
Exhibit 5; ibid., 39. ANNOTATED
575
Adelfa Properties, Inc. vs. Court of
VOL. 240, JANUARY 25, 575
Appeals
1995
1. the nature of the document subject of the case at bar.
Adelfa Properties, Inc. vs. Court of Said appellate court similarly upheld the validity of
Appeals the deed of conditional sale executed by private
1. then requested petitioner to return the owner’s respondents in favor of intervenor Emylene Chua.
duplicate copy of the certificate of title of In the present petition, the following assignment of errors are
respondent Salud Jimenez.12Petitioner failed to raised:
surrender the certificate of title, hence private 1. 1.Respondent Court of Appeals acted with grave
respondents filed Civil Case No. 7532in the abuse of discretion in making its finding that the
Regional Trial Court of Pasay City, Branch 113, for agreement entered into by petitioner and private
annulment of contract with damages, praying, respondents was strictly an option contract;

2. 2.Granting arguendo that the agreement was an herein private respondents in the event that petitioner does not
option contract, respondent Court of Appeals acted comply with its obligation. With the absence of such a
with grave abuse of discretion in grievously failing stipulation, although there is a provision on the remedies
to consider that while the option period had not available to the parties in case of breach, it may legally be
lapsed, private respondents could not unilaterally inferred that the parties never intended to transfer ownership
and prematurely terminate the option period; to the petitioner prior to completion of payment of the
3. 3.Respondent Court of Appeals acted with grave purchase price.
abuse of discretion in failing to appreciate fully the In effect, there was an implied agreement that ownership
attendant facts and circumstances when it made the shall not pass to the purchaser until he had fully paid the price.
conclusion of law that Article 1590 does not apply; Article 1478 of the Civil Code does not require that such a
and stipulation be expressly made. Consequently, an implied
4. 4.Respondent Court of Appeals acted with grave stipulation to that effect is considered valid and, therefore,
abuse of discretion in conforming with the sale in binding and enforceable between the parties. It should be
favor of appellee Ma. Emylene Chua and the award noted that under the law and jurisprudence, a contract which
of damages and attorney’s fees which are not only contains this kind of stipulation is considered a contract to
excessive, but also without bases in fact and in sell.
law.14 Moreover, that the parties really intended to execute a
An analysis of the facts obtaining in this case, as well as the contract to sell, and not a contract of sale, is bolstered by the
evidence presented by the parties, irresistibly leads to the fact that
conclusion that the agreement between the parties is a contract _______________
15
to sell, and not an option contract or a contract of sale. Pingol, et al. vs. Court of Appeals, et al., G.R. No.
I 102909, September 6, 1993, 226 SCRA 118.
1. In view of the extended disquisition thereon by respondent 578
court, it would be worthwhile at this juncture to briefly 578 SUPREME COURT REPORTS
discourse on the rationale behind our treatment of the alleged ANNOTATED
option contract as a contract to sell, rather than a contract of
sale. The distinction between the two is important for in a Adelfa Properties, Inc. vs. Court of
contract of sale, the title passes to the vendee upon the Appeals
delivery of the thing sold; whereas in a contract to sell, by the deed of absolute sale would have been issued only upon
agreement the ownership is reserved in the vendor and is not the payment of the balance of the purchase price, as may be
to pass until the full payment of gleaned from petitioner’s letter dated April 16,1990 16 wherein
_______________ it informed private respondents that it “is now ready and
14
Rollo, 14. willing to pay you simultaneously with the execution of the
577 corresponding deed of absolute sale.” .
VOL. 240, JANUARY 25, 577 Secondly, it has not been shown that there was delivery of
the property, actual or constructive, made to herein petitioner.
1995
The exclusive option to purchase is not contained in a public
Adelfa Properties, Inc. vs. Court of instrument the execution of which would have been
Appeals considered equivalent to delivery.17 Neither did petitioner take
the price. In a contract of sale, the vendor has lost and cannot actual, physical possession of the property at any given time. It
recover ownership until and unless the contract is resolved or is true that after the reconstitution of private respondents’
rescinded; whereas in a contract to sell, title is retained by the certificate of title, it remained in the possession of petitioner’s
vendor until the full payment of the price, such payment being counsel, Atty. Bayani L. Bernardo, who thereafter delivered
a positive suspensive condition and failure of which is not a the same to herein petitioner. Normally, under the law, such
breach but an event that prevents the obligation of the vendor possession by the vendee is to be understood as a
to convey title from becoming effective. Thus, a deed of sale delivery.18However, private respondents explained that there
is considered absolute in nature where there is neither a was really no intention on their part to deliver the title to
stipulation in the deed that title to the property sold is reserved herein petitioner with the purpose of transferring ownership to
in the seller until the full payment of the price, nor one giving it. They claim that Atty. Bernardo had possession of the title
the vendor the right to unilaterally resolve the contract the only because he was their counsel in the petition for
moment the buyer fails to pay within a fixed period.15 reconstitution. We have no reason not to believe this
There are two features which convince us that the parties explanation of private respondents, aside from the fact that
never intended to transfer ownership to petitioner except upon such contention was never refuted or contradicted by
full payment of the purchase price. Firstly, the exclusive petitioner.
option to purchase, although it provided for automatic 2. Irrefragably, the controverted document should legally
rescission of the contract and partial forfeiture of the amount be considered as a perfected contract to sell. On this particular
already paid in case of default, does not mention that point, therefore, we reject the position and ratiocination of
petitioner is obliged to return possession or ownership of the respondent Court of Appeals which, while awarding the
property as a consequence of nonpayment. There is no correct relief to private respondents, categorized the
stipulation anent reversion or reconveyance of the property to instrument as “strictly an option contract.”
The important task in contract interpretation is always the 580 SUPREME COURT REPORTS
ascertainment of the intention of the contracting parties and
ANNOTATED
that task is, of course, to be discharged by looking to the
words they used to project that intention in their contract, all Adelfa Properties, Inc. vs. Court of
the words not just a particular word or two, and words in Appeals
context not words On the other hand, a contract, like a contract to sell, involves a
_______________ meeting of minds between two persons whereby one binds
16
Exhibit 5; ibid., 39. himself, with respect to the other, to give something or to
17
Article 1498, Civil Code. render some service.26 Contracts, in general, are perfected by
18
Article 1501, id. mere consent,27 which is manifested by the meeting of the
579 offer and the acceptance upon the thing and the cause which
VOL. 240, JANUARY 25, 579 are to constitute the contract. The offer must be certain and the
1995 acceptance absolute.28
The distinction between an “option” and a contract of sale
Adelfa Properties, Inc. vs. Court of is that an option is an unaccepted offer. It states the terms and
Appeals conditions on which the owner is willing to sell his land, if the
standing alone.19 Moreover, judging from the subsequent acts holder elects to accept them within the time limited. If the
of the parties which will hereinafter be discussed, it is holder does so elect, he must give notice to the other party,
undeniable that the intention of the parties was to enter into a and the accepted offer thereupon becomes a valid and binding
contract to sell.20 In addition, the title of a contract does not contract. If an acceptance is not made within the.time fixed,
necessarily determine its true nature. 21 Hence, the fact that the the owner is no longer bound by his offer, and the option is at
document under discussion is entitled “Exclusive Option to an end. A contract of sale, on the other hand, fixes definitely
Purchase” is not controlling where the text thereof shows that the relative rights and obligations of both parties at the time of
it is a contract to sell its execution. The offer and the acceptance are concurrent,
An option, as used in the law on sales, is a continuing offer since the minds of the contracting parties meet in the terms of
or contract by which the owner stipulates with another that the the agreement.29
latter shall have the right to buy the property at a fixed price A perusal of the contract in this case, as well as the oral
within a certain time, or under, or in compliance with, certain and documentary evidence presented by the parties, readily
terms and conditions, or which gives to the owner of the shows that there is indeed a concurrence of petitioner’s offer
property the right to sell or demand a sale. It is also sometimes to buy and private respondents’ acceptance thereof. The rule is
called an “unaccepted offer.” An option is not of itself a that except where a formal acceptance is so required, although
purchase, but merely secures the privilege to buy.22 It is not a the acceptance must be affirmatively and clearly made and
sale of property but a sale of the right to purchase. 23 It is must be evidenced by some acts or conduct communicated to
simply a contract by which the owner of property agrees with the offeror, it may be made either in a formal or an informal
smother person that he shall have the right to buy his property manner, and may be shown by acts, conduct, or words of the
at a fixed price within a certain time. He does not sell his land; accepting party that clearly manifest a present intention or
he does not then agree to sell it; but he does sell something, determination to accept the offer to buy or sell. Thus,
that is, the right or privilege to buy at the election or option of acceptance may be shown by the acts, conduct, or words of a
the other party.24Its distinguishing characteristic is that it party recognizing the existence of the contract of sale.30
imposes no binding obligation on the person holding the _______________
26
option, aside from the consideration for the offer. Until Article 1305, Civil Code.
27
acceptance, it is not, properly speaking, a contract, and does Article 1315, id.
28
not vest, transfer, or agree to transfer, any title to, or any Article 1319, id.
29
interest or right in the subject matter, but is merely a contract McMillan vs. Philadelphia Co., 28 A. 220,
30
by which the owner of property gives the optionee the right or 77 C.J.S. Sales, Sec. 28, p. 641.
privilege of accepting the offer and buying the property on 581
certain terms.25 VOL. 240, JANUARY 25, 581
_______________
19 1995
Fernandez vs. Court of Appeals, et al., G.R. No. 80231,
October 18, 1988,166 SCRA 577. Adelfa Properties, Inc. vs. Court of
20
Heirs of Severo Legaspi, Sr. vs. Vda. de Dayot, et Appeals
al. G.R. No. 83904, August 13, 1990, 188 SCRA 508. The records also show that private respondents accepted the
21
Cruz, et al. vs. Court of Appeals, et al. G.R. No. 50350, offer of petitioner to buy their property under the terms of
May 15, 1984,129 SCRA 222. their contract. At the time petitioner made its offer, private
22
77 C.J.S. Sales, Sec. 33, pp. 651–652. respondents suggested that their transfer certificate of title be
23
30 Words and Phrases, 15. first reconstituted, to which petitioner agreed. As a matter of
24
Op. cit., 20. fact, it was petitioner’s counsel, Atty. Bayani L. Bernardo,
25
77 C.J.S. Sales, Sec. 33, pp. 651–652. who assisted private respondents in filing a petition for
580 reconstitution. After the title was reconstituted, the parties
agreed that petitioner would pay either in cash or manager’s
check the amount of P2,856,150.00 for the lot. Petitioner was respondents considered petitioner already bound by its
supposed to pay the same on November 25, 1989, but it later obligation to pay the balance of the consideration. In effect,
offered to make a down payment of P50,000.00, with the private respondents were demanding or exacting fulfillment of
balance of P2,806,150.00 to be paid on or before November the obligation from herein petitioner. With the arrival of the
30, 1989. Private respondents agreed to the counter-offer made period agreed upon by the parties, petitioner was supposed to
by petitioner.31 As a result, the socalled exclusive option to comply with-the obligation incumbent upon it to perform, not
purchase was prepared by petitioner and was subsequently merely to exercise an option or a right to buy the property.
signed by private respondents, thereby creating a perfected The obligation of petitioner on November 30, 1993
contract to sell between them. consisted of an obligation to give something, that is, the
It cannot be gainsaid that the offer to buy a specific piece payment of the purchase price. The contract did not simply
of land was definite and certain, while the acceptance thereof give petitioner the discretion to pay for the property. 32 It will
was absolute and without any condition or qualification. The be noted that there is nothing in the said contract to show that
agreement as to the object, the price of the property, and the petitioner was merely given a certain period within which to
terms of payment was clear and well-defined. No other exercise its privilege to buy. The agreed period was intended
significance could be given to such acts than that they were to give time to herein petitioner within which to fulfill and
meant to finalize and perfect the transaction. The parties even comply with its obligation, that is, to pay the balance of the
went beyond the basic requirements of the law by stipulating purchase price. No evidence was presented by private
that “all expenses including the corresponding capital gains respondents to prove otherwise.
tax, cost of documentary stamps are for the account of the _______________
32
vendors, and expenses for the registration of the deed of sale Cf. Aspinwall vs. Ryan, 226 P. 2d 814.
in the Registry of Deeds are for the account of Adelfa 583
Properties, Inc.” Hence, there was nothing left to be done VOL. 240, JANUARY 25, 583
except the performance of the respective obligations of the
1995
parties.
We do not subscribe to private respondents’ submission, Adelfa Properties, Inc. vs. Court of
which was upheld by both the trial court and respondent Court Appeals
of Appeals, that the offer of petitioner to deduct P500,000.00, The test in determining whether a contract is a “contract of
(later reduced to P300,000.00) from the purchase price for the sale or purchase” or a mere “option” is whether or not the
settlement of the civil case was tantamount to a counter-offer. agreement could be specifically enforced. 33There is no doubt
It must be stressed that there already existed a perfected that the obligation of petitioner to pay the purchase price is
contract be- specific, definite and certain, and consequently binding and
_______________ enforceable. Had private respondents chosen to enforce the
31
TSN, March 1, 1991, 5–7. contract, they could have specifically compelled petitioner to
582 pay the balance of P2,806,150.00. This is distinctly made
582 SUPREME COURT REPORTS manifest in the contract itself as an integral stipulation,
ANNOTATED compliance with which could legally and definitely be
demanded from petitioner as a consequence.
Adelfa Properties, Inc. vs. Court of This is not a case where no right is as yet created nor an
Appeals obligation declared, as where something further remains to be
tween the parties at the time the alleged counter-offer was done before the buyer and seller obligate themselves. 34 An
made. Thus, any new offer by a party becomes binding only agreement is only an “option” when no obligation rests on the
when it is accepted by the other. In the case of private party to make any payment except such as may be agreed on
respondents, they actually refused to concur in said offer of between the parties as consideration to support the option until
petitioner, by reason of which the original terms of the he has made up his mind within the time specified. 35 An
contract continued to be enforceable. option, and not a contract to purchase, is effected by an
At any rate, the same cannot be considered a counter-offer agreement to sell real estate for payments to be made within a
for the simple reason that petitioner’s sole purpose was to specified time and prividing for forfeiture of money paid upon
settle the civil case in order that it could already comply with failure to make payment, where the purchaser does not agree
its obligation. In fact, it was even indicative of a desire by to purchase, to make payment, or to bind himself in any way
petitioner to immediately comply therewith, except that it was other than the forfeiture of the payments made. 36 As
being prevented from doing so because of the filing of the hereinbefore discussed, this is not the situation obtaining in the
civil case which, it believed in good faith, rendered case at bar.
compliance improbable at that time, In addition, no inference While there is jurisprudence to the effect that a contract
can be drawn from that suggestion given by petitioner that it which provides that the initial payment shall be totally
was totally abandoning the original contract. forfeited in case of default in payment is to be considered as
More importantly, it will be noted that the failure of an option contract,37 still we are not inclined to conform with
petitioner to pay the balance of the purchase price within the the findings of respondent court and the court a quo that the
agreed period was attributed by private respondents to “lack of contract executed between the parties is an option contract, for
word of honor” on the part of the former. The reason of “lack the reason that the parties were already contemplating the
of word of honor” is to us a clear indication that private payment of the balance of the purchase price, and were not
merely quoting an agreed value for the property. The term Appeals
“balance,” connotes a remainder or failure to pay the purchase price within the agreed period,
_______________ petitioner invokes Article 1590 of the Civil Code which
33
30 Words and Phrases, 14. provides:
34
77 C.J.S. Sales, Sec. 24, p. 630. “ART. 1590. Should the vendee be disturbed in the possession
35
30 Words and Phrases, 13. or ownership of the thing acquired, or should he have
36
Ibid., 15. reasonable grounds to fear such disturbance, by a vindicatory
37
Hanscom vs. Blanchard, 105 A. 291. action or a foreclosure of mortgage, he may suspend the
584 payment of the price until the vendor has caused the
584 SUPREME COURT REPORTS disturbance or danger to cease, unless the latter gives security
ANNOTATED for the return of the price in a proper case, or it has been
Adelfa Properties, Inc. vs. Court of stipulated that, notwithstanding any such contingency, the
vendee shall be bound to make the payment. A mere act of
Appeals trespass shall not authorize the suspension of the payment of
something remaining from the original total sum already the price.”
agreed upon. Respondent court refused to apply the aforequoted provision
In other words, the alleged option money of P50,000.00 of law on the erroneous assumption that the true agreement
was actually earnest money which was intended to form part between the parties was a contract of option. As we have
of the purchase price. The amount of P50,000.00 was not hereinbefore discussed, it was not an option contract but a
distinct from the cause or consideration for the sale of the perfected contract to sell. Verily, therefore, Article 1590
property, but was itself a part thereof. It is a statutory rule that would properly apply.
whenever earnest money is given in a contract of sale, it shall Both lower courts, however, are in accord that since Civil
be considered as part of the price and as proof of the Case No. 89–5541filed against the parties herein involved
perfection of the contract.38 It constitutes an advance payment only the eastern half of the land subject of the deed of sale
and must, therefore, be deducted from the total price. Also, between petitioner and the Jimenez brothers, it did not,
earnest money is given by the buyer to the seller to bind the therefore, have any adverse effect on private respondents’ title
bargain. and ownership over the western half of the land which is
There are clear distinctions between earnest money and covered by the contract subject of the present case. We have
option money, viz.: (a) earnest money is part of the purchase gone over the complaint for recovery of ownership filed in
price, while option money is the money given as a distinct said case41and we are not persuaded by the factual findings
consideration for an option contract; (b) earnest money is made by said courts. At a glance, it is easily discernible that,
given only where there is already a sale, while option money although the complaint prayed for the annulment only of the
applies to a sale not yet perfected; and (c) when earnest money contract of sale executed between petitioner and the Jimenez
is given, the buyer is bound to pay the balance, while when the brothers, the same likewise prayed for the recovery of therein
would-be buyer gives option money, he is not required to plaintiffs’ share in that parcel of land specifically covered by
buy.39 TCT No. 309773. In other words, the plaintiffs therein were
The aforequoted characteristics of earnest money are claiming to be co-owners of the entire parcel of land described
apparent in the so-called option contract under review, even in TCT No. 309773, and not only of a portion thereof nor, as
though it was called “option money” by the parties. In incorrectly interpreted by the lower courts, did their claim
addition, private respondents failed to show that the payment pertain exclusively to the eastern half adjudicated to the
of the balance of the purchase price was only a condition Jimenez brothers.
precedent to the acceptance of the offer or to the exercise of _______________
the right to buy. On the contrary, it has been sufficiently 41
Exhibit 3; Original Record, 33.
established that such payment was but an element of the 586
performance of petitioner’s obligation under the contract to
586 SUPREME COURT REPORTS
sell.40
II ANNOTATED
1. This brings us to the second issue as to whether or not there Adelfa Properties, Inc. vs. Court of
was valid suspension of payment of the purchase price by Appeals
petitioner and the legal consequences thereof. To justify its Such being the case, petitioner was justified in suspending
_______________ payment of the balance of the purchase price by reason of the
38
Article 1482, Civil Code. aforesaid vindicatory action filed against it. The assurance
39
De Leon, Comments and Cases on Sales, 1986 rev. ed., made by private respondents that petitioner did not have to
67. worry about the case because it was pure and simple
40
See 77 C.J.S. Sales, Sec. 33, 654. harassment42 is not the kind of guaranty contemplated under
585 the exceptive clause in Article 1590 wherein the vendor is
VOL. 240, JANUARY 25, 585 bound to make payment even with the existence of a
1995 vindicatory action if the vendee should give a security for the
Adelfa Properties, Inc. vs. Court of return of the price.

2. Be that as it may, and the validity of the suspension of By reason of petitioner’s failure to comply with its
payment notwithstanding, we find and hold that private obligation, private respondents elected to resort to and did
respondents may no longer be compelled to sell and deliver announce the rescission of the contract through its letter to
the subject property to petitioner for two reasons, that is, petitioner dated July 27, 1990. That written notice of
petitioner’s failure to duly effect the consignation of the rescission is deemed sufficient under the circumstances.
purchase price after the disturbance had ceased; and, Article 1592 of the Civil Code “which requires rescission
secondarily, the fact that the contract to sell had been validly either by judicial action or notarial act is not applicable to a
rescinded by private respondents. contract to sell.48Furthermore, judicial action for rescission of
The records of this case reveal that as early as February a contract is not necessary where the contract provides for
28, 1990 when petitioner caused its exclusive option to be automatic rescission in case of breach, 49 as in the contract
annotated anew on the certificate of title, it already knew of involved in the present controversy.
the dismissal of Civil Case No. 89–5541. However, it was _______________
only on April 16, 1990 that petitioner, through its counsel, SCRA 654.
46
wrote private respondents expressing its willingness to pay the Francisco, et al. vs. Bautista, et al., L-44167, December
balance of the purchase price upon the execution of the 19, 1990,192 SCRA 388.
47
corresponding deed of absolute sale. At most, that was merely Tolentino, op cit., 323–324; Fn 44.
48
a notice to pay. There was no proper tender of payment nor Albea vs. Inquimboy, et al., 86 Phil.
consignation in this case as required by law. 477 (1950); Alfonso, et al., vs. Court of Appeals, et al., G.R.
The mere sending of a letter by the vendee expressing the No. 63745, June 8, 1990, 186 SCRA 400.
49
intention to pay, without the accompanying payment, is not Palay, Inc., et al. vs. Clave, et al., G.R. No. 56076,
considered a valid tender of payment.43 Besides, a mere tender September 21, 1983, 124 SCRA 638.
of payment is not sufficient to compel private respondents to 588
deliver the property and execute the deed of absolute sale. It is 588 SUPREME COURT REPORTS
consignation which is essential in order to extinguish
ANNOTATED
petitioner’s obligation to pay the balance of the purchase
price.44 The rule is different in case of an option contract 45 or Adelfa Properties, Inc. vs. Court of
in legal redemption or Appeals
_______________ We are not unaware of the ruling in University of the
42
TSN, February 1,1991,18–20. Philippines vs. De los Angeles, etc. 50 that the right to rescind is
43
Vda. de Zulueta, et al. vs. Octaviano, et al., G.R. No. not absolute, being ever subject to scrutiny and review by the
55350, March 28, 1983, 121 SCRA 314. proper court. It is our considered view, however, that this rule
44
Tolentino, Civil Code of the Philippines, Vol. IV, 1986 applies to a situation where the extrajudicial rescission is
ed., 323. contested by the defaulting party, In other words, resolution of
45
Nietes vs. Court of Appeals, et al. L-32873, August 18, reciprocal contracts may be made extrajudicially unless
1972, 46 successfully impugned in court. If the debtor impugns the
587 declaration, it shall be subject to judicial
VOL. 240, JANUARY 25, 587 determination.51 Otherwise, if said party does not oppose it,
1995 the extrajudicial rescission shall have legal effect.52
In the case at bar, it has been shown that although
Adelfa Properties, Inc. vs. Court of petitioner was duly furnished and did receive a written notice
Appeals of rescission which specified the grounds therefor, it failed to
in a sale with right to repurchase, 46 wherein consignation is not reply thereto or protest against it. Its silence thereon suggests
necessary because these cases involve an exercise of a right or an admission of the veracity and validity of private
privilege (to buy, redeem or repurchase) rather than the respondents’ claim.53Furthermore, the initiative of instituting
discharge of an obligation, hence tender of payment would be suit was transferred from the rescinder to the defaulter by
sufficient to preserve the right or privilege. This is because the virtue of the automatic rescission clause in the contract. 54 But
provisions on consignation are not applicable when there is no then, the records bear out the fact that aside from the
obligation to pay.47 A contract to sell, as in the case before us, lackadaisical manner with which petitioner treated private
involves the performance of an obligation, not merely the respondents’ letter of cancellation, it utterly failed to seriously
exercise of a privilege or a right. Consequently, performance seek redress from the court for the enforcement of its alleged
or payment may be effected not by tender of payment alone rights under the contract. If private respondents had not taken
but by both tender and consignation. the initiative of filing Civil Case No. 7532, evidently
Furthermore, petitioner no longer had the right to suspend petitioner had no intention to take any legal action to “compel
payment after the disturbance ceased with the dismissal ot specific performance from the former. By such cavalier
the civil case filed against it. Necessarily, therefore, its disregard, it has been effectively estopped from seeking the
obligation to pay the balance again arose and resumed after it affirmative relief it now desires but which it had theretofore
received notice of such dismissal. Unfortunately, petitioner disdained.
failed to seasonably make payment, as in fact it has failed to WHEREFORE, on the foregoing modificatory premises,
do so up to the present time, or even to deposit the money with and considering that the same result has been reached by
the trial court when this case was originally filed therein. respondent Court of Appeals with respect to the relief awarded
to private respondents by the court a quo which we find to be suspensive condition. The facts herein do not show that
correct, its assailed judgment in CA-G.R. CV No. 34767 is petitioner reserved title to the goods until private respondent
hereby AF- had opened a letter of credit. Petitioner, in the course of its
_______________ dealings with private respondent, did not incorporate any
50
L-28602, September 29, 1970, 35 SCRA 102. provision declaring their contract of sale without effect until
51
Palay, Inc., et al. vs. Clave, et al., supra. after the fulfillment of the act of opening a letter of credit. The
52
Zulueta vs. Mariano, etc., et al.L-29360, January 30, opening of a letter of credit in favor of a vendor is only a mode
1982, 111 SCRA 206. of payment. It is not among the essential requirements of a
53
Pellicer vs. Ruiz, L-14300, May 30, 1961, 2 SCRA 160, contract of sale enumerated in Articles 1305 and 1474 of the
54
University of the Philippines vs. De los Angeles, Civil Code, the absence of any of which will prevent the
etc., supra. perfection of the contract from taking place.
589 PETITION for review on certiorari of a decision of the Court
VOL. 240, JANUARY 25, 1995 589 of Appeals.
The facts are stated in the opinion of the Court.
Tiongco vs. Aguilar
_______________
FIRMED. *
THIRD DIVISION.
SO ORDERED. 718
Narvasa (C.J., Chairman), Puno and Mendoza,
JJ., concur. 718 SUPREME COURT REPORTS
Judgment affirmed. ANNOTATED
Notes.—View that in a contract of sale, after delivery of Johannes Schuback & Sons Philippine
the object of the contract has been made, the seller loses Trading Corp. vs. Court of Appeals
ownership and cannot recover the same unless the contract is
Hernandez, Velicaria, Vibar & Santiago for petitioner.
rescinded (Visayan Sawmill Company, Inc. vs. Court of
Ernesto M. Tomanengfor private respondent.
Appeals, 219 SCRA 378[1993])
ROMERO, J.:
View that in the contract to sell, the seller retains
In this petition for review on certiorari, petitioner questions the
ownership and the buyer’s failure to pay cannot. even be
reversal by the Court of Appeals1 of the trial court’s ruling that
considered a breach, whether casual or substantial, but an
a contract of sale had been perfected between petitioner and
event that prevented the seller’s duty to transfer title to the
private respondent over bus spare parts.
object of the contract. (Id.)
The facts as quoted from the decision of the Court of
Appeals are as follows:
PERFORMANCE SHOULD NOT AFFECT “Sometime in 1981, defendant 2established contact with
PERFECTION plaintiff3 through the Philippine Consulate General in
Hamburg, West Germany, because he wanted to purchase
G.R. No. 105387. November 11, 1993.* MAN bus spare parts from Germany. Plaintiff communicated
JOHANNES SCHUBACK & SONS PHILIPPINE TRADING with its trading partner, Johannes Schuback and Sohne
CORPORATION, petitioner, vs. THE HON. COURT OF Handelsgesellschaft m.b.n. & Co. (Schuback Hamburg)
APPEALS, RAMON SAN JOSE, JR., doing business under regarding the spare parts defendant wanted to order.
the name and style “PHILIPPINE SJ INDUSTRIAL On October 16, 1981, defendant submitted to plaintiff a
TRADING, respondents. list of the parts (Exhibit B) he wanted to purchase with
Civil Law; Obligations and Contracts; When contract specific part numbers and description. Plaintiff referred the list
of sale is perfected; A contract of sale is perfected at the to Schuback Hamburg for quotations. Upon receipt of the
moment there is a meeting of minds upon the thing which is quotations, plaintiff sent to defendant a letter dated 25
the object of the contract and upon the price.—We reverse the November, 1981 (Exh. C) enclosing its offer on the items
decision of the Court of Appeals and reinstate the decision of listed by defendant.
the trial court. It bears emphasizing that a “contract of sale is On December 4, 1981, defendant informed plaintiff that he
perfected at the moment there is a meeting of minds upon the preferred genuine to replacement parts, and requested that he
thing which is the object of the contract and upon the price x x be given a 15% discount on all items (Exh. D).
x.” On December 17, 1981, plaintiff submitted its formal offer
Same; Same; Same; Letter of Credit; The opening of a (Exh. E) containing the item number, quantity, part number,
letter of credit in favor of a vendor is only a mode of payment; description, unit price and total to defendant. On December
It is not among the essential requirements of a contract of sale 24, 1981, defendant informed plaintiff of his desire to avail of
enumerated in Arts. 1305 and 1474 of the Civil Code and the prices of the parts at that time and enclosed its Purchase
therefore does not prevent the perfection of the contract Order No. 0101 dated 14 December 1981 (Exhs. F to F-4).
between the parties.—On the part of the buyer, the situation Said Purchase Order contained the item number, part number
reveals that private respondent failed to open an irrevocable and description. Defendant promised to submit the quantity
letter of credit without recourse in favor of Johannes Schuback per unit he wanted to order on December 28 or 29 (Exh. F).
of Hamburg, Germany. This omission, however, does not _______________
1
prevent the perfection of the contract between the parties, for Penned by Justice Artemon D. Luna and concurred in by
the opening of a letter of credit is not to be deemed a Justices Serafin E. Camilon and Celso L. Magsino.
2
Herein private respondent. REPORTS ANNOTATED
3
Herein petitioner.
Johannes Schuback & Sons Philippine
719
Trading Corporation vs. Court of
VOL. 227, NOVEMBER 11, 719
Appeals
1993
with Schuback Hamburg (Direct Interrogatories, 07 October,
Johannes Schuback & Sons Philippine 1985). Demand letters sent to defendant by plaintiff’s counsel
Trading Corp. vs. Court of Appeals dated March 22, 1983 and June 9, 1983 were to no avail
On December 29, 1981, defendant personally, submitted the (Exhs. R and S).”
quantities he wanted to Mr. Dieter Reichert, General Manager Consequently, petitioner failed a complaint for recovery of
of plaintiff, at the latter’s residence (t.s.n., 13 December, 1984, actual or compensatory damages, unearned profits, interest,
p. 36). The quantities were written in ink by defendant in the attorney’s fees and costs against private respondent.
same Purchase Order previously submitted. At the bottom of In its decision dated June 13, 1988, the trial court4ruled in
said Purchase Order, defendant wrote in ink above his favor of petitioner by ordering private respondent to pay
signature: ‘NOTE: Above P.O. will include a 3% discount. petitioner, among others, actual compensatory damages in the
The above will serve as our initial P.O.’ (Exhs. G to G-3-a). amount of DM 51,917.81, unearned profits in the amount of
Plaintiff immediately ordered the items needed by DM 14,061.07, or their peso equivalent.
defendant from Schuback Hamburg to enable defendant to Thereafter, private respondent elevated his case before the
avail of the old prices. Schuback Hamburg in turn ordered Court of Appeals.On February 18, 1992, the appellate court
(Order No. 12204) the items from NDK, a supplier of MAN reversed the decision of the trial court and dismissed the
spare parts in West Germany. On January 4, 1982, Schuback complaint of petitioner. It ruled that there was no perfection of
Hamburg sent plaintiff a proforma invoice (Exhs. N-1 to N-3) contract since there was no meeting of the minds as to the
to be used by defendant in applying for a letter of credit. Said price between the last week of December 1981 and the first
invoice required that the letter of credit be opened in favor of week of January 1982.
Schuback Hamburg. Defendant acknowledged receipt of the The issue posed for resolution is whether or not a contract
invoice (t.s.n., 19 December 1984, p. 40). of sale has been perfected between the parties.
An order confirmation (Exhs. I, I-1) was later sent by We reverse the decision of the Court of Appeals and
Schuback Hamburg to plaintiff which was forwarded to and reinstate the decision of the trial court. It bears emphasizing
received by defendant on February 3, 1981 (t.s.n., 13 Dec. that a “contract of sale is perfected at the moment there is a
1984, p. 42). meeting of minds upon the thing which is the object of the
On February 16, 1982, plaintiff reminded defendant to contract and upon the price x x x.”5
open the letter of credit to avoid delay in shipment and Article 1319 of the Civil Code states: “Consent is
payment of interest (Exh. J). Defendant replied, mentioning, manifested by the meeting of the offer and acceptance upon
among others, the difficulty he was encountering in securing the thing and the cause which are to constitute the contract.
the required dollar allocations and applying for the letter of The offer must be certain and the acceptance absolute. A
credit, procuring a loan and looking for a partnerfinancier, and qualified acceptance constitutes a counter offer.” The facts
of finding ways ‘to proceed with our orders’ (Exh. K). presented to us indicate that consent on both sides has been
In the meantime, Schuback Hamburg received invoices manifested.
from NDK for partial deliveries on Order No. 12204 (Direct The offer by petitioner was manifested on December 17,
Interrogatories, 07 Oct. 1984, p. 3). Schuback Hamburg paid 1981
NDK. The latter confirmed receipt of payments made on _______________
4
February 16, 1984 (Exh. C-Deposition). Regional Trial Court of Makati, Metro Manila, Branch
On October 18, 1982, plaintiff again reminded defendant 146, (Penned by Judge Jose L. Coscolluela, Jr.)
5
of his order and advised that the case may be endorsed to its Civil Code, Article 1475, C & C Commercial Corp. v.
lawyers (Exh. L). Defendant replied that he did not make any PNB G.R. No. 92499, July 5, 1989, 175 SCRA 1; NGA v.
valid Purchase Order and that there was no definite contract Intermediate Appellate Court, G.R. No. 79970, March 8,
between him and plaintiff (Exh. M). Plaintiff sent a rejoinder 1989, 171 SCRA 131.
explaining that there is a valid Purchase Order and suggesting 721
that defendant either proceed with the order and open a letter VOL. 227, NOVEMBER 11, 721
of credit or cancel the order and pay the cancellation fee of
1993
30% F.O.B. value, or plaintiff will endorse the case to its
lawyers (Exh. N). Johannes Schuback & Sons Philippine
Schuback Hamburg issued a Statement of Account (Exh. Trading Corporation vs. Court of
P) to plaintiff enclosing therewith Debit Note (Exh. 0) Appeals
charging plaintiff 30% cancellation fee, storage and interest when petitioner submitted its proposal containing the item
charges in the total amount of DM 51,917.81. Said amount number, quantity, part number, description, the unit price and
was deducted from plaintiffs account total to private respondent. On December 24, 1981, private
720 respondent informed petitioner of his desire to avail of the
720 SUPREME COURT prices of the parts at the time and simultaneously enclosed its

Purchase Order No. 0101 dated December 14, 1981. At this respondent, did not incorporate any provision declaring their
stage, a meeting of the minds between vendor and vendee has contract of sale without effect until after the fulfillment of the
occurred, the object of the contract being the spare parts and act of opening a letter of credit.
the consideration, the price stated in petitioner’s offer dated The opening of a letter of credit in favor of a vendor is
December 17, 1981 and accepted by the respondent on only a mode of payment. It is not among the essential
December 24, 1981. requirements of a contract of sale enumerated in Article 1305
Although said purchase order did not contain the quantity and 1474 of the Civil Code, the absence of any of which will
he wanted to order, private respondent made good his promise prevent the perfection of the contract from taking place.
to communicate the same on December 19, 1981. At this To adopt the Court of Appeals’ ruling that the contract of
juncture, it should be pointed out that private respondent was sale was dependent on the opening of a letter of credit would
already in the process of executing the agreement previously be untenable from a pragmatic point of view because private
reached between the parties. respondent would not be able to avail of the old prices which
Below Exh. G-3, marked as Exhibit G-3-A, there appears were open to him only for a limited period of time. This
this statement made by private respondent: “Note: above P.O. explains why private respondent immediately placed the order
will include a 3% discount. The above will serve as our initial with petitioner which, in turn promptly contacted its trading
P.O.” This notation on the purchase order was another partner in Germany. As succinctly stated by petitioner, “it
indication of acceptance on the part of the vendee, for by would have been impossible for respondent to avail of the said
requesting a 3% discount, he implicitly accepted the price as old prices since the perfection of the contract would arise
first offered by the vendor. The immediate acceptance by the much later, or after the end of the year 1981, or when he
vendee of the offer was impelled by the fact that on January 1, finally opens the letter of credit.”6
1982, prices would go up, as in fact, the petitioner informed WHEREFORE, the petition is GRANTED and the
him that there would be a 7% increase effective January 1982. decision of the trial court dated June 13, 1988 is
On the other hand, concurrence by the vendor with the said REINSTATED with modifi-
discount requested by the vendee was manifested when _______________
6
petitioner immediately ordered the items needed by private Rollo, p. 46.
respondent from Schuback Hamburg which in turn ordered 723
from NDK, a supplier of MAN spare parts in West Germany. VOL. 227, NOVEMBER 11, 723
When petitioner forwarded its purchase order to NDK, the
1993
price was still pegged at the old one. Thus, the pronouncement
of the Court of Appeals that there was no confirmed price on Lazaro vs. Court of Appeals
or about the last week of December 1981 and/or the first week cation.
of January 1982 was erroneous. SO ORDERED.
While we agree with the trial court’s conclusion that Feliciano(Chairman), Bidin, Melo and Vitug,
indeed a perfection of the contract was reached between the JJ., concur.
parties, we differ as to the exact date when it occurred, for Petition granted; trial court’s decision reinstated with
perfection took modification.
722 Note.—A contract of sale is perfected at the moment there
722 SUPREME COURT is a meeting of minds upon the thing which is the object of the
contract and upon the price. (Villamor vs. Court of
REPORTS ANNOTATED Appeals, 202 SCRA 607).
Johannes Schuback & Sons Philippine
Trading Corporation vs. Court of G.R. No. 109410. August 28, 1996.*
Appeals CLARA M. BALATBAT, petitioner, vs. COURT OF
place, not on December 29, 1981, but rather on December 24, APPEALS and Spouses JOSE REPUYAN and AURORA
1981. Although the quantity to be ordered was made REPUYAN, respondents.
determinate only on December 29, 1981, quantity is Civil Law; Sales; The failure of the buyer to make good
immaterial in the perfection of a sales contract.What is of the price does not, in law, cause the ownership to revest to the
importance is the meeting of the minds as to seller unless the bilateral contract of sale is first rescinded or
the object and cause, which from the facts disclosed, show that resolved pursuant to Article 1191 of the New Civil Code.—
as of December 24, 1981, these essential elements had already Devoid of any stipulation that “ownership in the thing shall
concurred. not pass to the purchaser until he has fully paid the price,”
On the part of the buyer, the situation reveals that private ownership in the thing shall pass from the vendor to the
respondent failed to open an irrevocable letter of credit vendee upon actual or constructive delivery of the thing “sold
without recourse in favor of Johannes Schuback of Hamburg, even if the purchase price has not yet been fully paid. The
Germany. This omission, however, does not prevent the failure of the buyer to make good the price does not, in law,
perfection of the contract between the parties, for the opening cause the ownership to revest to the seller unless the bilateral
of a letter of credit is not to be deemed a suspensive condition. contract of sale is first rescinded or resolved pursuant to
The facts herein do not show that petitioner reserved title to Article 1191 of the New Civil Code. Non-payment only
the goods until private respondent had opened a letter of creates a right to demand the fulfillment of the obligation or to
credit. Petitioner, in the course of its dealings with private rescind the contract.
Same; Same; When the sale is made through a public Balatbat vs. Court of Appeals
instrument, the execution thereof shall be equivalent to the Same; Same; Same; The annotation of the adverse
delivery of the thing which is the object of the contract, if from claim on TCT No. 135671 in the Registry of Property is
the deed the contrary does not appear or cannot be inferred.— sufficient compliance as mandated by law and serves notice to
With respect to the nondelivery of the possession of the the whole world.—This is an instance of a double sale of an
subject property to the private respondent, suffice it to say that immovable property hence, the ownership shall vest in the
ownership of the thing sold is acquired only from the time of person acquiring it who in good faith first recorded it in the
delivery thereof, either actual or con- Registry of Property. Evidently, private respondents Repuyans
_______________ caused the annotation of an adverse claim on the title of the
*
SECOND DIVISION. subject property denominated as Entry No. 5627/T135671 on
129 July 21, 1980. The annotation of the adverse claim on TCT
VOL. 261, 129 No. 135671 in the Registry of Property is sufficient
AUGUST 28, 1996 compliance as mandated by law and serves notice to the whole
Balatbat vs. Court of Appeals world.
Same; Same; Same; As between two purchasers, the
structive. Article 1498 of the Civil Code provides that—
one who has registered the sale in his favor, has a preferred
when the sale is made through a public instrument, the
right over the other who has not registered his title even if the
execution thereof shall be equivalent to the delivery of the
latter is in actual possession of the immovable property.—As
thing which is the object of the contract, if from the deed the
between two purchasers, the one who has registered the sale in
contrary does not appear or cannot be inferred. The execution
his favor, has a preferred right over the other who has not
of the public instrument, without actual delivery of the thing,
registered his title even if the latter is in actual possession of
transfers the ownership from the vendor to the vendee, who
the immovable property. Further, even in default of the first
may thereafter exercise the rights of an owner over the same.
registrant or first in possession, private respondents have
Same; Same; The provision of Article 1358 on the
presented the oldest title. Thus, private respondents who
necessity of a public document is only for convenience, not for
acquired the subject property in good faith and for valuable
validity or enforceability.—In the instant case, vendor Roque
consideration established a superior right as against the
delivered the owner’s certificate of title to herein private
petitioner.
respondent. It is not necessary that vendee be physically
Same; Same; Same; A purchaser of a valued piece of
present at every square inch of the land bought by him,
property cannot just close his eyes to facts which should put a
possession of the public instrument of the land is sufficient to
reasonable man upon his guard and then claim that he acted
accord him the rights of ownership. Thus, delivery of a parcel
in good faith and under the belief that there was no defect in
of land may be done by placing the vendee in control and
the title of the vendor.—It is incumbent upon the vendee of the
possession of the land (real) or by embodying the sale in a
property to ask for the delivery of the owner’s duplicate copy
public instrument (constructive). The provision of Article
of the title from the vendor. A purchaser of a valued piece of
1358 on the necessity of a public document is only for
property cannot just close his eyes to facts which should put a
convenience, not for validity or enforceability. It is not a
reasonable man upon his guard and then claim that he acted in
requirement for the validity of a contract of sale of a parcel of
good faith and under the belief that there were no defect in the
land that this be embodied in a public instrument.
title of the vendor. One who purchases real estate with
Same; Same; A contract of sale being consensual, it is
knowledge of a defect or lack of title in his vendor cannot
perfected by the mere consent of the parties.—A contract of
claim that he has acquired title thereto in good faith as against
sale being consensual, it is perfected by the mere consent of
the true owner of the land or of an interest therein; and the
the parties. Delivery of “the thing bought or payment of the
same rule must be applied to one who has knowledge of facts
price is not necessary for the perfection of the contract; and
which should have put him upon such inquiry and
failure of the vendee to pay the price after the execution of the
investigation as might be necessary to acquaint him with the
contract does not make the sale null and void for lack of
defects in the title of his vendor. Good faith, or the want of it
consideration but results at most in default on the part of the
is not a visible, tangible fact that can be seen or touched, but
vendee, for which the vendor may exercise his legal remedies.
rather a state or condition of mind which can only be judged of
Same; Same; Double Sales; Persons to whom
by actual or fancied tokens or signs.
ownership of an immovable property shall be transferred in
131
case of double sale.—Article 1544 of the Civil Code provides
that in case of double sale of an immovable property, VOL. 261, AUGUST 28, 1996 131
ownership shall be transferred (1) to the person acquiring it Balatbat vs. Court of Appeals
who in good faith first recorded it in the Registry of Property; PETITION for review on certiorari of a decision of the Court
(2) in default thereof, to the person who in good faith was first of Appeals.
in possession; and (3) in default thereof, to the person who The facts are stated in the opinion of the Court.
presents the oldest title, provided there is good faith. Facundo T. Bautistafor petitioner.
130 Federico R. Onandiafor private respondents.
130 SUPREME COURT TORRES, JR., J.:
REPORTS ANNOTATED Petitioner Clara M. Balatbat instituted this petition for review
pursuant to Rule 45 of the Revised Rules of Court seeking to
set aside the decision dated August 12, 1992 of the respondent On June 2, 1979, the decision became final and executory. The
Court of Appeals in CA-G.R. CV No. 29994 entitled corresponding entry of judgment was made on March 29,
“Alejandro Balatbat and Clara Balatbat, plaintiffs-appellants 1979.4 On October 5, 1979, the Register of Deeds of Manila
versus Jose Repuyan and Aurora Repuyan, issued a Transfer Certificate of Title No. 135671 in the name
defendantsappellees,” the dispositive portion of which reads: 1 of the following persons in the following proportions:5
“WHEREFORE, the judgment appealed from is affirmed with Aurelio A. Roque 6/10 share
the modification that the awards of P10,000.00 for attorney’s Severina M. Roque 1/10 share
fees and P5,000.00 as costs of litigation are deleted. _______________
SO ORDERED." 4
Entry of Judgment, Original Records, p. 23.
The records show the following factual antecedents: 5
It appears that on June 15, 1977, Aurelio A. Roque filed a Transfer Certificate of Title, Original Records, pp. 152–154.
complaint for partition docketed as Civil Case No. 109032 133
against Corazon Roque, Alberto. de los Santos, Feliciano VOL. 261, AUGUST 28, 1996 133
Roque, Severa Roque and Osmundo Roque before the then Balatbat vs. Court of Appeals
Court of First Instance of Manila, Branch IX. 2 Defendants Osmundo M. Roque 1/10 share
therein were declared in default and plaintiff presented Feliciano M. Roque 1/10 share
evidence ex-parte. On March 29, 1979, the trial court rendered Corazon M. Roque 1/10 share
a decision in favor of plaintiff Aurelio A. Roque, the pertinent On April 1, 1980, Aurelio A. Roque sold his 6/10 share in
portion of which reads:3 T.C.T. No. 135671 to spouses Aurora Tuazon-Repuyan and
_______________ Jose Repuyan as evidenced by a “Deed of Absolute Sale."6
1
Decision, Rollo, pp. 47–58; Penned by Justice Minerva On July 21, 1980, Aurora Tuazon Repuyan caused the
Gonzaga-Reyes, concurred by Justice Nathanael de Pano, Jr., annotation of her affidavit of adverse claim 7 on the Transfer
Consuelo Ynares-Santiago. Certificate of Title No. 135671,8 to wit:
2
Complaint, Original Records, pp. 14–18. “Entry No. 5627/T-135671—NOTICE OF ADVERSE
3
Decision, Original Records, pp. 19–22. CLAIM—Filed by Aurora Tuazon Repuyan, married,
132 claiming among others that she bought 6/10 portion of the
132 SUPREME COURT REPORTS property herein described from Aurelio Roque for the amount
ANNOTATED of P50,000.00 with a down payment of P5,000.00 and the
balance of P45,000.00 to be paid after the partition and
Balatbat vs. Court of Appeals
subdivision of the property herein described, other claims set
“From the evidence, it has been clearly established that the lot
forth in Doc. No. 954, page 18, Book 94 of
in question covered by Transfer Certificate of Title No. 51330
___________________ 64 ____________PEDRO DE
was acquired by plaintiff Aurelio Roque and Maria Mesina
CASTRO, Notary Public of Manila.
during their conjugal union and the house constructed thereon
Date of instrument—July 21, 1980
was likewise built during their marital union, Out of their
Date of inscription—July 21, 1980 at 3:35 p.m.
union, plaintiff and Maria Mesina had four children, who are
TERESITA H. NOBLEJAS
the defendants in this case. When Maria Mesina died on
Acting Register of Deeds
August 28, 1966, the only conjugal properties left are the
By:
house and lot above stated of which plaintiff herein, as the
RAMON D. MACARICAN
legal spouse, is entitled to one-half share pro-indiviso thereof.
Acting Second Deputy”
With respect to the one-half share pro-indiviso now forming
On August 20, 1980, Aurelio A. Roque filed a complaint for
the estate of Maria Mesina, plaintiff and the four children, the
“Rescission of Contract” docketed as Civil Case No. 134131
defendants here, are each entitled to one-fifth (1/5) share pro-
against spouses Aurora Tuazon-Repuyan and Jose Repuyan
indiviso. The deceased wife left no debt.
before Branch IV of the then Court of First Instance of Manila.
Wherefore, judgment is hereby rendered ordering the
The complaint is grounded on spouses Repuyan’s failure to
partition of the properties, subject matter of this case
pay the balance of P45,000.00 of the purchase price.9 On
consisting of the house and lot, in the following manner:
_______________
1. 1.Of the house and lot forming the conjugal 6
Exhibit 1 for the Defendants; Deed of Absolute Sale,
properties, plaintiff is entitled to one-half share pro-
Original Records, pp. 156–159.
indivisothereof while the other half forms the estate 7
Affidavit of Adverse Claim, Original Records, pp, 155.
of the deceased Maria Mesina; 8
T.C.T. No. 135671, Original Records, pp. 152–154.
2. 2.Of the Estate of deceased Maria Mesina, the same 9
Complaint, Original Records, pp. 129–132.
is to be divided into five (5) shares and plaintiff and
134
his four children are entitled each to one-fifth share
thereof pro-indiviso. 134 SUPREME COURT REPORTS
Plaintiff claim for moral, exemplary and actual damages ANNOTATED
and attorney’s fees not having been established to the Balatbat vs. Court of Appeals
satisfaction of the Court, the same is hereby denied. September 5, 1980, spouses Repuyan filed their answer with
Without pronouncement as to costs. counterclaim.10
SO ORDERED."
In the meantime, the trial court issued an order in Civil has the effect of being the law between the parties and
Case No. 109032 (Partition case) dated February 2, 1982, to should be complied with. The obligation of the plaintiff under
wit:11 the contract being to have the land covered by TCT No.
“In view of all the foregoing and finding that the amount of P 135671 partitioned and subdivided, and title issued in the
100,000.00 as purchase price for the sale of the parcel of land name of the defendant buyer (see page 2 par. C of Exh. 7-A)
covered by TCT No. 51330 of the Registry of Deeds of Manila plaintiff had to comply thereto to give effect to the contract.
consisting of 84 square meters situated in Callejo Sulu, “WHEREFORE, judgment is rendered against the
District of Santa Cruz, Manila, to be reasonable and fair, and plaintiff, Aurelio A. Roque, and the plaintiff in intervention,
considering the opportunities given defendants to sign the Clara Balatbat, and in favor of the defendants, dismissing the
deed of absolute sale voluntarily, the Court has no alternative complaint for lack of merit, and declaring the Deed of
but to order, as it hereby orders, the Deputy Clerk of this Court Absolute Sale dated April 1, 1980 as valid and enforceable
to sign the deed of absolute sale for and in behalf of and the plaintiff is, as be is hereby ordered, to partition and
defendants pursuant to Sec. 10, Rule 39 of the Rules of Court, subdivide the land covered by T.C.T. No. 135671, and to
in order to effect the partition of the property involved in this aggregate therefrom a portion equivalent to 6/10 thereof, and
case. cause the same to be titled in the name of the defendants, and
SO ORDERED." after which, the defendants to pay the plaintiff the sum of
A deed of absolute sale was executed on February 4, 1982 P45,000.00.
between Aurelio S. Roque, Corazon Roque, Feliciano Roque, _______________
15
Severa Roque and Osmundo Roque and Clara Balatbat, Order, Original Records, p. 161.
married to Alejandro Balatbat.12 On April 14, 1982, Clara 16
Order, Original Records, p. 162.
17
Balatbat filed a motion for the issuance of a writ of possession Decision in Civil Case No. 134131, Original Records,
which -was granted by the trial court on September 14, 1982 pp. 163–166.
“subject, however, to valid rights and interest of third persons 136
over the same portion thereof, other than vendor or any other 136 SUPREME COURT REPORTS
person or persons privy to or claiming any rights or interest
ANNOTATED
under it.” The corresponding writ of possession was issued on
September 20, 1982.13 Balatbat vs. Court of Appeals
On May 20, 1982, petitioner Clara Balatbat filed a motion Considering further that the defendants suffered damages
to intervene in Civil Case No. 13413114which was granted as since they were forced to litigate unnecessarily, by way of
_______________ their counter-claim, plaintiff is hereby ordered to pay
10
Answer, Original Records, pp. 133–139. defendants the sum of P15,000.00 as moral damages,
11
Order, Original Records, pp. 24–27. attorney’s fees in the amount of P5,000.00.
12
Deed of Absolute Sale dated February 4, 1982, Original Costs against plaintiff.
Records, pp. 28–31. SO ORDERED."
13
Writ of Possession, Original Records, p. 32. On March 3, 1987, petitioner Balatbat filed a notice of lis
14
Motion for Intervention, Original Records, p. 160. pendens in Civil Case No. 109032 before the Register of
135 Deeds of Manila.18
VOL. 261, AUGUST 28, 1996 135 On December 9, 1988, petitioner Clara Balatbat and her
husband, Alejandro Balatbat filed the instant complaint for
Balatbat vs. Court of Appeals delivery of the owners duplicate copy of T.C.T. No. 135671
per court’s resolution of October 21, 1982.15 However, Clara docketed as Civil Case No. 88–47176 before Branch 24 of the
Balatbat failed to file her complaint in intervention. 16 On April Regional Trial Court of Manila against private respondents
15, 1986, the trial court rendered a decision dismissing the Jose Repuyan and Aurora Repuyan.19
complaint, the pertinent portion of which reads:17 On January 27, 1989, private respondents filed their
The rescission of contracts are provided for in the laws and answer with affirmative defenses and compulsory
nowhere in the provision of the Civil Code under the title counterclaim.20
Rescissible Contracts does the circumstances in the case at bar On November 13, 1989, private respondents filed their
appear to have occurred, hence, the prayer for rescission is memorandum21 while petitioners filed their memorandum on
outside the ambit for which rescissible [sic] could be granted. November 23, 1989.22
“The Intervenor—Plaintiff, Clara Balatbat, although On August 2, 1990, the Regional Trial Court of Manila,
allowed to intervene, did not file her complaint in intervention. Branch 24, rendered a decision dismissing the complaint, the
“Consequently, the plaintiff having failed to prove with dispositive portion of which reads:23
sufficient preponderance his action, the relief prayed for had to “Considering all the foregoing, this Court finds that the
be denied. The contract of sale denominated as “Deed of plaintiffs have not been able to establish their cause of action
Absolute Sale” (Exh. 7 and sub-markings) being valid and against the defendants and have no right to the reliefs
enforceable, the same pursuant to the provisions of Art, 1159 demanded in the complaint and the complaint of the plaintiff
of the Civil Code which says: against the defendants is
“Obligations arising from contracts have the force of law _______________
between the contracting parties and should be complied with 18
Notice of Lis Pendens, Original Records, p. 33.
in good faith.” 19
Complaint, Original Records, pp. 3–12.
20
Answer, Original Records, pp. 42–47. subject property and that consideration/price was not fully
21
Memorandum, Original Records, pp. 144–151. paid, we find the sale as consummated, hence, valid and
22
Memorandum, Original Records, pp. 169–193. enforceable. In a decision dated April 15, 1986 of the Regional
23
Complaint, Original Records, pp. 208–218. Trial Court of Manila, Branch IV in Civil Case No. 134131,
137 the Court dismissed vendor Aurelio Roque’s complaint for
VOL. 261, AUGUST 28, 1996 137 rescission of the deed of sale and declared that the sale dated
April 1, 1980, as valid and enforceable. No appeal having
been made, the decision became final and executory. It must
hereby DISMISSED. On the counterclaim, the plaintiff are be noted that herein petitioner Balatbat filed a motion for
ordered to pay defendants the amount of Ten Thousand Pesos intervention in that case but did not file her complaint in
by way of attorney’s fees, Five Thousand Pesos as costs of intervention. In that case wherein Aurelio Roque sought to
litigation and further to pay the costs of the suit. rescind the April 1, 1980 deed of sale in favor of the private
SO ORDERED." respondents for non-payment of the P45,000.00 balance, the
Dissatisfied, petitioner Balatbat filed an appeal before the trial court dismissed the complaint for rescission. Examining
respondent Court of Appeals which rendered the assailed the terms and conditions of the “Deed of Sale” dated April 1,
decision on August 12, 1992, to wit:24 1980, the P45,000.00 balance is payable only “after the
“WHEREFORE, the judgment appealed from is affirmed with property covered by T.C.T. No. 135671 has been partitioned
the modification that the awards of P10,000.00 for attorney’s and subdivided, and title issued in the name of the BUYER"
fees and P5,000.00 as costs of litigation are deleted. hence, vendor Roque cannot demand payment of the balance
SO ORDERED." unless and until the property has been subdivided and titled in
On March 22, 1993, the respondent Court of Appeals denied the name of the private respondents. Devoid of any stipulation
petitioner’s motion for reconsideration.25 that “ownership in the thing shall not pass to the purchaser
Hence, this petition for review. until
Petitioner raised the following issues for this Court’s 139
resolution:
I VOL. 261, AUGUST 28, 1996 139
WHETHER OR NOT THE ALLEGED SALE TO THE Balatbat vs. Court of Appeals
PRIVATE RESPONDENTS WAS MERELY EXECUTORY he has fully paid the price,"26ownership in the thing shall pass
AND NOT A CONSUMMATED TRANSACTION? from the vendor to the vendee upon actual or constructive
II delivery of the thing sold even if the purchase price has not yet
WHETHER OR NOT THERE WAS A DOUBLE SALE been fully paid. The failure of the buyer to make good the
AS CONTEMPLATED UNDER ART. 1544 OF THE CIVIL price does not, in la,cause the ownership to revest to the seller
CODE? unless the bilateral contract of sale is first rescinded or
III resolved pursuant to Article 1191 of the New Civil
WHETHER OR NOT PETITIONER WAS A BUYER IN Code.27 Non-payment only creates a right to demand the
GOOD FAITH AND FOR VALUE? fulfillment of the obligation or to rescind the contract.
_______________ With respect to the non-delivery of the possession of the
24
Decision, Rollo, pp. 48–58. subject property to the private respondent, suffice it to say that
25
Resolution, Rollo, pp. 60–62. ownership of the thing sold is acquired only from the time of
138 delivery thereof, either actual or constructive. 28 Article 1498 of
138 SUPREME COURT REPORTS the Civil Code provides that—when the sale is made through a
public instrument, the execution thereof shall be equivalent to
ANNOTATED
the delivery of the thing which is the object of the contract, if
Balatbat vs. Court of Appeals from the deed the contrary does not appear or cannot be
IV inferred.29 The execution of the public instrument, without
WHETHER OR NOT THE COURT OF APPEALS ERRED actual delivery of the thing, transfers the ownership
IN GIVING WEIGHT AND CONSIDERATION TO THE _______________
EVIDENCE OF THE PRIVATE RESPONDENTS WHICH 26
Article 1478, New Civil Code.
WERE NOT OFFERED? 27
Chua Hai vs. Hon. Kapunan, 104 Phil. 110; No. L-
Petitioner asseverates that the respondent Court of Appeals 11108, June 30, 1958.
committed grave abuse of discretion tantamount to lack or “Art. 1191 the power to rescind obligations is implied in
excess of jurisdiction in affirming the appealed judgment reciprocal ones, in case one of the obligors should not comply
considering (1) that the alleged sale in favor of the private with what is incumbent upon him. The injured party may
respondents Repuyan was merely executory; (2) that there is choose between the fulfillment and the rescission of the
no double sale; (3) that petitioner is a buyer in good faith and obligation, with the payment of damages in either case. He
for value; and (4) that private respondents did not offer their may also seek rescission, even after he has chosen fulfillment,
evidence during the trial. if the latter should become impossible.
Contrary to petitioner’s contention that the sale dated April “The Court shall decree the rescission claimed, unless
1, 1980 in favor of private respondents Repuyan was merely there be just cause authorizing the fixing of a period.
executory for the reason that there was no delivery of the

“This is understood to be without prejudice to the rights of Article 1544 of the Civil Code provides that in case of double
third persons who have acquired the thing, in accordance with sale of an immovable property, ownership shall be transferred
Articles 1385 and 1388 of the Mortgage Law. (1) to the person acquiring it who in good faith first recorded it
28
Obaña vs. Court of Appeals, 135 SCRA 557; G.R. No. in the Registry of Property; (2) in default thereof, to the person
L36249, March 29, 1985, Edca Publishing & Distributing who in good faith was first in possession; and (3) in default
Corps. vs. Santos, 184 SCRA 614, G.R. No. 80298, April 26, thereof, to the person who presents the oldest title, provided
1990. there is good faith.34
29
Dy vs. Court of Appeals, G.R. 92989, July 8, 1991. In the case at bar, vendor Aurelio Roque sold 6/10 portion
140 of his share in TCT No. 135671 to private respondents
140 SUPREME COURT REPORTS Repuyan on April 1, 1980. Subsequently, the same lot was
sold again by vendor Aurelio Roque (6/10) and his children
ANNOTATED
(4/10), represented by the Clerk of Court pursuant to Section
Balatbat vs. Court of Appeals 10, Rule 39 of the Rules of Court, on February 4, 1982.
from the vendor to the vendee, who may thereafter exercise Undoubtedly, this is a case of double sale contemplated under
the rights of an owner over the same. 30 In the instant case, Article 1544 of the New Civil Code.
vendor Roque delivered the owner’s certificate of title to This is an instance of a double sale of an immovable
herein private respondent. It is not necessary that vendee be property hence, the ownership shall vest in the person
physically present at every square inch of the land bought by acquiring it who in good faith first recorded it in the Registry
him, possession of the public instrument of the land is of Property. Evidently, private respondents Repuyans caused
sufficient to accord him the rights of ownership. Thus, the annotation of an adverse claim on the title of the subject
delivery of a parcel of land may be done by placing the vendee property denominated as Entry No. 5627/T-135671 on July 21,
in control and possession of the land (real) or by embodying 1980.35 The annotation of the adverse claim on TCT No.
the sale in a public instrument (constructive). The provision of 135671 in the Registry of Property is sufficient compliance as
Article 1358 on the necessity of a public document is only for mandated by law and serves notice to the whole world.
convenience, not for validity or enforceability. It is not a On the other hand, petitioner filed a notice of /is
requirement for the validity of a contract of sale of a parcel of pendens only on February 2, 1982. Accordingly, private
land that this be embodied in a public instrument.31 respondents who first caused the annotation of the adverse
A contract of sale being consensual, it is perfected by the claim in good faith shall have a better right over herein
mere consent of the parties.32 Delivery of the thing bought or petitioner. Moreover, the physical possession of herein
payment of the price is not necessary for the perfection of the petitioners by virtue of a writ of possession issued by the trial
contract; and failure of the vendee to pay the price after the court on September 20,
execution of the contract does not make the sale null and void _______________
for lack of consideration but results at most in default on the 34
Radiowealth Finance Co. vs. Palileo, G.R. No. 83432,
part of the vendee, for which the vendor may exercise his legal May 20, 1991.
remedies.33 35
Adverse Claim, Original Records, pp. 152–154; Valdez
Article 1544 of the New Civil Code provides: vs. Court of Appeals, G.R. No. 85082, February 25, 1991.
“If the same thing should have been sold to different vendees, 142
the ownership shall be transferred to the person who may have 142 SUPREME COURT REPORTS
first taken possession thereof in good faith, if it should be
movable property. ANNOTATED
“Should it be movable property, the ownership shall Balatbat vs. Court of Appeals
belong to the person acquiring it who in good faith first 1982 is “subject to the valid rights and interest of third persons
recorded it in the Registry of Property. over the same portion thereof, other than vendor or any other
“Should there be no inscription, the ownership shall person or persons privy to or claiming any rights to interest
pertain to the person who in good faith was first in the under it."36 As between two purchasers, the one who has
possession and in the registered the sale in his favor, has a preferred right over the
_______________ other who has not registered his title even if the latter is in
30
Puato vs. Mendoza, 64 Phil. 457, No. 44169, July 16, actual possession of the immovable property. 37Further, even in
1937. default of the first registrant or first in possession, private
31
Dalion vs. Court of Appeals, G.R. 78903, February respondents have presented the oldest title.38 Thus, private
28,1990. respondents who acquired the subject property in good faith
32
Aspi vs. Court of Appeals, 236 SCRA 94; G.R. No. and for valuable consideration established a superior right as
83527, September 1, 1994. against the petitioner.
33
Sorongon vs. Parreñas, 54 Official Gazette 1860. Evidently, petitioner cannot be considered as a buyer in
141 good faith. In the complaint for rescission filed by vendor
VOL. 261, AUGUST 28, 1996 141 Aurelio Roque on August 20, 1980, herein petitioner filed a
motion for intervention on May 20, 1982 but did not file her
complaint in intervention, hence, the decision was rendered
absence thereof, to the person who present the oldest title, adversely against her. If petitioner did investigate before
provided there is good faith.” buying the land on February 4, 1982, she should have known
that there was a pending case and an annotation of adverse Contracts; Sales; Co-Ownership; Agency; Where the
claim was made in the title of the property before the Register co-owners affixed their signatures on the Contract to Sell,
of Deeds and she could have discovered that the subject they were no longer selling their shares through an agent but,
property was already sold to the private respondents. It is rather, they were selling the same directly and in their own
incum“bent upon the vendee of the property to ask for the right—a written authority is no longer necessary to empower
delivery of the owner’s duplicate copy of the title from the an agent.—The law itself explicitly requires a written
vendor. A purchaser of a valued piece of property cannot just authority before an agent can sell an immovable. The
close his eyes to facts which should put a reasonable man conferment of such an authority should be in writing, in as
upon his guard and then claim that he acted in good faith and clear and precise terms as possible. It is worth noting that
under the belief that there were no defect in the title of the petitioners’ signatures are found in the Contract to Sell. The
vendor.39 One who purchases real estate with knowledge of a Contract is absolutely silent on the establishment of any
defect or lack of title in his vendor cannot claim that he has principal-agent relationship between the five petitioners and
acquired title their brother and co-petitioner Ernesto as to the sale of the
_______________ subject parcels of land. Thus, the Contract to Sell, although
36
Writ of Possession, Original Records, p. 32. signed on the margin by the five petitioners, is not sufficient to
37
Gonzaga vs. Javellana, 23 Phil. 125; No. 6843, confer authority on petitioner Ernesto to act as their agent in
September 3, 1912. selling their shares in the properties in question. However,
38
Deed of Absolute Sale, dated April 1, 1980, Original despite petitioner Ernesto’s lack of written authority from the
Records, pp. 156–159. five petitioners to sell their shares in the subject parcels of
39
De la Cruz vs. Intermediate Appellate Court, G.R. No. land, the supposed Contract to Sell remains valid and binding
72981, January 29, 1988. upon the latter. As can be clearly gleaned from the contract
143 itself, it is not only petitioner Ernesto who signed the said
VOL. 261, AUGUST 28, 1996 143 Contract to Sell; the other five petitioners also personally
affixed their signatures thereon. Therefore, a written authority
is no longer necessary in order to sell their shares in the
thereto in good faith as against the true owner of the land or of subject parcels of land because, by affixing their signatures on
an interest therein; and the same rule must be applied to one the Contract to Sell, they were not selling their shares through
who has knowledge of facts which should have put him upon an agent but, rather, they were selling the same directly and in
such inquiry and investigation as might be necessary to their own right.
acquaint him with the defects in the title of his vendor. Good Same; Same; Same; Contracts are perfected by mere
faith, or the want of it is not a visible, tangible fact that can be consent, upon the acceptance by the offeree of the offer made
seen or touched, but rather a state or condition of mind which by the offeror, which acceptance may be express or implied.—
can only be judged of by actual or fancied tokens or signs.40 It is well-settled that
In fine, petitioner had nobody to blame but herself in _______________
dealing with the disputed property for failure to inquire or *
THIRD DIVISION.
discover a flaw in the title to the property, thus, it is axiomatic 229
that—culpa lata dolo aequiparatur—gross negligence is
equivalent to intentional wrong. VOL. 514, 229
IN VIEW OF THE FOREGOING PREMISES, this FEBRUARY 5, 2007
petition for review is hereby DISMISSED for lack of merit. Oesmer vs. Paraiso
No pronouncement as to costs. Development Corporation
IT IS SO ORDERED.
contracts are perfected by mere consent, upon the
Regalado(Chairman), Romero, Punoand Mendoza,
acceptance by the offeree of the offer made by the offeror.
JJ., concur.
From that moment, the parties are bound not only to the
Petition dismissed.
fulfillment of what has been expressly stipulated but also to all
Note.—The rule caveat emptor requires the purchaser to
the consequences which, according to their nature, may be in
be aware of the supposed title of the vendor and he who buys
keeping with good faith, usage and law. To produce a contract,
without checking the vendor’s title takes all the risks and
the acceptance must not qualify the terms of the offer.
losses consequent to such failure. (Samson us. Court of
However, the acceptance may be express or implied. For a
Appeals, 238 SCRA 397[1994])
contract to arise, the acceptance must be made known to the
offeror. Accordingly, the acceptance can be withdrawn or
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX revoked before it is made known to the offeror. In the case at
bar, the Contract to Sell was perfected when the petitioners
G.R. No. 157493. February 5, 2007.* consented to the sale to the respondent of their shares in the
RIZALINO, substituted by his heirs, JOSEFINA, ROLANDO subject parcels of land by affixing their signatures on the said
and FERNANDO, ERNESTO, LEONORA, BIBIANO, JR., contract. Such signatures show their acceptance of what has
LIBRADO and ENRIQUETA, all surnamed OESMER, been stipulated in the Contract to Sell and such acceptance
petitioners, vs. PARAISO DEVELOPMENT was made known to respondent corporation when the
CORPORATION, respondent. duplicate copy of the Contract to Sell was returned to the latter
bearing petitioners’ signatures.
Same; Same; Same; Interpretation of Contracts; It is a Interpretation of Contracts; Words and
cardinal rule in the interpretation of contracts that if the terms Phrases; “Earnest Money” and “Option Money,”
of a contract are clear and leave no doubt upon the intention Distinguished; In the interpretation of contracts, the
of the contracting parties, the literal meaning of its stipulation ascertainment of the intention of the contracting parties is to
shall control.—We also cannot sustain the allegation of the be discharged by looking to the words they used to project
petitioners that assuming the signatures indicate consent, such that intention in their contract, all the words, not just a
consent was merely conditional, and that, the effectivity of the particular word or two, and words in context, not words
alleged Contract to Sell was subject to the suspensive standing alone.—As a final point, the Contract to Sell entered
condition that the sale be approved by all the coowners. The into by the parties is not a unilateral promise to sell merely
Contract to Sell is clear enough. It is a cardinal rule in the because it used the word option money when it referred to the
interpretation of contracts that if the terms of a contract are amount of P100,000.00, which also form part of the purchase
clear and leave no doubt upon the intention of the contracting price. Settled is the rule that in the interpretation of contracts,
parties, the literal meaning of its stipulation shall control. The the ascertainment of the intention of the contracting parties is
terms of the Contract to Sell made no mention of the condition to be discharged by looking to the words they used to project
that before it can become valid and binding, a unanimous that intention in their contract, all the words, not just a
consent of all the heirs is necessary. Thus, when the language particular word or two, and words in context, not words
of the contract is explicit, as in the present case, leaving no standing alone. In
doubt as to the intention of the parties thereto, the literal 231
meaning of its stipulation is controlling. VOL. 514, 231
Same; Same; Same; The co-owners, being owners of
FEBRUARY 5, 2007
their respective undivided shares in the subject properties, can
dispose of their shares even without the consent of all the co- Oesmer vs. Paraiso
heirs.—The petitioners, being owners of their respective Development Corporation
undivided shares in the subject properties, can dispose of their the instant case, the consideration of P100,000.00 paid
shares even without the by respondent to petitioners was referred to as “option
230 money.” However, a careful examination of the words used in
230 SUPREME COURT the contract indicates that the money is not option money
REPORTS ANNOTATED but earnest money. “Earnest money” and “option money” are
not the same but distinguished thus: (a) earnest money is part
Oesmer vs. Paraiso of the purchase price, while option money is the money given
Development Corporation as a distinct consideration for an option contract; (b) earnest
consent of all the co-heirs. Article 493 of the Civil Code money is given only where there is already a sale, while option
expressly provides: Article 493. Each co-owner shall have the money applies to a sale not yet perfected; and, (c) when
full ownership of his part and of the fruits and benefits earnest money is given, the buyer is bound to pay the balance,
pertaining thereto, and he may therefore alienate, assign or while when the would-be buyer gives option money, he is not
mortgage it, and even substitute another person in its required to buy, but may even forfeit it depending on the terms
enjoyment, except when personal rights are involved. But the of the option.
effect of the alienation or the mortgage, with respect to the co- PETITION for review on certiorari of the decision and
owners, shall be limitedto the portion which may be allotted to resolution of the Court of Appeals.
him in the division upon the termination of the coownership. The facts are stated in the opinion of the Court.
[Emphases supplied.] Consequently, even without the consent Dick B. Perez for petitioners.
of the two co-heirs, Adolfo and Jesus, the Contract to Sell is Simeon C. Sato for respondent.
still valid and binding with respect to the 6/8 proportionate CHICO-NAZARIO, J.:
shares of the petitioners, as properly held by the appellate Before this Court is a Petition for Review on Certiorari under
court. Rule 45 of the 1997 Revised Rules of Civil Procedure seeking
Same; Same; Same; A contract to sell is not void to reverse and set aside the Court of Appeals Decision 1dated
merely because it does not bear the signature of the vendee.— 26 April 2002 in CA-G.R. CV No. 53130 entitled, Rizalino,
The Contract to Sell is not void merely because it does not Ernesto, Leonora, Bibiano, Jr., Librado, Enriqueta, Adolfo,
bear the signature of the respondent corporation. Respondent and Jesus, all surnamed Oesmer vs. Paraiso Development
corporation’s consent to be bound by the terms of the contract Corporation, as modified by its Resolution2 dated 4 March
is shown in the uncontroverted facts which established that 2003, declaring the Contract to Sell valid and binding with
there was partial performance by respondent of its obligation respect to the undivided proportionate shares of the six
in the said Contract to Sell when it tendered the amount of signatories of the said document, herein petitioners, namely:
P100,000.00 to form part of the purchase price, which was Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leon-
accepted and acknowledged expressly by petitioners. _______________
1
Therefore, by force of law, respondent is required to complete Penned by Associate Justice Andres B. Reyes, Jr. with
the payment to enforce the terms of the contract. Accordingly, Associate Justices Conrado M. Vasquez, Jr. and Mario L.
despite the absence of respondent’s signature in the Contract Guariña III, concurring, Rollo, pp. 31-44.
2
to Sell, the former cannot evade its obligation to pay the Id., at pp. 46-49.
balance of the purchase price. 232
232 SUPREME COURT REPORTS In a letter6 dated 1 November 1989, addressed to
respondent corporation, petitioners informed the former of
ANNOTATED
their intention to rescind the Contract to Sell and to return the
Oesmer vs. Paraiso Development amount of P100,000.00 given by respondent as option money.
Corporation Respondent did not respond to the aforesaid letter. On 30
ora (all surnamed Oesmer); and ordering them to execute the May 1991, herein petitioners, together with Adolfo and Jesus,
Deed of Absolute Sale concerning their 6/8 share over the filed a Complaint7 for Declaration of Nullity or for Annulment
subject parcels of land in favor of herein respondent Paraiso of Option Agreement or Contract to Sell with Damages before
Development Corporation, and to pay the latter the attorney’s the Regional Trial Court (RTC) of Bacoor, Cavite. The said
fees plus costs of the suit. The assailed Decision, as modified, case was docketed as Civil Case No. BCV-91-49.
likewise ordered the respondent to tender payment to the During trial, petitioner Rizalino died. Upon motion of
petitioners in the amount of P3,216,560.00 representing the petitioners, the trial court issued an Order, 8 dated 16
balance of the purchase price of the subject parcels of land. September 1992, to the effect that the deceased petitioner be
The facts of the case are as follows: substituted by his surviving spouse, Josefina O. Oesmer, and
Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr., his children, Rolando O. Oesmer and Fernando O. Oesmer.
Librado, and Enriqueta, all surnamed Oesmer, together with However, the name of Rizalino was retained in the title of the
Adolfo Oesmer (Adolfo) and Jesus Oesmer (Jesus), are case both in the RTC and the Court of Appeals.
brothers and sisters, and the co-owners of undivided shares of _______________
5
two parcels of agricultural and tenanted land situated in Id., at p. 235.
6
Barangay Ulong Tubig, Carmona, Cavite, identified as Lot Records, p. 44.
7
720 with an area of 40,507 square meters (sq. m.) and Lot 834 Rollo, pp. 53-57.
8
containing an area of 14,769 sq. m., or a total land area of Id., at p. 68.
55,276 sq. m. Both lots are unregistered and originally owned 234
by their parents, Bibiano Oesmer and Encarnacion Durumpili, 234 SUPREME COURT REPORTS
who declared the lots for taxation purposes under Tax ANNOTATED
Declaration No. 34383(cancelled by I.D. No. 6064-A) for Lot
720 and Tax Declaration No. 34374(cancelled by I.D. No. Oesmer vs. Paraiso Development
5629) for Lot 834. When the spouses Oesmer died, petitioners, Corporation
together with Adolfo and Jesus, acquired the lots as heirs of After trial on the merits, the lower court rendered a
the former by right of succession. Decision9 dated 27 March 1996 in favor of the respondent, the
Respondent Paraiso Development Corporation is known to dispositive portion of which reads:
be engaged in the real estate business. “WHEREFORE, premises considered, judgment is hereby
Sometime in March 1989, Rogelio Paular, a resident and rendered in favor of herein [respondent] Paraiso Development
former Municipal Secretary of Carmona, Cavite, brought Corporation. The assailed Contract to Sell is valid and binding
along petitioner Ernesto to meet with a certain Sotero Lee, only to the undivided proportionate share of the signatory of
President of respondent Paraiso Development Corporation, at this document and recipient of the check, [herein petitioner]
Otani Hotel in Manila. The said meeting was for the purpose co-owner Ernesto Durumpili Oesmer. The latter is hereby
_______________ ordered to execute the Contract of Absolute Sale concerning
3
Rollo, p. 58. his 1/8 share over the subject two parcels of land in favor of
4
Id., at p. 59. herein [respondent] corporation, and to pay the latter the
233 attorney’s fees in the sum of Ten Thousand (P10,000.00)
VOL. 514, FEBRUARY 5, 233 Pesos plus costs of suit.
The counterclaim of [respondent] corporation is hereby
2007
Dismissed for lack of merit.”10
Oesmer vs. Paraiso Development Unsatisfied, respondent appealed the said Decision before the
Corporation Court of Appeals. On 26 April 2002, the appellate court
of brokering the sale of petitioners’ properties to respondent rendered a Decision modifying the Decision of the court a
corporation. quoby declaring that the Contract to Sell is valid and binding
Pursuant to the said meeting, a Contract to Sell 5was with respect to the undivided proportionate shares of the six
drafted by the Executive Assistant of Sotero Lee, Inocencia signatories of the said document, herein petitioners, namely:
Almo. On 1 April 1989, petitioners Ernesto and Enriqueta Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and
signed the aforesaid Contract to Sell. A check in the amount of Leonora (all surnamed Oesmer). The decretal portion of the
P100,000.00, payable to Ernesto, was given as option money. said Decision states that:
Sometime thereafter, Rizalino, Leonora, Bibiano, Jr., and “WHEREFORE, premises considered, the Decision of the
Librado also signed the said Contract to Sell. However, two of court a quo is hereby MODIFIED. Judgment is hereby
the brothers, Adolfo and Jesus, did not sign the document. rendered in favor of herein [respondent] Paraiso Development
On 5 April 1989, a duplicate copy of the instrument was Corporation. The assailed Contract to Sell is valid and binding
returned to respondent corporation. On 21 April 1989, with respect to the undivided proportionate share of the six (6)
respondent brought the same to a notary public for signatories of this document, [herein petitioners], namely,
notarization. Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and
Leonora (all surnamed Oesmer). The said [petitioners] are II. On a question of law in not holding that, the supposed
hereby ordered to execute the Deed of Absolute Sale Contract to Sell (Exhibit “D”) is void altogether considering
concerning their 6/8 share over the subject two parcels of land that respondent itself did not sign it as to indicate its consent to
and in be bound by its terms. Moreover, Exhibit “D” is really a
_______________ unilateral promise to sell without consideration distinct from
9
Penned by Judge Edelwina C. Pastoral; Rollo, pp. 69-73. the price, and hence, void.
10
Id., at p. 73. Petitioners assert that the signatures of five of them namely:
235 Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora, on the
VOL. 514, FEBRUARY 5, 235 margins of the supposed Contract to Sell did not confer
authority on petitioner Ernesto as agent to sell their respective
2007
shares in the questioned properties, and hence, for lack of
Oesmer vs. Paraiso Development written authority from the above-named petitioners to sell their
Corporation respective shares in the subject parcels of land, the supposed
favor of herein [respondent] corporation, and to pay the latter Contract to Sell is void as to them. Neither do their signatures
the attorney’s fees in the sum of Ten Thousand Pesos signify their consent to directly sell their shares in the
(P10,000.00) plus costs of suit.”11 questioned properties. Assuming that the signatures indicate
Aggrieved by the above-mentioned Decision, petitioners filed consent, such consent was merely conditional. The effectivity
a Motion for Reconsideration of the same on 2 July 2002. of the alleged Contract to Sell was subject to a suspensive
Acting on petitioners’ Motion for Reconsideration, the Court condition, which is the approval of the sale by all the
of Appeals issued a Resolution dated 4 March 2003, coowners.
maintaining its Decision dated 26 April 2002, with the Petitioners also assert that the supposed Contract to Sell
modification that respondent tender payment to petitioners in (Exhibit “D”), contrary to the findings of the Court of
the amount of P3,216,560.00, representing the balance of the Appeals, is not couched in simple language.
purchase price of the subject parcels of land. The dispositive They further claim that the supposed Contract to Sell does
portion of the said Resolution reads: not bind the respondent because the latter did not sign the said
“WHEREFORE, premises considered, the assailed Decision contract as to indicate its consent to be bound by its terms.
is hereby modified. Judgment is hereby rendered in favor of Furthermore, they maintain that the supposed Contract to Sell
herein [respondent] Paraiso Development Corporation. The is really a unilateral promise to sell and the option money does
assailed Contract to Sell is valid and binding with respect to not bind petitioners for lack of cause or consideration distinct
the undivided proportionate shares of the six (6) signatories of from the purchase price.
this document, [herein petitioners], namely, Ernesto, The Petition is bereft of merit.
Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all It is true that the signatures of the five petitioners, namely:
surnamed Oesmer). The said [petitioners] are hereby ordered Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora, on the
to execute the Deed of Absolute Sale concerning their 6/8 Contract to Sell did not confer authority on petitioner Ernesto
share over the subject two parcels of land in favor of herein as agent authorized to sell their respective
[respondent] corporation, and to pay the latter attorney’s fees 237
in the sum of Ten Thousand Pesos (P10,000.00) plus costs of VOL. 514, FEBRUARY 5, 237
suit. Respondent is likewise ordered to tender payment to the 2007
above-named [petitioners] in the amount of Three Million
Two Hundred Sixteen Thousand Five Hundred Sixty Pesos Oesmer vs. Paraiso Development
(P3,216,560.00) representing the balance of the purchase price Corporation
of the subject two parcels of land.”12 shares in the questioned properties because of Article 1874 of
Hence, this Petition for Review on Certiorari. the Civil Code, which expressly provides that:
Petitioners come before this Court arguing that the Court Art. 1874. When a sale of a piece of land or any interest
of Appeals erred: therein is through an agent, the authority of the latter shall be
I. On a question of law in not holding that, the supposed in writing; otherwise, the sale shall be void.
Contract to Sell (Exhibit “D”) is not binding upon petitioner The law itself explicitly requires a written authority before an
Ernesto agent can sell an immovable. The conferment of such an
_______________ authority should be in writing, in as clear and precise terms as
11
Id., at pp. 43-44. possible. It is worth noting that petitioners’ signatures are
12
Id., at pp. 48-49. found in the Contract to Sell. The Contract is absolutely silent
236 on the establishment of any principal-agent relationship
236 SUPREME COURT REPORTS between the five petitioners and their brother and co-petitioner
Ernesto as to the sale of the subject parcels of land. Thus, the
ANNOTATED
Contract to Sell, although signed on the margin by the five
Oesmer vs. Paraiso Development petitioners, is not sufficient to confer authority on petitioner
Corporation Ernesto to act as their agent in selling their shares in the
Oesmer’s co-owners (herein petitioners Enriqueta, Librado, properties in question.
Rizalino, Bibiano, Jr., and Leonora). However, despite petitioner Ernesto’s lack of written
authority from the five petitioners to sell their shares in the
subject parcels of land, the supposed Contract to Sell remains VOL. 514, FEBRUARY 5, 239
valid and binding upon the latter.
2007
As can be clearly gleaned from the contract itself, it is not
only petitioner Ernesto who signed the said Contract to Sell; Oesmer vs. Paraiso Development
the other five petitioners also personally affixed their Corporation
signatures thereon. Therefore, a written authority is no longer her signature appears on the right-hand margin of the Contract
necessary in order to sell their shares in the subject parcels of to Sell is insignificant. The contract indisputably referred to
land because, by affixing their signatures on the Contract to the “Heirs of Bibiano and Encarnacion Oesmer,” and since
Sell, they were not selling their shares through an agent but, there is no showing that Enriqueta signed the document in
rather, they were selling the same directly and in their own some other capacity, it can be safely assumed that she did so
right. as one of the parties to the sale.
The Court also finds untenable the following arguments Emphasis should also be given to the fact that petitioners
raised by petitioners to the effect that the Contract to Sell is Ernesto and Enriqueta concurrently signed the Contract to
not binding upon them, except to Ernesto, because: (1) the Sell. As the Court of Appeals mentioned in its Decision, 14the
signatures of five of the petitioners do not signify their consent records of the case speak of the fact that petitioner Ernesto,
to sell their shares in the questioned properties since together with petitioner Enriqueta, met with the
238 representatives of the respondent in order to finalize the terms
238 SUPREME COURT REPORTS and conditions of the Contract to Sell. Enriqueta affixed her
ANNOTATED signature on the said contract when the same was drafted. She
even admitted that she understood the undertaking that she and
Oesmer vs. Paraiso Development petitioner Ernesto made in connection with the contract. She
Corporation likewise disclosed that pursuant to the terms embodied in the
petitioner Enriqueta merely signed as a witness to the said Contract to Sell, she updated the payment of the real property
Contract to Sell, and that the other petitioners, namely: taxes and transferred the Tax Declarations of the questioned
Librado, Rizalino, Leonora, and Bibiano, Jr., did not properties in her name.15 Hence, it cannot be gainsaid that she
understand the importance and consequences of their action merely signed the Contract to Sell as a witness because she did
because of their low degree of education and the contents of not only actively participate in the negotiation and execution
the aforesaid contract were not read nor explained to them; of the same, but her subsequent actions also reveal an attempt
and (2) assuming that the signatures indicate consent, such to comply with the conditions in the said contract.
consent was merely conditional, thus, the effectivity of the With respect to the other petitioners’ assertion that they
alleged Contract to Sell was subject to a suspensive condition, did not understand the importance and consequences of their
which is the approval by all the co-owners of the sale. action because of their low degree of education and because
It is well-settled that contracts are perfected by mere the contents of the aforesaid contract were not read nor
consent, upon the acceptance by the offeree of the offer made explained to them, the same cannot be sustained.
by the offeror. From that moment, the parties are bound not We only have to quote the pertinent portions of the Court
only to the fulfillment of what has been expressly stipulated of Appeals Decision, clear and concise, to dispose of this
but also to all the consequences which, according to their issue. Thus,
nature, may be in keeping with good faith, usage and law. To _______________
14
produce a contract, the acceptance must not qualify the terms Rollo, pp. 31-44.
15
of the offer. However, the acceptance may be express or TSN, 15 October 1991, pp. 13-14.
implied. For a contract to arise, the acceptance must be made 240
known to the offeror. Accordingly, the acceptance can be 240 SUPREME COURT REPORTS
withdrawn or revoked before it is made known to the offeror. 13
ANNOTATED
In the case at bar, the Contract to Sell was perfected when
the petitioners consented to the sale to the respondent of their Oesmer vs. Paraiso Development
shares in the subject parcels of land by affixing their Corporation
signatures on the said contract. Such signatures show their “First, the Contract to Sell is couched in such a simple
acceptance of what has been stipulated in the Contract to Sell language which is undoubtedly easy to read and understand.
and such acceptance was made known to respondent The terms of the Contract, specifically the amount of
corporation when the duplicate copy of the Contract to Sell P100,000.00 representing the option money paid by
was returned to the latter bearing petitioners’ signatures. [respondent] corporation, the purchase price of P60.00 per
As to petitioner Enriqueta’s claim that she merely signed square meter or the total amount of P3,316,560.00 and a brief
as a witness to the said contract, the contract itself does not description of the subject properties are well-indicated thereon
say so. There was no single indication in the said contract that that any prudent and mature man would have known the
she signed the same merely as a witness. The fact that nature and extent of the transaction encapsulated in the
_______________ document that he was signing.
13
Jardine Davies, Inc. v. Court of Appeals, 389 Phil. 204, Second, the following circumstances, as testified by the
212; 333 SCRA 684, 693 (2000). witnesses and as can be gleaned from the records of the case
239 clearly indicate the [petitioners’] intention to be bound by the
stipulations chronicled in the said Contract to Sell.
As to [petitioner] Ernesto, there is no dispute as to his At any rate, Metrobank had no obligation to explain the
intention to effect the alienation of the subject property as he documents to the petitioner as nowhere has it been proven that
in fact was the one who initiated the negotiation process and she is unable to read or that the contracts were written in a
culminated the same by affixing his signature on the Contract language not known to her. It was her responsibility to inform
to Sell and by taking receipt of the amount of P100,000.00 herself of the meaning and consequence of the contracts she
which formed part of the purchase price. was signing and, if she found them difficult to comprehend, to
xxxx consult other persons, preferably lawyers, to explain them to
As to [petitioner] Librado, the [appellate court] finds it her. After all, the transactions involved not only a few hundred
preposterous that he willingly affixed his signature on a or thousand pesos but, indeed, hundreds of thousands of pesos.
document written in a language (English) that he purportedly As the Court has held:
does not understand. He testified that the document was just x x x The rule that one who signs a contract is presumed
brought to him by an 18 year old niece named Baby and he to know its contents has been applied even to contracts of
was told that the document was for a check to be paid to him. illiterate persons on the ground that if such persons are
He readily signed the Contract to Sell without consulting his unable to read, they are negligent if they fail to have the
other siblings. Thereafter, he exerted no effort in contract read to them. If a person cannot read the instrument,
communicating with his brothers and sisters regarding the it is as much his duty to procure some reliable persons to read
document which he had signed, did not inquire what the check and explain it to him, before he signs it, as it would be to read
was for and did not thereafter ask for the check which is it before he signed it if he were able to do and his failure to
purportedly due to him as a result of his signing the said obtain a
Contract to Sell. (TSN, 28 September 1993, pp. 22-23) 242
The [appellate court] notes that Librado is a 43 year old 242 SUPREME COURT REPORTS
family man (TSN, 28 September 1993, p. 19). As such, he is
ANNOTATED
expected to act with that ordinary degree of care and prudence
expected of a good father of a family. His unwitting testimony Oesmer vs. Paraiso Development
is just divinely disbelieving. Corporation
The other [petitioners] (Rizalino, Leonora and Bibiano Jr.) reading and explanation of it is such gross negligence as will
are likewise bound by the said Contract to Sell. The theory estop from avoiding it on the ground that he was ignorant of
adopted by the [petitioners] that because of their low degree of its contents.”16
education, they That the petitioners really had the intention to dispose of their
241 shares in the subject parcels of land, irrespective of whether or
VOL. 514, FEBRUARY 5, 241 not all of the heirs consented to the said Contract to Sell, was
2007 unveiled by Adolfo’s testimony as follows:
ATTY. GAMO: This alleged
Oesmer vs. Paraiso Development
agreement between you and your other
Corporation
did not understand the contents of the said Contract to Sell is brothers and sisters that unless
devoid of merit. The [appellate court] also notes that Adolfo everybody will agree, the
(one of the coheirs who did not sign) also possess the same properties would not be sold, was that
degree of education as that of the signing co-heirs (TSN, 15
agree-ment in writing?
October 1991, p. 19). He, however, is employed at the
Provincial Treasury Office at Trece Martirez, Cavite and has WITNESS: No sir.
even accompanied Rogelio Paular to the Assessor’s Office to ATTY. GAMO: What you are saying
locate certain missing documents which were needed to is that when your brothers and sisters
transfer the titles of the subject properties. (TSN, 28 January
except Jesus and you
1994, pp. 26 & 35) Similarly, the other co-heirs [petitioners],
like Adolfo, are far from ignorant, more so, illiterate that they did not sign that agreement
can be extricated from their obligations under the Contract to which had been marked as [Exhibit]
Sell which they voluntarily and knowingly entered into with “D”, your brothers and
the [respondent] corporation.
sisters were grossly violating
The Supreme Court in the case of Cecilia Mata v. Court of
Appeals (207 SCRA 753 [1992]), citing the case of Tan Sua your agreem ent.
Sia v. Yu Baio Sontua (56 Phil. 711), instructively ruled as WITNESS: Yes, sir, they violated
follows: what we have agreed upon.17
“The Court does not accept the petitioner’s claim that she We also cannot sustain the allegation of the petitioners that
did not understand the terms and conditions of the transactions assuming the signatures indicate consent, such consent was
because she only reached Grade Three and was already 63 merely conditional, and that, the effectivity of the alleged
years of age when she signed the documents. She was literate, Contract to Sell was subject to the suspensive condition that
to begin with, and her age did not make her senile or the sale be approved by all the co-owners. The Contract to Sell
incompetent. x x x. is clear enough. It is a cardinal rule in the interpretation of
contracts that if the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal the payment to enforce the terms of the contract. Accordingly,
meaning of its stipulation shall control. 18 The terms of the despite the absence of respondent’s signature in the Contract
Contract to Sell made no mention of the condition that before to Sell, the former cannot evade its obligation to pay the
it can become valid and binding, a unanimous consent of all balance of the purchase price.
the heirs is necessary. Thus, when the language of the As a final point, the Contract to Sell entered into by the
_______________ parties is not a unilateral promise to sell merely because it
16
Rollo, pp. 36-40. used the word option money when it referred to the amount of
17
TSN, 28 September 1993, pp. 17-18. P100,000.00, which also form part of the purchase price.
18
German Marine Agencies, Inc. v. National Labor Settled is the rule that in the interpretation of contracts, the
Relations Commission, 403 Phil. 572, 588-589; 350 SCRA ascertainment of the intention of the contracting parties is to
629, 641 (2001). be discharged by looking to the words they used to project that
243 intention in their contract, all the words, not just a particular
VOL. 514, FEBRUARY 5, 243 word or two, and words in context, not words standing alone.19
In the instant case, the consideration of P100,000.00 paid
2007
by respondent to petitioners was referred to as “option
Oesmer vs. Paraiso Development money.” However, a careful examination of the words used in
Corporation the contract indicates that the money is not option money
contract is explicit, as in the present case, leaving no doubt as but earnest money. “Earnest money” and “option money” are
to the intention of the parties thereto, the literal meaning of its not the same but distinguished thus: (a) earnest money is part
stipulation is controlling. of the purchase price, while option money is the money given
In addition, the petitioners, being owners of their as a distinct consideration for an option contract; (b) earnest
respective undivided shares in the subject properties, can money is given only where there is already a sale, while option
dispose of their shares even without the consent of all the co- money applies to a sale not yet perfected; and, (c) when
heirs. Article 493 of the Civil Code expressly provides: earnest money is given, the buyer is bound to pay the balance,
“Article 493. Each co-owner shall have the full ownership of while when the would-be buyer gives option money, he is not
his part and of the fruits and benefits pertaining thereto, and he required to buy, but may even forfeit it depending on the terms
may therefore alienate, assign or mortgage it, and even of the option.20
substitute another person in its enjoyment, except when The sum of P100,000.00 was part of the purchase price.
personal rights are involved. But the effect of the alienation or Although the same was denominated as “option money,” it is
the mortgage, with respect to the co-owners, shall be limitedto _______________
19
the portion which may be allotted to him in the division upon Limson v. Court of Appeals, G.R. No. 135929, 20 April
the termination of the coownership.” [Emphases supplied.] 2001, 357 SCRA 209, 216.
20
Consequently, even without the consent of the two co-heirs, Id., at p. 217.
Adolfo and Jesus, the Contract to Sell is still valid and binding 245
with respect to the 6/8 proportionate shares of the petitioners, VOL. 514, FEBRUARY 5, 245
as properly held by the appellate court. 2007
Therefore, this Court finds no error in the findings of the
Court of Appeals that all the petitioners who were signatories Oesmer vs. Paraiso Development
in the Contract to Sell are bound thereby. Corporation
The final arguments of petitioners state that the Contract to actually in the nature of earnest money or down payment when
Sell is void altogether considering that respondent itself did considered with the other terms of the contract. Doubtless, the
not sign it as to indicate its consent to be bound by its terms; agreement is not a mere unilateral promise to sell, but, indeed,
and moreover, the Contract to Sell is really a unilateral it is a Contract to Sell as both the trial court and the appellate
promise to sell without consideration distinct from the price, court declared in their Decisions.
and hence, again, void. Said arguments must necessarily fail. WHEREFORE, premises considered, the Petition is
The Contract to Sell is not void merely because it does not DENIED, and the Decision and Resolution of the Court of
bear the signature of the respondent corporation. Respondent Appeals dated 26 April 2002 and 4 March 2003, respectively,
corporation’s consent to be bound by the terms of the contract are AFFIRMED, thus, (a) the Contract to Sell is DECLARED
is shown in the uncontroverted facts which established that valid and binding with respect to the undivided proportionate
there was partial performance by respondent of its obligation shares in the subject parcels of land of the six signatories of
in the said Contract to Sell when it tendered the amount of the said document, herein petitioners Ernesto, Enriqueta,
P100,000.00 to form part of the purchase price, which was Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed
244 Oesmer); (b) respondent is ORDERED to tender payment to
244 SUPREME COURT REPORTS petitioners in the amount of P3,216,560.00 representing the
balance of the purchase price for the latter’s shares in the
ANNOTATED
subject parcels of land; and (c) petitioners are further
Oesmer vs. Paraiso Development ORDERED to execute in favor of respondent the Deed of
Corporation Absolute Sale covering their shares in the subject parcels of
accepted and acknowledged expressly by petitioners. land after receipt of the balance of the purchase price, and to
Therefore, by force of law, respondent is required to complete
pay respondent attorney’s fees plus costs of the suit. Costs from the obligation and the third person or new debtor needs
against petitioners. to assume his place in the relation. Novation serves two
SO ORDERED. functions—one is to extinguish an existing obligation, the
Ynares-Santiago(Chairperson), Austria-Martinez and other to substitute a new one in its place—requiring
Callejo, Sr., JJ., concur. concurrence of four requisites: 1) a previous valid obligation;
Petition denied, judgment and resolution affirmed. 2) an agreement of all parties concerned to a new contract; 3)
Notes.—The parties actually entered into a contract of the extinguishment of the old obligation; and 4) the birth of a
sale, partially consummated as to the payment of the price, valid new obligation.
where the Offer to Purchase provides that, after the payment Same; Sales; Earnest Money; Earnest money applies to
of the option money, only the balance of the purchase price a perfected sale.—The P100,000.00 that was given to Msgr.
need be paid, implying that the “option money” forms part of Cirilos as “deposit” cannot be considered as earnest money.
the purchase price. (Cavite Development Bank vs. Lim, 324 Where the parties merely exchanged offers and counter-offers,
SCRA 346 [2000]) no contract is perfected since they did not yet give their
246 consent to such offers. Earnest money applies to a perfected
246 SUPREME COURT REPORTS sale.
Same; Contracts; Relativity of Contracts; Under the
ANNOTATED
principle of relativity of contracts, contracts can only bind the
Sarmiento vs. Zaratan parties who entered into it.—SSE cannot revert to the original
Earnest money is something of value to show that the buyer is terms stated in Licup’s letter to Msgr. Cirilos dated April 17,
really in earnest, and given to the seller to bind the bargain, 1988 since it was not privy to such contract. The parties to it
and whenever earnest money is given in a contract of sale, it is were Licup and Msgr. Cirilos. Under the principle of relativity
considered as part of the purchase price and proof of the of contracts, contracts can only bind the parties who entered
perfection of the contract. (Laforteza vs. Machuca, 333 SCRA into it. It cannot favor or prejudice a third person. Petitioner
643[2000]) SSE cannot, therefore, impose the terms Licup stated in his
April 17, 1988 letter upon the owners.
G.R. No. 177936. January 18, 2012.* PETITION for review on certiorari of a decision of the Court
STARBRIGHT SALES ENTERPRISES, INC., of Appeals.
petitioner, vs. PHILIPPINE REALTY CORPORATION, The facts are stated in the opinion of the Court.
MSGR. DOMINGO A. CIRILOS, TROPICANA Platon, Martinez, Flores, San Pedro & Leaño for
PROPERTIES AND DEVELOPMENT CORPORATION and petitioner.
STANDARD REALTY CORPORATION, respondents. Arturo S. Santos for Tropicana Properties &
Civil Law; Obligations; Contracts; Contract of Sale; Development Corp.
Under the law on sales, a contract of sale is perfected when Tabalingcos & Associates Law Offices for respondents
the seller, obligates himself, for a price certain, to deliver and Phil. Realty Corp. and Msgr. Domingo A. Cirilos, Jr.
to transfer ownership of a thing or right to the buyer, over 328
which the latter agrees.—Three elements are needed to create 328 SUPREME COURT REPORTS
a perfected contract: 1) the consent of the contracting parties;
ANNOTATED
(2) an object certain which is the subject matter of the
contract; and (3) the cause of the obligation which is Starbright Sale Enterprises, Inc. vs.
established. Under the law on sales, a contract of sale is Philippine Realty Corporation
perfected when the seller, obligates himself, for a price certain, ABAD, J.:
to deliver and to transfer ownership of a thing or right to the The present case involves a determination of the perfection
buyer, over which the latter agrees. From that moment, the of contract of sale.
parties may demand reciprocal performance. The Facts and the Case
Same; Same; Novation; A subjective novation results On April 17, 1988 Ramon Licup wrote Msgr. Domingo A.
through substitution of the person of the debtor or through Cirilos, offering to buy three contiguous parcels of land in
subrogation of a third person to the rights of the creditor.—A Parañaque that The Holy See and Philippine Realty
subjective novation results through substitution of the person Corporation (PRC) owned for P1,240.00 per square meter.
of the debtor or through subrogation of a third person to the Licup accepted the responsibility for removing the illegal
rights of the creditor. To accom- settlers on the land and enclosed a check for P100,000.00 to
_______________ “close the transaction.”1 He undertook to pay the balance of
* THIRD DIVISION. the purchase price upon presentation of the title for transfer
327 and once the property has been cleared of its occupants.
VOL. 663, 327 Msgr. Cirilos, representing The Holy See and PRC, signed
JANUARY 18, 2012 his name on the conforme portion of the letter and accepted
the check. But the check could not be encashed due to Licup’s
Starbright Sale Enterprises, Inc. stop-order payment. Licup wrote Msgr. Cirilos on April 26,
vs. Philippine Realty Corporation 1988, requesting that the titles to the land be instead
plish a subjective novation through change in the person transferred to petitioner Starbright Sales Enterprises, Inc.
of the debtor, the old debtor needs to be expressly released
(SSE). He enclosed a new check for the same amount. SSE’s SSE alleged that Licup’s original letter of April 17, 1988
representatives, Mr. and Mrs. Cu, did not sign the letter. to Msgr. Cirilos constituted a perfected contract. Licup even
On November 29, 1988 Msgr. Cirilos wrote SSE, gave an earnest money of P100,000.00 to “close the
requesting it to remove the occupants on the property and, transaction.” His offer to rid the land of its occupants was a
should it decide not to do this, Msgr. Cirilos would return to it “mere gesture of accommodation if only to expedite the
the P100,000.00 that he received. On January 24, 1989 SSE transfer of its title.”4 Further, SSE claimed that, in representing
replied with an “updated proposal.” 2 It would be willing to The Holy See and PRC, Msgr. Cirilos acted in bad faith when
comply with Msgr. Cirilos’ condition provided the purchase he set the price of the property at P1,400.00 per square meter
price is lowered to P1,150.00 per square meter. when in truth, the property was sold to Tropicana Properties
On January 26, 1989 Msgr. Cirilos wrote back, rejecting for only P760.68 per square meter.
the “updated proposal.” He said that other buyers were will- Msgr. Cirilos maintained, on the other hand, that based on
_______________ their exchange of letters, no contract of sale was perfected
1 Rollo, p. 14. between SSE and the parties he represented. And, only after
2 Id., at p. 65. the negotiations between them fell through did he sell the land
329 to Tropicana Properties.
VOL. 663, JANUARY 18, 329 In its Decision of February 14, 2000, the Parañaque RTC
treated the April 17, 1988 letter between Licum and Msgr.
2012
Cirilos as a perfected contract of sale between the parties.
Starbright Sale Enterprises, Inc. vs. Msgr. Cirilos attempted to change the terms of contract and
Philippine Realty Corporation return SSE’s initial deposit but the parties reached no
ing to acquire the property on an “as is, where is” basis at agreement regarding such change. Since such agreement was
P1,400.00 per square meter. He gave SSE seven days within wanting, the original terms provided in the April 17, 1988
which to buy the property at P1,400.00 per square meter, letter continued to bind the parties.
otherwise, Msgr. Cirilos would take it that SSE has lost On appeal to the Court of Appeals (CA), the latter
interest in the same. He enclosed a check for P100,000.00 in rendered judgment on November 10, 2006,5reversing the
his letter as refund of what he earlier received. Parañaque RTC decision. The CA held that no perfected
On February 4, 1989 SSE wrote Msgr. Cirilos that they contract can be gleaned from the April 17, 1988 letter that SSE
already had a perfected contract of sale in the April 17, 1988 had relied on. Indeed, the subsequent exchange of letters
letter which he signed and that, consequently, he could no between SSE and Msgr. Cirilos show that the parties were
longer impose amendments such as the removal of the grappling with the terms of the sale. Msgr. Cirilos made no
informal settlers at the buyer’s expense and the increase in the unconditional acceptance that would give rise to a perfected
purchase price. contract.
SSE claimed that it got no reply from Msgr. Cirilos and _______________
that the next thing they knew, the land had been sold to 4 CA Rollo, p. 100.
Tropicana Properties on March 30, 1989. On May 15, 1989 5 Penned by Associate Justice Monina Arevalo-Zeñarosa
SSE demanded rescission of that sale. Meanwhile, on August with the concurrence of Associate Justices Martin S.
4, 1989 Tropicana Properties sold the three parcels of land to Villarama, Jr. and Lucas P. Bersamin (both Members of the
Standard Realty. Court), Rollo, pp. 157-184.
Its demand for rescission unheeded, SSE filed a complaint 331
for annulment of sale and reconveyance with damages before VOL. 663, JANUARY 18, 331
the Regional Trial Court (RTC) of Makati, Branch 61, against 2012
The Holy See, PRC, Msgr. Cirilos, and Tropicana Properties
in Civil Case 90-183. SSE amended its complaint on February Starbright Sale Enterprises, Inc. vs.
24, 1992, impleading Standard Realty as additional defendant. Philippine Realty Corporation
The Holy See sought dismissal of the case against it, As to the P100,000.00 given to Msgr. Cirilos, the CA
claiming that as a foreign government, it cannot be sued considered it an option money that secured for SSE only the
without its consent. The RTC held otherwise but, on privilege to buy the property even if Licup called it a
December 1, 1994,3 the Court reversed the ruling of the RTC “deposit.” The CA denied SSE’s motion for reconsideration
and ordered the case against The Holy See dismissed. By on May 2, 2007.
Order of January 26, 1996 the case was transferred to the The Issue Presented
Parañaque RTC, Branch 258. The only issue in this case is whether or not the CA erred
_______________ in holding that no perfected contract of sale existed between
3 Holy See, The v. Rosario, Jr., G.R. No. 101949, SSE and the land owners, represented by Msgr. Cirilos.
December 1, 1994, 238 SCRA 524. The Court’s Ruling
330 Three elements are needed to create a perfected contract:
330 SUPREME COURT REPORTS 1) the consent of the contracting parties; (2) an object certain
which is the subject matter of the contract; and (3) the cause of
ANNOTATED
the obligation which is established. 6 Under the law on sales, a
Starbright Sale Enterprises, Inc. vs. contract of sale is perfected when the seller, obligates himself,
Philippine Realty Corporation for a price certain, to deliver and to transfer ownership of a
thing or right to the buyer, over which the latter agrees. 7From VOL. 663, JANUARY 18, 333
that moment, the parties may demand reciprocal performance.
2012
The Court believes that the April 17, 1988 letter between
Licup and Msgr. Cirilos, the representative of the property’s Starbright Sale Enterprises, Inc. vs.
owners, constituted a perfected contract. When Msgr. Cirilos Philippine Realty Corporation
affixed his signature on that letter, he expressed his conformity the property and how much must the consideration be for the
to the terms of Licup’s offer appearing on it. There was property. These are clear indications that there was no meeting
meeting of the minds as to the object and consideration of the of the minds between the parties. As it turned out, the parties
contract. reached no consensus regarding these issues, thus producing
But when Licup ordered a stop-payment on his deposit and no perfected sale between them.
proposed in his April 26, 1988 letter to Msgr. Cirilos that the Parenthetically, Msgr. Cirilos did not act in bad faith when
_______________ he sold the property to Tropicana even if it was for a lesser
6 CIVIL CODE, Article 1318. consideration. More than a month had passed since the last
7 Ang Yu Asuncion v. Court of Appeals, G.R. No. 109125, communication between the parties on February 4, 1989. It is
December 2, 1994, 238 SCRA 602, 611. not improbable for prospective buyers to offer to buy the
332 property during that time.
332 SUPREME COURT REPORTS The P100,000.00 that was given to Msgr. Cirilos as
ANNOTATED “deposit” cannot be considered as earnest money. Where the
parties merely exchanged offers and counter-offers, no
Starbright Sale Enterprises, Inc. vs. contract is perfected since they did not yet give their consent
Philippine Realty Corporation to such offers.12 Earnest money applies to a perfected sale.
property be instead transferred to SSE, a subjective novation SSE cannot revert to the original terms stated in Licup’s
took place. letter to Msgr. Cirilos dated April 17, 1988 since it was not
A subjective novation results through substitution of the privy to such contract. The parties to it were Licup and Msgr.
person of the debtor or through subrogation of a third person Cirilos. Under the principle of relativity of contracts, contracts
to the rights of the creditor. To accomplish a subjective can only bind the parties who entered into it. It cannot favor or
novation through change in the person of the debtor, the old prejudice a third person.13 Petitioner SSE cannot, therefore,
debtor needs to be expressly released from the obligation and impose the terms Licup stated in his April 17, 1988 letter upon
the third person or new debtor needs to assume his place in the the owners.
relation.8 WHEREFORE, the Court DISMISSES the petition and
Novation serves two functions—one is to extinguish an AFFIRMS the Court of Appeals Decision dated November 10,
existing obligation, the other to substitute a new one in its 2006 in CA-G.R. CV 67366.
place—requiring concurrence of four requisites: 1) a previous SO ORDERED.
valid obligation; 2) an agreement of all parties concerned to a Notes.—The birth or the perfection of the contract refers
new contract; 3) the extinguishment of the old obligation; and to that moment in the life of a contract when there is finally a
4) the birth of a valid new obligation.9 concurrence of the wills of the contracting parties with respect
Notably, Licup and Msgr. Cirilos affixed their signatures to the object and the cause of the contract. (Sargasso
on the original agreement embodied in Licup’s letter of April Construction & Development Corporation/Pick & Shovel,
26, 1988. No similar letter agreement can be found between Inc./
SSE and Msgr. Cirilos. Atlantic Erectors, Inc. [Joint Venture] vs. Philippine Ports
The proposed substitution of Licup by SSE opened the Authority, 623 SCRA 260 [2010])
negotiation stage for a new contract of sale as between SSE Since novation implies a waiver of the right which the
and the owners. The succeeding exchange of letters between creditor had before the novation, such waiver must be express.
Mr. Stephen Cu, SSE’s representative, and Msgr. Cirilos (Mindanao Savings and Loan Association, Inc. vs.
attests to an unfinished negotiation. Msgr. Cirilos referred to Willkom,634 SCRA 291 [2010])
his discussion with SSE regarding the purchase as a “pending
transaction.”10
Cu, on the other hand, regarded SSE’s first letter to Msgr.
Cirilos as an “updated proposal.” 11 This proposal took up two
issues: which party would undertake to evict the occupants on
_______________
8 Ajax Marketing & Development Corporation v. Court
of Appeals, G.R. No. 118585, September 14, 1995, 248 SCRA
222, 227.
9 Quinto v. People, 365 Phil. 259, 266; 305 SCRA 708,
714 (1999).
10 Rollo, p. 64.
11 See note 2.
333

MIDTERM CASES On OPTION MONEY, RIGHT TO FIRST REFUSAL, EARNEST MONEY

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MIDTERM CASES On OPTION MONEY, RIGHT TO FIRST REFUSAL, EARNEST MONEY

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WHEN OPTION IS WITHOUT SEPARATE The record shows that, on April 3, 1961, plaintiff Nicolas

CONSIDERATION Sanchez and defendant Severina Rigos executed an

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The root of this controversy is the undated letter-offer of WITNESSES:

Same; Contracts; Various stages of a contract.—Among the Same; Same; Same; An unconditional mutual promise to

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On July 26, 1989, judgment was rendered by the trial court in

"WHEREFORE, and (sic) in view of the foregoing, judgment

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