G.R. No.

92871               August 2, 1991

MARIA P. VDA. DE JOMOC, ET AL., petitioners,

vs.
THE COURT OF APPEALS, REGIONAL TRIAL COURT OF MISAMIS ORIENTAL,
10th Judicial Region, Br. 25, respondents.

G.R. No. 92860               August 2, 1991

SPOUSES LIM LEONG KANG & LIM PUE KING, petitioners,

vs.
MAURA SO & HON. COURT OF APPEALS (Eleventh Division), respondents.

Pablito C. Pielago, Nemesio G. Beltran, Federico C. Villaroya and Medardo P.

Millares for petitioners in G.R. No. 92860.
Manolo S. Tagarda for petitioners in G.R. No. 92871.
Jose Ngaw collaborating counsel for the petitioners in G.R. No. 92871.

GUTIERREZ, JR., J.:

The main issue raised in these consolidated petitions is whether or not private respondent Maura
So abandoned or backed out from the agreement for the purchase of a lot belonging to the heirs
of Pantaleon Jomoc, so that the subsequent sale to petitioner spouses Lim is null and void.

The subject lot in Cagayan de Oro City forms part of the estate of the late Pantaleon Jomoc.
Because it was fictitiously sold and transferred to third persons, petitioner Maria P. Vda. Jomoc,
as administratrix of the estate and in behalf of all the heirs, filed suit to recover the property
before the trial court of Misamis Oriental in Civil Case No. 4750. Mariano So, the last of the
transferees and the husband of Maria So, intervened. The case was decided in favor of Jomoc
and was accordingly appealed by Mariano So and one Gaw Sur Cheng to the Court of Appeals.
In February 1979, pending the appeal, Jomoc executed a Deed of Extrajudicial Settlement and
Sale of Land (Exhibit "A") with private respondent for P300,000.00. The document was not yet
signed by all the parties nor notarized but in the meantime, Maura So had made partial payments
amounting to P49,000.00.

In 1983, Mariano So, the appellant in the recovery proceeding, agreed to settle the case by
executing a Deed of Reconveyance of the land in favor of the heirs of Pantaleon Jomoc. The
reconveyance was in compliance with the decision in the recovery case and resulted in the
dismissal of his appeal. On February 28, 1983, the heirs of Jomoc executed another extra-judicial
settlement with absolute sale in favor of intervenors Lim Leong Kang and Lim Pue filing. Later,
Maura So demanded from the Jomoc family the execution of a final deed of conveyance. They
ignored the demand.
Thus, private respondent Maria So sued petitioners-heirs for specific performance to compel
them to execute and deliver the proper registrable deed of sale over the lot. The case was
docketed as Civil Case No. 8983. So then filed a notice of lis pendens with the Register of Deeds
on February 28, 1983. It was on the same date, February 28, 1983, allegedly upon the Jomocs'
belief that Maura So had backed out from the transaction that the Jomocs executed the other
extrajudicial settlement with sale of registered land in favor of the spouses Lim for a
consideration of P200,000.00 part of which amount was allegedly intended to be returned to
Maura So as reimbursement. The spouses Lim, however, registered their settlement and sale only
on April 27, 1983.

The Jomocs as defendants, and the spouses Lim as intervenors alleged that complainant Maura
so backed out as evidenced by an oral testimony that she did so in a conference with the Jomocs'
lawyers where she expressed frustration in evicting squatters who demanded large sums as a
condition for vacating. They alleged the lack of signatures of four of the heirs of Jomoc and
Maura So herself as well as the lack of notarization.

The lower court, finding that there was no sufficient evidence to show complainant-respondents'
withdrawal from the sale, concluded that: (1) the case is one of double sale; (2) the spouses-
intervenors are registrants in bad faith who registered their questioned deed of sale long after the
notice of lis pendens of Civil Case No. 8983 was recorded.

On appeal, the trial court decision was affirmed except for the award of moral and exemplary
damages and attorney's fees and expenses for litigation. Hence, these petitions.

The petitioners' allegation that the contract of sale by Maria P. Jomoc with private respondent is
unenforceable under the Statute of Frauds, is without merit. The petitioners-heirs, in their brief
before the appellate court, admitted that the extrajudicial settlement with sale in favor of Maura
So is valid and enforceable under the Statute of Frauds.

Of importance to the Court is the fact that the petitioners do not deny the existence of Exhibit
"A"; including its terms and contents, notwithstanding the incompleteness in form. The meeting
of the minds and the delivery of sums as partial payment is clear and this is admitted by both
parties to the agreement. Hence, there was already a valid and existing contract, not merely
perfected as the trial court saw it, but partly executed. It is of no moment whether or not it is
enforceable under the Statute of Frauds, which rule we do not find to be applicable because of
partial payment of the vendee's obligation and its acceptance by the vendors-heirs. The contract
of sale of real property even if not complete in form, so long as the essential requisites of consent
of the contracting parties, object, and cause of the obligation concur and they were clearly
established to be present, is valid and effective as between the parties. Under Article 1357 of the
Civil Code, its enforceability is recognized as each contracting party is granted the right to
compel the other to execute the proper public instrument so that the valid contract of sale of
registered land can be duly registered and can bind third persons. The complainant respondent
correctly exercised such right simultaneously with a prayer for the enforcement of the contract in
one complaint.
The Court finds no cogent reason to reverse the factual finding of the Regional Trial Court and
the Court of Appeals that private respondent did not subsequently abandon her intention of
purchasing the subject lot.1âwphi1

The facts reveal an agreement between the contracting parties to Exhibit "A" to the effect that
"the consideration of P300,000.00 or whatever balance remains after deducting the advanced
payments thereon, shall be paid upon the termination of (Mariano So's) appeal in the case
involving the property in question." (G.R. No. 92871, Rollo, p. 123). The finding is supported by
substantial evidence. As reasoned by both courts, even if the sums paid by Maura So were
allegedly intended to expedite the dismissal of the appeal of Mariano So, such payment only
indicates interest in acquiring the subject lot. In addition, the claim by the defendants-petitioners
that the payments were for the gathering of the several heirs from far places to sign Exhibit "A"
confirms respondent Maura So's continuing interest. The terms of Exhibit "A" and the actual
intention of the parties are clear and no reform requiring parole evidence is being sought to
elucidate the intention further. The oral evidence offered by defendants-petitioners to show a
subsequent refusal to proceed with the sale cannot be considered to reverse the express intention
in the contract. Moreover, the two courts below had definite findings on this factual issue and we
see no reason to reject and reverse their conclusion.

The petitioners contend that the trial court and the appellate court erred in declaring as void the
subsequent deed of extra-judicial settlement with spouses Lim since specific performance and
not annulment of contract due to existence of double sale, was the thrust of the complaint. This
argument is untenable. The issue of double sale had to be resolved to determine whether or not
complainant Maura So was entitled to the reliefs prayed for There was no hard evidence to show
that the vinculum or contractual relation between petitioners-heirs and Maura So had been cut-
off. Yet, petitioners-heirs sold the same lot to spouses Lim. The case therefore requires us to
discern who has the better right to the property.

Article 1544 of the Civil Code provides:

x x x           x x x          x x x

Should it be immovable property, the ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry of Property.

x x x           x x x          x x x

In view of this provision, the two courts below correctly ruled that the spouses Lim do not have a
better right. They purchased the land with full knowledge of a previous sale to private respondent
and without requiring from the vendors-heirs any proof' of the prior vendee's revocation of her
purchase. They should have exercised extra caution in their purchase especially if at the time of
the sale, the land was still covered by ( a title) TCT No. 19648 bearing the name of Mariano So
and was not yet registered in the name of petitioners- heirs of Pantaleon Jomoc (Original
Records, p. 80), although it had been reconveyed to said heirs. Not having done this, petitioners
spouses Lim cannot be said to be buyers in good faith. When they registered the sale on April 27,
1983 after having been charged with notice of lis pendens annotated as early as February 28,
1983 (the same date of their purchase), they did so in bad faith or on the belief that a registration
may improve their position being subsequent buyers of the same lot. Under Article 1544, mere
registration is not enough to acquire new title. Good faith must concur. ( Bergado v. Court of
Appeals, 173 SCRA 497 [1989]; Concepcion V. Court of Appeals, G.R. No. 83208, February
6,1991)

Considering the failure of the petitioners to show that the findings of the two courts below are
not supported by substantial trial evidence or that their conclusions are contrary to law and
jurisprudence, we find no reversible error in the questioned decision.

WHEREFORE, the petitions are hereby DISMISSED for lack of merit. The decision of the Court
of Appeals dated September 13, 1989 and its resolution dated April 2, 1990 are AFFIRMED.

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,

vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT
CORPORATION, respondents.

Antonio M. Albano for petitioners.

Umali, Soriano & Associates for private respondent.

VITUG, J.:

Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December
1991, in CA-G.R. SP No. 26345 setting aside and declaring without force and effect the orders of
execution of the trial court, dated 30 August 1991 and 27 September 1991, in Civil Case No. 87-
41058.

The antecedents are recited in good detail by the appellate court thusly:

On July 29, 1987 a Second Amended Complaint for Specific Performance was
filed by Ang Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose
Cu Unjieng and Jose Tan before the Regional Trial Court, Branch 31, Manila in
Civil Case No. 87-41058, alleging, among others, that plaintiffs are tenants or
lessees of residential and commercial spaces owned by defendants described as
Nos. 630-638 Ongpin Street, Binondo, Manila; that they have occupied said
spaces since 1935 and have been religiously paying the rental and complying with
all the conditions of the lease contract; that on several occasions before October 9,
1986, defendants informed plaintiffs that they are offering to sell the premises and
are giving them priority to acquire the same; that during the negotiations, Bobby
Cu Unjieng offered a price of P6-million while plaintiffs made a counter offer of
P5-million; that plaintiffs thereafter asked the defendants to put their offer in
writing to which request defendants acceded; that in reply to defendant's letter,
plaintiffs wrote them on October 24, 1986 asking that they specify the terms and
conditions of the offer to sell; that when plaintiffs did not receive any reply, they
sent another letter dated January 28, 1987 with the same request; that since
defendants failed to specify the terms and conditions of the offer to sell and
because of information received that defendants were about to sell the property,
plaintiffs were compelled to file the complaint to compel defendants to sell the
property to them.

Defendants filed their answer denying the material allegations of the complaint
and interposing a special defense of lack of cause of action.

After the issues were joined, defendants filed a motion for summary judgment
which was granted by the lower court. The trial court found that defendants' offer
to sell was never accepted by the plaintiffs for the reason that the parties did not
agree upon the terms and conditions of the proposed sale, hence, there was no
contract of sale at all. Nonetheless, the lower court ruled that should the
defendants subsequently offer their property for sale at a price of P11-million or
below, plaintiffs will have the right of first refusal. Thus the dispositive portion of
the decision states:

WHEREFORE, judgment is hereby rendered in favor of the

defendants and against the plaintiffs summarily dismissing the
complaint subject to the aforementioned condition that if the
defendants subsequently decide to offer their property for sale for a
purchase price of Eleven Million Pesos or lower, then the plaintiffs
has the option to purchase the property or of first refusal,
otherwise, defendants need not offer the property to the plaintiffs if
the purchase price is higher than Eleven Million Pesos.

SO ORDERED.

Aggrieved by the decision, plaintiffs appealed to this Court in

CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990
(penned by Justice Segundino G. Chua and concurred in by Justices Vicente V.
Mendoza and Fernando A. Santiago), this Court affirmed with modification the
lower court's judgment, holding:

In resume, there was no meeting of the minds between the parties

concerning the sale of the property. Absent such requirement, the
claim for specific performance will not lie. Appellants' demand for
actual, moral and exemplary damages will likewise fail as there
exists no justifiable ground for its award. Summary judgment for
defendants was properly granted. Courts may render summary
judgment when there is no genuine issue as to any material fact
and the moving party is entitled to a judgment as a matter of law
 (Garcia vs. Court of Appeals, 176 SCRA 815). All requisites
obtaining, the decision of the court a quo  is legally justifiable.

WHEREFORE, finding the appeal unmeritorious, the judgment

appealed from is hereby AFFIRMED, but subject to the following
modification: The court a quo in the aforestated decision gave the
plaintiffs-appellants the right of first refusal only if the property is
sold for a purchase price of Eleven Million pesos or lower;
however, considering the mercurial and uncertain forces in our
market economy today. We find no reason not to grant the same
right of first refusal to herein appellants in the event that the
subject property is sold for a price in excess of Eleven Million
pesos. No pronouncement as to costs.

SO ORDERED.

The decision of this Court was brought to the Supreme Court by petition for
review on certiorari. The Supreme Court denied the appeal on May 6, 1991 "for
insufficiency in form and substances" (Annex H, Petition).

On November 15, 1990, while CA-G.R. CV No. 21123 was pending

consideration by this Court, the Cu Unjieng spouses executed a Deed of Sale
(Annex D, Petition) transferring the property in question to herein petitioner Buen
Realty and Development Corporation, subject to the following terms and
conditions:

1. That for and in consideration of the sum of FIFTEEN MILLION

PESOS (P15,000,000.00), receipt of which in full is hereby
acknowledged, the VENDORS hereby sells, transfers and conveys
for and in favor of the VENDEE, his heirs, executors,
administrators or assigns, the above-described property with all the
improvements found therein including all the rights and interest in
the said property free from all liens and encumbrances of whatever
nature, except the pending ejectment proceeding;

2. That the VENDEE shall pay the Documentary Stamp Tax,

registration fees for the transfer of title in his favor and other
expenses incidental to the sale of above-described property
including capital gains tax and accrued real estate taxes.

As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu

Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued
in the name of petitioner on December 3, 1990.

On July 1, 1991, petitioner as the new owner of the subject property wrote a letter
to the lessees demanding that the latter vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner
brought the property subject to the notice of lis pendens regarding Civil Case No.
87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs.

The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in
Civil Case No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV
No. 21123.

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

quoted as follows:

Presented before the Court is a Motion for Execution filed by

plaintiff represented by Atty. Antonio Albano. Both defendants
Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty.
Vicente Sison and Atty. Anacleto Magno respectively were duly
notified in today's consideration of the motion as evidenced by the
rubber stamp and signatures upon the copy of the Motion for
Execution.

The gist of the motion is that the Decision of the Court dated
September 21, 1990 as modified by the Court of Appeals in its
decision in CA G.R. CV-21123, and elevated to the Supreme Court
upon the petition for review and that the same was denied by the
highest tribunal in its resolution dated May 6, 1991 in G.R. No.
L-97276, had now become final and executory. As a consequence,
there was an Entry of Judgment by the Supreme Court as of June 6,
1991, stating that the aforesaid modified decision had already
become final and executory.

It is the observation of the Court that this property in dispute was

the subject of the Notice of Lis Pendens and that the modified
decision of this Court promulgated by the Court of Appeals which
had become final to the effect that should the defendants decide to
offer the property for sale for a price of P11 Million or lower, and
considering the mercurial and uncertain forces in our market
economy today, the same right of first refusal to herein
plaintiffs/appellants in the event that the subject property is sold
for a price in excess of Eleven Million pesos or more.

WHEREFORE, defendants are hereby ordered to execute the

necessary Deed of Sale of the property in litigation in favor of
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15 Million pesos in recognition of plaintiffs'
right of first refusal and that a new Transfer Certificate of Title be
issued in favor of the buyer.
 All previous transactions involving the same property
notwithstanding the issuance of another title to Buen Realty
Corporation, is hereby set aside as having been executed in bad
faith.

SO ORDERED.

On September 22, 1991 respondent Judge issued another order, the dispositive
portion of which reads:

WHEREFORE, let there be Writ of Execution issue in the above-

entitled case directing the Deputy Sheriff Ramon Enriquez of this
Court to implement said Writ of Execution ordering the defendants
among others to comply with the aforesaid Order of this Court
within a period of one (1) week from receipt of this Order and for
defendants to execute the necessary Deed of Sale of the property in
litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong
and Arthur Go for the consideration of P15,000,000.00 and
ordering the Register of Deeds of the City of Manila, to cancel and
set aside the title already issued in favor of Buen Realty
Corporation which was previously executed between the latter and
defendants and to register the new title in favor of the aforesaid
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go.

SO ORDERED.

On the same day, September 27, 1991 the corresponding writ of execution (Annex
C, Petition) was issued.1

On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and
declared without force and effect the above questioned orders of the court a quo.

In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound
by the writ of execution by virtue of the notice of lis pendens, carried over on TCT No. 195816
issued in the name of Buen Realty, at the time of the latter's purchase of the property on 15
November 1991 from the Cu Unjiengs.

We affirm the decision of the appellate court.

A not too recent development in real estate transactions is the adoption of such arrangements as
the right of first refusal, a purchase option and a contract to sell. For ready reference, we might
point out some fundamental precepts that may find some relevance to this discussion.

An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The
obligation is constituted upon the concurrence of the essential elements thereof, viz: (a)
The vinculum juris or juridical tie which is the efficient cause established by the various sources
of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is
the prestation or conduct; required to be observed (to give, to do or not to do); and (c)
the subject-persons who, viewed from the demandability of the obligation, are the active
(obligee) and the passive (obligor) subjects.

Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of
minds between two persons whereby one binds himself, with respect to the other, to give
something or to render some service (Art. 1305, Civil Code). A contract undergoes various
stages that include its negotiation or preparation, its perfection and, finally, its
consummation. Negotiation covers the period from the time the prospective contracting parties
indicate interest in the contract to the time the contract is concluded (perfected).
The perfection of the contract takes place upon the concurrence of the essential elements thereof.
A contract which is consensual as to perfection is so established upon a mere meeting of minds,
i.e., the concurrence of offer and acceptance, on the object and on the cause thereof. A contract
which requires, in addition to the above, the delivery of the object of the agreement, as in a
pledge or commodatum, is commonly referred to as a real contract. In a solemn contract,
compliance with certain formalities prescribed by law, such as in a donation of real property, is
essential in order to make the act valid, the prescribed form being thereby an essential element
thereof. The stage of consummation begins when the parties perform their respective
undertakings under the contract culminating in the extinguishment thereof.

Until the contract is perfected, it cannot, as an independent source of obligation, serve as a

binding juridical relation. In sales, particularly, to which the topic for discussion about the case at
bench belongs, the contract is perfected when a person, called the seller, obligates himself, for a
price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer,
over which the latter agrees. Article 1458 of the Civil Code provides:

Art. 1458. By the contract of sale one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing, and the other to
pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably
the ownership of the thing sold is retained until the fulfillment of a positive suspensive condition
(normally, the full payment of the purchase price), the breach of the condition will prevent the
obligation to convey title from acquiring an obligatory force.2 In Dignos vs. Court of
Appeals (158 SCRA 375), we have said that, although denominated a "Deed of Conditional
Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or
the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will
then be transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a
public document) of the property sold. Where the condition is imposed upon the perfection of the
contract itself, the failure of the condition would prevent such perfection.3 If the condition is
imposed on the obligation of a party which is not fulfilled, the other party may either waive the
condition or refuse to proceed with the sale (Art. 1545, Civil Code).4
An unconditional mutual promise to buy and sell, as long as the object is made determinate and
the price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be
exacted.5

An accepted unilateral promise which specifies the thing to be sold and the price to

be paid, when coupled with a valuable consideration distinct and  separate from the price, is
what may properly be termed a perfected contract of option. This contract is legally binding, and
in sales, it conforms with the second paragraph of Article 1479 of the Civil Code, viz:

Art. 1479. . . .

An accepted unilateral promise to buy or to sell a determinate thing for a price

certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price. (1451a)6

Observe, however, that the option is not the contract of sale itself.7 The optionee has the right,
but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted
before a breach of the option, a bilateral promise to sell and to buy ensues and both parties are
then reciprocally bound to comply with their respective undertakings.8

Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect

promise (policitacion) is merely an offer. Public advertisements or solicitations and the like are
ordinarily construed as mere invitations to make offers or only as proposals. These relations,
until a contract is perfected, are not considered binding commitments. Thus, at any time prior to
the perfection of the contract, either negotiating party may stop the negotiation. The offer, at this
stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as
by its mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias,
43 Phil. 270). Where a period is given to the offeree within which to accept the offer, the
following rules generally govern:

(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free
and has the right to withdraw the offer before its acceptance, or, if an acceptance has been made,
before the offeror's coming to know of such fact, by communicating that withdrawal to the
offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding
that this rule is applicable to a unilateral promise to sell under Art. 1479, modifying the previous
decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code;
Rural Bank of Parañaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368).
The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it
could give rise to a damage claim under Article 19 of the Civil Code which ordains that "every
person must, in the exercise of his rights and in the performance of his duties, act with justice,
give everyone his due, and observe honesty and good faith."

(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it
would be a breach of that contract to withdraw the offer during the agreed period. The option,
however, is an independent contract by itself, and it is to be distinguished from the projected
main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact,
the optioner-offeror withdraws the offer before its acceptance (exercise of the option) by the
optionee-offeree, the latter may not sue for specific performance on the proposed contract
("object" of the option) since it has failed to reach its own stage of perfection. The optioner-
offeror, however, renders himself liable for damages for breach of the option. In these cases, care
should be taken of the real nature of the consideration given, for if, in fact, it has been intended
to be part of the consideration for the main contract with a right of withdrawal on the part of the
optionee, the main contract could be deemed perfected; a similar instance would be an "earnest
money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code).

In the law on sales, the so-called "right of first refusal" is an innovative juridical relation.
Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of the
Civil Code. Neither can the right of first refusal, understood in its normal concept, per se be
brought within the purview of an option under the second paragraph of Article 1479,
aforequoted, or possibly of an offer under Article 1319 9 of the same Code. An option or an offer
would require, among other things,10 a clear certainty on both the object and the cause or
consideration of the envisioned contract. In a right of first refusal, while the object might be
made determinate, the exercise of the right, however, would be dependent not only on the
grantor's eventual intention to enter into a binding juridical relation with another but also on
terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best
be so described as merely belonging to a class of preparatory juridical relations governed not by
contracts (since the essential elements to establish the vinculum juris would still be indefinite
and inconclusive) but by, among other laws of general application, the pertinent scattered
provisions of the Civil Code on human conduct.

Even on the premise that such right of first refusal has been decreed under a final judgment, like
here, its breach cannot justify correspondingly an issuance of a writ of execution under a
judgment that merely recognizes its existence, nor would it sanction an action for specific
performance without thereby negating the indispensable element of consensuality in the
perfection of contracts.11 It is not to say, however, that the right of first refusal would be
inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for
instance, the circumstances expressed in Article 1912 of the Civil Code, can warrant a recovery
for damages.

The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right
of first refusal" in favor of petitioners. The consequence of such a declaration entails no more
than what has heretofore been said. In fine, if, as it is here so conveyed to us, petitioners are
aggrieved by the failure of private respondents to honor the right of first refusal, the remedy is
not a writ of execution on the judgment, since there is none to execute, but an action for damages
in a proper forum for the purpose.

Furthermore, whether private respondent Buen Realty Development Corporation, the alleged
purchaser of the property, has acted in good faith or bad faith and whether or not it should, in any
case, be considered bound to respect the registration of the lis pendens in Civil Case No. 87-
41058 are matters that must be independently addressed in appropriate proceedings. Buen
Realty, not having been impleaded in Civil Case No. 87-41058, cannot be held subject to the writ
of execution issued by respondent Judge, let alone ousted from the ownership and possession of
the property, without first being duly afforded its day in court.

We are also unable to agree with petitioners that the Court of Appeals has erred in holding that
the writ of execution varies the terms of the judgment in Civil Case No. 87-41058, later affirmed
in CA-G.R. CV-21123. The Court of Appeals, in this regard, has observed:

Finally, the questioned writ of execution is in variance with the decision of the
trial court as modified by this Court. As already stated, there was nothing in said
decision 13 that decreed the execution of a deed of sale between the Cu Unjiengs
and respondent lessees, or the fixing of the price of the sale, or the cancellation of
title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng
Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA
730; Pastor vs. CA, 122 SCRA 885).

It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have
decreed at the time the execution of any deed of sale between the Cu Unjiengs and petitioners.

WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned
Orders, dated 30 August 1991 and 27 September 1991, of the court a quo. Costs against
petitioners.

SO ORDERED.

HENRY MACION and ANGELES MACION, petitioners,

vs.
HON. JAPAL M. GUIANI, in his capacity as Presiding Judge of the Regional Trial Court
Branch 14, Cotabato City and DELA VIDA INSTITUTE represented by MS. JOSEPHINE
LANZADERAS, respondents.

Leonardo J. Rendon for petitioners.

Mama Dalandag for private respondent Dela Vida Institute.

ROMERO, J.:

The subject of this litigation revolves around two (2) parcels of adjoining lots owned by
petitioners which are the proposed extension sites of De La Vida Institute, an educational
institution located in Cotabato City.

On April 26, 1991, the petitioners and private respondent entered into a contract to sell under
which terms, private respondent, as president of De la Vida Institute, assured petitioners that they
would buy the said properties on or before July 31, 1991 in the amount of P1,750,000.00. In the
meantime, petitioners surrendered the physical possession of the two lots to private respondent
who promptly built an edifice worth P800,000.00.1

But on July 31, 1991, the sale did not materialize. Consequently, petitioners filed a complaint for
unlawful detainer against private respondent (MTCC Civil Case No. 2739). In retaliation, private
respondent filed a complaint for reformation of the contract to sell executed on April 26, 1991
(Civil Case 592).2 Afterwards, the parties met to settle their differences.

On February 6, 1992, the parties entered into a compromise agreement which stipulated among
others that petitioners would give private respondent five (5) months to raise the amount of
P2,060,000.00;3 that in the event of failure to raise the said amount within the designated period,
private respondent would vacate the premises immediately. The compromise agreement, inter
alia, provided:

6. that upon the execution of this agreement, the defendant will furnish the
plaintiff with xerox copy of the land title for each lot which the latter may use for
the purpose of providing information in securing a loan from any financing or
banking institution of their choice.

7. that if within the period of five (5) months from and after February 6, 1992, the
plaintiff succeeds in obtaining funds for the purpose of settling their obligations
with defendants in the total sum of P2,060,000.00 the latter shall oblige
themselves to execute, sign and deliver to the former the corresponding Deed of
Sale for the two (2) lots which is the subject of this case and turn-over to said
plaintiff the owner's duplicate copy of TCT Nos. T-22004 and T-22005 of the
Registry of Deeds for the City of Cotabato.

In affirmation of the compromise agreement, the Board of Trustees of De La Vida College

passed thereafter a resolution expressing full support to the said agreement entered into between
the parties.4

On March 10, 1992, private respondent wrote petitioners that "the compromise agreement we
have had in the presence of Judge Guiani is not the same as per attached xerox copy you gave
us." In that letter, which essentially was a counter proposal, private respondent said that the price
of P2,060,000.00 was higher than they were willing to pay in the amount of P2,000,000.00
only.5 Other matters taken up in the letter were: De la Vida Institute would admit students and
hold classes until July 6, 1992 but in case they (private respondent) fail to deliver the said
amount, they would voluntarily vacate the premises and that "in the event that the bank and other
lending institutions give its nod and approval to our loan and require the submission of other
documents, you will give to us the Deed of Sale and Owner's copies of the Titles of the two (2)
to t expedite release of the amount concerned."6

On March 25, 1992, the trial court approved the compromise agreement dated February 6, 1992.

Two (2) months after, private respondents, alleging that they had negotiated a loan from the
Bank of the Philippine Islands, wrote letters dated May 19, 20 and 26 requesting petitioners to
execute with them a contract to sell in their favor. On May 28, 1992, private respondent filed
with the trial court an urgent motion for an order directing petitioners to execute a contract to sell
in private respondent's favor in accordance with paragraph 7 of the compromise agreement.7

On July 8, 1992, petitioners filed a motion for execution of judgement alleging that after a lapse
of five (5) months from February 6, 1992, private respondent have failed to settle their
obligations with petitioners.8

In its order dated August 6, 1992, respondent judge denied the motion for execution and directed
petitioners to execute the required contract to sell in favor of private respondent. Respondent
judge opined that the proximate cause of private respondent's failure to comply with the
compromise agreement was the refusal of petitioners to execute a contract to sell as required
under the agreement. Respondent judge added that petitioners should have executed the contract
to sell because anyway they would not be prejudiced since there was no transfer of ownership
involved in a contract to sell.9

Hence this instant petition for certiorari, with prayer for a temporary restraining order enjoining
respondent judge from enforcing its August 6, 1992 order.

On October 7, 1992, petitioners filed an Omnibus Urgent Motion praying that private respondent
be ordered to consign with the court below P135,000.00 representing rentals from May 1991 to
January 1992. In our resolution dated November 18, 1992, we granted said prayer. On March 9,
1992, private respondent consigned with the Office of the Clerk of Court the sum of
P135,000.00. On March 29, 1993, petitioners filed with the lower court a motion to withdraw the
consigned amount and on April 5, 1993, the trial court released the consigned amount to
petitioners. 10

The issue in the case at bar is whether or not respondent judge committed grave abuse of
discretion in ordering petitioner to execute a contract to sell in favor of private respondent.

We dismiss the petition.

The resolution of this case hinges on whether the compromise agreement gives private
respondent-buyer the right to demand from petitioner-sellers the execution of a contract to sell in
favor of the former.

Apparently, paragraph 7 of the compromise agreement does not give such right to private
respondent-buyer. To wit:

7. that if within the period of five (5) months from and after February 6, 1992, the
plaintiff succeeds in obtaining funds for the purpose of settling their obligations
with defendants in the total sum of P2,060,000.00 the latter shall oblige
themselves to execute, sign and deliver to the former the corresponding Deed of
Sale for the two (2) lots which is the subject of this case and turn-over to said
plaintiff the owner's duplicate copy of TCT Nos. T-22004 and T-22005 of the
Registry of Deeds for the City of Cotabato. (Italics provided).
From the aforecited paragraph, it is clear that the seller is obliged to execute a Deed of Sale and
not a Contract to Sell upon payment of the full price of P2.06 million. Thereafter, the sellers
would turn over to the buyers, respondents herein, the owner's duplicate copy of Transfer
Certificate of Title Nos. T-22004 and T-22005.

However, in the interpretation of the compromise agreement, we must delve in the

contemporaneous and subsequent acts of the parties to fathom the real intention of the
parties. 11 A review of the facts reveal that even prior to the signing of the compromise
agreement and the filing of Civil Case No. 592 before the trial court, the parties had already
entered into a contract to sell. Thereafter, when the transaction failed to materialize, the parties
filed suits against each other; petitioners, their unlawful detainer case, and private respondent a
complaint for reformation of contract, alleging that petitioners in fact had caused the preparation
of the contract to sell dated April 26, 1991 with the understanding that the land would be used as
a collateral in obtaining a loan with DBP.

Said contract to sell was superseded by the compromise agreement entered into on February 6,
1992 containing the abovequoted paragraph. It must be recalled that private respondent was
given five (5) months from February 6, 1992, i. e., on or before July 6, 1992 to secure the
purchase price of the two (2) lots. We note that within the time frame agreed upon by the parties,
private respondents wrote three (3) letters dated may 19, 20 and 26 requesting petitioners to
execute a contract to sell in its favor.

Under these factual circumstances, we opine that the compromise agreement must be interpreted
as bestowing upon private respondent-buyer the power to demand a contract to sell from
petitioner-sellers. Where the seller promised to execute a deed of absolute sale upon completing
payment of the price, it is a contract to sell. 12 In the case at bar, the sale is still in the executory
stage since the passing of title is subject to a suspensive condition, namely, that if private
respondent is able to secure the needed funds to be used in the purchased of the two (2) lots
owned by petitioners. A mere executory sale, one where the sellers merely promise to transfer
the property at some future date, or where some conditions have to be fulfilled before the
contract is converted from an executory to an executed one, does not pass ownership over the
real estate being sold. 13

In our jurisdiction, it has been that an accepted bilateral promise to buy and sell is in a sense
similar to, but not exactly the same, as a perfected contract of sale because there is already a
meeting of minds upon the thing which is the object of the contract and upon the price. 14 But a
contract of sale is consummated only upon the delivery and payment. It cannot be denied that the
compromise agreement, having been signed by both parties, is tantamount to a bilateral promise
to buy and sell a certain thing for a price certain. Hence, this gives the contracting parties
rights in personam, such that each has the right to demand from the other the fulfillment of their
respective undertakings. 15 Demandability may be exercised at any time after the execution of the
Deed. 16

The order of respondent judge directing petitioners to issue a contract to sell does not place
petitioners in any danger of losing their property without consideration, for, to repeat, in a
contract to sell there is no immediate transfer of ownership. In contracts to sell, payment is a
positive suspensive condition, failure of which does not constitute a breach but an event that
prevents the obligation of the vendor to convey title from materializing, in accordance with
Article 1184 of the Civil Code. 17 Petitioners as promisors were never obliged to convey title
before the happening of the suspensive condition. In fact, nothing stood in the way of their
selling the property to another after a unsuccessful demand for said price upon the expiration of
the time agreed upon.

Since the period given by the petitioners under the compromise agreement has already lapsed,
we order the trial court to fix anew a period within which private respondents could secure the
needed funds for the purchase of the
18
land.   Moreover, considering that private respondents have only consigned rentals from May
1991 to January 1992 and have since accepted students for the present school year, it is only
proper that they be ordered to deposit the monthly rentals collected thereafter with the trial court.

WHEREFORE, the instant petition is DISMISSED. Petitioners are hereby ordered to EXECUTE
a contract to sell in favor of private respondents. On the other hand, private respondent is ordered
to DEPOSIT with the trial court current rentals pending consummation of the transaction
between the parties. The trial court is ordered to FIX anew the period within which private
respondents may be given the opportunity to raise funds for the purchase of the two (2) adjoining
lots owned by petitioners.

SO ORDERED.

OSCAR D. RAMOS and LUZ AGUDO, petitioners,

vs.
HON. COURT OF APPEALS, ADELAIDA RAMOS and LAZARO E.
MENESES, respodents.

Godofredo V. Magbiray for petitioners.

Joselito Lim for private respondents.

REGALADO, J.:

The instant petition for review on certiorari impugns the decision of the Court of Appeals dated
October 7, 1975, 1 which affirmed in toto the decision of the Court of First Instance of Tarlac in
Civil Case No. 4168, entitled "Adelaida Ramos, et al. vs. Oscar D. Ramos, et al.," holding that
the contracts between the parties are not ventas con pacto de retro but are equitable mortgages.

Sometime in January 1959, private respondent Adelaida Ramos borrowed from her brother,
petitioner Oscar D. Ramos, the amounts of P 5,000.00 and P 9,000.00 in connection with her
business transaction with one Flor Ramiro, Fred Naboa and Atty. Ruperto Sarandi involving the
recovery of a parcel of land in Tenejeros, Malabon. The said amount was used to finance the trip
to Hawaii of Ramiro, Naboa and Atty. Sarandi. As security for said loan, private respondent
Adelaida Ramos executed in favor of petitioners two (2) deeds of conditional sale dated May 27,
1959 and August 30, 1959, of her rights, shares, interests and participation respectively over Lot
No. 4033 covered by Original Certificate of Title No. 5125 registered in the name of their
parents, Valente Ramos and Margarita Denoga, now deceased; 2 and Lot No. 4221 covered by
Transfer Certificate of Title No. 10788 then registered in the names of Socorro Ramos, Josefina
Ramos and Adelaida Ramos, 3 said properties being of the Cadastral Survey of Paniqui, Tarlac.

Upon the failure of said private respondent as vendor a retro to exercise her right of repurchase
within the redemption period, aforenamed petitioner filed a petition for consolidation and
approval of the conditional sale of Lot No. 4033 in Special Proceedings No. 5174, entitled
"Intestate Estate of the late Margarita Denoga," 4 and a petition for approval of the pacto de retro
sale of Lot No. 4221 in the former Court of First Instance of Tarlac acting as a cadastral
court. 5 On January 22, 1960, the said probate court issued an order with the following
disposition:

WHEREFORE, the deed of CONDITIONAL SALE executed on May 27, 1959,

by Adelaida Ramos in favor of spouses Oscar D. Ramos and Luz Agudo,
conveying to the latter by way of pacto de retro sale whatever rights and interests
the former may have in Lot No. 4033 of the Cadastral Survey of Paniqui, which
deed of conditional sale is known as Document No. 14, Page 26, Book VI, Series
of 1959, of the notarial register of Notary Public Jose P. Sibal, is hereby
approved. 6

The cadastral Court also issued a similar order dated April 18, 1960, the dispositive portion of
which reads:

WHEREFORE, by way of granting the petition, the Court orders the

consolidation of ownership and dominion in petitioners-spouses Oscar D. Ramos
and Luz Agudo over the rights, shares and interests of Adelaida Ramos in Lot No.
4221 of the Cadastral Survey of Paniqui, Tarlac, which the latter sold to the
former under a pacto de retro sale executed in a public instrument known as
Document No. 22, Page 28, Book No. VI. Series of 1959, of the Notarial Registry
of Notary Public Jose P. Sibal but which she failed to repurchase within the
period specified in said Document. 7

Private respondents had been and remained in possession of these properties until sometime in
1964 when petitioner took possession thereof.

On February 28, 1968, private respondent filed Civil Case No. 4168 with the then Court of First
Instance of Tarlac for declaration of nullity of orders, reformation of instrument, recovery of
possession with preliminary injunction and damages. The complaint therein alleged that the
deeds of conditional sale, dated May 27, 1959 and August 30, 1959, are mere mortgages and
were vitiated by misrepresentation, fraud and undue influence and that the orders dated January
22, 1960 and April 18, 1960, respectively issued by the probate and cadastral courts, were null
and void for lack of jurisdiction. Petitioners, in their answer to the complaint, specifically deny
the allegations of fraud and misrepresentation and interposed as defense the fact that the
questioned conditional sales of May 27, 1959 and August 30, 1959 were voluntarily executed by
private respondent Adelaida Ramos and truly expressed the intention of the parties; that the
action, if any, has long prescribed; that the questioned orders of January 22, 1960 and April 18,
1960, approving the consolidation of ownership of the lands in question in favor of petitioner
were within the jurisdiction of the lower court, in its capacity as a probate court insofar as Lot
No. 4033 is concerned, and acting as a cadastral court with respect to Lot No. 4221; and that said
lands subject of the conditional sales were in custodia legis in connection with the settlement of
the properties of the late Margarita Denoga, the predecessor in interest of both petitioners and
private respondents.

On January 7, 1970, the court below issued a pre-trial order to the effect that petitioners admit
the genuineness and due execution of the promissory notes marked as Exhibits "F" and "F-1 "
and that the principal triable issue is whether or not the documents purporting to be deeds of
conditional sale, marked as Exhibits "B", "B-1" and "G" were in fact intended to be equitable
mortgages. 8 In its order dated February 17, 1971, the trial court also declared: "Both parties
agreed and manifested in open court the principal obligation in the transaction reflected in
Exhibits 'B' and 'B-l' and 'G' is one of loan. The parties differ, however, on the nature of the
security described therein. 9

On May 17, 1971, the court a quo rendered a decision the decretal part of which reads:

WHEREFORE, judgment is hereby rendered:

1) Denying defendants' motion to dismiss of February 23, 1970;

2) Declaring Exhibits 'B', 'B-I' and 'G' as loan transaction secured

by real estate mortgages;

3) Annulling and setting aside Exhibits 'D', 'D-l', 'I', 'I-l' and 'I-2';

4) Ordering plaintiffs, jointly and severally to pay (within ninety

[90] days from receipt of a copy of this judgment) defendants the
sum of P 5,000.00 specified in Exhibit 'B', with interest thereon at
the legal rate from November 28, 1959 until full payment together
with the sum of P 9,308.00 specified in Exhibit 'G' with interest
thereon at the legal rate from December 1, 1959 until full payment,
and in default of such payment, let the properties mortgaged under
Exhibits 'B', 'B-1' and 'G' be sold to realize the mortgage debt and
costs; and

5) Dismissing defendants' counter-claim.

With costs against defendants. 10

On June 14, 1971, petitioners appealed said decision to the Court of Appeals which, on October
7, 1975; affirmed in all respects the judgment of the trial court. Petitioners' motion for
reconsideration of said decision was denied on November 27, 1975. 11

On January 8, 1976, petitioners filed the petition at bar anchored on the following assignments of
errors:

1. The Hon. Court of Appeals erred in not applying the correct

provisions of law interpreting the conditional sales dated May 27,
1959 and August 30, 1959, Exhibits 'B' and 'G' as equitable
mortgages.

2. That as a consequence of its ruling that the conditional sales,

Exhibits 'B' and 'G', are equitable mortgages, the Hon. Court of
Appeals erred in ordering the reformation of the same.

3. The Honorable Court of Appeals erred in holding that the order

dated January 22, 1960, Exhibit C or 2, and the order dated April
18, 1960, Exhibit H or 6, issued by the probate court in Sp. Proc.
No. 5174 and by the cadastral court in G.L.R.O. Rec. No. 395,
respectively, are null and void for lack of jurisdiction.

4. The Hon. Court of Appeals erred in not applying the applicable

provisions of law on the prescription of action and in not
dismissing the complaint filed in the lower court. 12

We find the petition devoid of merit.

Article 1602 of the Civil Code provides:

The contract shall be presumed to be an equitable mortgage, in any of the

following cases:

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

inadequate;

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

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

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

(4) When the purchaser retains for himself a part of the purchase
price;
 (5) When the vendor binds himself to pay the taxes on the thing
sold;

(6) In any other case where it may be fairly inferred that the real
intention of the parties is that the transaction shall secure the
payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits or other benefit to be received by
the vendee as rent or otherwise shall be considered as interest which shall be
subject to the usury laws.

The Court of Appeals, in holding that the two (2) deeds purporting to be pacto de retro sale
contracts are equitable mortgages, relied on the following factual findings of the trial court, to
wit:

Several undisputed circumstances persuade this Court (that) the questioned deeds
should be construed as equitable mortgages as contemplated in Article 1602 of the
Civil Code, namely: (1) plaintiff vendor remained in possession until 1964 of the
properties she allegedly sold in 1959 to defendants; (2) the sums representing the
alleged purchase price were actually advanced to plaintiff by way of loans, as
expressly admitted by the parties at the hearing of February 17, 1971, reflected in
an Order of the same date: and (3) the properties allegedly purchased by
defendant Oscar Ramos and his wife have never been declared for taxation
purposes in their names. Exhibits K, K-1, L and L-1. 13

Even if we indulge the petitioners in their contention that they are justified in not taking
possession of the lots considering that what were allegedly sold to them were only the rights,
shares, interests and participation of private respondent Adelaida Ramos in the said lots which
were under administration, 14 however, such fact will not justify a reversal of the conclusion
reached by respondent court that the purported deeds of sale con pacto de retro are equitable
mortgages. Such a conclusion is buttressed by the other circumstances catalogued by respondent
court especially the undisputed fact that the two deeds were executed by reason of the loan
extended by petitioner Oscar Ramos to private respondent Adelaida Ramos and that the purchase
price stated therein was the amount of the loan itself.

The above-stated circumstances are more than sufficient to show that the true intention of the
parties is that the transaction shall secure the payment of said debt and, therefore, shall be
presumed to be an equitable mortgage under Paragraph 6 of Article 1602 hereinbefore quoted.
Settled is the rule that to create the presumption enunciated by Article 1602, the existence of one
circumstance is enough.15 The said article expressly provides therefor "in any of the following
cases," hence the existence of any of the circumstances enumerated therein, not a concurrence
nor an overwhelming number of such circumstances, suffices to give rise to the presumption that
the contract with the right of repurchase is an equitable mortgage. As aptly stated by the Court of
Appeals:
 Thus, it may be fairly inferred that the real intention of the parties is that the
transactions in question were entered into to secure the payment of the loan and
not to sell the property (Article 1602, Civil Code). Under Article 1603 of the Civil
Code it is provided that 'in case of doubt, a contract purporting to be a sale with
right to repurchase shall be construed as an equitable mortgage' in this case, we
have no doubt that the transaction between the parties is that of a loan secured by
said properties by way of mortgage. Hence, we find that Exhibits B and G do not
reflect the true and real intention of the parties and should accordingly be
reformed and construed as equitable mortgages. 16

Equally puerile is the other contention of petitioners that respondent court erred in not applying
the exclusionary parol evidence rule in ascertaining the true intendment of the contracting
parties. The present case falls squarely under one of the exceptions to said rule as provided in
then Section 7 of Rule 130, thus:

xxx xxx xxx

(a) Where a mistake or imperfection of the writing or its failure to

express the true intent and agreement of the parties, or the validity
of the agreement is put in issue by the pleadings;17

xxx xxx xxx

Moreover, it is a well entrenched principle in the interpretation of contracts that if the terms
thereof are clear and leave no doubt as to the intention of the contracting parties the literal
meaning of the stipulation shall control but when the words appear to be contrary to the evident
intention of the parties, the latter shall prevail over the former.18

The admission of parol testimony to prove that a deed, absolute in form, was in fact given and
accepted as a mortgage does not violate the rule against the admission of oral evidence to vary or
contradict the terms of a written instrument.19 Sales with a right to repurchase, as defined by the
Civil Code, are not favored. We will not construe instruments to be sales with a right to
repurchase, with the stringent and onerous effects which follow, unless the terms of the
document and the surrounding circumstances require it. Whenever, under the terms of the
writing, any other construction can fairly and reasonably be made, such construction will be
adopted and the contract will be construed as a mere loan unless the court can see that, if
enforced according to its terms, it is not an unconscionable one. 20

On the faces thereof, the contracts purport to be sales with pacto de retro; however, since the
same were actually executed in consideration of the aforesaid loans said contracts are indubitably
equitable mortgages. The rule is firmly settled that whenever it is clearly shown that a deed of
sale with pacto de retro, regular on its face, is given as security for a loan, it must be regarded as
an equitable mortgage. 21
With respect to the orders dated January 22, 1960 and April 18, 1960, issued by the Court below
acting as a probate court and cadastral court, respectively, the same could not preclude the
institution of the case now under review.

A reading of the order of the probate court will show that it is merely an approval of the deed of
conditional sale dated May 27, 1959 executed by petitioner Adelaida Ramos in favor of
petitioners. There is nothing in said order providing for the consolidation of ownership over the
lots allegedly sold to petitioners nor was the issue of the validity of said contract discussed or
resolved therein. "To give approval" means in its essential and most obvious meaning, to
confirm, ratify, sanction or consent to some act or thing done by another. 22 The approval of the
probate court of the conditional sale is not a conclusive determination of the intrinsic or extrinsic
validity of the contract but a mere recognition of the right of private respondent Adelaida Ramos
as an heir, to dispose of her rights and interests over her inheritance even before partition. 23 As
held in Duran, et al., vs. Duran 24 the approval by the settlement court of the assignment
pendente lite, made by one heir in favor of the other during the course of the settlement
proceedings, is not deemed final until the estate is closed and said order can still be vacated,
hence the assigning heir remains an interested person in the proceeding even after said approval.

Moreover, the probate jurisdiction of the former court of first instance or the present regional
trial court relates only to matters having to do with the settlement of the estate and probate of
wills of deceased persons, and the appointment and removal of administrators, executors,
guardians and trustees. Subject to settled exceptions not present in this case, the law does not
extend the jurisdiction of a probate court to the determination of questions of ownership that
arise during the proceeding. The parties concerned may choose to bring a separate action as a
matter of convenience in the preparation or presentation of evidence. 25 Obviously, the approval
by the probate court of the conditional sale was without prejudice to the filing of the proper
action for consolidation of ownership and/or reformation of instrument in the proper court within
the statutory period of prescription.

The same jurisdictional flaw obtains in the order of consolidation issued by the cadastral court.
The court of first instance or the regional trial court, acting as cadastral court, acts with limited
competence. It has no jurisdiction to take cognizance of an action for consolidation of ownership,
much less to issue an order to that effect, such action must have been filed in the former court of
first instance, now in the regional trial court, in the exercise of its general jurisdiction. That
remedy, and the procedure therefor, is now governed by Rule 64 of the Rules of Court as a
special civil action cognizable by the regional trial court in the exercise of original general
jurisdiction.

Antecedent thereto, Article 1607 of the Civil Code provided for consolidation as follows:

In case of real property, the consolidation of ownership in the vendee by virtue of

the failure of the vendor to comply with the provisions of article 1616 shall not be
recorded in the Registry of Property without a judicial order, after the vendor has
been duly heard.
Hence in Crisologo, et al. vs. Centeno, et al., 26 we ruled that said Article 1607 contemplates a
contentious proceeding wherein the vendor a retro must be named respondent in the caption and
title of the petition for consolidation of ownership and duly summoned and heard. An order
granting the vendee's petition for consolidation of ownership, without the vendor a retro being
named as respondent, summoned and heard, is a patent nullity for want of jurisdiction of the
court over the person of the latter.

The questioned order of consolidation issued by the cadastral court, being void for lack of
jurisdiction, is in contemplation of law non-existent and may be wholly disregarded. Such
judgment may be assailed any time, either directly or collaterally, by means of a separate action
or by resisting such judgment in any action or proceeding whenever it is invoked. 27 It is not
necessary to take any step to vacate or avoid a void judgment; it may simply be ignored. 28

On the issue of prescription, in addition to what has been said, the present case, having been filed
on February 28, 1960, approximately seven (7) years from the execution of the questioned deeds,
was seasonably instituted. The prescriptive period for actions based upon a written contract and
for reformation is ten (10) years under Article 1144 of the Civil Code. Such right to reformation
is expressly recognized in Article 1365 of the same code. 29

Article 1602 of the Civil Code is designed primarily to curtail the evils brought about by
contracts of sale with right of repurchase, such as the circumvention of the laws against usury
and pactum commissorium.30 In the present case before us, to rule otherwise would contravene
the legislative intent to accord the vendor a retro maximum safeguards for the protection of his
legal rights under the true agreement of the parties. The judicial experience in cases of this nature
and the rationale for the remedial legislation are worth reiterating, considering that such
nefarious practices still persist:

It must be admitted that there are some cases where the parties really intend a sale
with right to repurchase. Although such cases are rare, still the freedom of
contract must be maintained and respected. Therefore, the contract under
consideration is preserved, but with adequate safeguards and restrictions.

One of the gravest problems that must be solved is that raised by the contract of
sale with right of repurchase or pacto de retro. The evils arising from this contract
have festered like a sore on the body politic. ...

xxx xxx xxx

It is a matter of common knowledge that in practically all of the so-called

contracts of sale with right of repurchase, the real intention of the parties is that
the pretended purchase-price is money loaned, and in order to secure the payment
of the loan a contract purporting to be a sale with pacto de retro is drawn up. It is
thus that the provisions contained in articles 1859 and 1858 of the present Civil
Code which respectively prohibit the creditor from appropriating the things given
in pledge or mortgage and ordering that said things be sold or alienated when the
principal obligation becomes due, are circumvented.
 Furthermore, it is well-known that the practice in these so-called contracts of sale
with pacto de retro is to draw up another contract purporting to be a lease of the
property to the supposed vendor, who pays in money or in crops a so-called rent.
It is, however, no secret to anyone that this simulated rent is in truth and in fact
interest on the money loaned. In many instances, the interest is usurious. Thus, the
usury law is also circumvented.

It is high time these transgressions of the law were stopped. It is believed by the
Commission that the plan submitted for the solution of the problem will meet with
the approval of an enlightened public opinion, and in general, of everyone moved
by a sense of justice.

During the deliberations of the Commission the question arose as to whether the
contract of purchase with pacto de retro should be abolished and forbidden. On
first impression, this should be done, but there is every reason to fear that in such
a case the usurious money-lenders would demand of the borrowers that, although
the real agreement is one of loan secured with a mortgage, the instrument to be
signed should purport to be an absolute sale of the property involved. Should this
happen, the problem would become aggravated. Moreover, it must be admitted
that there are some cases where the parties really intend a sale with right to
repurchase. Although such cases are rare, still the freedom of contract must be
maintained and respected. Therefore, the contract under consideration is
preserved in the Project of Civil Code, but with adequate safeguards and
restrictions. 31

WHEREFORE, the instant petition is hereby DENIED and the assailed decision of the Court of
Appeals is hereby AFFIRMED.

SO ORDERED.

BOSTON BANK OF THE PHILIPPINES, (formerly BANK OF COMMERCE), Petitioner,

vs.
PERLA P. MANALO and CARLOS MANALO, JR., Respondents.

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari of the Decision1 of the Court of Appeals (CA) in
CA-G.R. CV No. 47458 affirming, on appeal, the Decision2 of the Regional Trial Court (RTC)
of Quezon City, Branch 98, in Civil Case No. Q-89-3905.

The Antecedents
The Xavierville Estate, Inc. (XEI) was the owner of parcels of land in Quezon City, known as the
Xavierville Estate Subdivision, with an area of 42 hectares. XEI caused the subdivision of the
property into residential lots, which was then offered for sale to individual lot buyers.3

On September 8, 1967, XEI, through its General Manager, Antonio Ramos, as vendor, and The
Overseas Bank of Manila (OBM), as vendee, executed a "Deed of Sale of Real Estate" over
some residential lots in the subdivision, including Lot 1, Block 2, with an area of 907.5 square
meters, and Lot 2, Block 2, with an area of 832.80 square meters. The transaction was subject to
the approval of the Board of Directors of OBM, and was covered by real estate mortgages in
favor of the Philippine National Bank as security for its account amounting to ₱5,187,000.00,
and the Central Bank of the Philippines as security for advances amounting to
₱22,185,193.74.4 Nevertheless, XEI continued selling the residential lots in the subdivision as
agent of OBM.5

Sometime in 1972, then XEI president Emerito Ramos, Jr. contracted the services of Engr.
Carlos Manalo, Jr. who was in business of drilling deep water wells and installing pumps under
the business name Hurricane Commercial, Inc. For ₱34,887.66, Manalo, Jr. installed a water
pump at Ramos’ residence at the corner of Aurora Boulevard and Katipunan Avenue, Quezon
City. Manalo, Jr. then proposed to XEI, through Ramos, to purchase a lot in the Xavierville
subdivision, and offered as part of the downpayment the ₱34,887.66 Ramos owed him. XEI,
through Ramos, agreed. In a letter dated February 8, 1972, Ramos requested Manalo, Jr. to
choose which lots he wanted to buy so that the price of the lots and the terms of payment could
be fixed and incorporated in the conditional sale. 6 Manalo, Jr. met with Ramos and informed him
that he and his wife Perla had chosen Lots 1 and 2 of Block 2 with a total area of 1,740.3 square
meters.

In a letter dated August 22, 1972 to Perla Manalo, Ramos confirmed the reservation of the lots.
He also pegged the price of the lots at ₱200.00 per square meter, or a total of ₱348,060.00, with a
20% down payment of the purchase price amounting to ₱69,612.00 less the ₱34,887.66 owing
from Ramos, payable on or before December 31, 1972; the corresponding Contract of
Conditional Sale would then be signed on or before the same date, but if the selling operations of
XEI resumed after December 31, 1972, the balance of the downpayment would fall due then, and
the spouses would sign the aforesaid contract within five (5) days from receipt of the notice of
resumption of such selling operations. It was also stated in the letter that, in the meantime, the
spouses may introduce improvements thereon subject to the rules and regulations imposed by
XEI in the subdivision. Perla Manalo conformed to the letter agreement.7

The spouses Manalo took possession of the property on September 2, 1972, constructed a house
thereon, and installed a fence around the perimeter of the lots.

In the meantime, many of the lot buyers refused to pay their monthly installments until they were
assured that they would be issued Torrens titles over the lots they had purchased.8 The spouses
Manalo were notified of the resumption of the selling operations of XEI.9 However, they did not
pay the balance of the downpayment on the lots because Ramos failed to prepare a contract of
conditional sale and transmit the same to Manalo for their signature. On August 14, 1973, Perla
Manalo went to the XEI office and requested that the payment of the amount representing the
balance of the downpayment be deferred, which, however, XEI rejected. On August 10, 1973,
XEI furnished her with a statement of their account as of July 31, 1973, showing that they had a
balance of ₱34,724.34 on the downpayment of the two lots after deducting the account of
Ramos, plus ₱3,819.6810 interest thereon from September 1, 1972 to July 31, 1973, and that the
interests on the unpaid balance of the purchase price of ₱278,448.00 from September 1, 1972 to
July 31, 1973 amounted to ₱30,629.28.11 The spouses were informed that they were being billed
for said unpaid interests.12

On January 25, 1974, the spouses Manalo received another statement of account from XEI,
inclusive of interests on the purchase price of the lots.13 In a letter dated April 6, 1974 to XEI,
Manalo, Jr. stated they had not yet received the notice of resumption of Lei’s selling operations,
and that there had been no arrangement on the payment of interests; hence, they should not be
charged with interest on the balance of the downpayment on the property.14 Further, they
demanded that a deed of conditional sale over the two lots be transmitted to them for their
signatures. However, XEI ignored the demands. Consequently, the spouses refused to pay the
balance of the downpayment of the purchase price.15

Sometime in June 1976, Manalo, Jr. constructed a business sign in the sidewalk near his house.
In a letter dated June 17, 1976, XEI informed Manalo, Jr. that business signs were not allowed
along the sidewalk. It demanded that he remove the same, on the ground, among others, that the
sidewalk was not part of the land which he had purchased on installment basis from
XEI.16 Manalo, Jr. did not respond. XEI reiterated its demand on September 15, 1977.17

Subsequently, XEI turned over its selling operations to OBM, including the receivables for lots
already contracted and those yet to be sold.18 On December 8, 1977, OBM warned Manalo, Jr.,
that "putting up of a business sign is specifically prohibited by their contract of conditional sale"
and that his failure to comply with its demand would impel it to avail of the remedies as provided
in their contract of conditional sale.19

Meanwhile, on December 5, 1979, the Register of Deeds issued Transfer Certificate of Title
(TCT) No. T-265822 over Lot 1, Block 2, and TCT No. T-265823 over Lot 2, Block 2, in favor
of the OBM.20 The lien in favor of the Central Bank of the Philippines was annotated at the
dorsal portion of said title, which was later cancelled on August 4, 1980.21

Subsequently, the Commercial Bank of Manila (CBM) acquired the Xavierville Estate from
OBM. CBM wrote Edilberto Ng, the president of Xavierville Homeowners Association that, as
of January 31, 1983, Manalo, Jr. was one of the lot buyers in the subdivision. 22 CBM reiterated in
its letter to Ng that, as of January 24, 1984, Manalo was a homeowner in the subdivision.23

In a letter dated August 5, 1986, the CBM requested Perla Manalo to stop any on-going
construction on the property since it (CBM) was the owner of the lot and she had no permission
for such construction.24 She agreed to have a conference meeting with CBM officers where she
informed them that her husband had a contract with OBM, through XEI, to purchase the
property. When asked to prove her claim, she promised to send the documents to CBM.
However, she failed to do so.25 On September 5, 1986, CBM reiterated its demand that it be
furnished with the documents promised,26 but Perla Manalo did not respond.
On July 27, 1987, CBM filed a complaint 27 for unlawful detainer against the spouses with the
Metropolitan Trial Court of Quezon City. The case was docketed as Civil Case No. 51618. CBM
claimed that the spouses had been unlawfully occupying the property without its consent and that
despite its demands, they refused to vacate the property. The latter alleged that they, as vendors,
and XEI, as vendee, had a contract of sale over the lots which had not yet been rescinded.28

While the case was pending, the spouses Manalo wrote CBM to offer an amicable settlement,
promising to abide by the purchase price of the property (₱313,172.34), per agreement with XEI,
through Ramos. However, on July 28, 1988, CBM wrote the spouses, through counsel, proposing
that the price of ₱1,500.00 per square meter of the property was a reasonable starting point for
negotiation of the settlement.29 The spouses rejected the counter proposal,30 emphasizing that
they would abide by their original agreement with XEI. CBM moved to withdraw its
complaint31 because of the issues raised.32

In the meantime, the CBM was renamed the Boston Bank of the Philippines. After CBM filed its
complaint against the spouses Manalo, the latter filed a complaint for specific performance and
damages against the bank before the Regional Trial Court (RTC) of Quezon City on October 31,
1989.

The plaintiffs alleged therein that they had always been ready, able and willing to pay the
installments on the lots sold to them by the defendant’s remote predecessor-in-interest, as might
be or stipulated in the contract of sale, but no contract was forthcoming; they constructed their
house worth ₱2,000,000.00 on the property in good faith; Manalo, Jr., informed the defendant,
through its counsel, on October 15, 1988 that he would abide by the terms and conditions of his
original agreement with the defendant’s predecessor-in-interest; during the hearing of the
ejectment case on October 16, 1988, they offered to pay ₱313,172.34 representing the balance on
the purchase price of said lots; such tender of payment was rejected, so that the subject lots could
be sold at considerably higher prices to third parties.

Plaintiffs further alleged that upon payment of the ₱313,172.34, they were entitled to the
execution and delivery of a Deed of Absolute Sale covering the subject lots, sufficient in form
and substance to transfer title thereto free and clear of any and all liens and encumbrances of
whatever kind and nature.33 The plaintiffs prayed that, after due hearing, judgment be rendered in
their favor, to wit:

WHEREFORE, it is respectfully prayed that after due hearing:

(a) The defendant should be ordered to execute and deliver a Deed of Absolute Sale over
subject lots in favor of the plaintiffs after payment of the sum of ₱313,172.34, sufficient
in form and substance to transfer to them titles thereto free and clear of any and all liens
and encumbrances of whatever kind or nature;

(b) The defendant should be held liable for moral and exemplary damages in the amounts
of ₱300,000.00 and ₱30,000.00, respectively, for not promptly executing and delivering
to plaintiff the necessary Contract of Sale, notwithstanding repeated demands therefor
and for having been constrained to engage the services of undersigned counsel for which
 they agreed to pay attorney’s fees in the sum of ₱50,000.00 to enforce their rights in the
premises and appearance fee of ₱500.00;

(c) And for such other and further relief as may be just and equitable in the premises.34

In its Answer to the complaint, the defendant interposed the following affirmative defenses: (a)
plaintiffs had no cause of action against it because the August 22, 1972 letter agreement between
XEI and the plaintiffs was not binding on it; and (b) "it had no record of any contract to sell
executed by it or its predecessor, or of any statement of accounts from its predecessors, or
records of payments of the plaintiffs or of any documents which entitled them to the possession
of the lots."35 The defendant, likewise, interposed counterclaims for damages and attorney’s fees
and prayed for the eviction of the plaintiffs from the property.36

Meanwhile, in a letter dated January 25, 1993, plaintiffs, through counsel, proposed an amicable
settlement of the case by paying ₱942,648.70, representing the balance of the purchase price of
the two lots based on the current market value.37 However, the defendant rejected the same and
insisted that for the smaller lot, they pay ₱4,500,000.00, the current market value of the
property.38 The defendant insisted that it owned the property since there was no contract or
agreement between it and the plaintiffs’ relative thereto.

During the trial, the plaintiffs adduced in evidence the separate Contracts of Conditional Sale
executed between XEI and Alberto Soller;39 Alfredo Aguila,40 and Dra. Elena Santos-Roque41 to
prove that XEI continued selling residential lots in the subdivision as agent of OBM after the
latter had acquired the said lots.

For its part, defendant presented in evidence the letter dated August 22, 1972, where XEI
proposed to sell the two lots subject to two suspensive conditions: the payment of the balance of
the downpayment of the property, and the execution of the corresponding contract of conditional
sale. Since plaintiffs failed to pay, OBM consequently refused to execute the corresponding
contract of conditional sale and forfeited the ₱34,877.66 downpayment for the two lots, but did
not notify them of said forfeiture.42 It alleged that OBM considered the lots unsold because the
titles thereto bore no annotation that they had been sold under a contract of conditional sale, and
the plaintiffs were not notified of XEI’s resumption of its selling operations.

On May 2, 1994, the RTC rendered judgment in favor of the plaintiffs and against the defendant.
The fallo of the decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant
–

(a) Ordering the latter to execute and deliver a Deed of Absolute Sale over Lot 1 and 2,
Block 2 of the Xavierville Estate Subdivision after payment of the sum of ₱942,978.70
sufficient in form and substance to transfer to them titles thereto free from any and all
liens and encumbrances of whatever kind and nature.
 (b) Ordering the defendant to pay moral and exemplary damages in the amount of
₱150,000.00; and

(c) To pay attorney’s fees in the sum of ₱50,000.00 and to pay the costs.

SO ORDERED.43

The trial court ruled that under the August 22, 1972 letter agreement of XEI and the plaintiffs,
the parties had a "complete contract to sell" over the lots, and that they had already partially
consummated the same. It declared that the failure of the defendant to notify the plaintiffs of the
resumption of its selling operations and to execute a deed of conditional sale did not prevent the
defendant’s obligation to convey titles to the lots from acquiring binding effect. Consequently,
the plaintiffs had a cause of action to compel the defendant to execute a deed of sale over the lots
in their favor.

Boston Bank appealed the decision to the CA, alleging that the lower court erred in (a) not
concluding that the letter of XEI to the spouses Manalo, was at most a mere contract to sell
subject to suspensive conditions, i.e., the payment of the balance of the downpayment on the
property and the execution of a deed of conditional sale (which were not complied with); and (b)
in awarding moral and exemplary damages to the spouses Manalo despite the absence of
testimony providing facts to justify such awards.44

On September 30, 2002, the CA rendered a decision affirming that of the RTC with
modification. The fallo reads:

WHEREFORE, the appealed decision is AFFIRMED with MODIFICATIONS that (a) the figure
"₱942,978.70" appearing [in] par. (a) of the dispositive portion thereof is changed to
"₱313,172.34 plus interest thereon at the rate of 12% per annum from September 1, 1972 until
fully paid" and (b) the award of moral and exemplary damages and attorney’s fees in favor of
plaintiffs-appellees is DELETED.

SO ORDERED.45

The appellate court sustained the ruling of the RTC that the appellant and the appellees had
executed a Contract to Sell over the two lots but declared that the balance of the purchase price
of the property amounting to ₱278,448.00 was payable in fixed amounts, inclusive of pre-
computed interests, from delivery of the possession of the property to the appellees on a monthly
basis for 120 months, based on the deeds of conditional sale executed by XEI in favor of other
lot buyers.46 The CA also declared that, while XEI must have resumed its selling operations
before the end of 1972 and the downpayment on the property remained unpaid as of December
31, 1972, absent a written notice of cancellation of the contract to sell from the bank or notarial
demand therefor as required by Republic Act No. 6552, the spouses had, at the very least, a 60-
day grace period from January 1, 1973 within which to pay the same.

Boston Bank filed a motion for the reconsideration of the decision alleging that there was no
perfected contract to sell the two lots, as there was no agreement between XEI and the
respondents on the manner of payment as well as the other terms and conditions of the sale. It
further averred that its claim for recovery of possession of the aforesaid lots in its Memorandum
dated February 28, 1994 filed before the trial court constituted a judicial demand for rescission
that satisfied the requirements of the New Civil Code. However, the appellate court denied the
motion.

Boston Bank, now petitioner, filed the instant petition for review on certiorari assailing the CA
rulings. It maintains that, as held by the CA, the records do not reflect any schedule of payment
of the 80% balance of the purchase price, or ₱278,448.00. Petitioner insists that unless the parties
had agreed on the manner of payment of the principal amount, including the other terms and
conditions of the contract, there would be no existing contract of sale or contract to
sell.47 Petitioner avers that the letter agreement to respondent spouses dated August 22, 1972
merely confirmed their reservation for the purchase of Lot Nos. 1 and 2, consisting of 1,740.3
square meters, more or less, at the price of ₱200.00 per square meter (or ₱348,060.00), the
amount of the downpayment thereon and the application of the ₱34,887.00 due from Ramos as
part of such downpayment.

Petitioner asserts that there is no factual basis for the CA ruling that the terms and conditions
relating to the payment of the balance of the purchase price of the property (as agreed upon by
XEI and other lot buyers in the same subdivision) were also applicable to the contract entered
into between the petitioner and the Respondents. It insists that such a ruling is contrary to law, as
it is tantamount to compelling the parties to agree to something that was not even discussed, thus,
violating their freedom to contract. Besides, the situation of the respondents cannot be equated
with those of the other lot buyers, as, for one thing, the respondents made a partial payment on
the downpayment for the two lots even before the execution of any contract of conditional sale.

Petitioner posits that, even on the assumption that there was a perfected contract to sell between
the parties, nevertheless, it cannot be compelled to convey the property to the respondents
because the latter failed to pay the balance of the downpayment of the property, as well as the
balance of 80% of the purchase price, thus resulting in the extinction of its obligation to convey
title to the lots to the Respondents.

Another egregious error of the CA, petitioner avers, is the application of Republic Act No. 6552.
It insists that such law applies only to a perfected agreement or perfected contract to sell, not in
this case where the downpayment on the purchase price of the property was not completely paid,
and no installment payments were made by the buyers.

Petitioner also faults the CA for declaring that petitioner failed to serve a notice on the
respondents of cancellation or rescission of the contract to sell, or notarial demand therefor.
Petitioner insists that its August 5, 1986 letter requiring respondents to vacate the property and
its complaint for ejectment in Civil Case No. 51618 filed in the Metropolitan Trial Court
amounted to the requisite demand for a rescission of the contract to sell. Moreover, the action of
the respondents below was barred by laches because despite demands, they failed to pay the
balance of the purchase price of the lots (let alone the downpayment) for a considerable number
of years.
For their part, respondents assert that as long as there is a meeting of the minds of the parties to a
contract of sale as to the price, the contract is valid despite the parties’ failure to agree on the
manner of payment. In such a situation, the balance of the purchase price would be payable on
demand, conformably to Article 1169 of the New Civil Code. They insist that the law does not
require a party to agree on the manner of payment of the purchase price as a prerequisite to a
valid contract to sell. The respondents cite the ruling of this Court in Buenaventura v. Court of
Appeals48 to support their submission.

They argue that even if the manner and timeline for the payment of the balance of the purchase
price of the property is an essential requisite of a contract to sell, nevertheless, as shown by their
letter agreement of August 22, 1972 with the OBM, through XEI and the other letters to them, an
agreement was reached as to the manner of payment of the balance of the purchase price. They
point out that such letters referred to the terms of the terms of the deeds of conditional sale
executed by XEI in favor of the other lot buyers in the subdivision, which contained uniform
terms of 120 equal monthly installments (excluding the downpayment, but inclusive of pre-
computed interests). The respondents assert that XEI was a real estate broker and knew that the
contracts involving residential lots in the subdivision contained uniform terms as to the manner
and timeline of the payment of the purchase price of said lots.

Respondents further posit that the terms and conditions to be incorporated in the "corresponding
contract of conditional sale" to be executed by the parties would be the same as those contained
in the contracts of conditional sale executed by lot buyers in the subdivision. After all, they
maintain, the contents of the corresponding contract of conditional sale referred to in the August
22, 1972 letter agreement envisaged those contained in the contracts of conditional sale that XEI
and other lot buyers executed. Respondents cite the ruling of this Court in Mitsui Bussan Kaisha
v. Manila E.R.R. & L. Co.49

The respondents aver that the issues raised by the petitioner are factual, inappropriate in a
petition for review on certiorari under Rule 45 of the Rules of Court. They assert that petitioner
adopted a theory in litigating the case in the trial court, but changed the same on appeal before
the CA, and again in this Court. They argue that the petitioner is estopped from adopting a new
theory contrary to those it had adopted in the trial and appellate courts. Moreover, the existence
of a contract of conditional sale was admitted in the letters of XEI and OBM. They aver that they
became owners of the lots upon delivery to them by XEI.

The issues for resolution are the following: (1) whether the factual issues raised by the petitioner
are proper; (2) whether petitioner or its predecessors-in-interest, the XEI or the OBM, as seller,
and the respondents, as buyers, forged a perfect contract to sell over the property; (3) whether
petitioner is estopped from contending that no such contract was forged by the parties; and (4)
whether respondents has a cause of action against the petitioner for specific performance.

The rule is that before this Court, only legal issues may be raised in a petition for review on
certiorari. The reason is that this Court is not a trier of facts, and is not to review and calibrate the
evidence on record. Moreover, the findings of facts of the trial court, as affirmed on appeal by
the Court of Appeals, are conclusive on this Court unless the case falls under any of the
following exceptions:
(1) when the conclusion is a finding grounded entirely on speculations, surmises and conjectures;
(2) when the inference made is manifestly mistaken, absurd or impossible; (3) where there is a
grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5)
when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings
went beyond the issues of the case and the same is contrary to the admissions of both appellant
and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings
of fact are conclusions without citation of specific evidence on which they are based; (9) when
the facts set forth in the petition as well as in the petitioners’ main and reply briefs are not
disputed by the respondents; and (10) when the findings of fact of the Court of Appeals are
premised on the supposed absence of evidence and contradicted by the evidence on record.50

We have reviewed the records and we find that, indeed, the ruling of the appellate court
dismissing petitioner’s appeal is contrary to law and is not supported by evidence. A careful
examination of the factual backdrop of the case, as well as the antecedental proceedings
constrains us to hold that petitioner is not barred from asserting that XEI or OBM, on one hand,
and the respondents, on the other, failed to forge a perfected contract to sell the subject lots.

It must be stressed that the Court may consider an issue not raised during the trial when there is
plain error.51 Although a factual issue was not raised in the trial court, such issue may still be
considered and resolved by the Court in the interest of substantial justice, if it finds that to do so
is necessary to arrive at a just decision,52 or when an issue is closely related to an issue raised in
the trial court and the Court of Appeals and is necessary for a just and complete resolution of the
case.53 When the trial court decides a case in favor of a party on certain grounds, the Court may
base its decision upon some other points, which the trial court or appellate court ignored or
erroneously decided in favor of a party.54

In this case, the issue of whether XEI had agreed to allow the respondents to pay the purchase
price of the property was raised by the parties. The trial court ruled that the parties had perfected
a contract to sell, as against petitioner’s claim that no such contract existed. However, in
resolving the issue of whether the petitioner was obliged to sell the property to the respondents,
while the CA declared that XEI or OBM and the respondents failed to agree on the schedule of
payment of the balance of the purchase price of the property, it ruled that XEI and the
respondents had forged a contract to sell; hence, petitioner is entitled to ventilate the issue before
this Court.

We agree with petitioner’s contention that, for a perfected contract of sale or contract to sell to
exist in law, there must be an agreement of the parties, not only on the price of the property sold,
but also on the manner the price is to be paid by the vendee.

Under Article 1458 of the New Civil Code, in a contract of sale, whether absolute or conditional,
one of the contracting parties obliges himself to transfer the ownership of and deliver a
determinate thing, and the other to pay therefor a price certain in money or its equivalent. A
contract of sale is perfected at the moment there is a meeting of the minds upon the thing which
is the object of the contract and the price. From the averment of perfection, the parties are bound,
not only to the fulfillment of what has been expressly stipulated, but also to all the consequences
which, according to their nature, may be in keeping with good faith, usage and law. 55 On the
other hand, when the contract of sale or to sell is not perfected, it cannot, as an independent
source of obligation, serve as a binding juridical relation between the parties.56

A definite agreement as to the price is an essential element of a binding agreement to sell

personal or real property because it seriously affects the rights and obligations of the parties.
Price is an essential element in the formation of a binding and enforceable contract of sale. The
fixing of the price can never be left to the decision of one of the contracting parties. But a price
fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale.57

It is not enough for the parties to agree on the price of the property. The parties must also agree
on the manner of payment of the price of the property to give rise to a binding and enforceable
contract of sale or contract to sell. This is so because the agreement as to the manner of payment
goes into the price, such that a disagreement on the manner of payment is tantamount to a failure
to agree on the price.58

In a contract to sell property by installments, it is not enough that the parties agree on the price as
well as the amount of downpayment. The parties must, likewise, agree on the manner of payment
of the balance of the purchase price and on the other terms and conditions relative to the sale.
Even if the buyer makes a downpayment or portion thereof, such payment cannot be considered
as sufficient proof of the perfection of any purchase and sale between the parties. Indeed, this
Court ruled in Velasco v. Court of Appeals59 that:

It is not difficult to glean from the aforequoted averments that the petitioners themselves admit
that they and the respondent still had to meet and agree on how and when the down-payment and
the installment payments were to be paid. Such being the situation, it cannot, therefore, be said
that a definite and firm sales agreement between the parties had been perfected over the lot in
question. Indeed, this Court has already ruled before that a definite agreement on the manner of
payment of the purchase price is an essential element in the formation of a binding and
enforceable contract of sale. The fact, therefore, that the petitioners delivered to the respondent
the sum of ₱10,000.00 as part of the downpayment that they had to pay cannot be considered as
sufficient proof of the perfection of any purchase and sale agreement between the parties herein
under article 1482 of the New Civil Code, as the petitioners themselves admit that some essential
matter – the terms of payment – still had to be mutually covenanted.60

We agree with the contention of the petitioner that, as held by the CA, there is no showing, in the
records, of the schedule of payment of the balance of the purchase price on the property
amounting to ₱278,448.00. We have meticulously reviewed the records, including Ramos’
February 8, 1972 and August 22, 1972 letters to respondents,61 and find that said parties confined
themselves to agreeing on the price of the property (₱348,060.00), the 20% downpayment of the
purchase price (₱69,612.00), and credited respondents for the ₱34,887.00 owing from Ramos as
part of the 20% downpayment. The timeline for the payment of the balance of the downpayment
(₱34,724.34) was also agreed upon, that is, on or before XEI resumed its selling operations, on
or before December 31, 1972, or within five (5) days from written notice of such resumption of
selling operations. The parties had also agreed to incorporate all the terms and conditions relating
to the sale, inclusive of the terms of payment of the balance of the purchase price and the other
substantial terms and conditions in the "corresponding contract of conditional sale," to be later
signed by the parties, simultaneously with respondents’ settlement of the balance of the
downpayment.

The February 8, 1972 letter of XEI reads:

Mr. Carlos T. Manalo, Jr.

Hurricane Rotary Well Drilling
Rizal Avenue Ext.,Caloocan City

Dear Mr. Manalo:

We agree with your verbal offer to exchange the proceeds of your contract with us to form as a
down payment for a lot in our Xavierville Estate Subdivision.

Please let us know your choice lot so that we can fix the price and terms of payment in
our conditional sale.

Sincerely yours,

XAVIERVILLE ESTATE, INC.

(Signed)
EMERITO B. RAMOS, JR.
President

CONFORME:

(Signed)
CARLOS T. MANALO, JR.
62
Hurricane Rotary Well Drilling

The August 22, 1972 letter agreement of XEI and the respondents reads:

Mrs. Perla P. Manalo

1548 Rizal Avenue Extensionbr>Caloocan City

Dear Mrs. Manalo:

This is to confirm your reservation of Lot Nos. 1 and 2; Block 2 of our consolidation-subdivision
plan as amended, consisting of 1,740.3 square meters more or less, at the price of ₱200.00 per
square meter or a total price of ₱348,060.00.

It is agreed that as soon as we resume selling operations, you must pay a down payment of 20%
of the purchase price of the said lots and sign the corresponding Contract of Conditional Sale, on
or before December 31, 1972, provided, however, that if we resume selling after December 31,
1972, then you must pay the aforementioned down payment and sign the aforesaid
contract within five (5) days from your receipt of our notice of resumption of selling operations.

In the meanwhile, you may introduce such improvements on the said lots as you may desire,
subject to the rules and regulations of the subdivision.

If the above terms and conditions are acceptable to you, please signify your conformity by
signing on the space herein below provided.

Thank you.

Very truly yours,

XAVIERVILLE ESTATE, INC. CONFORME:

By:

(Signed) (Signed)
EMERITO B. RAMOS, JR. PERLA P. MANALO

President Buyer63

Based on these two letters, the determination of the terms of payment of the ₱278,448.00 had yet
to be agreed upon on or before December 31, 1972, or even afterwards, when the parties sign the
corresponding contract of conditional sale.

Jurisprudence is that if a material element of a contemplated contract is left for future

negotiations, the same is too indefinite to be enforceable.64 And when an essential element of a
contract is reserved for future agreement of the parties, no legal obligation arises until such
future agreement is concluded.65

So long as an essential element entering into the proposed obligation of either of the parties
remains to be determined by an agreement which they are to make, the contract is incomplete
and unenforceable.66 The reason is that such a contract is lacking in the necessary qualities of
definiteness, certainty and mutuality.67

There is no evidence on record to prove that XEI or OBM and the respondents had agreed, after
December 31, 1972, on the terms of payment of the balance of the purchase price of the property
and the other substantial terms and conditions relative to the sale. Indeed, the parties are in
agreement that there had been no contract of conditional sale ever executed by XEI, OBM or
petitioner, as vendor, and the respondents, as vendees.68

The ruling of this Court in Buenaventura v. Court of Appeals has no bearing in this case because
the issue of the manner of payment of the purchase price of the property was not raised therein.
We reject the submission of respondents that they and Ramos had intended to incorporate the
terms of payment contained in the three contracts of conditional sale executed by XEI and other
lot buyers in the "corresponding contract of conditional sale," which would later be signed by
them.69 We have meticulously reviewed the respondents’ complaint and find no such allegation
therein.70 Indeed, respondents merely alleged in their complaint that they were bound to pay the
balance of the purchase price of the property "in installments." When respondent Manalo, Jr.
testified, he was never asked, on direct examination or even on cross-examination, whether the
terms of payment of the balance of the purchase price of the lots under the contracts of
conditional sale executed by XEI and other lot buyers would form part of the "corresponding
contract of conditional sale" to be signed by them simultaneously with the payment of the
balance of the downpayment on the purchase price.

We note that, in its letter to the respondents dated June 17, 1976, or almost three years from the
execution by the parties of their August 22, 1972 letter agreement, XEI stated, in part, that
respondents had purchased the property "on installment basis."71 However, in the said letter, XEI
failed to state a specific amount for each installment, and whether such payments were to be
made monthly, semi-annually, or annually. Also, respondents, as plaintiffs below, failed to
adduce a shred of evidence to prove that they were obliged to pay the ₱278,448.00 monthly,
semi-annually or annually. The allegation that the payment of the ₱278,448.00 was to be paid in
installments is, thus, vague and indefinite. Case law is that, for a contract to be enforceable, its
terms must be certain and explicit, not vague or indefinite.72

There is no factual and legal basis for the CA ruling that, based on the terms of payment of the
balance of the purchase price of the lots under the contracts of conditional sale executed by XEI
and the other lot buyers, respondents were obliged to pay the ₱278,448.00 with pre-computed
interest of 12% per annum in 120-month installments. As gleaned from the ruling of the
appellate court, it failed to justify its use of the terms of payment under the three "contracts of
conditional sale" as basis for such ruling, to wit:

On the other hand, the records do not disclose the schedule of payment of the purchase price, net
of the downpayment. Considering, however, the Contracts of Conditional Sale (Exhs. "N," "O"
and "P") entered into by XEI with other lot buyers, it would appear that the subdivision lots sold
by XEI, under contracts to sell, were payable in 120 equal monthly installments (exclusive of the
downpayment but including pre-computed interests) commencing on delivery of the lot to the
buyer.73

By its ruling, the CA unilaterally supplied an essential element to the letter agreement of XEI
and the Respondents. Courts should not undertake to make a contract for the parties, nor can it
enforce one, the terms of which are in doubt.74 Indeed, the Court emphasized in Chua v. Court of
Appeals75 that it is not the province of a court to alter a contract by construction or to make a new
contract for the parties; its duty is confined to the interpretation of the one which they have made
for themselves, without regard to its wisdom or folly, as the court cannot supply material
stipulations or read into contract words which it does not contain.

Respondents, as plaintiffs below, failed to allege in their complaint that the terms of payment of
the ₱278,448.00 to be incorporated in the "corresponding contract of conditional sale" were those
contained in the contracts of conditional sale executed by XEI and Soller, Aguila and
Roque.76 They likewise failed to prove such allegation in this Court.

The bare fact that other lot buyers were allowed to pay the balance of the purchase price of lots
purchased by them in 120 or 180 monthly installments does not constitute evidence that XEI also
agreed to give the respondents the same mode and timeline of payment of the ₱278,448.00.

Under Section 34, Rule 130 of the Revised Rules of Court, evidence that one did a certain thing
at one time is not admissible to prove that he did the same or similar thing at another time,
although such evidence may be received to prove habit, usage, pattern of conduct or the intent of
the parties.

Similar acts as evidence. – Evidence that one did or did not do a certain thing at one time is not
admissible to prove that he did or did not do the same or a similar thing at another time; but it
may be received to prove a specific intent or knowledge, identity, plan, system, scheme, habit,
custom or usage, and the like.

However, respondents failed to allege and prove, in the trial court, that, as a matter of business
usage, habit or pattern of conduct, XEI granted all lot buyers the right to pay the balance of the
purchase price in installments of 120 months of fixed amounts with pre-computed interests, and
that XEI and the respondents had intended to adopt such terms of payment relative to the sale of
the two lots in question. Indeed, respondents adduced in evidence the three contracts of
conditional sale executed by XEI and other lot buyers merely to prove that XEI continued to sell
lots in the subdivision as sales agent of OBM after it acquired said lots, not to prove usage, habit
or pattern of conduct on the part of XEI to require all lot buyers in the subdivision to pay the
balance of the purchase price of said lots in 120 months. It further failed to prive that the trial
court admitted the said deeds77 as part of the testimony of respondent Manalo, Jr.78

Habit, custom, usage or pattern of conduct must be proved like any other facts. Courts must
contend with the caveat that, before they admit evidence of usage, of habit or pattern of conduct,
the offering party must establish the degree of specificity and frequency of uniform response that
ensures more than a mere tendency to act in a given manner but rather, conduct that is semi-
automatic in nature. The offering party must allege and prove specific, repetitive conduct that
might constitute evidence of habit. The examples offered in evidence to prove habit, or pattern of
evidence must be numerous enough to base on inference of systematic conduct. Mere similarity
of contracts does not present the kind of sufficiently similar circumstances to outweigh the
danger of prejudice and confusion.

In determining whether the examples are numerous enough, and sufficiently regular, the key
criteria are adequacy of sampling and uniformity of response. After all, habit means a course of
behavior of a person regularly represented in like circumstances.79 It is only when examples
offered to establish pattern of conduct or habit are numerous enough to lose an inference of
systematic conduct that examples are admissible. The key criteria are adequacy of sampling and
uniformity of response or ratio of reaction to situations.80
There are cases where the course of dealings to be followed is defined by the usage of a
particular trade or market or profession. As expostulated by Justice Benjamin Cardozo of the
United States Supreme Court: "Life casts the moulds of conduct, which will someday become
fixed as law. Law preserves the moulds which have taken form and shape from life." 81 Usage
furnishes a standard for the measurement of many of the rights and acts of men.82 It is also well-
settled that parties who contract on a subject matter concerning which known usage prevail,
incorporate such usage by implication into their agreement, if nothing is said to be contrary.83

However, the respondents inexplicably failed to adduce sufficient competent evidence to prove
usage, habit or pattern of conduct of XEI to justify the use of the terms of payment in the
contracts of the other lot buyers, and thus grant respondents the right to pay the ₱278,448.00 in
120 months, presumably because of respondents’ belief that the manner of payment of the said
amount is not an essential element of a contract to sell. There is no evidence that XEI or OBM
and all the lot buyers in the subdivision, including lot buyers who pay part of the downpayment
of the property purchased by them in the form of service, had executed contracts of conditional
sale containing uniform terms and conditions. Moreover, under the terms of the contracts of
conditional sale executed by XEI and three lot buyers in the subdivision, XEI agreed to grant 120
months within which to pay the balance of the purchase price to two of them, but granted one
180 months to do so.84 There is no evidence on record that XEI granted the same right to buyers
of two or more lots.

Irrefragably, under Article 1469 of the New Civil Code, the price of the property sold may be
considered certain if it be so with reference to another thing certain. It is sufficient if it can be
determined by the stipulations of the contract made by the parties thereto85 or by reference to an
agreement incorporated in the contract of sale or contract to sell or if it is capable of being
ascertained with certainty in said contract;86 or if the contract contains express or implied
provisions by which it may be rendered certain;87 or if it provides some method or criterion by
which it can be definitely ascertained.88 As this Court held in Villaraza v. Court of Appeals,89 the
price is considered certain if, by its terms, the contract furnishes a basis or measure for
ascertaining the amount agreed upon.

We have carefully reviewed the August 22, 1972 letter agreement of the parties and find no
direct or implied reference to the manner and schedule of payment of the balance of the purchase
price of the lots covered by the deeds of conditional sale executed by XEI and that of the other
lot buyers90 as basis for or mode of determination of the schedule of the payment by the
respondents of the ₱278,448.00.

The ruling of this Court in Mitsui Bussan Kaisha v. Manila Electric Railroad and Light
Company91 is not applicable in this case because the basic price fixed in the contract was ₱9.45
per long ton, but it was stipulated that the price was subject to modification "in proportion to
variations in calories and ash content, and not otherwise." In this case, the parties did not fix in
their letters-agreement, any method or mode of determining the terms of payment of the balance
of the purchase price of the property amounting to ₱278,448.00.

It bears stressing that the respondents failed and refused to pay the balance of the downpayment
and of the purchase price of the property amounting to ₱278,448.00 despite notice to them of the
resumption by XEI of its selling operations. The respondents enjoyed possession of the property
without paying a centavo. On the other hand, XEI and OBM failed and refused to transmit a
contract of conditional sale to the Respondents. The respondents could have at least consigned
the balance of the downpayment after notice of the resumption of the selling operations of XEI
and filed an action to compel XEI or OBM to transmit to them the said contract; however, they
failed to do so.

As a consequence, respondents and XEI (or OBM for that matter) failed to forge a perfected
contract to sell the two lots; hence, respondents have no cause of action for specific performance
against petitioner. Republic Act No. 6552 applies only to a perfected contract to sell and not to a
contract with no binding and enforceable effect.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court
of Appeals in CA-G.R. CV No. 47458 is REVERSED and SET ASIDE. The Regional Trial
Court of Quezon City, Branch 98 is ordered to dismiss the complaint. Costs against the
Respondents.

SO ORDERED.
ADELFA PROPERTIES, INC., petitioner,
vs.
COURT OF APPEALS, ROSARIO JIMENEZ-CASTAÑEDA and SALUD
JIMENEZ, respondents.

REGALADO, J.:

The main issues presented for resolution in this petition for review on certiorari of the judgment
of respondent Court of appeals, dated April 6, 1993, in CA-G.R. CV No. 34767 1 are (1) whether
of not the "Exclusive Option to Purchase" executed between petitioner Adelfa Properties, Inc.
and private respondents Rosario Jimenez-Castañeda and Salud Jimenez is an option contract; and
(2) whether or not there was a valid suspension of payment of the purchase price by said
petitioner, and the legal effects thereof on the contractual relations of the parties.

The records disclose the following antecedent facts which culminated in the present appellate
review, to wit:

1. Herein private respondents and their brothers, Jose and Dominador Jimenez, were the
registered co-owners of a parcel of land consisting of 17,710 square meters, covered by Transfer
Certificate of Title (TCT) No. 309773,2 situated in Barrio Culasi, Las Piñas, Metro Manila.

2. On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of one-half of said
parcel of land, specifically the eastern portion thereof, to herein petitioner pursuant to a
"Kasulatan sa Bilihan ng Lupa."3 Subsequently, a "Confirmatory Extrajudicial Partition
Agreement"4 was executed by the Jimenezes, wherein the eastern portion of the subject lot, with
an area of 8,855 square meters was adjudicated to Jose and Dominador Jimenez, while the
western portion was allocated to herein private respondents.

3. Thereafter, herein petitioner expressed interest in buying the western portion of the property
from private respondents. Accordingly, on November 25, 1989, an "Exclusive Option to
Purchase"5 was executed between petitioner and private respondents, under the following terms
and conditions:

1. The selling price of said 8,655 square meters of the subject property is TWO
MILLION EIGHT HUNDRED FIFTY SIX THOUSAND ONE HUNDRED
FIFTY PESOS ONLY (P2,856,150.00)

2. The sum of P50,000.00 which we received from ADELFA PROPERTIES,

INC. as an option money shall be credited as partial payment upon the
consummation of the sale and the balance in the sum of TWO MILLION EIGHT
HUNDRED SIX THOUSAND ONE HUNDRED FIFTY PESOS (P2,806,150.00)
to be paid on or before November 30, 1989;
 3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said
balance in accordance with paragraph 2 hereof, this option shall be cancelled and
50% of the option money to be forfeited in our favor and we will refund the
remaining 50% of said money upon the sale of said property to a third party;

4. All expenses including the corresponding capital gains tax, cost of

documentary stamps are for the account of the VENDORS, and expenses for the
registration of the deed of sale in the Registry of Deeds are for the account of
ADELFA PROPERTIES, INC.

Considering, however, that the owner's copy of the certificate of title issued to respondent Salud
Jimenez had been lost, a petition for the re-issuance of a new owner's copy of said certificate of
title was filed in court through Atty. Bayani L. Bernardo, who acted as private respondents'
counsel. Eventually, a new owner's copy of the certificate of title was issued but it remained in
the possession of Atty. Bernardo until he turned it over to petitioner Adelfa Properties, Inc.

4. Before petitioner could make payment, it received summons6 on November 29, 1989, together
with a copy of a complaint filed by the nephews and nieces of private respondents against the
latter, Jose and Dominador Jimenez, and herein petitioner in the Regional Trial Court of Makati,
docketed as Civil Case No. 89-5541, for annulment of the deed of sale in favor of Household
Corporation and recovery of ownership of the property covered by TCT No. 309773.7

5. As a consequence, in a letter dated November 29, 1989, petitioner informed private

respondents that it would hold payment of the full purchase price and suggested that private
respondents settle the case with their nephews and nieces, adding that ". . . if possible, although
November 30, 1989 is a holiday, we will be waiting for you and said plaintiffs at our office up to
7:00 p.m."8 Another letter of the same tenor and of even date was sent by petitioner to Jose and
Dominador Jimenez.9 Respondent Salud Jimenez refused to heed the suggestion of petitioner and
attributed the suspension of payment of the purchase price to "lack of word of honor."

6. On December 7, 1989, petitioner caused to be annotated on the title of the lot its option
contract with private respondents, and its contract of sale with Jose and Dominador Jimenez, as
Entry No. 1437-4 and entry No. 1438-4, respectively.

7. On December 14, 1989, private respondents sent Francisca Jimenez to see Atty. Bernardo, in
his capacity as petitioner's counsel, and to inform the latter that they were cancelling the
transaction. In turn, Atty. Bernardo offered to pay the purchase price provided that P500,000.00
be deducted therefrom for the settlement of the civil case. This was rejected by private
respondents. On December 22, 1989, Atty. Bernardo wrote private respondents on the same
matter but this time reducing the amount from P500,000.00 to P300,000.00, and this was also
rejected by the latter.

8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil Case No. 89-5541.
Thus, on February 28, 1990, petitioner caused to be annotated anew on TCT No. 309773 the
exclusive option to purchase as Entry No. 4442-4.
9. On the same day, February 28, 1990, private respondents executed a Deed of Conditional
Sale 10 in favor of Emylene Chua over the same parcel of land for P3,029,250, of which
P1,500,000.00 was paid to private respondents on said date, with the balance to be paid upon the
transfer of title to the specified one-half portion.

10. On April 16, 1990, Atty. Bernardo wrote private respondents informing the latter that in view
of the dismissal of the case against them, petitioner was willing to pay the purchase price, and he
requested that the corresponding deed of absolute sale be executed. 11 This was ignored by
private respondents.

11. On July 27, 1990, private respondents' counsel sent a letter to petitioner enclosing therein a
check for P25,000.00 representing the refund of fifty percent of the option money paid under the
exclusive option to purchase. Private respondents then requested petitioner to return the owner's
duplicate copy of the certificate of title of respondent Salud Jimenez. 12 Petitioner failed to
surrender the certificate of title, hence private respondents filed Civil Case No. 7532 in the
Regional Trial Court of Pasay City, Branch 113, for annulment of contract with damages,
praying, among others, that the exclusive option to purchase be declared null and void; that
defendant, herein petitioner, be ordered to return the owner's duplicate certificate of title; and that
the annotation of the option contract on TCT No. 309773 be cancelled. Emylene Chua, the
subsequent purchaser of the lot, filed a complaint in intervention.

12. The trial court rendered judgment 13 therein on September 5, 1991 holding that the agreement
entered into by the parties was merely an option contract, and declaring that the suspension of
payment by herein petitioner constituted a counter-offer which, therefore, was tantamount to a
rejection of the option. It likewise ruled that herein petitioner could not validly suspend payment
in favor of private respondents on the ground that the vindicatory action filed by the latter's kin
did not involve the western portion of the land covered by the contract between petitioner and
private respondents, but the eastern portion thereof which was the subject of the sale between
petitioner and the brothers Jose and Dominador Jimenez. The trial court then directed the
cancellation of the exclusive option to purchase, declared the sale to intervenor Emylene Chua as
valid and binding, and ordered petitioner to pay damages and attorney's fees to private
respondents, with costs.

13. On appeal, respondent Court of appeals affirmed in toto the decision of the court a quo  and
held that the failure of petitioner to pay the purchase price within the period agreed upon was
tantamount to an election by petitioner not to buy the property; that the suspension of payment
constituted an imposition of a condition which was actually a counter-offer amounting to a
rejection of the option; and that Article 1590 of the Civil Code on suspension of payments
applies only to a contract of sale or a contract to sell, but not to an option contract which it
opined was the nature of the document subject of the case at bar. Said appellate court similarly
upheld the validity of the deed of conditional sale executed by private respondents in favor of
intervenor Emylene Chua.

In the present petition, the following assignment of errors are raised:

1. Respondent court of appeals acted with grave abuse of discretion in making its finding that the
agreement entered into by petitioner and private respondents was strictly an option contract;

2. Granting arguendo that the agreement was an option contract, respondent court of Appeals

acted with grave abuse of discretion in grievously failing to consider that while the option period
had not lapsed, private respondents could not unilaterally and prematurely terminate the option
period;

3. Respondent Court of Appeals acted with grave abuse of discretion in failing to appreciate fully
the attendant facts and circumstances when it made the conclusion of law that Article 1590 does
not apply; and

4. Respondent Court of Appeals acted with grave abuse of discretion in conforming with the sale
in favor of appellee Ma. Emylene Chua and the award of damages and attorney's fees which are
not only excessive, but also without in fact and in law. 14

An analysis of the facts obtaining in this case, as well as the evidence presented by the parties,
irresistibly leads to the conclusion that the agreement between the parties is a contract to sell, and
not an option contract or a contract of sale.

1. In view of the extended disquisition thereon by respondent court, it would be worthwhile at

this juncture to briefly discourse on the rationale behind our treatment of the alleged option
contract as a contract to sell, rather than a contract of sale. The distinction between the two is
important for in contract of sale, the title passes to the vendee upon the delivery of the thing sold;
whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is not to
pass until the full payment of the price. In a contract of sale, the vendor has lost and cannot
recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to
sell, title is retained by the vendor until the full payment of the price, such payment being a
positive suspensive condition and failure of which is not a breach but an event that prevents the
obligation of the vendor to convey title from becoming effective. Thus, a deed of sale is
considered absolute in nature where there is neither a stipulation in the deed that title to the
property sold is reserved in the seller until the full payment of the price, nor one giving the
vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a
fixed period. 15

There are two features which convince us that the parties never intended to transfer ownership to
petitioner except upon the full payment of the purchase price. Firstly, the exclusive option to
purchase, although it provided for automatic rescission of the contract and partial forfeiture of
the amount already paid in case of default, does not mention that petitioner is obliged to return
possession or ownership of the property as a consequence of non-payment. There is no
stipulation anent reversion or reconveyance of the property to herein private respondents in the
event that petitioner does not comply with its obligation. With the absence of such a stipulation,
although there is a provision on the remedies available to the parties in case of breach, it may
legally be inferred that the parties never intended to transfer ownership to the petitioner to
completion of payment of the purchase price.

In effect, there was an implied agreement that ownership shall not pass to the purchaser until he
had fully paid the price. Article 1478 of the civil code does not require that such a stipulation be
expressly made. Consequently, an implied stipulation to that effect is considered valid and,
therefore, binding and enforceable between the parties. It should be noted that under the law and
jurisprudence, a contract which contains this kind of stipulation is considered a contract to sell.

Moreover, that the parties really intended to execute a contract to sell, and not a contract of sale,
is bolstered by the fact that the deed of absolute sale would have been issued only upon the
payment of the balance of the purchase price, as may be gleaned from petitioner's letter dated
April 16, 1990 16 wherein it informed private respondents that it "is now ready and willing to pay
you simultaneously with the execution of the corresponding deed of absolute sale."

Secondly, it has not been shown there was delivery of the property, actual or constructive, made
to herein petitioner. The exclusive option to purchase is not contained in a public instrument the
execution of which would have been considered equivalent to delivery. 17 Neither did petitioner
take actual, physical possession of the property at any given time. It is true that after the
reconstitution of private respondents' certificate of title, it remained in the possession of
petitioner's counsel, Atty. Bayani L. Bernardo, who thereafter delivered the same to herein
petitioner. Normally, under the law, such possession by the vendee is to be understood as a
delivery.18 However, private respondents explained that there was really no intention on their part
to deliver the title to herein petitioner with the purpose of transferring ownership to it. They
claim that Atty. Bernardo had possession of the title only because he was their counsel in the
petition for reconstitution. We have no reason not to believe this explanation of private
respondents, aside from the fact that such contention was never refuted or contradicted by
petitioner.

2. Irrefragably, the controverted document should legally be considered as a perfected contract to

sell. On this particular point, therefore, we reject the position and ratiocination of respondent
Court of Appeals which, while awarding the correct relief to private respondents, categorized the
instrument as "strictly an option contract."

The important task in contract interpretation is always the ascertainment of the intention of the
contracting parties and that task is, of course, to be discharged by looking to the words they used
to project that intention in their contract, all the words not just a particular word or two, and
words in context not words standing alone. 19 Moreover, judging from the subsequent acts of the
parties which will hereinafter be discussed, it is undeniable that the intention of the parties was to
enter into a contract to sell. 20 In addition, the title of a contract does not necessarily determine its
true nature. 21 Hence, the fact that the document under discussion is entitled "Exclusive Option to
Purchase" is not controlling where the text thereof shows that it is a contract to sell.

An option, as used in the law on sales, is a continuing offer or contract by which the owner
stipulates with another that the latter shall have the right to buy the property at a fixed price
within a certain time, or under, or in compliance with, certain terms and conditions, or which
gives to the owner of the property the right to sell or demand a sale. It is also sometimes called
an "unaccepted offer." An option is not of itself a purchase, but merely secures the privilege to
buy. 22 It is not a sale of property but a sale of property but a sale of the right to purchase. 23 It is
simply a contract by which the owner of property agrees with another person that he shall have
the right to buy his property at a fixed price within a certain time. He does not sell his land; he
does not then agree to sell it; but he does sell something, that it is, the right or privilege to buy at
the election or option of the other party. 24 Its distinguishing characteristic is that it imposes no
binding obligation on the person holding the option, aside from the consideration for the offer.
Until acceptance, it is not, properly speaking, a contract, and does not vest, transfer, or agree to
transfer, any title to, or any interest or right in the subject matter, but is merely a contract by
which the owner of property gives the optionee the right or privilege of accepting the offer and
buying the property on certain terms. 25

On the other hand, a contract, like a contract to sell, involves a meeting of minds two persons
whereby one binds himself, with respect to the other, to give something or to render some
service. 26 Contracts, in general, are perfected by mere consent, 27 which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. 28

The distinction between an "option" and a contract of sale is that an option is an unaccepted
offer. It states the terms and conditions on which the owner is willing to sell the land, if the
holder elects to accept them within the time limited. If the holder does so elect, he must give
notice to the other party, and the accepted offer thereupon becomes a valid and binding contract.
If an acceptance is not made within the time fixed, the owner is no longer bound by his offer, and
the option is at an end. A contract of sale, on the other hand, fixes definitely the relative rights
and obligations of both parties at the time of its execution. The offer and the acceptance are
concurrent, since the minds of the contracting parties meet in the terms of the agreement. 29

A perusal of the contract in this case, as well as the oral and documentary evidence presented by
the parties, readily shows that there is indeed a concurrence of petitioner's offer to buy and
private respondents' acceptance thereof. The rule is that except where a formal acceptance is so
required, although the acceptance must be affirmatively and clearly made and must be evidenced
by some acts or conduct communicated to the offeror, it may be made either in a formal or an
informal manner, and may be shown by acts, conduct, or words of the accepting party that
clearly manifest a present intention or determination to accept the offer to buy or sell. Thus,
acceptance may be shown by the acts, conduct, or words of a party recognizing the existence of
the contract of sale. 30

The records also show that private respondents accepted the offer of petitioner to buy their
property under the terms of their contract. At the time petitioner made its offer, private
respondents suggested that their transfer certificate of title be first reconstituted, to which
petitioner agreed. As a matter of fact, it was petitioner's counsel, Atty. Bayani L. Bernardo, who
assisted private respondents in filing a petition for 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 supposed to pay the same on November 25,
1989, but it later offered to make a down payment of P50,000.00, with the balance of
P2,806,150.00 to be paid on or before November 30, 1989. Private respondents agreed to the
counter-offer made by petitioner. 31 As a result, the so-called exclusive option to purchase was
prepared by petitioner and was subsequently signed by private respondents, thereby creating a
perfected contract to sell between them.

It cannot be gainsaid that the offer to buy a specific piece of land was definite and certain, while
the acceptance thereof was absolute and without any condition or qualification. The agreement as
to the object, the price of the property, and the terms of payment was clear and well-defined. No
other significance could be given to such acts that than they were meant to finalize and perfect
the transaction. The parties even went beyond the basic requirements of the law by stipulating
that "all expenses including the corresponding capital gains tax, cost of documentary stamps are
for the account of the vendors, and expenses for the registration of the deed of sale in the
Registry of Deeds are for the account of Adelfa properties, Inc." Hence, there was nothing left to
be done except the performance of the respective obligations of the parties.

We do not subscribe to private respondents' submission, which was upheld by both the trial court
and respondent court of appeals, that the offer of petitioner to deduct P500,000.00, (later reduced
to P300,000.00) from the purchase price for the settlement of the civil case was tantamount to a
counter-offer. It must be stressed that there already existed a perfected contract between the
parties at the time the alleged counter-offer was made. Thus, any new offer by a party becomes
binding only when it is accepted by the other. In the case of private respondents, they actually
refused to concur in said offer of petitioner, by reason of which the original terms of the contract
continued to be enforceable.

At any rate, the same cannot be considered a counter-offer for the simple reason that petitioner's
sole purpose was to settle the civil case in order that it could already comply with its obligation.
In fact, it was even indicative of a desire by petitioner to immediately comply therewith, except
that it was being prevented from doing so because of the filing of the civil case which, it believed
in good faith, rendered compliance improbable at that time. In addition, no inference can be
drawn from that suggestion given by petitioner that it was totally abandoning the original
contract.

More importantly, it will be noted that the failure of petitioner to pay the balance of the purchase
price within the agreed period was attributed by private respondents to "lack of word of honor"
on the part of the former. The reason of "lack of word of honor" is to us a clear indication that
private respondents considered petitioner already bound by its obligation to pay the balance of
the consideration. In effect, private respondents were demanding or exacting fulfillment of the
obligation from herein petitioner. with the arrival of the period agreed upon by the parties,
petitioner was supposed to comply with the obligation incumbent upon it to perform, not merely
to exercise an option or a right to buy the property.

The obligation of petitioner on November 30, 1993 consisted of an obligation to give something,
that is, the payment of the purchase price. The contract did not simply give petitioner the
discretion to pay for the property. 32 It will be noted that there is nothing in the said contract to
show that petitioner was merely given a certain period within which to exercise its privilege to
buy. The agreed period was intended to give time to herein petitioner within which to fulfill and
comply with its obligation, that is, to pay the balance of the purchase price. No evidence was
presented by private respondents to prove otherwise.

The test in determining whether a contract is a "contract of sale or purchase" or a mere "option"
is whether or not the agreement could be specifically enforced. 33 There is no doubt that the
obligation of petitioner to pay the purchase price is specific, definite and certain, and
consequently binding and enforceable. Had private respondents chosen to enforce the contract,
they could have specifically compelled petitioner to pay the balance of P2,806,150.00. This is
distinctly made manifest in the contract itself as an integral stipulation, compliance with which
could legally and definitely be demanded from petitioner as a consequence.

This is not a case where no right is as yet created nor an obligation declared, as where something
further remains to be done before the buyer and seller obligate themselves. 34 An agreement is
only an "option" when no obligation rests on the party to make any payment except such as may
be agreed on between the parties as consideration to support the option until he has made up his
mind within the time specified. 35 An option, and not a contract to purchase, is effected by an
agreement to sell real estate for payments to be made within specified time and providing
forfeiture of money paid upon failure to make payment, where the purchaser does not agree to
purchase, to make payment, or to bind himself in any way other than the forfeiture of the
payments made. 36 As hereinbefore discussed, this is not the situation obtaining in the case at bar.

While there is jurisprudence to the effect that a contract which provides that the initial payment
shall be totally forfeited in case of default in payment is to be considered as an option
contract, 37 still we are not inclined to conform with the findings of respondent court and the
court a quo that the contract executed between the parties is an option contract, for the reason
that the parties were already contemplating the  payment of the balance of the purchase price,
and were not merely quoting an agreed value for the property. The term "balance," connotes a
remainder or something remaining from the original total sum already agreed upon.

In other words, the alleged option money of P50,000.00 was actually earnest money which was
intended to form part of the purchase price. The amount of P50,000.00 was not distinct from the
cause or consideration for the sale of the property, but was itself a part thereof. It is a statutory
rule that whenever earnest money is given in a contract of sale, it shall be considered as part of
the price and as proof of the perfection of the contract. 38 It constitutes an advance payment and
must, therefore, be deducted from the total price. Also, earnest money is given by the buyer to
the seller to bind the bargain.

There are clear distinctions between earnest money and option money, viz.: (a) earnest money is
part of the purchase price, while option money ids the money given as a distinct consideration
for an option contract; (b) earnest money is given only where there is already a sale, while option
money applies to a sale not yet perfected; and (c) when earnest money is given, the buyer is
bound to pay the balance, while when the would-be buyer gives option money, he is not required
to buy. 39

The aforequoted characteristics of earnest money are apparent in the so-called option contract
under review, even though it was called "option money" by the parties. In addition, private
respondents failed to show that the payment of the balance of the purchase price was only a
condition precedent to the acceptance of the offer or to the exercise of the right to buy. On the
contrary, it has been sufficiently established that such payment was but an element of the
performance of petitioner's obligation under the contract to sell. 40

II

1. This brings us to the second issue as to whether or not there was valid suspension of payment
of the purchase price by petitioner and the legal consequences thereof. To justify its failure to
pay the purchase price within the agreed period, petitioner invokes Article 1590 of the civil Code
which provides:

Art. 1590. Should the vendee be disturbed in the possession or ownership of the
thing acquired, or should he have reasonable grounds to fear such disturbance, by
a vindicatory action or a foreclosure of mortgage, he may suspend the payment of
the price until the vendor has caused the disturbance or danger to cease, unless the
latter gives security for the return of the price in a proper case, or it has been
stipulated that, notwithstanding any such contingency, the vendee shall be bound
to make the payment. A mere act of trespass shall not authorize the suspension of
the payment of the price.

Respondent court refused to apply the aforequoted provision of law on the erroneous assumption
that the true agreement between the parties was a contract of option. As we have hereinbefore
discussed, it was not an option contract but a perfected contract to sell. Verily, therefore, Article
1590 would properly apply.

Both lower courts, however, are in accord that since Civil Case No. 89-5541 filed against the
parties herein involved only the eastern half of the land subject of the deed of sale between
petitioner and the Jimenez brothers, it did not, therefore, have any adverse effect on private
respondents' title and ownership over the western half of the land which is covered by the
contract subject of the present case. We have gone over the complaint for recovery of ownership
filed in said case 41 and we are not persuaded by the factual findings made by said courts. At a
glance, it is easily discernible that, although the complaint prayed for the annulment only of the
contract of sale executed between petitioner and the Jimenez brothers, the same likewise prayed
for the recovery of therein plaintiffs' share in that parcel of land specifically covered by TCT No.
309773. In other words, the plaintiffs therein were claiming to be co-owners of the entire parcel
of land described in TCT No. 309773, and not only of a portion thereof nor, as incorrectly
interpreted by the lower courts, did their claim pertain exclusively to the eastern half adjudicated
to the Jimenez brothers.

Such being the case, petitioner was justified in suspending payment of the balance of the
purchase price by reason of the aforesaid vindicatory action filed against it. The assurance made
by private respondents that petitioner did not have to worry about the case because it was pure
and simple harassment 42 is not the kind of guaranty contemplated under the exceptive clause in
Article 1590 wherein the vendor is bound to make payment even with the existence of a
vindicatory action if the vendee should give a security for the return of the price.
2. Be that as it may, and the validity of the suspension of payment notwithstanding, we find and
hold that private respondents may no longer be compelled to sell and deliver the subject property
to petitioner for two reasons, that is, petitioner's failure to duly effect the consignation of the
purchase price after the disturbance had ceased; and, secondarily, the fact that the contract to sell
had been validly rescinded by private respondents.

The records of this case reveal that as early as February 28, 1990 when petitioner caused its
exclusive option to be annotated anew on the certificate of title, it already knew of the dismissal
of civil Case No. 89-5541. However, it was only on April 16, 1990 that petitioner, through its
counsel, wrote private respondents expressing its willingness to pay the balance of the purchase
price upon the execution of the corresponding deed of absolute sale. At most, that was merely a
notice to pay. There was no proper tender of payment nor consignation in this case as required by
law.

The mere sending of a letter by the vendee expressing the intention to

pay, without the accompanying payment, is not considered a valid tender of payment. 43 Besides,
a mere tender of payment is not sufficient to compel private respondents to deliver the property
and execute the deed of absolute sale. It is consignation which is essential in order to extinguish
petitioner's obligation to pay the balance of the purchase price. 44 The rule is different in case of
an option contract 45 or in legal redemption or in a sale with right to repurchase, 46 wherein
consignation is not necessary because these cases involve an exercise of a right or privilege (to
buy, redeem or repurchase) rather than the discharge of an obligation, hence tender of payment
would be sufficient to preserve the right or privilege. This is because the provisions on
consignation are not applicable when there is no obligation to pay. 47 A contract to sell, as in the
case before us, involves the performance of an obligation, not merely the exercise of a privilege
of a right. consequently, performance or payment may be effected not by tender of payment
alone but by both tender and consignation.

Furthermore, petitioner no longer had the right to suspend payment after the disturbance ceased
with the dismissal of the civil case filed against it. Necessarily, therefore, its obligation to pay the
balance again arose and resumed after it received notice of such dismissal. Unfortunately,
petitioner failed to seasonably make payment, as in fact it has deposit the money with the trial
court when this case was originally filed therein.

By reason of petitioner's failure to comply with its obligation, private respondents elected to
resort to and did announce the rescission of the contract through its letter to petitioner dated July
27, 1990. That written notice of rescission is deemed sufficient under the circumstances. Article
1592 of the Civil Code which requires rescission either by judicial action or notarial act is not
applicable to a contract to sell. 48 Furthermore, judicial action for rescission of a contract is not
necessary where the contract provides for automatic rescission in case of breach,49 as in the
contract involved in the present controversy.

We are not unaware of the ruling in University of the Philippines vs. De los Angeles, etc. 50 that
the right to rescind is not absolute, being ever subject to scrutiny and review by the proper court.
It is our considered view, however, that this rule applies to a situation where the extrajudicial
rescission is contested by the defaulting party. In other words, resolution of reciprocal contracts
may be made extrajudicially unless successfully impugned in court. If the debtor impugns the
declaration, it shall be subject to judicial determination51 otherwise, if said party does not oppose
it, the extrajudicial rescission shall have legal effect. 52

In the case at bar, it has been shown that although petitioner was duly furnished and did receive a
written notice of rescission which specified the grounds therefore, it failed to reply thereto or
protest against it. Its silence thereon suggests an admission of the veracity and validity of private
respondents' claim. 53 Furthermore, the initiative of instituting suit was transferred from the
rescinder to the defaulter by virtue of the automatic rescission clause in the contract. 54 But then,
the records bear out the fact that aside from the lackadaisical manner with which petitioner
treated private respondents' latter of cancellation, it utterly failed to seriously seek redress from
the court for the enforcement of its alleged rights under the contract. If private respondents had
not taken the initiative of filing Civil Case No. 7532, evidently petitioner had no intention to take
any legal action to compel specific performance from the former. By such cavalier disregard, it
has been effectively estopped from seeking the affirmative relief it now desires but which it had
theretofore disdained.

WHEREFORE, on the foregoing modificatory premises, and considering that the same result has
been reached by respondent Court of Appeals with respect to the relief awarded to private
respondents by the court a quo  which we find to be correct, its assailed judgment in CA-G.R.
CV No. 34767 is hereby AFFIRMED.

SO ORDERED.
PHILIPPINE NATIONAL BANK, petitioner,
vs.
COURT OF APPEALS and LAPAZ KAW NGO, respondents.

HERMOSISIMA, JR., J.:

The question at issue, one of law, is whether or not from the undisputed facts there was
entered the Philippine National Bank and Lapaz Kaw Ngo a perfected contract of sale of
prime real property located in the heart of downtown Manila.

Before us is a petition for review on certiorari seeking the reversal of the decision1 of the
respondent Court of Appeals2 in an action for specific performance3 filed in the Regional
Trial Court (RTC)4 by private respondent Lapaz Kaw Ngo against petitioner Philippine
National Bank (hereafter, "PNB"). Except for the award of P610,000.00 as actual
damages which was deleted, respondent appellate court affirmed in all other respects the
judgment5 rendered by the RTC in favor of private respondent Ngo.

The facts of this case, as narrated by respondent appellate court, are undisputed:

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 minus 200.98 square meters reserved for
road widening and Light Rail Transit) situated at the corner of Carlos Palanca and
Helios Streets, Sta. Cruz, Manila, covered by and embraced in Transfer
Certificate of Title No. 134695 of the Registry of Deeds of Manila . . . owned and
registered in the name of . . . the Philippine National Bank. . . .

xxx xxx xxx

On July 14, 1983 Lapaz made a formal offer to purchase the parcel of land
consisting of 1,250.70 [square meters] located at the corner of Carlos Palanca and
Helios Streets, Sta. Cruz, Manila, owned by and registered in the name of . . .
PNB . . . PNB advised Lapaz of its approval of the latter's offer to purchase the
subject property subject to the terms and conditions stated in its official
communication to the plaintiff [private respondent] dated September 8, 1983, viz:

xxx xxx xxx

. . . your offer to purchase the Bank-acquired property . . . was

approved by the Bank, subject to the following terms and
conditions:

1. That the selling price shall be P5,394,300.00 (P100,000.00

already deposited) . . .
 2. (a) That upon your failure to pay the additional deposit of
P978,860.00 upon receipt of advice accepting your offer, your
P100,000.00 initial deposit shall be forfeited and for this purpose
the Bank shall be authorized to sell the property to other interested
parties.

xxx xxx xxx

3. That the Bank sells only whatever rights, interests and

participation it may have in the property and you are charged with
full knowledge of the nature and extent of said rights, interests and
participation and waives [sic] your right to warranty against
eviction.

xxx xxx xxx

4. That the property shall be cleared of its present

tenants/occupation but all expenses to be incurred in connection
with the ejectment proceedings shall be for your account.

6. That the sale shall be subject to such other terms and conditions
that the Legal Department may impose to protect the interest of the
Bank.

x x x           x x x          x x x

On December 15, 1983, the plaintiff [private respondent] signified her conformity
to the above letter-agreement by affixing her signature thereon . . . .

One of the conditions in the agreement was to clear the subject property of its
then accupants; thus, Lapaz undertook the ejectment of the squatters/tenants at her
own expense.

In a letter dated January 23, 1984, Lapaz, citing  the then prevailing credit
squeeze, requested for adjustment of payment proposals . . . .

On February 28, 1984, PNB wrote Lapaz reminding her of her failure to remit the
amount of P978,860.00 as embodied in its letter dated December 6, 1983 . . . and
of her refusal to send her letter of conformity to the letter-agreement. Lapaz was
likewise advised to remit her cash payment of the full price amounting to
P5,378,902.50; otherwise, the subject property shall be sold to other interested
party/ies and her deposit forfeited. Lapaz's request for adjustment of payments
was likewise denied . . . .

In a letter dated March 1, 1984 . . . Lapaz, due to a significant reduction in the

land area being purchased, requested for the reduction of the selling price from
P5,394,300.00 to P5,135,599.17 on cash basis or a total of P6,066,706.49 on
installment . . . .

On May 15, 1984, PNB favorably acted on Lapaz's request . . . .

However, when no further payment was received by PNB from Lapaz, the former
notified the latter by telegram that it was giving her a last chance to pay the
balance of the required downpayment of P563,341.29; failure of which shall
cause the cancellation of the sale in her favor and the forfeiture of her
P100,000.00 deposit . . . .

The sale in favor of Lapaz never materialized because of her failure to remit the
required amount agreed upon; hence, the proposed sale was cancelled . . . and the
plaintiff's [private respondent's] deposit of P100,000.00 was forfeited by the
defendant [petitioner]. PNB then leased the property to a certain Morse Rivera . . .
.

On October 3, 1984 Lapaz requested for a refund of her deposit in the total
amount of P660,000.00 (P550,000.00) with a further request that since the Bank
was willing to refund to her her deposit provided that the P100,000.00 is forfeited
in favor of the Bank, the amount of P100,000.00 be reduced to P30,000.00
because her deposit of P660,000.00 (P550,000.00) had, after all, already
accumulated to a sizable amount of interest and, besides there was a delay in the
approval of the contract or proposal. Lapaz further intimated that her request for
refund shall be subject to the release of the fund within one (1) week from receipt
thereof; otherwise, she would insist on purchasing the property subject to
mutually agreed grace
period . . . .

On October 16, 1984, PNB released in favor of Lapaz the amount of P550,000.00
representing the refund of deposit made on the offer to purchase the subject
property . . . .

On August 30, 1985, [Lapaz] wrote a letter to the former President of the
Philippines, Ferdinand E. Marcos, requesting for the lifting of the directive
suspending the sale of the subject property, which letter was transmitted to the
then President of the PNB for comment and/or action.

In its letter date May 14, 1986, PNB advised Lapaz of the approval of her request
for revival of the previously approved offer to purchase the subject to the terms
and conditions as follows:

1. That the selling price shall be P5,135,599.17 (P200,000.00)

already deposited . . .
 2.a. That upon your failure to pay the additional deposit of
P827,119.83 upon receipt of advise of approval, your P200,000.00
deposit shall be forfeited and for this purpose, the Bank can sell the
property to other interested parties;

xxx xxx xxx

3. That your previous deposit of P100,000.00 which was forfeited

by the Bank due to your failure to consummate the previously-
approved sale, shall not be considered as part of the purchase price;

4. That the Bank sells only whatever rights, interests and

participation it may have in the property and you are charged with
full knowledge of the nature and extent of said rights, interest and
participation and waives [sic] your right to warranty against
eviction;

x x x           x x x          x x x

6. That the property shall be cleared of its present

tenants/occupants but all expenses to be incurred in connection
with the ejectment proceedings shall be for your account;

7. That the sale shall be subject to all terms and conditions

covering sale of similar acquired real estate properties;

8. That the sale shall also be subject to all terms and conditions that
the Legal Department may impose to protect the interest of the
Bank. . . .

A copy of the said letter appears to have been received by the plaintiff [private
respondent] herself on May 20, 1986 . . . .

In a letter dated May 23, 1986 . . . Lapaz informed the PNB management that the
terms and conditions set forth in its letter of May 14, 1986 were acceptable to her
except condition no. 6 which says:

6. That the property shall be cleared of its present

tenants/occupants but all expenses to be incurred in connection
with the ejectment proceedings shall be for your account.

She therefore requested for the deletion of the above condition because she had
already defrayed the expenses for the ejectment of the previous occupants of the
premises in compliance with the condition in the original approved offer to
purchase. Besides, the present occupants are not squatters, but lessees of PNB . . .
Lapaz's request for modification was not acceptable to the Bank; thus, she was
 given up to July 10, 1986 to submit, duly signed, the letter-conforme dated May
14, 1986 to submit, duly signed, the letter-conforme dated May 14, 1986 and to
remit the initial amount of P827,119.83 to comply with the approved terms and
conditions; otherwise, the approved sale will be cancelled and her deposit of
P200,000.00 forfeited . . . .

In a letter dated January 14, 1987, Lapaz through counsel informed PNB that she
was willing to pay and remit the amount of P827,119.83 representing the balance
of the 20% down payment of the approved purchase price as soon as the subject
property was cleared of its present tenants/occupants. However, the bank in its
letter dated January 30, 1987 informed Lapaz that it could no longer grant her any
extension to pay the above stated amount, and cancelled on January 30, 1987 the
approved sale in plaintiff's [private respondent's] favor for being stale and
unimplemented and forfeited her deposit of P200,000.00 . . . .

To demonstrate her protest over the cancellation, Lapaz through counsel sent the
letter dated February 6, 1987 asking for a reconsideration of bank's position on
the matter by honoring the approved sale in plaintiff's [private respondent's] favor
as well as her deposit . . . . In reply, the Bank denied any further extension in
favor of the plaintiff [private respondent] and likewise informed her that it had
already decided to sell the property for not less than P7,082,972.00 through
negotiated or sealed bidding . . . .

As a consequence of the cancellation of the approved offer to purchase in her

favor, Lapaz filed [an] action for Specific Performance and Damages with Prayer
for a Writ of Preliminary Injunction and Temporary Restraining Order.

After trial, the lower court, on November 15, 1990, rendered judgment in favor of
the plaintiff [private respondent] . . .6

In the decretal portion of the trial court's judgment, petitioner was ordered to comply with
the approved sale of the subject property but without the right to impose the condition
that private respondent shall bear the expenses for ejecting the 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 of suit.

The aforeceited judgment of the court a quo, totally unacceptable to petitioner, was
appealed to the respondent court. Petitioner took exception to the following postulations
of the trial court: (1) that there was a perfected contract of sale between herein private
parties notwithstanding the suspensive condition imposed upon private respondent for her
to bear the expenses for ejecting the occupants of the subject property; (2) that the deposit
of P200,000.00 given by private respondent was earnest money which is proof of the
perfection of the contract of sale albeit the said condition imposed thereon; and (3) that
the cancellation of the second sale was baseless notwithstanding proof of private
respondent's refusal to pay the balance of the 20% down payment of the purchase price of
the subject property.
The respondent court disagreed with and answered each of, the aforegoing asseverations
of petitioner in this wise:

The plaintiff-appellee's [private respondent's] offer to purchase the subject

property was originally approved by the defendant-appellant [petitioner] on
September 8, 1983 subject however to the terms and conditions enumerated
therein. . . .

From the moment the plaintiff-appellee [private respondent] signed the letter-
agreement signifying her conformity thereto, which simply means that she was
accepting the terms and conditions therein absolutely, there was created between
the parties, a perfected contract of sale.

xxx xxx xxx

The failure of the plaintiff [private respondent] to remit the required

downpayment does not negate the perfection of the first contract of sale between
the parties. The failure of the vendee . . . to pay the price agreed upon in the
contract only gives the vendor . . . the right to exact the fulfillment or to rescind
the contract (Art. 1191, supra.; Jacinto vs. Kaparaz, 209 SCRA 246).

The terms and conditions in the letter-agreement need not be complied with
before it could be said that the contract had already attained its perfection. A
reading of the letter-agreement would reveal that the perfection of the contract
does not depend on the fulfillment of the terms and conditions therein. Since there
was a meeting of the minds between the parties upon the object of the contract
and upon the price, the contract of sale had already been perfected. Thus, whether
or not the conditions were fulfilled, the agreement remains to be valid and each
party may reciprocally demand for its performance. . . .

Admittedly, the . . . [private respondent] failed to remit the required downpayment

for the first contract after several notices for payment therefor . . . Thus, it was
just proper for the defendant-Bank [petitioner] to cancel the agreement to protect
its interests. Anyway, it was merely exercising its right under Article 1191 of the
New Civil Code which right was clearly stipulated in the agreement . . . .

The agreement nonetheless was subsequently revived, pursuant to which, another

letter-agreement dated May 14, 1986 was sent by appellant [petitioner] to appellee
[private respondent] . . . . The latter did not sign the letter-agreement but instead
sent a letter to the appellant [petitioner] dated May 23, 1986 expressing her
conformity to the terms and conditions stipulated therein except for the condition
which states that the subject "property shall be cleared of its present
tenants/occupants" at her
expense . . . . On the other hand, appellant [petitioner] posits the view that since
the approval of the revival of the offer to purchase was made subject to the terms
and conditions stated therein, which conditions were necessary for the
enforceability of the obligation against the appellant [petitioner], and there being
no absolute acceptance by the plaintiff [petitioner], and there being no absolute
acceptance by the plaintiff [private respondent] of such terms and conditions, then
no contract of sale was perfected between the parties.

Appellant's [petitioner's] view is devoid of merit.

We note that the appellant [petitioner] itself admitted that the second agreement
was merely a revival of the first agreement which was duly approved by the bank,
and the terms and conditions thereof accepted by the appellee [private respondent]
. . . Although there were some changes in the second agreement, such changes
were not substantial so as to make it a different contract of sale from that of the
first agreement of the parties . . . .

xxx xxx xxx

Considering that there was already an ejectment case filed by the appellant
[petitioner] against its lessees, then there was no longer any need for the plaintiff-
appellee [private respondent] to initiate another ejectment case at her expense,
much less was there a need to incorporate condition no. 6 in the agreement. Thus,
the forfeiture of the plaintiff's [private respondent's] deposit of P200,000.00 and
the subsequent unilateral cancellation of the agreement have no legal basis at all.
Such cancellation was made without the appellant's [petitioner's] action on the
appellee's [private respondent's] request for reconsideration of the PNB's denial of
her request for deletion of condition no. 6 . . . .

xxx xxx xxx

Appellant [petitioner] likewise argues that the deposits given by the appellee
[private respondent] were expressly subject to conditions agreed upon by the
parties; hence, cannot be deemed as earnest money contemplated in Article 1482
of the New Civil Code.

xxx xxx xxx

A close scrutiny of the two letters-agreement shows that the deposits of

P100,000.00 . . . and P20,000.00 . . . were made part of the selling/purchase price.
...

On the basis of the above, there can be no other conclusion than that the deposits
made . . . were actually earnest money, such that from the total selling price the
arras (earnest money) must be deducted and the balance is all that has to be
paid . . . .

xxx xxx xxx

 The appellant [petitioner] likewise assigns as error the findings of the lower court
on the absence of proof that the appellee [private respondent] refused to pay the . .
. downpayment in the second agreement. . .

. . . The only reason which prevented the appellee [private respondent] from
paying the required downpayment was the stipulation in the agreement requiring
her to eject the present occupants of the premises when in fact she already spent
for the eviction of its previous tenants . . . . However . . . there is no need for such
stipulation because anyway the appellant [petitioner] had already instituted an
action against its tenants . . . Besides, the protest letter sent by appellee's [private
respondent's] lawyer . . . as well as the filing of this case are eloquent proofs of
the appellee's [private respondent's] desire, capacity and willingness to proceed
with the sale of the property. As we noted above, the appellant [petitioner] never
replied to the appellee's [private respondent's] request for reconsideration of its
refusal a delete condition no. 6. PNB's inaction must have made Lapaz to suspend
payment.7

Likewise rebuffed by the respondent Court of Appeals which, however, deleted the
P610,000.00 award for actual damages granted by the trial court to private respondent,
petitioner prays that the herein assailed decision be set aside because the respondent court
apparently decided questions of substance not in accord with statutory and case law:

THE COURT OF APPEALS ERRED:

IN HOLDING THAT THERE WAS A PERFECTED

CONTRACT BETWEEN PNB AND MS. NGO DESPITE THEIR
CLEAR DISAGREEMENT ON THE SUBSTANTIVE
CONDITION THAT THE LATTER SHOULDER THE
EXPENSES FOR THE EJECTMENT OF THE OCCUPANTS OF
THE LOT TO BE SOLD

A. PNB's acceptance of Ms. Ngo's

offer to revive her purchase of
subject lot was subject to certain
substantive conditions.

B. PNB's acceptance of Ms. Ngo's

offer was in fact a counter-offer
which she rejected by her insistence
that PNB delete condition number 6.

C. PNB's Condition Number 6 is

material and should be agreed upon
at inception of contract.
 D. The area of agreement in PNB's
counter offer/acceptance extends to
Condition number 6 together with all
other conditions PNB specified.

II

IN HOLDING THAT MS. NGO'S REFUSAL TO PAY THE

P827,199.83 DOWNPAYMENT IS NOT A VALID BASIS FOR
PNB'S CANCELLATION OF THE "APPROVED" SALE."8

The petition is meritorious.

There are two separate transactions

in the instant case; the first having been
unconditionally cancelled, effects thereof
cannot be deemed applicable to the
second transaction

Even private respondent admits in her pleadings that she failed to remit the required
down payment under the first letter-agreement, dated September 8, 1983. On this basis,
respondent appellate court held that "[t]hus, it was just proper for the [petitioner] Bank to
cancel the agreement to protect its
9
interests ," as it did so on October 16, 1984. Notwithstanding such ruling, however,
respondent court theorized that because private respondent accepted the terms and
conditions in that first letter-agreement, and petitioner approved the revival thereof in
another letter-agreement, dated May 14, 1986, conformity to this second letter-agreement
by private respondent would be superfluous, the letter-agreement dated May 14, 1986
being "merely a revival of the first agreement which was duly approved by the bank and
the terms and conditions thereof accepted by the appellee [private respondent]"10.
Needless to say, this postulation of respondent court is in complete disregard of the status
of the first letter-agreement as being non-existent and totally inefficacious as a result of
its cancellation.

Respondent court then proceeded to state that petitioner having already complied with the
condition that the shoulder all expenses for the ejectment of the occupants of the subject
property under the first letter-agreement, "it would have been too cumbersome and
inequitable if the plaintiff-appellee [private respondent] were again made to shoulder the
expenses for the eviction of the subsequent tenants/occupants of the subject property.11".
Evidently, respondent court perceived the two letter-agreements to be a single transaction
such that it justified private respondent's non-compliance with condition No. 6 in the
second letter-agreement by invoking her earlier compliance with the same condition in
the first letter-agreement.

This confused sophism. When the first letter-agreement was cancelled by petitioner, and
private respondent agreed to that cancellation upon receiving P550,000.00 as refund of
her aggregate deposit, all the effects of that agreement were terminated. Upon mutual
assent to that cancellation, the agreement so cancelled thereafter no longer existed. Thus,
compliance by private respondent with the terms and conditions of that first agreement
served the purposes of that agreement and cannot be made to serve the purpose of the
second letter-agreement. Respondent court fallaciously tacked the two agreements with
each other and commingled their effects; in incorrectly considered petitioner's successful
ejectment of the subject property's 1983 occupants under the first letter-agreement to be
sufficient compliance with the condition under the second letter-agreement that the
subject property be cleared of its 1986 occupants.

The records attest to the fact that private respondent refused to accept condition No. 6 of
the second letter-agreement, dated May 14, 1986. Private respondent offered, for the
second time, after the first letter-agreement was cancelled, to buy the subject property
from petitioner who accepted such offer but subject to specified terms and conditions.
Thus, petitioner's acceptance of private respondent's offer was qualified acceptance,
which effect, is a counter-offer necessitating private respondent's acceptance in return.
Refusing to bind herself to bear the expenses for a second ejectment suit involving the
subject property, private respondent in effect rejectment petitioner's counter offer or at
the least, accepted the same subject to the deletion of condition No. 6. This, it has to be
noted, is another counter-offer necessitating acceptance this time by petitioner. Petitioner
was unwilling to accept the same and demanded remittance of the remainder of the down
payment, the failure of which payment, petitioner warned private respondent, would
result in the forfeiture of the initial deposit of P200,000.00 and the ipso facto cancellation
of the second letter-agreement enabling petitioner to sell the subject property through
sealed bidding.

From the foregoing, it is clear that private respondent and petitioner were negotiating for
terms mutually acceptable to them. Unfortunately, a mutually acceptable set of terms was
not reached between them, and petitioner exercised its right under the second letter-
agreement to cancel the same. This process of negotiation undertaken in 1986 by herein
private parties is undeniably distinct from and entirely independent of the events that
transpired in 1983 in the context of the first letter agreement. Precisely another
negotiation was necessary because this 1986 transaction is different and separate from
that undertaken by the said parties in 1983.

Both letter-agreements are in the nature of contracts to sell; non-compliance with the
suspensive conditions set forth therein prevents the obligation of the vendor to convey
title from having obligatory force

The fundamental flaw in the reasoning of both the trial court and the respondent appellate
court is their admitted premise that both letter-agreements are contracts of sale the
perfection of which are proven by the earnest money tendered to and accepted by
petitioner in the form of deposits of P100,000.00 and P200,000.00 under the first and
second letter-agreements, respectively.
A perusal of the letter-agreements shows that they are contracts to sell and not contracts
of sale.

A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the
vendor's obligation to transfer title is subordinated to the happening of future and
uncertain event so that if the suspensive condition does not take place, the parties would
stand as if the conditional obligation had never existed12. The suspensive condition is
commonly full payment of the purchase price13.

Thus it has been held that a deed of sale is absolute in nature although
denominated as a "Deed of Conditional Sale" where nowhere in the contract in
question is a proviso or stipulation to the effect that title to the property is sold is
reversed in the vendor until full payment of the purchase price, nor is there a
stipulation giving the vendor the right to unilaterally rescind the contract the
moment the vendee fails to pay within a fixed period . . . .14

If it were not full payment of the purchase price upon which depends the passing of title
from the vendor to the vendee, it may be some other condition or conditions that have
been stipulated and must be fulfilled before the contract is converted from a contract to
sell or at the most an executory sale into an executed one15.

. . . Where the seller promised to execute a deed of absolute sale upon completing
payment of the price, it is a contract to sell. In the case at bar, the sale is still in
the executory stage, namely, that if private respondent is able to secure the needed
funds to be used in the purchase of the two lots owned by petitioners. A mere
executory sale, one where the sellers merely promise to transfer the property at
some future date, or where some conditions have to be fulfilled before the
contract is converted from an executory to an executed one, does not pass
ownership over the real estate being sold.

In our jurisdiction, it has been held that an acceptable bilateral promise to buy and
sell is in a sense similar to, but not exactly the same, as a perfected contract of
sale because there is already a meeting of minds upon the thing which is the
object of the contract and upon the price but a contract of sale is consummated
only upon delivery and payment. . . .

. . . Petitioners as promisors were never obliged to convey title before the

happening of the suspensive condition. In fact, nothing stood in the way of their
selling the property to another after unsuccessful demand for said price upon the
expiration of the time agreed upon.16

The differences between a contract to sell and a contract of sale are well-settled in
jurisprudence. As early as 1951, we have held that:

. . . [a] distinction must be made between a contract of sale in which title passes to
the buyer upon delivery of the thing sold and a contract to sell . . . where by
 agreement the ownership is reserved in the seller and is not to pass until the full
payment of the purchase price is made. In the first case, non-payment of the price
is a negative resolutory condition; in the second case, full payment is a positive
suspensive condition. Being contraries, their effect in law cannot be identical. In
the fist case, the vendor has lost and cannot recover the ownership of the land sold
until and unless the contract of sale is itself resolved and set aside. In the second
case, however, the title remains in the vendor if the vendee does not comply with
the condition precedent of making payment at the time specified in the contract.17

In other words, in a contract to sell, ownership is retained by the seller and is not to pass
to the buyer until full payment of the price or the fulfillment of some other conditions
either which is a future and uncertain event the non-happening of which is not a breach,
casual or serious, but simply an event that prevents the obligation of the vendor to convey
title from acquiring binding force.18 To illustrate the effect of a positive suspensive
condition upon the nature of the transaction, as to whether it is a contract to sell or a
contract of sale, we have held thus:

In the agreement in question, entitlement PURCHASE AND SALE OF SCRAP

IRON, the seller bound and promised itself 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 price. Its
principal stipulation reads, to wit:

x x x           x x x          x x x

Witnesseth:

That the SELLER agrees to sell, and the BUYER agrees to buy . . .
on the following terms and conditions:

1. . . .

2. To cover payment of the purchase price, BUYER will open,

make or indorse an irrevocable and unconditional letter of credit
not later than May 15, 1983 at the Consolidated Bank and Trust
Company, Dumaguete City Branch, in favor of the SELLER in the
sum of . . . (P250,000.00) . . .

3. . . .

4. . . .

The petitioner corporation's obligation to sell is unequivocally subject to a

positive suspensive condition, i.e., the private respondent's opening, making or
indorsing of an irrevocable and unconditional letter of credit. The former agreed
to deliver the scrap iron only upon payment of the purchase price by means of an
 irrevocable and unconditional letter of credit. Otherwise stated, the contract is not
one of sale where the buyer acquired ownership over the property subject to the
resolutory condition that the purchase price would be paid after delivery. Thus,
there was to be no actual sale until the opening, making or indorsing of the
irrevocable and unconditional letter of credit. Since what obtains in the case at bar
is a mere promise to sell, the failure of the private respondent to comply with the
positive suspensive condition cannot even be considered a breach-casual or
serious-but simply an event that prevented the obligation of petitioner corporation
to convey title from acquiring binding force.

xxx xxx xxx

In the instant case, . . . private respondent fail[ed] to open, make or indorse an

irrevocable and unconditional letter of credit . . .

Consequently, the obligation of the petitioner corporation to sell did not arise; it
therefore cannot be compelled by specific performance to comply with its
prestation. . . .19

In the instant case, private respondent does not dispute the fact that, under identical
provisions in the two letter-agreements, her obligation was to deposit an initial amount
(P100,000.00 under the first letter-agreement and P200,000.00 under the second letter-
agreement) and then subsequently to deposit an additional amount representing roughly
20% of the purchase price (P978,860.00 under the first letter agreement and P827,119.83
under the second letter-agreement). Under both letter-agreements, the consequences of
private respondent's failure to remit the additional deposit, are unequivocal and plainly
comprehensive: ". . . deposit shall be forfeited and for this purpose, the Bank can sell the
property to other interested parties . . . due to your [private respondent's] failure to
consummate the previously-approved sale . . ."20.

This right reserved in the petitioner to in effect cancel the agreement to sell upon failure
of petitioner to remit the additional deposit and to consequently open the subject property
anew to purchase offers, is in the nature of a stipulation reserving title in the vendor until
full payment of the purchase price or giving the vendor the right to unilaterally rescind
the contract the moment the vendee fails to pay within a fixed period.

We had already made the finding that the letter-agreements in question indeed bear the
provisions reserving title in petitioner until payment of the additional deposit representing
more or less 20% of the purchase price. We also find, however, that the intention of the
private parties herein to make the sale dependent on petitioner's compliance with a certain
other conditions, is undeniable and plainly evident in the letter-agreements. Identical
provisions therein relating to petitioner's waiver of her right to warranty against eviction
and her accountability for the expense for the ejectment proceeding, are not so called
"standard" provisions that are more of a rhetorical device than conditions genuinely
meant by the parties to be suspensive conditions in the legal sense. In fact we find the
inclusion of these provisions to be part of the consideration of petitioner in considering
private respondent's offer to purchase the subject property. Corollarily, we find condition
No. 6 under the second letter-agreement relating to the accountability of petitioner for the
expenses for the ejectment proceedings, to be a positive suspensive condition, among the
other positive suspensive conditions embodied in the letter-agreement, non-compliance of
which prevents petitioner's obligation to proceed with the sale and ultimately transfer title
to private respondent, from having obligatory force.

Moreover, no less revealing is the fact that the letter-agreements are not deeds of sale,
thereunder no title having been passed from petitioner to private respondent. Herein lies
another important distinction between a contract to sell and a contract of sale.

. . . The distinction between the two is important for in a contract of sale, the title
passes to the vendee upon the delivery of the thing sold, whereas in a contract to
sell, by agreement, ownership is reserved in the vendor and is not pass until the
full payment of the price. In a contract of sale, the vendor has lost and cannot
recover ownership until and unless the contract is resolved or rescinded, whereas
in a contract to sell, title is retained by the vendor until the full payment of the
price, such payment being a positive suspensive condition, failure of which is not
breach but an event that prevented the obligation of the vendor to convey title
from becoming effective.21

We have often stated that it is not enough to say that the contract of sale, being
consensual, became automatically and immediately effective.22

Manuel v. Rodriguez, 109 Phil. 1, was one such occasion. In Manuel, "only the
price and the terms of payment were in writing," but the most important matter in
the controversy, the alleged transfer of title was never "reduced to any written
document. It was held that the contract should not considered . . . a sale but a
promise to sell; and that "the absence of a formal deed of conveyance" was a
strong indication "that the parties did not intend immediate transfer of title, but
only a transfer after full payment of the price." Under these circumstances, the
Court ruled Article 1504 of the Civil Code of 1889 (Art. 1592 of the present
Code) to be inapplicable to the contract in controversy — a contract to sell or
promise to sell — "where title remains with the vendor until fulfillment of a
positive suspensive condition . . ."23

Thus, we have applied the above doctrine not in a few cases and looked into, in
determining the true nature of an alleged sale transaction, whether or not there was
transfer of title. In one case, we found that:

Applying these distinctions, the Court finds that the agreement between PBC and
the private respondent was only a contract to sell, not a contract of sale. And the
reasons are obvious.

There was no immediate transfer of title to the private respondents as would have
happened if there had been a sale at the outset. The supposed sale was never
 registered and TCT No. 218661 in favor of PBC was not replaced with another
certificate of title of favor of the private respondents. . . .24

In the instant case, there was apparently no transfer of title, not even mention of such a
transfer in the future, considering that all the parties were aware of the occupancy of the
subject property by third persons. This circumstance all the more reinforces our finding
that the transaction contemplated under the letter-agreements was a contract to sell or a
conditional sale which absolutely depends, for its efficacy, upon the happening of the
conditions specified in the said letter-agreements.

Private respondent also asseverates that the initial deposit of P200,000.00 under the
second letter-agreement is earnest money, that is, by express provision of the Civil Code,
considered part of the purchase price and proof of the perfection of the sale.

Indeed under Article 1482 of the Civil Code, earnest money given in a sale transaction is
considered part of the purchase price and proof of the perfection of the sale. This
provision, however, gives no more than a disputable presumption that prevails in the
absence of contrary or rebuttal evidence. In the instant case, the letter-agreements
themselves are the evidence of an intention on the part of herein private parties to enter
into negotiations leading to a contract of sale that is mutually acceptable as to absolutely
bind them to the performance of their obligations thereunder. The letter-agreements are
replete with substantial condition precedents, acceptance of which on the part of private
respondent must first be made in order for petitioner to proceed to the next step in the
negotiations. The initial deposits under the two letter-agreements, therefore, should rather
be construed, not strictly as earnest money, but as part of the consideration for petitioner's
promise to reserve the subject property for private respondent. Certainly in excluding all
other prospective buyers from bidding for the subject property, petitioner was in effect
giving up what may have been more lucrative offers or better deals.

WHEREFORE, the Petition for Review is HEREBY GRANTED. The decision of the
Court of Appeals in CA-G.R. CV No. 33490 and the decision of the Regional Trial Court
of Manila, Branch XXVI, in Civil Case No. 87-39598, are hereby reversed and set aside.
Private respondent's complaint for specific performance and damages in Civil Case No.
87-39598 is dismissed.

No pronouncement as to costs.

SO ORDERED.
VIRGILIO R. ROMERO, petitioner,
vs.
HON. COURT OF APPEALS and ENRIQUETA CHUA VDA. DE
ONGSIONG, respondents.

VITUG, J.:

The parties pose this question: May the vendor demand the rescission of a contract for the sale of
a parcel of land for a cause traceable to his own failure to have the squatters on the subject
property evicted within the contractually-stipulated period?

Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business of production,
manufacture and exportation of perlite filter aids, permalite insulation and processed perlite ore.
In 1988, petitioner and his foreign partners decided to put up a central warehouse in Metro
Manila on a land area of approximately 2,000 square meters. The project was made known to
several freelance real estate brokers.

A day or so after the announcement, Alfonso Flores and his wife, accompanied by a broker,
offered a parcel of land measuring 1,952 square meters. Located in Barangay San Dionisio,
Parañaque, Metro Manila, the lot was covered by TCT No. 361402 in the name of private
respondent Enriqueta Chua vda. de Ongsiong. Petitioner visited the property and, except for the
presence of squatters in the area, he found the place suitable for a central warehouse.

Later, the Flores spouses called on petitioner with a proposal that should he advance the amount
of P50,000.00 which could be used in taking up an ejectment case against the squatters, private
respondent would agree to sell the property for only P800.00 per square meter. Petitioner
expressed his concurrence. On 09 June 1988, a contract, denominated "Deed of Conditional
Sale," was executed between petitioner and private respondent. The simply-drawn contract read:

DEED OF CONDITIONAL SALE

KNOW ALL MEN BY THESE PRESENTS:

This Contract, made and executed in the Municipality of Makati, Philippines this
9th day of June, 1988 by and between:

ENRIQUETA CHUA VDA. DE ONGSIONG, of legal age,

widow, Filipino and residing at 105 Simoun St., Quezon City,
Metro Manila, hereinafter referred to as the VENDOR;

-and-
 VIRGILIO R. ROMERO, married to Severina L. Lat, of Legal age,
Filipino, and residing at 110 San Miguel St., Plainview Subd.,
Mandaluyong Metro Manila, hereinafter referred to as the
VENDEE:

W I T N E S S E T H : That

WHEREAS, the VENDOR is the owner of One (1) parcel of land with a total area
of ONE THOUSAND NINE HUNDRED FIFTY TWO (1,952) SQUARE
METERS, more or less, located in Barrio San Dionisio, Municipality of
Parañaque, Province of Rizal, covered by TCT No. 361402 issued by the Registry
of Deeds of Pasig and more particularly described as follows:

xxx xxx xxx

WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of land and the
VENDOR has accepted the offer, subject to the terms and conditions hereinafter
stipulated:

NOW, THEREFORE, for and in consideration of the sum of ONE MILLION

FIVE HUNDRED SIXTY ONE THOUSAND SIX HUNDRED PESOS
(P1,561,600.00) ONLY, Philippine Currency, payable by VENDEE to in to (sic)
manner set forth, the VENDOR agrees to sell to the VENDEE, their heirs,
successors, administrators, executors, assign, all her rights, titles and interest in
and to the property mentioned in the FIRST WHEREAS CLAUSE, subject to the
following terms and conditions:

1. That the sum of FIFTY THOUSAND PESOS (P50,000.00)

ONLY Philippine Currency, is to be paid upon signing and
execution of this instrument.

2. The balance of the purchase price in the amount of ONE

MILLION FIVE HUNDRED ELEVEN THOUSAND SIX
HUNDRED PESOS (P1,511,600.00) ONLY shall be paid 45 days
after the removal of all squatters from the above described
property.

3. Upon full payment of the overall purchase price as aforesaid,

VENDOR without necessity of demand shall immediately sign,
execute, acknowledged (sic) and deliver the corresponding deed of
absolute sale in favor of the VENDEE free from all liens and
encumbrances and all Real Estate taxes are all paid and updated.

It is hereby agreed, covenanted and stipulated by and between the parties hereto
that if after 60 days from the date of the signing of this contract the VENDOR
shall not be able to remove the squatters from the property being purchased, the
 downpayment made by the buyer shall be returned/reimbursed by the VENDOR
to the VENDEE.

That in the event that the VENDEE shall not be able to pay the VENDOR the
balance of the purchase price of ONE MILLION FIVE HUNDRED ELEVEN
THOUSAND SIX HUNDRED PESOS (P1,511,600.00) ONLY after 45 days
from written notification to the VENDEE of the removal of the squatters from the
property being purchased, the FIFTY THOUSAND PESOS (P50,000.00)
previously paid as downpayment shall be forfeited in favor of the VENDOR.

Expenses for the registration such as registration fees, documentary stamp,

transfer fee, assurances and such other fees and expenses as may be necessary to
transfer the title to the name of the VENDEE shall be for the account of the
VENDEE while capital gains tax shall be paid by the VENDOR.

IN WITNESS WHEREOF, the parties hereunto signed those (sic) presents in the
City of Makati MM, Philippines on this 9th day of June, 1988.

(Sgd.) (Sgd.)

VIRGILIO R. ROMERO ENRIQUETA CHUA VDA.

DE ONGSIONG

Vendee Vendor

SIGNED IN THE PRESENCE OF:

(Sgd.) (Sgd.)

Rowena C. Ongsiong Jack M. Cruz1

Alfonso Flores, in behalf of private respondent, forthwith received and acknowledged a

check for P50,000.002 from petitioner.3

Pursuant to the agreement, private respondent filed a complaint for ejectment (Civil Case No.
7579) against Melchor Musa and 29 other squatter families with the Metropolitan Trial Court of
Parañaque. A few months later, or on 21 February 1989, judgment was rendered ordering the
defendants to vacate the premises. The decision was handed down beyond the 60-day period
(expiring 09 August 1988) stipulated in the contract. The writ of execution of the judgment was
issued, still later, on 30 March 1989.

In a letter, dated 07 April 1989, private respondent sought to return the P50,000.00 she received
from petitioner since, she said, she could not "get rid of the squatters" on the lot. Atty. Sergio
A.F. Apostol, counsel for petitioner, in his reply of 17 April 1989, refused the tender and stated:.
 Our client believes that with the exercise of reasonable diligence considering the
favorable decision rendered by the Court and the writ of execution issued
pursuant thereto, it is now possible to eject the squatters from the premises of the
subject property, for which reason, he proposes that he shall take it upon himself
to eject the squatters, provided, that expenses which shall be incurred by reason
thereof shall be chargeable to the purchase price of the land.4

Meanwhile, the Presidential Commission for the Urban Poor ("PCUD"), through its Regional
Director for Luzon, Farley O. Viloria, asked the Metropolitan Trial Court of Parañaque for a
grace period of 45 days from 21 April 1989 within which to relocate and transfer the squatter
families. Acting favorably on the request, the court suspended the enforcement of the writ of
execution accordingly.

On 08 June 1989, Atty. Apostol reminded private respondent on the expiry of the 45-day grace
period and his client's willingness to "underwrite the expenses for the execution of the judgment
and ejectment of the occupants."5

In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for private respondent, advised
Atty. Apostol that the Deed of Conditional Sale had been rendered null and void by virtue of his
client's failure to evict the squatters from the premises within the agreed 60-day period. He added
that private respondent had "decided to retain the property."6

On 23 June 1989, Atty. Apostol wrote back to explain:

The contract of sale between the parties was perfected from the very moment that
there was a meeting of the minds of the parties upon the subject lot and the price
in the amount of P1,561,600.00. Moreover, the contract had already been partially
fulfilled and executed upon receipt of the downpayment of your client. Ms.
Ongsiong is precluded from rejecting its binding effects relying upon her inability
to eject the squatters from the premises of subject property during the agreed
period. Suffice it to state that, the provision of the Deed of Conditional Sale do
not grant her the option or prerogative to rescind the contract and to retain the
property should she fail to comply with the obligation she has assumed under the
contract. In fact, a perusal of the terms and conditions of the contract clearly
shows that the right to rescind the contract and to demand the
return/reimbursement of the downpayment is granted to our client for his
protection.

Instead, however, of availing himself of the power to rescind the contract and
demand the return, reimbursement of the downpayment, our client had opted to
take it upon himself to eject the squatters from the premises. Precisely, we refer
you to our letters addressed to your client dated April 17, 1989 and June 8, 1989.

Moreover, it is basic under the law on contracts that the power to rescind is given
to the injured party. Undoubtedly, under the circumstances, our client is the
injured party.
 Furthermore, your client has not complied with her obligation under their contract
in good faith. It is undeniable that Ms. Ongsiong deliberately refused to exert
efforts to eject the squatters from the premises of the subject property and her
decision to retain the property was brought about by the sudden increase in the
value of realties in the surrounding areas.

Please consider this letter as a tender of payment to your client and a demand to
execute the absolute Deed of Sale.7

A few days later (or on 27 June 1989), private respondent, prompted by petitioner's continued
refusal to accept the return of the P50,000.00 advance payment, filed with the Regional Trial
Court of Makati, Branch 133, Civil Case No. 89-4394 for rescission of the deed of "conditional"
sale, plus damages, and for the consignation of P50,000.00 cash.

Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued an alias writ of execution in
Civil Case No. 7579 on motion of private respondent but the squatters apparently still stayed on.

Back to Civil Case No. 89-4394, on 26 June 1990, the Regional Trial Court of Makati8 rendered
decision holding that private respondent had no right to rescind the contract since it was she who
"violated her obligation to eject the squatters from the subject property" and that petitioner, being
the injured party, was the party who could, under Article 1191 of the Civil Code, rescind the
agreement. The court ruled that the provisions in the contract relating to (a) the
return/reimbursement of the P50,000.00 if the vendor were to fail in her obligation to free the
property from squatters within the stipulated period or (b), upon the other hand, the sum's
forfeiture by the vendor if the vendee were to fail in paying the agreed purchase price, amounted
to "penalty clauses". The court added:

This Court is not convinced of the ground relied upon by the plaintiff in seeking
the rescission, namely: (1) he (sic) is afraid of the squatters; and (2) she has spent
so much to eject them from the premises (p. 6, tsn, ses. Jan. 3, 1990). Militating
against her profession of good faith is plaintiffs conduct which is not in accord
with the rules of fair play and justice. Notably, she caused the issuance of
an alias writ of execution on August 25, 1989 (Exh. 6) in the ejectment suit
which was almost two months after she filed the complaint before this Court on
June 27, 1989. If she were really afraid of the squatters, then she should not have
pursued the issuance of an alias writ of execution. Besides, she did not even
report to the police the alleged phone threats from the squatters. To the mind of
the Court, the so-called squatter factor is simply factuitous (sic).9

The lower court, accordingly, dismissed the complaint and ordered, instead, private
respondent to eject or cause the ejectment of the squatters from the property and to
execute the absolute deed of conveyance upon payment of the full purchase price by
petitioner.

Private respondent appealed to the Court of Appeals. On 29 May 1992, the appellate court
rendered its decision. 10 It opined that the contract entered into by the parties was subject to a
resolutory condition, i.e., the ejectment of the squatters from the land, the non-occurrence of
which resulted in the failure of the object of the contract; that private respondent substantially
complied with her obligation to evict the squatters; that it was petitioner who was not ready to
pay the purchase price and fulfill his part of the contract, and that the provision requiring a
mandatory return/reimbursement of the P50,000.00 in case private respondent would fail to eject
the squatters within the 60-day period was not a penal clause. Thus, it concluded.

WHEREFORE, the decision appealed from is REVERSED and SET ASIDE, and
a new one entered declaring the contract of conditional sale dated June 9, 1988
cancelled and ordering the defendant-appellee to accept the return of the
downpayment in the amount of P50,000.00 which was deposited in the court
below. No pronouncement as to costs.11

Failing to obtain a reconsideration, petitioner filed this petition for review on certiorari raising
issues that, in fine, center on the nature of the contract adverted to and the P50,000.00 remittance
made by petitioner.

A perfected contract of sale may either be absolute or conditional 12 depending on whether the
agreement is devoid of, or subject to, any condition imposed on the passing of title of the thing
to be conveyed or on the obligation of a party thereto. When ownership is retained until the
fulfillment of a positive condition the breach of the condition will simply prevent the duty to
convey title from acquiring an obligatory force. If the condition is imposed on an obligation of a
party which is not complied with, the other party may either refuse to proceed or waive said
condition (Art. 1545, Civil Code). Where, of course, the condition is imposed upon
the perfection of the contract itself, the failure of such condition would prevent the juridical
relation itself from coming into existence.13

In determining the real character of the contract, the title given to it by the parties is not as much
significant as its substance. For example, a deed of sale, although denominated as a deed of
conditional sale, may be treated as absolute in nature, if title to the property sold is not reserved
in the vendor or if the vendor is not granted the right to unilaterally rescind the contract
predicated
on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition.14

The term "condition" in the context of a perfected contract of sale pertains, in reality, to the
compliance by one party of an undertaking the fulfillment of which would beckon, in turn, the
demandability of the reciprocal prestation of the other party. The reciprocal obligations referred
to would normally be, in the case of vendee, the payment of the agreed purchase price and, in the
case of the vendor, the fulfillment of certain express warranties (which, in the case at bench is
the timely eviction of the squatters on the property).

It would be futile to challenge the agreement here in question as not being a duly perfected
contract. A sale is at once perfected when a person (the seller) obligates himself, for a price
certain, to deliver and to transfer ownership of a specified thing or right to another (the buyer)
over which the latter agrees.15
The object of the sale, in the case before us, was specifically identified to be a 1,952-square
meter lot in San Dionisio, Parañaque, Rizal, covered by Transfer Certificate of Title No. 361402
of the Registry of Deeds for Pasig and therein technically described. The purchase price was
fixed at P1,561,600.00, of which P50,000.00 was to be paid upon the execution of the document
of sale and the balance of P1,511,600.00 payable "45 days after the removal of all squatters from
the above described property."

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

We share the opinion of the appellate court that the undertaking required of private respondent
does not constitute a "potestative condition dependent solely on his will" that might, otherwise,
be void in accordance with Article 1182 of the Civil Code 17 but a "mixed" condition "dependent
not on the will of the vendor alone but also of third persons like the squatters and government
agencies and personnel concerned."18 We must hasten to add, however, that where the so-called
"potestative condition" is imposed not on the birth of the obligation but on its fulfillment, only
the obligation is avoided, leaving unaffected the obligation itself.19

In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned, allows the
obligee to choose between proceeding with the agreement or waiving the performance of the
condition. It is this provision which is the pertinent rule in the case at bench. Here, evidently,
petitioner has waived the performance of the condition imposed on private respondent to free the
property from squatters.20

In any case, private respondent's action for rescission is not warranted. She is not the injured
party.21 The right of resolution of a party to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party that violates the reciprocity between them. 22 It
is private respondent who has failed in her obligation under the contract. Petitioner did not
breach the agreement. He has agreed, in fact, to shoulder the expenses of the execution of the
judgment in the ejectment case and to make arrangements with the sheriff to effect such
execution. In his letter of 23 June 1989, counsel for petitioner has tendered payment and
demanded forthwith the execution of the deed of absolute sale. Parenthetically, this offer to pay,
having been made prior to the demand for rescission, assuming for the sake of argument that
such a demand is proper under Article 159223 of the Civil Code, would likewise suffice to defeat
private respondent's prerogative to rescind thereunder.

There is no need to still belabor the question of whether the P50,000.00 advance payment is
reimbursable to petitioner or forfeitable by private respondent, since, on the basis of our
foregoing conclusions, the matter has ceased to be an issue. Suffice it to say that petitioner
having opted to proceed with the sale, neither may petitioner demand its reimbursement from
private respondent nor may private respondent subject it to forfeiture.

WHEREFORE, the questioned decision of the Court of Appeals is hereby REVERSED AND
SET ASIDE, and another is entered ordering petitioner to pay private respondent the balance of
the purchase price and the latter to execute the deed of absolute sale in favor of petitioner. No
costs.

SO ORDERED.
OPTIMUM DEVELOPMENT BANK, Petitioner,
vs.
SPOUSES BENIGNO V. JOVELLANOS and LOURDES R. JOVELLANOS, Respondents.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated May 29, 2009 and
Resolution 3 dated August 10, 2009 of the Court of Appeals (CA) in CA-G.R. SP No. 104487
which reversed the Decision4 dated December 27, 2007 of the Regional Trial Court of Caloocan
City, Branch 128 (RTC) in Civil Case No. C-21867 that, in turn, affirmed the Decision5 dated
June 8, 2007 of the Metropolitan Trial Court, Branch 53 of that same city (MeTC) in Civil Case
No. 06-28830 ordering respondents-spouses Benigno and Lourdes Jovellanos (Sps. Jovellanos)
to, inter alia, vacate the premises of the property subject of this case.

The Facts

On April 26, 2005, Sps. Jovellanos entered into a Contract to Sell6 with Palmera Homes, Inc.
(Palmera Homes) for the purchase of a residential house and lot situated in Block 3, Lot 14, Villa
Alegria Subdivision, Caloocan City (subject property) for a total consideration of ₱1,015,000.00.
Pursuant to the contract, Sps. Jovellanos took possession of the subject property upon a down
payment of ₱91,500.00, undertaking to pay the remaining balance of the contract price in equal
monthly installments of ₱13,107.00 for a period of 10 years starting June 12, 2005.7

On August 22, 2006, Palmera Homes assigned all its rights, title and interest in the Contract to
Sell in favor of petitioner Optimum Development Bank (Optimum) through a Deed of
Assignment of even date.8

On April 10, 2006, Optimum issued a Notice of Delinquency and Cancellation of Contract to
Sell9 for Sps. Jovellanos’s failure to pay their monthly installments despite several written and
verbal notices.10

In a final Demand Letter dated May 25, 2006,11 Optimum required Sps. Jovellanos to vacate and
deliver possession of the subject property within seven (7) days which, however, remained
unheeded. Hence, Optimum filed, on November 3, 2006, a complaint for unlawful
detainer12 before the MeTC, docketed as Civil Case No. 06-28830. Despite having been served
with summons, together with a copy of the complaint, 13 Sps. Jovellanos failed to file their answer
within the prescribed reglementary period, thus prompting Optimum to move for the rendition of
judgment.14

Thereafter, Sps. Jovellanos filed their opposition with motion to admit answer, questioning the
jurisdiction of the court, among others. Further, they filed a Motion to Reopen and Set the Case
for Preliminary Conference, which the MeTC denied.

The MeTC Ruling

In a Decision15 dated June 8, 2007, the MeTC ordered Sps. Jovellanos to vacate the subject
property and pay Optimum reasonable compensation in the amount of ₱5,000.00 for its use and
occupation until possession has been surrendered. It held that Sps. Jovellanos’s possession of the
said property was by virtue of a Contract to Sell which had already been cancelled for non-
payment of the stipulated monthly installment payments. As such, their "rights of possession
over the subject property necessarily term inated or expired and hence, their continued
possession thereof constitute[d] unlawful detainer."16

Dissatisfied, Sps. Jovellanos appealed to the RTC, claiming that Optimum counsel made them
believe that a compromise agreement was being prepared, thus their decision not to engage the
services of counsel and their concomitant failure to file an answer.17

They also assailed the jurisdiction of the MeTC, claiming that the case did not merely involve
the issue of physical possession but rather, questions arising from their rights under a contract to
sell which is a matter that is incapable of pecuniary estimation and, therefore, within the
jurisdiction of the RTC.18

The RTC Ruling

In a Decision19 dated December 27, 2007, the RTC affirmed the MeTC’s judgment, holding that
the latter did not err in refusing to admit Sps. Jovellanos’ s belatedly filed answer considering the
mandatory period for its filing. It also affirmed the MeTC’s finding that the action does not
involve the rights of the respective parties under the contract but merely the recovery of
possession by Optimum of the subject property after the spouses’ default.20

Aggrieved, Sps. Jovellanos moved for reconsideration which was, however, denied in a
Resolution21 dated June 27, 2008. Hence, the petition before the CA reiterating that the RTC
erred in affirming the decision of the MeTC with respect to:

(a) the non-admission of their answer to the complaint; and

(b) the jurisdiction of the MeTC over the complaint for unlawful detainer.22

The CA Ruling

In an Amended Decision23 dated May 29, 2009, the CA reversed and set aside the RTC’s
decision, ruling to dismiss the complaint for lack of jurisdiction. It found that the controversy
does not only involve the issue of possession but also the validity of the cancellation of the
Contract to Sell and the determination of the rights of the parties thereunder as well as the
governing law, among others, Republic Act No. (RA) 6552.24

Accordingly, it concluded that the subject matter is one which is incapable of pecuniary
estimation and thus, within the jurisdiction of the RTC.25

Undaunted, Optimum moved for reconsideration which was denied in a Resolution26 dated

August 10, 2009. Hence, the instant petition, submitting that the case is one for unlawful
detainer, which falls within the exclusive original jurisdiction of the municipal trial courts, and
not a case incapable of pecuniary estimation cognizable solely by the regional trial courts.

The Court’s Ruling

The petition is meritorious. What is determinative of the nature of the action and the court with
jurisdiction over it are the allegations in the complaint and the character of the relief sought, not
the defenses set up in an answer.27

A complaint sufficiently alleges a cause of action for unlawful detainer if it recites that:

(a) initially, possession of the property by the defendant was by contract with or by
tolerance of the plaintiff;

(b) eventually, such possession became illegal upon notice by plaintiff to defendant of the
termination of the latter's right of possession;

(c) thereafter, defendant remained in possession of the property and deprived plaintiff of
the enjoyment thereof; and

(d) within one year from the last demand on defendant to vacate the property, plaintiff
instituted the complaint for ejectment.28

Corollarily, the only issue to be resolved in an unlawful detainer case is physical or material
possession of the property involved, independent of any claim of ownership by any of the parties
involved.29

In its complaint, Optimum alleged that it was by virtue of the April 26, 2005 Contract to Sell that
Sps. Jovellanos were allowed to take possession of the subject property. However, since the
latter failed to pay the stipulated monthly installments, notwithstanding several written and
verbal notices made upon them, it cancelled the said contract as per the Notice of Delinquency
and Cancellation dated April 10, 2006. When Sps. Jovellanos refused to vacate the subject
property despite repeated demands, Optimum instituted the present action for unlawful detainer
on November 3, 2006, or within one year from the final demand made on May 25, 2006.

While the RTC upheld the MeTC’s ruling in favor of Optimum, the CA, on the other hand,
declared that the MeTC had no jurisdiction over the complaint for unlawful detainer, reasoning
that the case involves a matter which is incapable of pecuniary estimation – i.e., the validity of
the cancellation of the Contract to Sell and the determination of the rights of the parties under the
contract and law – and hence, within the jurisdiction of the RTC. The Court disagrees.
Metropolitan Trial Courts are conditionally vested with authority to resolve the question of
ownership raised as an incident in an ejectment case where the determination is essential to a
complete adjudication of the issue of possession.30 Concomitant to the ejectment court’s
authority to look into the claim of ownership for purposes of resolving the issue of possession is
its authority to interpret the contract or agreement upon which the claim is premised. Thus, in the
case of Oronce v. CA,31 wherein the litigants’ opposing claims for possession was hinged on
whether their written agreement reflected the intention to enter into a sale or merely an equitable
mortgage, the Court affirmed the propriety of the ejectment court’s examination of the terms of
the agreement in question by holding that, "because metropolitan trial courts are authorized to
look into the ownership of the property in controversy in ejectment cases, it behooved MTC
Branch 41 to examine the bases for petitioners’ claim of ownership that entailed interpretation of
the Deed of Sale with Assumption of Mortgage."32 Also, in Union Bank of the Philippines v.
Maunlad Homes, Inc.33 (Union Bank), citing Sps. Refugia v. CA,34 the Court declared that
MeTCs have authority to interpret contracts in unlawful detainer cases, viz.:35

The authority granted to the MeTC to preliminarily resolve the issue of ownership to determine
the issue of possession ultimately allows it to interpret and enforce the contract or agreement
between the plaintiff and the defendant. To deny the MeTC jurisdiction over a complaint merely
because the issue of possession requires the interpretation of a contract will effectively rule out
unlawful detainer as a remedy. As stated, in an action for unlawful detainer, the defendant’s right
to possess the property may be by virtue of a contract, express or implied;

corollarily, the termination of the defendant’s right to possess would be governed by the terms of
the same contract.

Interpretation of the contract between the plaintiff and the defendant is inevitable because it is
the contract that initially granted the defendant the right to possess the property; it is this same
contract that the plaintiff subsequently claims was violated or extinguished, terminating the
defendant’s right to possess. We ruled in Sps. Refugia v. CA that – where the resolution of the
issue of possession hinges on a determination of the validity and interpretation of the document
of title or any other contract on which the claim of possession is premised, the inferior court may
likewise pass upon these issues.

The MeTC’s ruling on the rights of the parties based on its interpretation of their contract is, of
course, not conclusive, but is merely provisional and is binding only with respect to the issue of
possession. (Emphases supplied; citations omitted)

In the case at bar, the unlawful detainer suit filed by Optimum against Sps. Jovellanos for
illegally withholding possession of the subject property is similarly premised upon the
cancellation or termination of the Contract to Sell between them. Indeed, it was well within the
jurisdiction of the MeTC to consider the terms of the parties’ agreement in order to ultimately
determine the factual bases of Optimum’s possessory claims over the subject property.
Proceeding accordingly, the MeTC held that Sps. Jovellanos’s non-payment of the installments
due had rendered the Contract to Sell without force and effect, thus depriving the latter of their
right to possess the property subject of said contract. 36 The foregoing disposition aptly squares
with existing jurisprudence. As the Court similarly held in the Union Bank case, the seller’s
cancellation of the contract to sell necessarily extinguished the buyer’s right of possession over
the property that was the subject of the terminated agreement.37

Verily, in a contract to sell, the prospective seller binds himself to sell the property subject of the
agreement exclusively to the prospective buyer upon fulfillment of the condition agreed upon
which is the full payment of the purchase price but reserving to himself the ownership of the
subject property despite delivery thereof to the prospective buyer.38

The full payment of the purchase price in a contract to sell is a suspensive condition, the non-
fulfillment of which prevents the prospective seller’s obligation to convey title from becoming
effective,39 as in this case. Further, it is significant to note that given that the Contract to Sell in
this case is one which has for its object real property to be sold on an installment basis, the said
contract is especially governed by – and thus, must be examined under the provisions of – RA
6552, or the "Realty Installment Buyer Protection Act", which provides for the rights of the
buyer in case of his default in the payment of succeeding installments. Breaking down the
provisions of the law, the Court, in the case of Rillo v. CA,40 explained the mechanics of
cancellation under RA 6552 which are based mainly on the amount of installments already paid
by the buyer under the subject contract, to wit:41

Given the nature of the contract of the parties, the respondent court correctly applied Republic
Act No. 6552. Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all
kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the
contract upon non-payment of an installment by the buyer, which is simply an event that
prevents the obligation of the vendor to convey title from acquiring binding force. It also
provides the right of the buyer on installments in case he defaults in the payment of succeeding
installments, viz.:

(1) Where he has paid at least two years of installments,

(a) To pay, without additional interest, the unpaid installments due within the total grace
period earned by him, which is hereby fixed at the rate of one month grace period for
every one year of installment payments made:

Provided, That this right shall be exercised by the buyer only once in every five years of the life
of the contract and its extensions, if any. (b) If the contract is cancelled, the seller shall refund to
the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of
the total payments made and, after five years of installments, an additional five per cent every
year but not to exceed ninety per cent of the total payments made:

Provided, That the actual cancellation of the contract shall take place after cancellation or the
demand for rescission of the contract by a notarial act and upon full payment of the cash
surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the
total number of installments made.

(2) Where he has paid less than two years in installments, Sec. 4. x x x the seller shall give the
buyer a grace period of not less than sixty days from the date the installment became due. If the
buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel
the contract after thirty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act. (Emphasis and underscoring supplied)
Pertinently, since Sps. Jovellanos failed to pay their stipulated monthly installments as found by
the MeTC, the Court examines Optimum’s compliance with Section 4 of RA 6552, as above-
quoted and highlighted, which is the provision applicable to buyers who have paid less than two
(2) years-worth of installments. Essentially, the said provision provides for three (3) requisites
before the seller may actually cancel the subject contract: first, the seller shall give the buyer a
60-day grace period to be reckoned from the date the installment became due; second, the seller
must give the buyer a notice of cancellation/demand for rescission by notarial act if the buyer
fails to pay the installments due at the expiration of the said grace period; and third, the seller
may actually cancel the contract only after thirty (30) days from the buyer’s receipt of the said
notice of cancellation/demand for rescission by notarial act. In the present case, the 60-day grace
period automatically operated42 in favor of the buyers, Sps. Jovellanos, and took effect from the
time that the maturity dates of the installment payments lapsed. With the said grace period
having expired bereft of any installment payment on the part of Sps. Jovellanos,43 Optimum then
issued a notarized Notice of Delinquency and Cancellation of Contract on April 10, 2006.
Finally, in proceeding with the actual cancellation of the contract to sell, Optimum gave Sps.
Jovellanos an additional thirty (30) days within which to settle their arrears and reinstate the
contract, or sell or assign their rights to another.44

It was only after the expiration of the thirty day (30) period did Optimum treat the contract to sell
as effectively cancelled – making as it did a final demand upon Sps. Jovellanos to vacate the
subject property only on May 25, 2006. Thus, based on the foregoing, the Court finds that there
was a valid and effective cancellation of the Contract to Sell in accordance with Section 4 of RA
6552 and since Sps. Jovellanos had already lost their right to retain possession of the subject
property as a consequence of such cancellation, their refusal to vacate and turn over possession
to Optimum makes out a valid case for unlawful detainer as properly adjudged by the MeTC.

WHEREFORE, the petition is GRANTED. The Decision dated May 29, 2009 and Resolution
dated August 10, 2009 of the Court of Appeals in CA-G.R. SP No. 104487 are SET ASIDE. The
Decision dated June 8, 2007 of Metropolitan Trial Court, Branch 53, Caloocan City in Civil Case
No. 06-28830 is hereby REINSTATED.

SO ORDERED.
SPOUSES JOSE C. ROQUE AND BEATRIZ DELA CRUZ ROQUE, with deceased Jose
C. Roque represented by his substitute heir JOVETTE ROQUE-LIBREA, Petitioners,
vs.
MA. PAMELA P. AGUADO, FRUCTUOSO C. SABUG, JR., NATIONAL COUNCIL OF
CHURCHES IN THE PHILIPPINES (NCCP), represented by its Secretary General
SHARON ROSE JOY RUIZ-DUREMDES, LAND BANK OF THE PHILIPPINES (LBP),
represented by Branch Manager EVELYN M. MONTERO, ATTY. MARIO S.P. DIAZ, in
his Official Capacity as Register of Deeds for Rizal, Morong Branch, and CECILIO U.
PULAN, in his Official Capacity as Sheriff, Office of the Clerk of Court, Regional Trial
Court, Binangonan, Rizal, Respondents.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated May 12, 2010 and the
Resolution3 dated September 15, 2010 of the Court of Appeals (CA) in CA G.R. CV No. 92113
which affirmed the Decision4 dated July 8, 2008 of the Regional Trial Court of Binangonan,
Rizal, Branch 69 (RTC) that dismissed Civil Case Nos. 03-022 and 05-003 for reconveyance,
annulment of sale, deed of real estate mortgage, foreclosure and certificate of sale, and damages.

The Facts

The property subject of this case is a parcel of land with an area of 20,862 square meters (sq. m.),
located in Sitio Tagpos, Barangay Tayuman, Binangonan, Rizal, known as Lot 18089.5

On July 21, 1977, petitioners-spouses Jose C. Roque and Beatriz dela Cruz Roque (Sps. Roque)
and the original owners of the then unregistered Lot 18089 – namely, Velia R. Rivero (Rivero),
Magdalena Aguilar, Angela Gonzales, Herminia R. Bernardo, Antonio Rivero, Araceli R. Victa,
Leonor R. Topacio, and Augusto Rivero (Rivero, et al.) – executed a Deed of Conditional Sale of
Real Property6 (1977 Deed of Conditional Sale) over a 1,231-sq. m. portion of Lot 18089
(subject portion) for a consideration of ₱30,775.00. The parties agreed that Sps. Roque shall
make an initial payment of ₱15,387.50 upon signing, while the remaining balance of the
purchase price shall be payable upon the registration of Lot 18089, as well as the segregation and
the concomitant issuance of a separate title over the subject portion in their names. After the
deed’s execution, Sps. Roque took possession and introduced improvements on the subject
portion which they utilized as a balut factory.7

On August 12, 1991, Fructuoso Sabug, Jr. (Sabug, Jr.), former Treasurer of the National Council
of Churches in the Philippines (NCCP), applied for a free patent over the entire Lot 18089 and
was eventually issued Original Certificate of Title (OCT) No. M-59558 in his name on October
21, 1991. On June 24, 1993, Sabug, Jr. and Rivero, in her personal capacity and in representation
of Rivero, et al., executed a Joint Affidavit9 (1993 Joint Affidavit), acknowledging that the
subject portion belongs to Sps. Roque and expressed their willingness to segregate the same from
the entire area of Lot 18089.

On December 8, 1999, however, Sabug, Jr., through a Deed of Absolute Sale10 (1999 Deed of
Absolute Sale), sold Lot 18089 to one Ma. Pamela P. Aguado (Aguado) for ₱2,500,000.00, who,
in turn, caused the cancellation of OCT No. M-5955 and the issuance of Transfer Certificate of
Title (TCT) No. M-96692 dated December 17, 199911 in her name.

Thereafter, Aguado obtained an ₱8,000,000.00 loan from the Land Bank of the Philippines
(Land Bank) secured by a mortgage over Lot 18089.12 When she failed to pay her loan
obligation, Land Bank commenced extra-judicial foreclosure proceedings and eventually
tendered the highest bid in the auction sale. Upon Aguado’s failure to redeem the subject
property, Land Bank consolidated its ownership, and TCT No. M-11589513 was issued in its
name on July 21, 2003.14

On June 16, 2003, Sps. Roque filed a complaint15 for reconveyance, annulment of sale, deed of
real estate mortgage, foreclosure, and certificate of sale, and damages before the RTC, docketed
as Civil Case No. 03-022, against Aguado, Sabug, Jr., NCCP, Land Bank, the Register of Deeds
of Morong, Rizal, and Sheriff Cecilio U. Pulan, seeking to be declared as the true owners of the
subject portion which had been erroneously included in the sale between Aguado and Sabug, Jr.,
and, subsequently, the mortgage to Land Bank, both covering Lot 18089 in its entirety.

In defense, NCCP and Sabug, Jr. denied any knowledge of the 1977 Deed of Conditional Sale
through which the subject portion had been purportedly conveyed to Sps. Roque.16

For her part, Aguado raised the defense of an innocent purchaser for value as she allegedly
derived her title (through the 1999 Deed of Absolute Sale) from Sabug, Jr., the registered owner
in OCT No. M-5955, covering Lot 18089, which certificate of title at the time of sale was free
from any lien and/or encumbrances. She also claimed that Sps. Roque’s cause of action had
already prescribed because their adverse claim was made only on April 21, 2003, or four (4)
years from the date OCT No. M-5955 was issued in Sabug, Jr.’s name on December 17, 1999.17

On the other hand, Land Bank averred that it had no knowledge of Sps. Roque’s claim relative to
the subject portion, considering that at the time the loan was taken out, Lot 18089 in its entirety
was registered in Aguado’s name and no lien and/or encumbrance was annotated on her
certificate of title.18
Meanwhile, on January 18, 2005, NCCP filed a separate complaint19 also for declaration of
nullity of documents and certificates of title and damages, docketed as Civil Case No. 05-003. It
claimed to be the real owner of Lot 18089 which it supposedly acquired from Sabug, Jr. through
an oral contract of sale20 in the early part of 1998, followed by the execution of a Deed of
Absolute Sale on December 2, 1998 (1998 Deed of Absolute Sale).21 NCCP also alleged that in
October of the same year, it entered into a Joint Venture Agreement (JVA) with Pilipinas Norin
Construction Development Corporation (PNCDC), a company owned by Aguado’s parents, for
the development of its real properties, including Lot 18089, into a subdivision project, and as
such, turned over its copy of OCT No. M-5955 to PNCDC.22 Upon knowledge of the purported
sale of Lot 18089 to Aguado, Sabug, Jr. denied the transaction and alleged forgery. Claiming that
the Aguados23 and PNCDC conspired to defraud NCCP, it prayed that PNCDC’s corporate veil
be pierced and that the Aguados be ordered to pay the amount of ₱38,092,002.00 representing
the unrealized profit from the JVA.24 Moreover, NCCP averred that Land Bank failed to exercise
the diligence required to ascertain the true owners of Lot 18089. Hence, it further prayed that: (a)
all acts of ownership and dominion over Lot 18089 that the bank might have done or caused to
be done be declared null and void; (b) it be declared the true and real owners of Lot 18089; and
(c) the Register of Deeds of Morong, Rizal be ordered to cancel any and all certificates of title
covering the lot, and a new one be issued in its name.25 In its answer, Land Bank reiterated its
stance that Lot 18089 was used as collateral for the ₱8,000,000.00 loan obtained by the
Countryside Rural Bank, Aguado, and one Bella Palasaga. There being no lien and/ or
encumbrance annotated on its certificate of title, i.e., TCT No. M-115895, it cannot be held liable
for NCCP’s claims. Thus, it prayed for the dismissal of NCCP’s complaint.26

On September 7, 2005, Civil Case Nos. 02-022 and 05-003 were ordered consolidated.27

The RTC Ruling

After due proceedings, the RTC rendered a Decision28 dated July 8, 2008, dismissing the
complaints of Sps. Roque and NCCP.

With respect to Sps. Roque’s complaint, the RTC found that the latter failed to establish their
ownership over the subject portion, considering the following: (a) the supposed owners-vendors,
i.e., Rivero, et al., who executed the 1977 Deed of Conditional Sale, had no proof of their title
over Lot 18089; (b) the 1977 Deed of Conditional Sale was not registered with the Office of the
Register of Deeds;29 (c) the 1977 Deed of Conditional Sale is neither a deed of conveyance nor a
transfer document, as it only gives the holder the right to compel the supposed vendors to
execute a deed of absolute sale upon full payment of the consideration; (d) neither Sps. Roque
nor the alleged owners-vendors, i.e., Rivero, et al., have paid real property taxes in relation to
Lot 18089; and (e) Sps. Roque’s occupation of the subject portion did not ripen into ownership
that can be considered superior to the ownership of Land Bank.30 Moreover, the RTC ruled that
Sps. Roque’s action for reconveyance had already prescribed, having been filed ten (10) years
after the issuance of OCT No. M-5955.31

On the other hand, regarding NCCP’s complaint, the RTC observed that while it anchored its
claim of ownership over Lot 18089 on the 1998 Deed of Absolute Sale, the said deed was not
annotated on OCT No. M-5955. Neither was any certificate of title issued in its name nor did it
take possession of Lot 18089 or paid the real property taxes therefor. Hence, NCCP’s claim
cannot prevail against Land Bank’s title, which was adjudged by the RTC as an innocent
purchaser for value. Also, the RTC disregarded NCCP’s allegation that the signature of Sabug,
Jr. on the 1999 Deed of Absolute Sale in favor of Aguado was forged because his signatures on
both instruments bear semblances of similarity and appear genuine. Besides, the examiner from
the National Bureau of Investigation, who purportedly found that Sabug, Jr.’s signature thereon
was spurious leading to the dismissal of a criminal case against him, was not presented as a
witness in the civil action.32

Finally, the RTC denied the parties’ respective claims for damages.33

The CA Ruling

On appeal, the Court of Appeals (CA) affirmed the foregoing RTC findings in a Decision34 dated
May 12, 2010. While Land Bank was not regarded as a mortgagee/purchaser in good faith with
respect to the subject portion considering Sps. Roque’s possession thereof,35 the CA did not order
its reconveyance or segregation in the latter’s favor because of Sps. Roque’s failure to pay the
remaining balance of the purchase price. Hence, it only directed Land Bank to respect Sps.
Roque’s possession with the option to appropriate the improvements introduced thereon upon
payment of compensation.36

As regards NCCP, the CA found that it failed to establish its right over Lot 18089 for the
following reasons: (a) the sale to it of the lot by Sabug, Jr. was never registered; and (b) there is
no showing that it was in possession of Lot 18089 or any portion thereof from 1998. Thus, as far
as NCCP is concerned, Land Bank is a mortgagee/purchaser in good faith.37

Aggrieved, both Sps. Roque38 and NCCP39 moved for reconsideration but were denied by the CA
in a Resolution40 dated September 15, 2010, prompting them to seek further recourse before the
Court.

The Issue Before the Court

The central issue in this case is whether or not the CA erred in not ordering the reconveyance of
the subject portion in Sps. Roque’s favor.

Sps. Roque maintain that the CA erred in not declaring them as the lawful owners of the subject
portion despite having possessed the same since the execution of the 1977 Deed of Conditional
Sale, sufficient for acquisitive prescription to set in in their favor.41 To bolster their claim, they
also point to the 1993 Joint Affidavit whereby Sabug, Jr. and Rivero acknowledged their
ownership thereof.42 Being the first purchasers and in actual possession of the disputed portion,
they assert that they have a better right over the 1,231- sq. m. portion of Lot 18089 and, hence,
cannot be ousted therefrom by Land Bank, which was adjudged as a ortgagee/purchaser in bad
faith, pursuant to Article 1544 of the Civil Code.43

In opposition, Land Bank espouses that the instant petition should be dismissed for raising
questions of fact, in violation of the proscription under Rule 45 of the Rules of Court which
allows only pure questions of law to be raised.44 Moreover, it denied that ownership over the
subject portion had been acquired by Sps. Roque who admittedly failed to pay the remaining
balance of the purchase price.45 Besides, Land Bank points out that Sps. Roque’s action for
reconveyance had already prescribed.46

Instead of traversing the arguments of Sps. Roque, NCCP, in its Comment47 dated December 19,
2011, advanced its own case, arguing that the CA erred in holding that it failed to establish its
claimed ownership over Lot 18089 in its entirety. Incidentally, NCCP’s appeal from the CA
Decision dated May 12, 2010 was already denied by the Court,48 and hence, will no longer be
dealt with in this case.

The Court’s Ruling

The petition lacks merit.

The essence of an action for reconveyance is to seek the transfer of the property which was
wrongfully or erroneously registered in another person’s name to its rightful owner or to one
with a better right.49 Thus, it is incumbent upon the aggrieved party to show that he has a legal
claim on the property superior to that of the registered owner and that the property has not yet
passed to the hands of an innocent purchaser for value.50

Sps. Roque claim that the subject portion covered by the 1977 Deed of Conditional Sale between
them and Rivero, et al. was wrongfully included in the certificates of title covering Lot 18089,
and, hence, must be segregated therefrom and their ownership thereof be confirmed. The salient
portions of the said deed state:

DEED OF CONDITIONAL SALE OF REAL PROPERTY

KNOW ALL MEN BY THESE PRESENTS:

xxxx

That for and in consideration of the sum of THIRTY THOUSAND SEVEN HUNDRED
SEVENTY FIVE PESOS (₱30,775.00), Philippine Currency, payable in the manner hereinbelow
specified, the VENDORS do hereby sell, transfer and convey unto the VENDEE, or their heirs,
executors, administrators, or assignors, that unsegregated portion of the above lot, x x x.

That the aforesaid amount shall be paid in two installments, the first installment which is in the
amount of __________ (₱15,387.50) and the balance in the amount of __________
(₱15,387.50), shall be paid as soon as the described portion of the property shall have been
registered under the Land Registration Act and a Certificate of Title issued accordingly;

That as soon as the total amount of the property has been paid and the Certificate of Title has
been issued, an absolute deed of sale shall be executed accordingly;

x x x x51
Examining its provisions, the Court finds that the stipulation above-highlighted shows that the
1977 Deed of Conditional Sale is actually in the nature of a contract to sell and not one of sale
contrary to Sps. Roque’s belief.52 In this relation, it has been consistently ruled that where the
seller promises to execute a deed of absolute sale upon the completion by the buyer of the
payment of the purchase price, the contract is only a contract to sell even if their agreement is
denominated as a Deed of Conditional Sale,53 as in this case. This treatment stems from the legal
characterization of a contract to sell, that is, a bilateral contract whereby the prospective seller,
while expressly reserving the ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the subject property exclusively to the prospective buyer
upon fulfillment of the condition agreed upon, such as, the full payment of the purchase
price.54 Elsewise stated, in a contract to sell, ownership is retained by the vendor and is not to
pass to the vendee until full payment of the purchase price.55 Explaining the subject matter
further, the Court, in Ursal v. CA,56 held that:

[I]n contracts to sell the obligation of the seller to sell becomes demandable only upon the
happening of the suspensive condition, that is, the full payment of the purchase price by the
buyer. It is only upon the existence of the contract of sale that the seller becomes obligated to
transfer the ownership of the thing sold to the buyer. Prior to the existence of the contract of sale,
the seller is not obligated to transfer the ownership to the buyer, even if there is a contract to sell
between them.

Here, it is undisputed that Sps. Roque have not paid the final installment of the purchase
price.57 As such, the condition which would have triggered the parties’ obligation to enter into
and thereby perfect a contract of sale in order to effectively transfer the ownership of the subject
portion from the sellers (i.e., Rivero et al.) to the buyers (Sps. Roque) cannot be deemed to have
been fulfilled. Consequently, the latter cannot validly claim ownership over the subject portion
even if they had made an initial payment and even took possession of the same.58

The Court further notes that Sps. Roque did not even take any active steps to protect their claim
over the disputed portion. This remains evident from the following circumstances appearing on
record: (a) the 1977 Deed of Conditional Sale was never registered; (b) they did not seek the
actual/physical segregation of the disputed portion despite their knowledge of the fact that, as
early as 1993, the entire Lot 18089 was registered in Sabug, Jr.’s name under OCT No. M-5955;
and (c) while they signified their willingness to pay the balance of the purchase price,59 Sps.
Roque neither compelled Rivero et al., and/or Sabug, Jr. to accept the same nor did they consign
any amount to the court, the proper application of which would have effectively fulfilled their
obligation to pay the purchase price.60 Instead, Sps. Roque waited 26 years, reckoned from the
execution of the 1977 Deed of Conditional Sale, to institute an action for reconveyance (in
2003), and only after Lot 18089 was sold to Land Bank in the foreclosure sale and title thereto
was consolidated in its name. Thus, in view of the foregoing, Sabug, Jr. – as the registered owner
of Lot 18089 borne by the grant of his free patent application – could validly convey said
property in its entirety to Aguado who, in turn, mortgaged the same to Land Bank. Besides, as
aptly observed by the RTC, Sps. Roque failed to establish that the parties who sold the property
to them, i.e., Rivero, et al., were indeed its true and lawful owners.61 In fine, Sps. Roque failed to
establish any superior right over the subject portion as against the registered owner of Lot 18089,
i.e., Land Bank, thereby warranting the dismissal of their reconveyance action, without prejudice
to their right to seek damages against the vendors, i.e., Rivero et al.62 As applied in the case of
Coronel v. CA:63

It is essential to distinguish between a contract to sell and a conditional contract of sale specially
in cases where the subject property is sold by the owner not to the party the seller contracted
with, but to a third person, as in the case at bench. In a contract to sell, there being no previous
sale of the property, a third person buying such property despite the fulfilment of the suspensive
condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer
in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property.

There is no double sale in such case.1âwphi1 Title to the property will transfer to the buyer after
registration because there is no defect in the owner-seller’s title per se, but the latter, of course,
may be sued for damages by the intending buyer. (Emphasis supplied)

On the matter of double sales, suffice it to state that Sps. Roque’s reliance64 on Article 154465 of
the Civil Code has been misplaced since the contract they base their claim of ownership on is, as
earlier stated, a contract to sell, and not one of sale. In Cheng v. Genato,66 the Court stated the
circumstances which must concur in order to determine the applicability of Article 1544, none of
which are obtaining in this case, viz.:

(a) The two (or more) sales transactions in issue must pertain to exactly the same subject
matter, and must be valid sales transactions;

(b) The two (or more) buyers at odds over the rightful ownership of the subject matter
must each represent conflicting interests; and

(c) The two (or more) buyers at odds over the rightful ownership of the subject matter
must each have bought from the same seller.

Finally, regarding Sps. Roque’s claims of acquisitive prescription and reimbursement for the
value of the improvements they have introduced on the subject property,67 it is keenly observed
that none of the arguments therefor were raised before the trial court or the CA.68 Accordingly,
the Court applies the well-settled rule that litigants cannot raise an issue for the first time on
appeal as this would contravene the basic rules of fair play and justice. In any event, such claims
appear to involve questions of fact which are generally prohibited under a Rule 45 petition.69

With the conclusions herein reached, the Court need not belabor on the other points raised by the
parties, and ultimately finds it proper to proceed with the denial of the petition.

WHEREFORE, the petition is DENIED. The Decision dated May 12, 2010 and the Resolution
dated September 15, 2010 of the Court of Appeals in CAG.R. CV No. 92113 are hereby
AFFIRMED.

SO ORDERED.
SUN BROTHERS APPLIANCES, INC., plaintiff-appellee,
vs.
DAMASO P. PEREZ, defendant-appellant.

Dominador A. Alafriz for plaintiff-appellee.

Robert P. Halili & Associates for defendant-appellant.

LABRADOR, J.:

This is an action brought by the plaintiff to recover from defendant the sum of P1,404.00, the
price of one Admiral Air Conditioner, Slim Style, Model 100-23-1 H.P., Serial No. 2978828,
delivered to the defendant by the plaintiff under a conditional sale agreement entered into by and
between them on December 6, 1958, in the City of Manila, plus stipulated interest of 12% from
January 6, 1959 until the same is fully paid, together with P200 as attorney's fees, and costs.
Defendant answered that the air-conditioner in question was delivered to him installed in the
office of the defendant located at Gardiner street, Lucena, Quezon on December 14, 1959 but
that said air-conditioner was totally destroyed by fire which occured in the morning of December
28, 1958 at 2 o'clock. Defendant further claimed that the machine was destroyed by force
majeure, not by the defendant's fault and/or negligence and, therefore, he is not liable under the
conditional sale, Annex "A", which the parties, plaintiff and defendant, had executed.

At the trial of the case the parties entered into a stipulation of facts, the most important provision
of which are as follows:

1. That defendant admits that on December 6, 1958, he entered into a Conditional Sale
Agreement with the plaintiff, copy of which contract is attached to the complaint as
Annex "A";

2. That pursuant to the terms and conditions provided in the said Conditional Sale
Agreement the plaintiff delivered to the defendant (1) Admiral Air Conditioner Slim
Style Model 100-23-1 HP, Serial No. 2978828 with the contract price of P1,678.00 and
that said Air Conditioner was received by the defendant;
 3. That defendant made a down payment of P274.00 on December 6, 1958, pursuant to
the terms and conditions of the Conditional Sales Agreement; and Air Conditioner was
installed by the plaintiff, thru its representative, at Lucena, Quezon;

4. That said Air Conditioner was burned on December 27,1958, on or about 2:00 o'clock
in the morning, however, defendant will present evidence to show that the Air
Conditioner subject of the complaint herein was burned where it was installed by the
plaintiff;

5. That defendant, after making down payment of P274.00 to the plaintiff, did not pay
any of the monthly installments of P78.00 thereafter, leaving a balance of P1,404.00 in
favor of the plaintiff;

6. That after defendant presents evidence to prove that the Air Conditioner was burned
where it was installed by the plaintiff to the satisfaction of this Honorable Court, the
parties agree to leave to this Honorable Court the resolution of the issue whether loss by
fire extinguishes the obligation of the defendant to pay to the plaintiff the subsequent
installments of the initial payment;"

The Court of First Instance before which the action was brought rendered judgment condemning
the defendant to pay the plaintiff the amount demanded in the complaint, including interest and
attorney's fees. The defendant has appealed the case directly to us as involving only a question of
law.

The conditional sale executed by the plaintiff and defendant contained the following stipulation:

"2. Title to said property shall vest in the Buyer only upon full payment of the entire
account as herein provided, and only upon complete performance of all the other
conditions herein specified:

"3. The Buyer shall keep said property in good condition and properly protected against
the elements, at his/its address above-stated, and undertakes that if said property or any
part thereof be lost, damaged, or destroyed for any causes, he shall suffer such loss, or
repair such damage, it being distinctly understood and agreed that said property remains
at Buyer's risk after delivery;"

The Court below declared that as the buyer would be liable in case of loss for any cause, such
buyer assumed liability even in case of loss by fortuitous event; so it rendered judgment
declaring defendant liable for the sun demanded together with interest and attorney's fees.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to
prove their case not covered by this stipulation of facts. 1äwphï1.ñët

In this Court on appeal defendant-appellant argues that inasmuch as the title to the property sold
shall vest in the buyer only upon full payment of the price, the loss of the vendor; that the phrase
"for any cause" used in paragraph 2 of the agreement may not be interpreted to include a
fortuitous event absolutely beyond the control of the appellant; and that although Article 1174 of
the new Civil Code recognizes the exception on fortuitous event when the parties to a contract
expressly so stipulate, the phrase "for any cause" used in the contract did not indicate any
intention of the parties that the loss of the unit due to fortuitous event is to be included within the
responsibility of the vendor.

In answer to the arguments above set forth the appellee argues that the stipulation in the contract
of sale whereby the buyer shall be liable for any loss, damage or destruction for any cause, is not
contrary to law, morals or public policy and is specifically authorized to be stipulated upon
between the parties by Article 1174 of the Civil Code; that the risk of loss was expressly
stipulated to be undertaken by the buyer, even if the title to the property sold remained, also by
stipulation, in the vendor; that the terms "any cause" used in the agreement includes a fortuitous
event, and an express stipulation making the vendee responsible in such case is valid.

We believe that the agreement making the buyer responsible for any loss whatsoever, fortuitous
or otherwise, even if the title to the property remains in the vendor, is neither contrary to law, nor
to morals or public policy. We have held such stipulation to be legal in the case of Government
vs. Amechazurra, 10 Phil. 637 (Tolentino, Commentaries on the Civil Code, Vol. IV, p. 120)and
declare it to be based on a sound public policy in conditional sales according to American
decisions.

"The weight of authority support the rule that where goods are sold and delivered to the vendor
under an agreement that the title is to remain in the vendor until payment, the loss or destruction
of the property while in the possession of the vendor before payment, without his fault, does not
relieve him from the obligation to pay the price, and he, therefore, suffers the loss. In accord with
this rule are the provisions of the Uniform Sales Act and the Uniform Conditional Sales Act.
There are several basis for this rule. First is the absolute and unconditional nature of the vendee's
promise to pay for the goods. The promise is nowise dependent upon the transfer of the absolute
title. Second is the fact that the vendor has fully performed his contract and has nothing further to
do except receive payment, and the vendee received what he bargained for when he obtained the
right of possession and use of the goods and the right to acquire title upon making full payment
of the price. A third basis advanced for the rule is the policy of providing an incentive to care
properly for the goods, they being exclusively under the control and dominion of the vendee."
(47 Am. Jur., pp. 81-82).

We, therefore, agree with the trial court that the loss by fire or fortuitous event was expressly
agreed in the contract to be borne by the buyer and this express agreement is not contrary to law
but sanctioned by it as well as by the demands of sound, public policy. The judgment of the court
below is affirmed, with costs against defendant-appellant.
ATKINS, KROLL and CO., INC., petitioner,
vs.
B. CUA HIAN TEK, respondent.

Ross Selph, Carrascoso and Janda for petitioner.

Ponciano T. Castro for respondent.

BENGZON, J.:

Review of a Court of Appeals' decision. For its failure to deliver one thousand cartons of
sardines, which it had sold to B. Cua Hian Tek, petitioner was sued, and after trial was ordered
by the Manila court of first instance to Pay damages, which on appeal was reduced by the Court
of Appeals to P3,240.15 representing unrealized profits.

There was no such contract of sale, says petitioner, but only an option to buy, which was not
enforceable for lack of consideration because in accordance with Art. 1479 of the New Civil
Code "an accepted unilatateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promisor if the promise is supported by a consideration distinct from the price.

Simple are the facts of this case: Dated September 13, 1951, petitioner sent to respondent a letter
of the following tenor:

Sir (s) /Madam:

We are pleased to make you herewith the following firm offer, subject to reply by
September 23, 1951:

Quantity and Commodity:

400 Ctns. Luneta brand Sardines in Tomato Sauce 48/15-oz. Ovals at $8.25 Ctn.

300 Ctns. Luntea brand Sardines Natural 48/15 oz. talls at $6.25 Ct.

300 Ctns. Luneta brand Sardines in Tomato Sauce 100/5-oz. talls at $7.48 Ct.
 Price(s):

All prices C ad F Manila Cosular Fees of $6.00 to be added.

Shipmet:

Durig September/October from US Ports.

Supplier:

Atkins, Kroll & Co., Sa Frasisco, Cal. U.S.A.

We are looking forward to receive your valued order and remain .

Very truly yours,

The Court of first instance and the Court of Appeals1 found that B. Cua Hian Tek accepted the
offer unconditionally and delivered his letter of acceptance Exh. B on September 21, 1951.
However, due to shortage of catch of sardines by the packers in California, Atkins Kroll & Co.,
failed to deliver the commodities it had offered for sale. There are other details to which
reference shall not be made, as they touch the question whether the acceptance had been handed
on time; and on that issue of Court of Appeals definitely found for plaintiff.

Ayway, in presenting its case before this Court petitioner does not dispute such timely
acceptance. It merely raises the point that the acceptance only created an option, which, lacking
consideration, had no obligatory force.

The offer Exh. A, petitioner argues, "was a promise to sell a determinate thing for a price certain.
Upon its acceptance by respondent, the offer became an accepted unilateral promise to sell a
determinate thing for price certain. Inasmuch as there was no consideration to support the
promise to sell distinct from the price, it follows that under Art. 1479 aforequoted, the promise is
not binding on the petitioner even if it was accepted by respondent." (p. 12 brief of petitioner.).

The argument, maifestly assumes that only a unilateral promise arose when the offeree accepted.
Such assumption is a mistake, because a bilateral cotract to sell and to buy was created upon
acceptance. So much so that B. Cua Hian Tek could be sued, he had backed out after accepting,
by refusing to get the sardines and/or to pay for their price. Indeed, the word "option" is found
neither in the offer nor in the acceptance. On the copntrary Exh. B accepted "the firm offer for
the sale" and adds, "the undersigned buyer has immediately filed an application for import
license . . ." (Emphasis Ours.).

Petitioner, however, insists the offer was a mere offer of option, because the "firm offer" Exh. A.
was a continuing offer to sell until September 23, "an option is nothing more than a continuing
offer" for a specified time. In our opinion implies more than that: it implies the legal obligation
to keep open for the time specified.2 Yet the letter Exh. A did not by itself produce the legal
obligation of keeping the offer open up ot Septmber 23. It could be withdrawn before
acceptance, because it is admitted, there was no consideration for it.

ART. 1324. When the offerer has showed the offeree a certain period to accept, the offer
may be withdrawn at any time before acceptance by communicating such withdrawal,
except when the option is founded upon a consideration, as somnething paid or
promissed. (n) (New Civil Code.).

Ordinarily an offer to buy or sell may be withdrawn or countermanded before accepatnce,

even though the offer provides that it will not be withdrawn or countermanded, or allows
the offeree a certain time within which to accept it, unless such provision or agreement is
supported by an independent consideration. . . (77 Corpus Juris Secundum p. 636.).

Furthermore, an option is unilateral: a promise to sell3 at the price fixed whenever the offeree
should decide to exercise his option within the specified time. After accepting the promise
and before he exercises his option, the holder of the option is not bound to buy. He is free either
to buy or not to later. In this case, however, upon accepeting herein petitioner's offer a bilateral
promise to sell and to buy ensued, and the respondent ipso facto assumed the obligations of a
purchaser. He did not just get the right subsequently to buy or not to buy. It was not a mere
option then; it was bilalteral contract of sale.

Lastly, even supposing that Exh. A granted an option which is not binding for lack of
consideration, the authorities hold that .

If the option is given without a consideration, it is a mere offer of a contract of sale,

which is not binding until accepted. If, however, acceptance is made before a withdrawal,
it constitutes a binding contract of sale, even though the option was not supported by a
sufficient consideration. . . (77 Corpus Juris Secundum p. 652. See also 27 Ruling Case
Law 339 and cases cited.).

It can be taken for granted, as contended by the defendants, that the option contract was
not valid for lack of consideration. But it was, at least, an offer to sell, which was
accepted by letter, and of this acceptance the offerer had knowledge before said offer was
withdrawn. The concurrence of both acts—the offer and the acceptance—could at all
events have generated a contract, if none there was before (atrs. 1254 and 1262 of the
Civil Code). (Zayco vs. Serra, 44 Phil. 331.).

One additional observation should be made before the closing this opinion. The defense in the
court of first instance rested on the proposition or propositions that the offer had not been
precedent had not been fulfilled. This option-without-consideration idea was never mentioned in
the answer. A Change of theory in the appellate courts is not permitted.

In order that a question may be raised on appeal, it is essential that it be within the issues
made by the parties in their pleadings. Consequently, when a party deliberately adopts a
certain theory, and the case is tried and decided upon that theory in the court below, he
will not be permitted to change his theory on appeal because, to permit him to do so,
 would be unfair to the adverse party. (Rules of Court by Moran—1957 Ed. Vol. I p.715
citing Agoncillo vs. Javier, 38 Phil. 424; American Express Company vs. Natividad, 46
Phil. 207; San Agustin vs. Barrios, 68 Phil. 465, 480; Toribio vs. Dacasa, 55 Phil. 461.) .

We must therefore hold, as the lower courts have held that there was a contract of sale between
the parties. And as no legal excuse has been proven, the seller's failure to comply therewith gave
around to an award for damages, which has been fixed by the Court of Appeals at P3,240.15-
amount which petitioner does not dispute in this final instance.

Consequently, the decision under review should be, and it is hereby affirmed, with cost against
petitioner.