Navarra v.

Planters Development Bank

Navarras obtained a loan of P1,200,000.00 from Planters Bank and, by way of security
therefor, executed a deed of mortgage over their aforementioned five (5) parcels of land.
Unfortunately, the couple failed to pay their loan obligation. Hence, Planters Bank
foreclosed on the mortgage.
On the other hand, RRRC, a real estate company owned by the parents of Carmelita
Bernardo Navarra, obtained a loan from Planters Bank secured by a mortgage and was
able to negotiate with the Bank for the redemption of its foreclosed properties by way of
a concession the foreclosed properties of RRRC were sold to third persons whose
payments therefore, directly made to the Bank, were in excess by P300,000.00 for the
redemption price. In the meantime, Jorge Navarra sent a letter to Planters Bank,
proposing to repurchase the five (5) lots earlier auctioned to the Bank, with a request
that he be given until August 31, 1985 to pay the down payment of P300,000.00 which
will come from the excess payment of P300,000.00 in connection with the redemption
made by the RRRC. Because the amount of P300,000.00 was sourced from a different
transaction between RRRC and Planters Bank and involved different debtors, the Bank
required Navarra to submit a board resolution from RRRC authorizing him to negotiate for
and its behalf and empowering him to apply the excess amount of P300,000.00 in
RRRC's redemption payment as down payment for the repurchase of the Navarras'
foreclosed properties. However, Navarra failed to comply and so the bank informed them
that they could not proceed with the documentation of the proposed repurchase of the
foreclosed properties on account of his non - compliance with the Bank's request for the
submission of the needed board resolution of RRRC.
Issue : Was there a perfected contract of sale?
While the letters of Navarras indicate the amount of P300,000.00 as down payment, they
are, however, completely silent as to how the succeeding installment payments shall be
made. At most, the letters merely acknowledge that the down payment of P300,000.00
was agreed upon by the parties. However, this fact cannot lead to the conclusion that a
contract of sale had been perfected. Quite recently, this Court held that before a valid
and binding contract of sale can exist, the manner of payment of the purchase price
must first be established since the agreement on the manner of payment goes into the
price such that a disagreement on the manner of payment is tantamount to a failure to
agree on the price. Too, the Navarras' letter/offer failed to specify a definite amount of
the purchase price for the sale/repurchase of the subject properties. It merely stated that
the "purchase price will be based on the redemption value plus accrued interest at the
prevailing rate up to the date of the sales contract." The ambiguity of this statement only
bolsters the uncertainty of the Navarras' so-called "offer" for it leaves much rooms for
such questions, as: what is the redemption value? what prevailing rate of interest shall
be followed: is it the rate stipulated in the loan agreement or the legal rate? when will
the date of the contract of sale be based, shall it be upon the time of the execution of
the deed of sale or upon the time when the last installment payment shall have been
made? To our mind, these questions need first to be addressed, discussed and
negotiated upon by the parties before a definite purchase price can be arrived at. Again,
the offer was not clear insofar as concerned the exact number of years that will comprise
the long-term payment scheme. As we see it, the absence of a stipulated period within
which the repurchase price shall be paid all the more adds to the indefiniteness of the
Navarras' offer. Clearly, then, the lack of a definite offer on the part of the spouses could
not possibly serve as the basis of their claim that the sale/repurchase of their foreclosed

properties was perfected. The reason is obvious: one essential element of a contract of
sale is wanting: the price certain. There can be no contract of sale unless the following
elements concur: (a) consent or meeting of the minds; (b) determinate subject matter;
and (c) price certain in money or its equivalent. Such contract is born or perfected from
the moment there is a meeting of minds upon the thing which is the object of the
contract and upon the price. Here, what is dramatically clear is that there was no
meeting of minds vis-a-vis the price, expressly or impliedly, directly or indirectly.
Surtida v. Rural Bank
Spouses Surtida contends the possession of respondents of their property. It appears
from the record that the spouses had executed a real estate mortgage over their
property, but owing to their failure to pay, they executed a dation in payment. The
preferential right to repurchase having been denied by the spouses, the respondent now
asks the spouses to vacate the premises that were turned over to them, but the spouses
refuse, contending that they had not accepted a loan from the bank, at all. The RTC
favored the petitioners but on appeal the CA reversed the decision. HELD:
Petitioners bare denial that they had secured several loans from respondent
on June 16, 1986 and November 4, 1987 cannot prevail over the testimonial and
documentary evidence presented in the trial court. The presumption that a contract has
sufficient consideration cannot be overthrown by the bare uncorroborated and selfserving assertion of petitioners that it has no consideration. To overcome the
presumption of consideration, the alleged lack of consideration must be shown by
preponderance of evidence. Petitioners failed to discharge this burden.The contracts of
Dation in Payment dated August 31, 1989 and January 5, 1990 were duly notarized.
Vagilidad v. Vagilidad
Laura Marnelego v. Banco Filipino
In September 1980, Spouses Patrick and Beatrize Price and petitioner Laura Marnelego
executed a Deed of Conditional Sale over a parcel of land and its improvements. The
contract showed that the property was mortgaged to respondent Banco Filipino Savings
and Mortgage Bank and BF . It appears, however, that when the parties faltered on the
amortizations, respondent bank foreclosed the mortgage and acquired the property at
public auction. It later consolidated the title to the property in its name after petitioner
failed to redeem it. The petitioner made an offer to Banco Filipino to repurchase the
property for P310,000.00. ISSUE: Was there a perfected contract of sale? HELD: A
contract of sale is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price. From that moment, the parties
may reciprocally demand performance subject to the law governing the form of
contracts. In the case at bar, the subject of the contract is clear, that is, the house and
lot where petitioner presently resides. However, it appears from the records that the
parties have not reached an agreement on the purchase price.
It has been ruled 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 exchange of letters between petitioner and respondent shows that petitioner
first offered to buy the property for P310,000.00, considering the numerous repairs that
had to be done in the house. Respondent, in its letter dated September 20, 1984,
informed petitioner that the bank has approved her request to repurchase the property

in the amount of P362,000.00 but subject to the following terms and conditions: (1) cash
payment of P310,000.00 upon approval of the request/proposal, and (2) balance of
P52,000.00 to be paid within one (1) year at the rate of 35% interest per annum.
Petitioner, in her letter to the bank dated October 9, 1984, made a counter-offer to pay a
down payment of P100,000.00 and to pay the balance in 5 equal installments to be paid
in 5 years with interest. Before the bank could act on petitioners proposal, the Central
Bank of the Philippines ordered the closure of Banco Filipino and placed it under
liquidation. On April 3, 1986, the Deputy Liquidator replied that they can only consider
the sale of the property after the lifting of the Temporary Restraining Order issued by the
Supreme Court and said sale shall be subject to the Central Bank rules and regulations.
Clearly, there was no agreement yet between the parties as regards the purchase price
and the manner and schedule of its payment. Neither of them had expressed acceptance
of the other partys offer and counter-offer.

G.R. No. 110115 October 8, 1997

RODOLFO TIGNO AND SPOUSES EDUALINO and EVELYN CASIPIT, petitioners,
vs.
COURT OF APPEALS AND EDUARDO TIGNO, respondents.

PANGANIBAN, J.:
In denying this petition, the Court takes this occasion to apply the principles of implied
trust. As an exception to the general rule barring factual reviews in petitions under Rule
45, the Court wades into the transcript of stenographic notes only to find that the Court
of Appeals, indeed, correctly overturned the trial court's findings of facts.
The Case
Petitioners challenge the Decision 1 of Respondent Court of Appeals 2 in CA-G.R. CV No.
29781 promulgated on October 15, 1992 and its Resolution 3 promulgated on May 5,
1993. The dispositive portion of the assailed Decision reads: 4
WHEREFORE, in view of the foregoing, the decision appealed from is hereby REVERSED
and another one ENTERED as follows:
1. Declaring plaintiff-appellant Eduardo M. Tigno as the true and lawful owner of the
lands described in the complaint;
2. Declaring the Deed of Sale executed by defendant-appellee Rodolfo M. Tigno in favor
of defendant-appellee spouses Edualino Casipit and Avelina Estrada as null and void and
of no effect; and
3. Ordering defendant-appellee Rodolfo M. Tigno to vacate the parcels of land described
in the complaint and surrender possession thereof to plaintiff-appellant Eduardo M.
Tigno.

With costs against defendants-appellees.

Petitioners' subsequent motion for reconsideration was "denied for lack of merit" in the
assailed Resolution. 5
The Facts
Respondent Court adequately recited the facts of the case as follows: 6
The facts from the standpoint of plaintiff-appellant's (herein private respondent's)
evidence are summarized in his brief, to wit:
Sometime in January, 1980, Bienvenido Sison, Remedios Sison and the heirs of Isaac
Sison, namely: Manuel Sison, Gerardo Sison and Adelaida Sison appointed Dominador
Cruz as agent to sell three (3) parcels of land adjoining each other located at Padilla St.,
Lingayen, Pangasinan (TSN, Sept. 5, 1989, pp. 6-8). These parcels of land belonging to
the abovenamed persons are more particularly described as follows:
Bienvenido Sison:
A parcel of fishpond situated at Padilla Street, Lingayen, Pangasinan, with an area of
3006.67 square meters, more or less, bounded on the North by Padilla Street, on the
South by Lots 1105, 1106, 1107, 1108, etc., on the East by alley, and on the West by
Alejandro Vinluan and Thomas Caldito: (Exh. B)
Heirs of Isaac Sison (i.e. Manuel, Gerardo and Adelaida Sison)
A parcel of fishpond, situated at Padilla Street, Lingayen, Pangasinan, with an area of
3006.66 square meters, more or less, bounded on the North by Padilla Street; On the
South by Bienvenido Sison, on the East by Alley, and on the West by Mariano Sison; (Exh.
A)
Remedios Sison
A parcel of unirrigated riceland (now fishpond) situated in Poblacion, Lingayen,
Pangasinan, containing an area of 3006.66 square meters, more or less, bounded on the
North by Padilla Street; on the East by Path; on the South by Dionisio and Domingo Sison;
and on the West by Path; (Exh. C)
Sometime in April 1980, Rodolfo Tigno learned that the abovedescribed properties were
for sale. Accordingly, he approached Cruz and told the latter to offer these parcels of
land to his brother, Eduardo Tigno, herein appellant (TSN, Sept. 5, 1989, p. 9).
Pursuant thereto, Cruz and Rodolfo Tigno went to appellant's Makati office to convince
the latter to buy the properties earlier described. At first, appellant was reluctant, but
upon Rodolfo Tigno's prodding, appellant was finally convinced to buy them (TSN, Sept.
5, 1989, pp. 9-11). In that meeting between Cruz and appellant at the latter's office, it
was agreed that each parcel of land would cost Ten Thousand Pesos (P10,000.00) [TSN,
Oct. 16, 1989, p. 9].

Having reached an agreement of sale, appellant then instructed Cruz to bring the owners
of these parcels of land to his ancestral house at Guilig Street, Lingayen, Pangasinan on
May 2, 1980, as he will be there to attend the town fiesta (TSN, Sept. 5, 1989, p. 13).
After leaving appellant's office, Cruz and Rodolfo Tigno went to Manila City Hall to visit
the latter's uncle, Epifanio Tigno, who works there. At the Manila City Hall, Cruz and
Rodolfo Tigno intimated to Epifanio Tigno that appellant has agreed to buy the 3 parcels
of land abovedescribed (TSN, Sept. 5, 1989, p. 19; TSN, Sept. 29, 1989, pp. 8-10).
After leaving Manila City Hall, Cruz and Rodolfo Tigno left for Lingayen, Pangasinan (TSN,
Sept. 5, 1989, p. 15).
On May 2, 1980, Cruz, together with Bienvenido Sison, Manuel Sison, Adelaida Sison and
Remedios Sison went to appellant's house at Guilig Street, Lingayen, Pangasinan. At
around 5:00 o'clock in the afternoon, the abovenamed persons and appellant went to
Atty. Modesto Manuel's house at Defensores West Street, Lingayen, Pangasinan for the
preparation of the appropriate deeds of sale (TSN, Sept. 5, 1989, pp. 15-17).
At Atty. Manuel's house, it was learned that Bienvenido Sison failed to bring the tax
declarations relating to his property. Also, Remedios Sison had mortgaged her property
to a certain Mr. Tuliao, which mortgage was then existent. Further, Manuel Sison did not
have a Special Power of Attorney from his sister in the United States of America to
evidence her consent to the sale. In view thereof, no deed of sale was prepared on that
day (TSN, Sept. 5, 1989, pp. 17-19).
However, despite the fact that no deed of sale was prepared by Atty. Manuel, Remedios
Sison, Bienvenido Sison and Manuel Sison asked appellant to pay a fifty percent (50%)
downpayment for the properties. The latter acceded to the request and gave Five
Thousand Pesos (P5,000.00) each to the 3 abovenamed persons for a total of Fifteen
Thousand Pesos (P15,000.00) (TSN, Sept. 5, 1989, pp. 19-20). This was witnessed by
Cruz and Atty. Manuel. After giving the downpayment, appellant instructed Cruz and Atty.
Manuel to place the name of Rodolfo Tigno as "vendee" in the deeds of sale to be
subsequently prepared. This instruction was given to enable Rodolfo Tigno to mortgage
these properties at the Philippine National Bank (PNB), Lingayen Branch, for appropriate
funds needed for the development of these parcels of land as "fishponds" (TSN, Sept. 27,
1989, pp. 16-23).
On May 6, 1980, May 12, 1980 and June 12, 1980, the appropriate deeds of sale (Exhs. A,
B, C) were finally prepared by Atty. Manuel and signed by Bienvenido Sison, the heirs of
Isaac Sison (Manuel, Gerardo and Adelaida Sison), and Remedios Sison, respectively. In
all these deeds of sale, Rodolfo Tigno was named as "vendee" pursuant to the verbal
instruction of herein appellant. Cruz, the agent in the sale, signed in these three (3)
deeds of sale as a witness (Exhs. A-2, B-l and C-l).
Sometime in the second week of July 1980, Cruz brought and showed these deeds of sale
to appellant in his Makati office. After seeing these documents, appellant gave Cruz a
Pacific Bank check in the amount of Twenty Six Thousand Pesos (P26,000.00)
representing the following:
a) P15,000.00 as the balance for the three (3) parcels of land;

b) P6,000.00 representing Cruz's commission as agent; and

c) P5,000.00 for capital gains tax, registration and other incidental expense. (TSN, Sept.
5, 1989, pp. 39-41).
Upon encashment of this check at PNB, Lingayen Branch, Cruz paid Remedios Sison,
Manuel Sison and Bienvenido Sison, through Adelaida Sison, the balance due them from
appellant (TSN, Sept. 5, 1989, pp. 42-43).
On April 29, 1989, Rodolfo Tigno, without the knowledge and consent of appellant, sold
to Spouses Edualino Casipit and Avelina Casipit 508.56 square meters of the land
previously owned by Bienvenido Sison (Exh. E). At the time of sale, the Casipits were
aware that the portion of the land they bought was owned by appellant, not Rodolfo
Tigno (TSN, Oct. 16, 1989, pp. 30-31; TSN, Nov. 6, 1989, p. 10).
On May 16, 1989, appellant learned that Rodolfo Tigno is "negotiating" a portion of his
land to the Casipits. Accordingly, appellant sent a letter (Exh. D) to the Casipits advising
them to desist from the intended sale, not knowing that the sale was already
consummated as early as April 29, 1989.
A few days thereafter, upon learning that the sale was already consummated, appellant
confronted the Casipits and Rodolfo Tigno and asked them to annul the sale, but his
request was not heeded (TSN, Oct. 16, 1989, pp. 29-32). (pp. 12-B to 12-j, rollo)
On May 24, 1989, the plaintiff filed Civil Case No. 16673 for "Reconveyance, Annulment
of Document, Recovery of Possession and Damages" against Rodolfo M. Tigno and
defendant spouses Edualino Casipit and Avelina Estrada. The complaint alleged, among
others, that plaintiff purchased the three (3) parcels of land in question so that his
brother Rodolfo Tigno, who was then jobless, could have a source of income as a
caretaker of the fishponds; that plaintiff and Rodolfo agreed that the latter would secure
a loan from the Philippine National Bank at Lingayen using said lands as collateral; that
considering the busy schedule of plaintiff, then as executive vice-president of an
American firm based in Makati, Metro Manila, it was made to appear in the deeds of sale
that Rodolfo M. Tigno was the vendee so that the latter could, as he actually did, secure
a loan from the PNB without need of plaintiff's signature and personal presence, the loan
proceeds to be used as seed capital for the fishponds; that there being trust and
confidence as brothers between plaintiff and defendant, the former instructed the Notary
Public, who prepared the Deeds of Sale, to put in said Deeds the name of Rodolfo M.
Tigno as vendee.
The plaintiff further averred in said Complaint that some time on May 16, 1989, when he
was in Lingayen, Pangasinan, he came to know from friends that Rodolfo was negotiating
the sale to defendant spouses of a portion of one of the parcels of land; that after
requesting in writing the defendant-spouses to desist from buying the land, and after
confronting Rodolfo himself, plaintiff found out upon verification with the Register of
Deeds of Lingayen, that Rodolfo had already sold on April 29, 1989 said portion of 508.56
square meters to his co-defendant spouses who had previous knowledge that plaintiff,
and not Rodolfo Tigno, is the real owner of said lands; that there being a violation of trust
and confidence by defendant Rodolfo, plaintiff demanded from said defendants the
reconveyance of said lands, the surrender of the possession thereof to him and the

cancellation of the Deed of Sale of said portion of 508.56 square meters, but all the
demands were unjustifiably refused.
In their Answer (pp. 8-11, records), defendants denied the material allegations of the
complaint and alleged, by way of special and affirmative defense, that Rodolfo M. Tigno
became the absolute and exclusive owner of the parcels of land having purchased the
same after complying with all legal requirements for a valid transfer and that in selling a
portion thereof to his co-defendants, he was merely exercising his right to dispose as
owner; and that defendant spouses Casipit acquired the portion of 508.56 square meters
in good faith and for value, relying upon the validity of the vendor's ownership.
After trial on the merits, the trial court 7 dismissed the complaint and disposed as
follows: 8
Wherefore, in the light of the facts and circumstances discussed above, the court hereby
renders judgment against the plaintiff and in favor of the defendants.
1. Ordering the dismissal of the plaintiffs complaint for lack of basis in fact and in law;
2. Ordering the plaintiff to pay the defendants the sum of three thousand (P3,000.00)
pesos as atty's fees and further to pay the costs of the proceedings.
As earlier stated, Respondent Court reversed the trial court. Hence, this petition for
review.
The Issues
Petitioners raise the following issues: 9
I Evidence of record definitely show that the receipts of payments of Petitioner Rodolfo
Tigno for the fishponds in question are authenticated, contrary to the decision of the
Court of Appeals
II Documents and circumstances substantiate ownership of petitioner Rodolfo Tigno
III No fiduciary relationship existed between Petitioner Rodolfo Tigno and Private
Respondent Eduardo Tigno
The main issue is whether the evidence on record proves the existence of an implied
trust between Petitioner Rodolfo Tigno and Private Respondent Eduardo Tigno. In
petitions for review under Rule 45, this Court ordinarily passes upon questions of law
only. However, in the present case, there is a conflict between the factual findings of the
trial court and those of the Respondent Court. Hence, this Court decided to take up and
rule on such factual issue, as an exception to the general rule. A corollary question is
whether Petitioners Edualino and Evelyn Casipit are purchasers in good faith and for
value of a portion of the lots allegedly held in trust and whether they may thus acquire
ownership over the said property.
The Court's Ruling
The petition has no merit.

First Issue: Was an Implied Trust Created?

Implied trusts are those which are deducible by operation of law from the nature of the
transaction as matters of equity, independently of the particular intention of the parties.
10 An implied trust arises where a person purchases land with his own money and takes
conveyance thereof in the name of another. In such a case, the property is held on
resulting trust in favor of the one furnishing the consideration for the transfer, unless a
different intention or understanding appears. The trust which results under such
circumstances does not arise from a contract or an agreement of the parties, but from
the facts and circumstances; that is to say, the trust results because of equity and it
arises by implication or operation of law. 11 The species of implied trust raised by private
respondent was extensively discussed by the Court, through the learned Mr. Justice
Hilario G. Davide, Jr., in Morales, et al. vs. Court of Appeals, et al.: 12
A trust is the legal relationship between one person having an equitable ownership in
property and another person owning the legal title to such property, the equitable
ownership of the former entitling him to the performance of certain duties and the
exercise of certain powers by the latter. 13 The characteristics of a trust are:
1. It is a relationship;
2. it is a relationship of fiduciary character;
3. it is a relationship with respect to property, not one involving merely personal duties;
4. it involves the existence of equitable duties imposed upon the holder of the title to the
property to deal with it for the benefit of another; and
5. it arises as a result of a manifestation of intention to create the relationship. 14
Trusts are either express or implied. Express trusts are created by the intention of the
trustor or of the parties, while implied trusts come into being by operation of law, 15 In
turn, implied trusts are either resulting or constructive trusts. Resulting trusts are based
on the equitable doctrine that valuable consideration and not legal title determines the
equitable title or interest and are presumed always to have been contemplated by the
parties. They arise from the nature or circumstances of the consideration involved in a
transaction whereby one person thereby becomes invested with legal title but is
obligated in equity to hold his legal title for the benefit of another. On the other hand,
constructive trusts are created by the construction of equity in order to satisfy the
demands of justice and prevent unjust enrichment. They arise contrary to intention
against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right
to property which he ought not, in equity and good conscience, to hold. 16
A resulting trust is exemplified by Article 1448 of the Civil Code, which reads:
Art. 1448. There is an implied trust when property is sold, and the legal estate is granted
to one party but the price is paid by another for the purpose of having the beneficial
interest of the property. The former is the trustee, while the latter is the beneficiary.
However, if the person to whom the title is conveyed is a child, legitimate or illegitimate,

of the one paying the price of the sale, no trust is implied by law, it being disputably
presumed that there is a gift in favor of the child.
The trust created under the first sentence of Article 1448 is sometimes referred to as a
purchase money resulting trust. 17 The trust is created in order to effectuate what the
law presumes to have been the intention of the parties in the circumstances that the
person to whom the land was conveyed holds it as trustee for the person who supplied
the purchase money. 18
To give rise to a purchase money resulting trust, it is essential that there be:
1. an actual payment of money, property or services, or an equivalent, constituting
valuable consideration;
2. and such consideration must be furnished by the alleged beneficiary of a resulting
trust. 19
There are recognized exceptions to the establishment of an implied resulting trust. The
first is stated in the last part of Article 1448 itself. Thus, where A pays the purchase
money and title is conveyed by absolute deed to A's child or to a person to whom A
stands in loco parentis and who makes no express promise, a trust does not result, the
presumption being that a gift was intended. Another exception is, of course, that in
which an actual contrary intention is proved. Also where the purchase is made in
violation of an existing statute and in evasion of its express provision, no trust can result
in favor of the party who is guilty of the fraud. 20
As a rule, the burden of proving the existence of a trust is on the party asserting its
existence, and such proof must be clear and satisfactorily show the existence of the trust
and its elements. 21 While implied trusts may be proved by oral evidence, 22 the
evidence must be trustworthy and received by the courts with extreme caution, and
should not be made to rest on loose, equivocal or indefinite declarations. Trustworthy
evidence is required because oral evidence can easily be fabricated. 23
In Chiao Liong Tan vs. Court of Appeals, we ruled: 24
A certificate of registration of a motor vehicle in one's name indeed creates a strong
presumption of ownership. For all practical purposes, the person in whose favor it has
been issued is virtually the owner thereof unless proved otherwise. In other words, such
presumption is rebuttable by competent proof.
The New Civil Code recognizes cases of implied trust other than those enumerated
therein. (fn: Art. 1447, New Civil Code) Thus, although no specific provision could be
cited to apply to the parties herein, it is undeniable that an implied trust was created
when the certificate of registration of the motor vehicle was placed in the name of
petitioner although the price thereof was not paid by him but by private respondent. The
principle that a trustee who puts a certificate of registration in his name cannot
repudiate the trust by relying on the registration is one of the well-known limitations
upon a title. A trust, which derives its strength from the confidence one reposes on
another especially between brothers, does not lose that character simply because of
what appears in a legal document.

Even under the Torrens System of land registration, this Court in some instances did
away with the irrevocability or indefeasibility of a certificate of title to prevent injustice
against the rightful owner of the property. (fn: Bornales v. IAC, G.R. No. 75336, 166 SCRA
524 [1988]; Amerol v. Bagumbayan, G.R. No. L-33261, 154 SCRA 403 [1987]; Cardiente
v. IAC, G.R. No. 73651, 155 SCRA 689 [1987].)
In this petition, petitioners deny that an implied trust was constituted between the
brothers Rodolfo and Eduardo. They contend that, contrary to the findings of Respondent
Court, their Exhibit 16 25 and Exhibit 17 26 were fully authenticated by Dominador Cruz,
an "instrumental witness." Hence, he should not be allowed to vary the plain content of
the two documents indicating that Rodolfo Tigno was the vendee.
We not persuaded. Witness Dominador Cruz did not authenticate the genuineness of
Exhibit 16: 27
ATTY. BERMUDEZ:
As Exhibit "16" dated June 12, 1980 signed by Remedios Sison, is that the document
executed Remedios Sison?
ATTY. VIRAY:
That is only a xerox copy, we object, Your Honor.
ATTY. BERMUDEZ:
At any rate there was a receipt, is this the receipt?
A Maybe this or maybe not, sir.
ATTY. BERMUDEZ:
Q I am showing to you another document, which we respectfully request that the same
be marked as Exhibit "17".
In any event, these two exhibits are proof merely of the receipt of money by the seller;
they do not show that Rodolfo paid the balance of the purchase price. 28 On the other
hand, Witness Dominador Cruz was unshakable in testifying that Private Respondent
Eduardo, though not named in the receipts or in the deeds of sale, was definitely the real
buyer: 29
COURT: (The Court will ask few questions.)
Q Do you know if there [is] a document executed between the brothers to show the real
vendee in these three deeds of absolute sale is Eduardo Tigno?
A I don't know of any document because according to Eduardo Tigno it will be placed in
the name of his brother, Rodolfo Tigno so that it can be used as collateral.
COURT:

Q Being the agent of this transaction did you not try to advice Eduardo Tigno to be safe
for him a document will have to be executed showing that he is really the vendee?
A I also explained that matter to him I know that matter to happen in the long run they
will have dispute but Eduardo Tigno said he is his brother, he have [sic] trust and
confidence in his brother, sir.
COURT:
Q When did you give that advice?
A Before the preparation of the documents, sir.
Q Do you know already that it will be in the name of Rofolfo [sic] Tigno before the
execution?
A Yes, sir. During the time we have conversation on May 2, 1980, he instructed me to
place the name of Rodolfo Tigno in the document, Atty. Manuel was present when he
gave that advice, sir.
COURT:
Q What did Atty. Manuel advised [sic]?
A The reason for [sic] Eduardo Tigno have trust and confidence on his elder brother,
Rodolfo Tigno.
COURT: (Propounding questions)
Q So there is nothing written that will show that the money or purchase price came from
Eduardo Tigno, is that correct?
A None, sir. It's by trust and confidence,
Q Considering that you know that the money came from Eduardo Tigno, why did you
consent that the deed of absolute sale in the name of Rodolfo Tigno and not Eduardo
Tigno?
A Because Atty. Manuel called for Rodolfo Tigno because the document was in the name
of Rodolfo Tigno, sir.
Q The document is already defective, why did you not ask the preparation of the
document to be executed by Rodolfo Tigno accordingly that the real owner who sold to
you is the brother, Eduardo Tigno?
A I did not think of it, what I know is that the real owner is Eduardo Tigno, sir, and has the
power to disposed.
COURT:

Q Eduardo Tigno is the real owner, why did you agree that Rodolfo Tigno to execute the
document?
A Yes, sir. Atty. Manuel called for Rodolfo Tigno so I consented.
Aside from the "trust and confidence" reposed in him by his brother, Petitioner Rodolfo
was named as vendee in the deeds of sale to facilitate the loan and mortgage the
brothers were applying for to rehabilitate the fishponds. Be it remembered that private
respondent was a Makati-based business executive who had no time to follow up the
loan application at the PNB branch in Lingayen, Pangasinan and, at the same time, to
tend the fish farm on a daily basis. Atty. Modesto Manuel, who prepared and notarized
the deeds of sale, unhesitatingly affirmed the unwritten agreement between the two
brothers: 30
ATTY. VIRAY:
Will you please tell the Court what is the reason, if ever there was, why the plaintiff,
Eduardo Tigno, instructed you to put the name of Rodolfo Tigno as vendee in the papers?
ATTY. BERMUDEZ:
We object, Your Honor. The best witness to that is the plaintiff, Your Honor.
COURT:
Q Do you know the reason why Eduardo Tigno requested you to place the name of his
brother as vendee?
WITNESS:
A Eduardo Tigno requested me to place the name of his brother as vendee so that the
brother can use the lands as collateral for possible loan at the PNB (Philippine National
Bank), sir.
COURT:
Go ahead.
ATTY. VIRAY:
Q When was that when the plaintiff instructed you to place the name of his brother, the
defendant, Rodolfo Tigno as vendee in the documents so that the defendant, Rodolfo
Tigno, could use the properties as collateral for possible loan to the PNB?
WITNESS:
A It was sometimes during a fiesta in Guilig when Eduardo Tigno and Dominador Cruz, I
think that was May 2, 1980, when Eduardo Tigno and Dominador Cruz and some of the
vendors went to my house and they requested me to prepare the deeds of sale, sir.

In his direct examination, Atty. Manuel convincingly explained why Petitioner Rodolfo was
named as vendee: 31
ATTY. VIRAY:
Q When the plaintiff Eduardo Tigno instructed you to place the name of his brother as
the vendee in the deeds of sale you were to prepare, what did you tell him or did you
give any advice?
A Yes, sir. I certainly did, sir.
Q What advice?
A Why will I put the name of your brother as vendee when you were here as real buyer
who will give the money to the vendors? Why not you, I told him, sir.
Q What else did you tell him?
A I remember he is to make Special Power of Attorney in order his brother (sic) will
execute the loan to the PNB, sir.
Q What did the plaintiff, Eduardo Tigno, tell you when you said it would be best to
execute the Special Power of Attorney instead of placing the name directly in the deeds
of sale, what is his answer?
A He acceded to my advised [sic], sir. All right, make the deeds of sale, he said,
agreeable to the deed of sale to my advised but when I told him that It would take the
document probably by the middle of June, he back [sic] out, sir, because he told me he is
going abroad and he may not be around and then he instructed me to place the name of
his brother as the vendee not the plaintiff anymore, sir.
Q In other words, Mr. Witness, at first he was agreeable and that he would execute
Special Power of Attorney?
A Yes, sir.
Q Since he was going to the United States and he could not wait the preparation of the
documents he just instructed you to go ahead with the first instruction, is that what you
mean, Mr. Witness?
A Yes, sir. (Emphasis supplied.)
This testimony of Atty. Manuel was corroborated by Dominador Cruz who was the real
estate agent cum witness in all three deeds of sale. As a witness, he pointed out that
Petitioner Rodolfo was named as the vendee in the deeds of sale upon the order of
private respondent: 32
ATTY. VIRAY:
Q When you said Atty. Manuel was not able to prepare the deed of sale on May 2, 1980,
what then happened in the house of Atty. Manuel?

A When Atty. Manuel was not able to prepare the document, my cousins wanted to get
advance payment, one half of ten thousand pesos, sir, each.
ATTY. VIRAY:
Q Did Eduardo Tigno agreed [sic] to the request of your cousins to get one half of the
price of their land?
A He agreed to give five thousand pesos each but he prepared temporary receipt fpr [sic]
five thousand pesos, sir.
Q Who prepared the receipt?
A Atty. Manuel, sir.
Q By the way, how much all in all did Eduardo Tigno give on May 2, 1980 as advanced
consideration?
A P15,000.00, sir.
Q You mean to say five thousand pesos for each parcel of land?
A Yes, sir.
Q After the plaintiff, Eduardo Tigno paid the advanced payment for five thousand pesos
for each parcel of land, what else happened?
A When the three of us, I, Atty. Manuel and Eduardo Tigno were talking, I heard Eduardo
Tigno said to Attyl. [sic] Manuel that the deed of sale will be placed in the name of my
brother, Rodolfo because we will mortgage the land with the P.N.B., the proceeds will be
used in the development of the fishpond. He requested that the buyer of the fishpond
will be placed in the name of the brother of Eduardo Tigno.
Q Who is that brother of Eduardo Tigno?
A Rodolfo Tigno.
xxx xxx xxx
Q How about the balance of the purchase price of the property, is there any instruction
made by Eduardo Tigno with respect to the payment thereof?
A With respect to the balance after the preparation of the document they will bring it to
Eduardo Tigno for him to pay the balance, sir.
Q By the way, was the deed of sale to these parcels of land finally executed?
A Yes, sir.

From the foregoing, it is clear that the name of Rodolfo Tigno appeared in the deeds of
sale not for the purpose of transferring ownership to him but only to enable him to hold
the property in trust for his brother, herein private respondent.
In the face of the credible and straightforward testimony of the two witnesses, Cruz and
Manuel, the probative value, if any, of the tax declarations being in the name of
Petitioner Rodolfo is utterly minimal to show ownership. Suffice it to say that these
documents, by themselves, are not conclusive evidence of ownership. 33
Contrary to petitioners' insistence, no delay may be imputed to private respondent.
When private respondent went to Pangasinan to pay the taxes on his property in
Bugallon, he learned from his relatives that his brother was negotiating the sale of a
portion of the fishponds to Spouses Casipit. Failing to find his brother, he immediately
wrote a letter dated May 16, 1989 addressed to the Casipits advising them to desist from
buying the property because he was the real owner. On May 18, 1989, he confronted
Petitioner Edualino Casipit about the impending sale, only to learn that the sale had
already been consummated as early as April 29, 1989. 34 Failing to convince petitioners
to annul the sale, private respondent instituted this case on May 24, 1989 35 or five (5)
days after learning from Edualino of the consummation of the sale. 36 Before the
institution of this case, private respondent had no reason to sue. Indeed, he filed this
case after only five days from learning of the infidelity of his brother. Clearly, no delay
may be attributed to private respondent.
We agree with the detailed disquisitions of the Court of Appeals on this point: 37
The trial court's conclusion that defendant-appellee is the true buyer and owner of the
lands in question, mainly relying on the Deeds of Sale where defendant Rodolfo's name
appears as vendee, and on the Tax Declarations and Tax payment receipts in his name,
must inevitably yield to the clear and positive evidence of plaintiff. Firstly, as has thus
been fully established, the only reason why defendant Rodolfo was made to appear as
the buyer in the Deeds of Sale was to facilitate their mortgage with the PNB Branch at
Lingayen to generate seed capital for the fishponds, out of which Rodolfo could derive
income. With Rodolfo's name as vendee, there would be no need anymore for the
personal presence of plaintiff-appellant who was very busy with his work in Manila.
Moreover, aside from the fact that plaintiff was to travel abroad for thirty (30) days
sometime in June, 1980, he could not have executed a Special Power of Attorney in favor
of Rodolfo, as the Deeds of Sale were not yet prepared on May 2, 1980. Thus, to enable
Rodolfo to mortgage the lands, his name was put as vendee in view of the mutural [sic]
trust and confidence existing between said parties who are brothers. Secondly, it is wellsettled that the tax declarations or the payments of real estate taxes on the land are not
conclusive evidence of ownership of the declarant or payor (De Guzman v. CA, et al., L47378, Feb. 27, 1987, and cases cited therein; Cited in II Regalado REMEDIAL LAW
COMPENDIUM, p. 563 [1988]). Since defendant Rodolfo is named as vendee in the Deeds
of Sale, it is only natural that Tax Declarations and the corresponding tax payment
receipts be in his name so as to effect payment thereof.
Petitioners contend that there was no "fiduciary relationship" created between the
brothers Tigno. Petitioners argue that Rodolfo Tigno "had exercised all the acts of
dominion and ownership over the fishponds in question," as nobody "shared in the
produce of the fishponds for the past nine (9) years." Therefore, Petitioner Rodolfo,

"being the real purchaser" of the parcels of land, "could validly transfer the ownership of
a portion" to Spouses Casipit. 38
We firmly reject these contentions and need only to cite Respondent Court's incisive
findings:
After a careful examination of the evidence on record, we hold that an implied trust was
created in favor of the plaintiff [private respondent herein] within the meaning of Article
1448 of the Civil Code, which provides:
Art. 1448. There is an implied trust when property is sold, and the legal estate is granted
to one party but the price is paid by another for the purpose of having the beneficial
interest of the property. The former is the trustee, while the latter is the beneficiary. . . . .
An implied trust arises where a person purchases land with his own money and takes
conveyance thereof in the name of another. In such case, the property is held on a
resulting trust in favor of the one furnishing the consideration for the transfer, unless a
different intention or understanding appears. (Lim vs. Court of Appeals, 65 SCRA 160)
In the earlier case of Heirs of Candelaria, et al. v. Romero, at al., 109 Phil. 500, the
Supreme Court elucidated on implied trust:
The trust alleged to have been created in our opinion, is an implied trust. As held, in
effect, by this Court in the case of Martinez v. Grio (42 Phil. 35), where property is taken
by a person under an agreement to hold it for or convey it to another or the grantor, a
resulting or implied trust arises in favor of the person for whose benefit the property was
intended.
xxx xxx xxx
It is also the rule that an implied trust arises where a person purchases land with his own
money and takes a conveyance thereof in the name of another. In such a case, the
property is held on a resulting trust in favor of the one furnishing the consideration for
the transfer, unless a different intention or understanding appears. The trust which
results under such circumstances does not arise from contract or agreement on the
parties, but from the facts and circumstances, that is to say, it results because of equity
and arises by implication or operation of law.
We disagree with the trial court's ruling that if, indeed, a trust has been established, it is
an express trust which cannot be proved by parol evidence. It must be noted that Article
1441 of the Civil Code defines both express trust and implied trust in general terms,
thus:
Art. 1441. Trusts are either express or implied. Express trust are created by the intention
of the trustor or of the parties. Implied trust come into being by operation of law.
Specific instances or examples of implied trusts are given in the Civil Code, one of which
is described under Article 1448 quoted heretofore. Since Article 1448 is a specific
provision, it prevails over and qualifies Article 1441, which is a general provision, under
the rule generalia specialibus non derogant (Alcantara, Statutes, 1990 Ed., p. 101).

Therefore, since this case involves an implied trust falling under Article 1448, parol
evidence is allowed to prove its existence pursuant to Article 1457, Civil Code, which
states:
Art. 1457. An implied trust may be proved by oral evidence.
xxx xxx xxx
On the other hand, the record is replete with clear and convincing evidence to show that
(1) plaintiff Eduardo Tigno is the real buyer and true owner of the lands in question and
(2) defendant Rodolfo M. Tigno is merely a trustee constituted over said lands on behalf
of plaintiff.
It was established thru plaintiff's testimony that plaintiff paid P5,000.00 each, as first
installment, to the three vendors for a total of P15,000.00 (TSN, Sept. 5, 1989, pp. 1920), which was witnessed by Dominador Cruz and Atty. Manuel. Later, he gave a check to
Dominador Cruz, the agent, in the amount of P26,000.00, representing the following:
a) P15,000.00 as the balance for the three (3) parcels of land;
b) P6,000.00 representing Cruz's commission as agent;
c) P5,000.00 for capital gains tax, registration and other incidental expenses. (TSN, Sept.
5, 1989, pp. 39-41).
When this check was encashed, Cruz paid the three vendors the balance due them (TSN,
Sept. 5, 1989, pp. 42-43). That plaintiff was able to pay these amounts is believable,
because plaintiff had the financial means to pay said amounts. At the time of the sale in
1980, plaintiff was an executive of Meryll Lynch, Pierce, Fennon S. Smith Phil., Inc., where
he received P311,700.79 in 1980 alone, as shown by his Certificate of Income Tax
Withheld on Wages for said year (Exhibit G for plaintiff).
Indeed, by express provision of the Civil Code, 39 oral evidence is admissible to establish
a trust relation between the Tigno brothers. Private respondent explained how this trust
was created: 40
ATTY. VIRAY
Q When you said Dominador Cruz was able to bring the vendors at Guilig street,
Lingayen, what happened there?
A They came to our family home at Guilig street and we went to the house of Atty.
Modesto Manuel, sir.
Q Why did you go to the house of Atty. Manuel?
A For the executionof [sic] the deed of sale of the property I am going to buy, sir.
Q Was the deed of sale finished on that day?
A No, sir.

Q What was the reason?

A The vendors did not bring the tax declarations, secondly, the other heirs failed to get
the power of attorney from their sister in United States.
Q When the deed of sale were not executed on that day, what transpired?
A The vendors requested for advance payment of P5,000.00 each for the three parcels of
land.
Q Did you agree to the request of the vendors for the advance payment of P5,000.00
each for the three parcels of land?
A Yes, sir.
Q Did you comply?
A Yes, sir.
Q How much all in all?
A P15,000.00 in cash, sir.
Q Was there any receipt signed evidencing receipt for that?
A There was receipt for the P15,000.00
Q Where is that receipt now?
A I gave all the papers to him in my brown envelope, I trust [sic] him.
Q Do you remember in whose name the vendors allegedly to have received the
P15,000.00?
A In my name, received from Eduardo Tigno.
Q After giving the P15,000.00 advance payment which you said the deed of sale were
not executed because of some requirement were not available, what happened next?
A I talked to Atty. Manuel separately from the vendors, and I told him to prepare the deed
of sale at that time and I told him to place my older brother, Rodolfo Tigno as vendee
because I have plan to mortgage the property in PNB, Lingayen, sir.
xxx xxx xxx
Q Aside from instructing Atty. Manuel to place the name of your brother, Rodolfo Tigno,
did you also instruct Dominador Cruz for the payment of the balance?
A Yes, sir.

Q What was your instruction to Dominador Cruz?

A I told Dominador Cruz, I am leaving for United States, I will be back first week of July,
after the completion of the papers, see me on the second week of July and I will give the
whole payment of the property.
Q And was the deed of sale covering the three parcels of land completed?
A Yes, sir.
Q Did Dominador Cruz bring the documents to you in your office in Makati?
A Yes, sir.
Q When was that?
A First week of July 1980, sir.
Q Did you give the payment of the balance?
A Yes, sir. After going over the documents, I issued to him a check payable in the sum of
P26,000.00.
The previously quoted testimonies of Modesto Manuel and Dominador Cruz substantially
corroborate private respondent's testimony.
On the other hand, Petitioner Rodolfo, although in possession of the deeds of sale in his
name, failed to present a single witness to corroborate his claim that he bought the
property partly with his own money and partly with the money he allegedly borrowed
from a certain Jose Manaoat. His failure to present Manaoat gives rise to a presumption
that the latter's testimony, if given, would have been unfavorable to the former. 41
Respondent Court did not give credence to the financial capacity of Petitioner Rodolfo
Tigno: 42
Defendant Rodolfo's denial of plaintiff's evidence, and his bare testimony that he was the
real buyer, without corroboration by other witnesses, cannot be given credence and do
not deserve belief. It was unlikely that he had the financial means to pay for the lands in
the total amount of P53,000.00. As testified to by Arnulfo Peralta (TSN, Sept. 29, 1988,
pp. 36-37), Rodolfo was jobless then, and at one time or another was even supported
financially by plaintiff, as testified to by plaintiff (TSN, Oct. 16, 1989, pp. 11-12), which in
fact was confirmed by Rodolfo during his cross-examination (TSN, Oct. 18, 1989, pp. 6-7).
If indeed he was engaged in some piggery, as he claimed, his financial capability is
rendered doubtful by the fact that no evidence, other than his bare testimony, was
presented to show his income, like an income tax return. His bare testimony that he
borrowed P20,000.00 from Jose Manaoat to raise partly the amount of P53,000.00 lacks
credibility. Manaoat, who was in the best position to testify that Rodolfo borrowed money
from him, was never presented, which would gives rise to the presumption that his
testimony would be adverse to defendant, if presented. (Sec. 3[e], Rule 131, Rules of
Court).

From the foregoing, it is ineludible that Article 1448 of the Civil Code finds application in
this case. Although the deeds of sale were in the name of Petitioner Rodolfo, the
purchase price was paid by private respondent who was the real owner of the property.
Petitioner Rodolfo is the trustee, and private respondent is the beneficiary.
Second Issue: Are Petitioners Casipit Purchasers in Good Faith?
Spouses Edualino and Evelyn Casipit contend that they "are purchasers in good faith"
and for valuable consideration; thus, they cannot be deprived of the land they bought
from Rodolfo Tigno. 43
This posturing is unacceptable. First, unrebutted is the emphatic testimony of private
respondent that Edualino was invited on May 2, 1980 to a picnic in the fishpond. At the
picnic, private respondent informed Petitioner Edualino Casipit that he was the owner of
the property. On this point, private respondent testified: 44
ATTY. VIRAY:
Q You said Edualino Casipit very well knew that the property is owned by you, what made
you say that the defendant Edualino Casipit very well knew that you are the owner of the
property he bought?
A Way back in 1980 when I gave the advance payment to the vendors, I invited my
friends and right there in the fishpond, we had small picnic and that my father, and Boy
Casipit were there.
ATTY. VIRAY:
Q What if you invited them, sign that from that time you were the one who bought the
parcels of land?
A Yes, sir.
Second, also uncontested is the testimony of Dominador Cruz that he met Edualino on
April 24, 1989, or five (5) days before the consummation of the sale between Rodolfo
and Spouses Casipit. During that meeting, Cruz told Edualino that he bought from private
respondent a portion of the subject property for the purpose of building a dike.
Thereafter, Edualino asked Cruz to buy a portion of the property from private respondent.
45
Third, and in any event, Spouses Casipit did not acquire absolute ownership over the
property since the apparent vendor, Petitioner Rodolfo, did not have the right to transfer
ownership thereof. Be it remembered that the fishponds were not registered under the
Torrens system. Again, we cite public respondent's ruling, which we find totally
persuasive: 46
It is our well-considered opinion, however, that whether or not defendant-appellee
spouses are in good faith is entirely immaterial, because no valid sale in the first place
was made between defendant-appellees covering the portion of land in question. The
fact is, as established by the evidence on record, that defendant Rodolfo M. Tigno is not
the owner of the lands in question, but a mere trustee thereof, and could not have

transferred ownership of said lands, by way of sale, to his co-defendant-appellee

spouses. As a matter of basic principle in the law on sales, a person cannot transfer
ownership, by way of sale, of something over which he has no right to transfer. Thus,
Article 1459 of the Civil Code provides:
Art. 1459. The thing must be licit and the vendor must have a right to transfer the
ownership thereof at the time it is delivered. (Emphasis supplied)
Since defendant-appellee is not the owner of the lands in question, which are not
registered under the Torrens system, he could not by way of sale have transferred, as he
has no right to transfer, ownership of a portion thereof, at the time of delivery.
WHEREFORE, premises considered, the petition is hereby DENIED and the assailed
Decision and Resolution are AFFIRMED in toto. Costs against petitioners.
SO ORDERED.
Narvasa, C.J., Romero, Melo and Francisco, JJ., concur.
Footnotes
1 Rollo, pp. 42-60.
2 Second Division composed of Acting Presiding Justice Santiago M. Kapunan (now
Associate Justice of this Court), ponente, and JJ. Oscar M. Herrera and Serafin V.C.
Guingona, concurring.
3 Rollo, p. 71.
4 Ibid., p. 59.
5 Ibid., pp. 71.
6 Ibid., pp. 43-48.
7 Regional Trial Court, Branch 38 of Lingayen, Pangasinan, presided by Judge Antonio M.
Belen.
8 Rollo, p. 29.
9 Ibid., pp. 8, 10 & 12-13; petition pp. 7, 9 & 11-12; original text in upper case.
10 Meynardo Policarpio vs. Court of Appeals, et al. G.R. 116211, p. 12, March 7, 1997,
per Panganiban, J. citing Cuaycong vs. Cuaycong, 21 SCRA 1192, 1196-1197, December
11, 1967 in turn citing 89 C.J.S. 722, 724.
11 Lim vs. Court of Appeals, 65 SCRA 161, 165-166, July 18, 1975.
12 G.R. No. 117228, pp. 10-12, June 19, 1997.

13 4 Arturo Tolentino, Commentaries And Jurisprudence On The Civil Code Of the

Philippines 669 [1991] (hereafter "4 Tolentino").
14 Ibid.
15 Article 1441, Civil Code of the Philippines.
16 Huang vs. Court of Appeals, 236 420, 428 [1994]; Vda. de Esconde vs. Court of
Appeals, 253 SCRA 66, 73-74 [1996].
17 76 Am. Jur. 2d Trusts 179 [1992].
18 Ibid.
19 76 Am. Jur. 2d Trusts 180.
20 4 Tolentino, 679-680.
21 76 A.m. Jur. 2d Trusts 688 [1992].
22 Article 1457, Civil Code.
23 Salao vs. Salao, 70 SCRA 65, 84 [1976]; O'laco vs. Co Cho Chit, 220 SCRA 656, 664665 [1993]; Ong Ching Po vs. Court of Appeals, 239 SCRA 341, 347 [1994].
24 228 SCRA 75, 80-81, November 19, 1993, per Nocon, J.
25 The receipt for P15,000.00 as partial payment issued by Vendor Remedios Sison for
her lot.
26 This is the receipt for P13,333.35 as full payment issued by Vendor Manuel Sison as
one of the heirs of Isaac Sison for their lot. See also Exhibits for the Defendants in Civil
Case No. 16673.
27 TSN, September 5, 1989, p. 57.
28 TSN, September 5, 1989, p. 59.
29 TSN, September 5, 1989, pp. 64-67.
30 TSN, September 27, 1989, pp. 16-17.
31 TSN, September 27, 1989, pp. 23-26.
32 TSN, September 5, 1989, pp. 19-22.
33 Rivera vs. Court of Appeals, 244 SCRA 218, 222, May 22, 1995, citing Republic vs.
Intermediate Appellate Court, G.R. No. 74830, July 5, 1993, 224 SCRA 285; Director of
Lands vs. Intermediate Appellate Court, G.R. No. 73246, March 2, 1993, 219 SCRA 339;
De Jesus vs. Court of Appeals, G.R. No. 57092, January 21, 1993, 217 SCRA 307; Director
of Lands vs. Buyo, G.R. No. 91189, November 27, 1992, 216 SCRA 78.

34 Exhibit E for the Plaintiff.

35 Original records of Civil Case No. 16673, p. 1.
36 TSN, October 16, 1989, pp. 25-30.
37 Ibid., pp. 56-57.
38 Rollo, pp. 14-15.
39 "Art. 1457. An implied trust may be proved by oral evidence."
40 TSN, October 16, 1989, pp. 12-17.
41 Rule 131 of the Rules of Court, Section 3, paragraph (e).
42 Rollo, p. 56, Decision, p. 15.
43 Rollo, p. 15.
44 TSN, October 16, 1989, pp. 30-31.
45 TSN, November 6, 1989, p. 10.
46 Ibid, p. 59; Decision, p. 18.
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Today is Friday, August 01, 2014

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 118357 May 6, 1997
PHILIPPINE NATIONAL BANK, petitioner,
vs.

COURT OF APPEALS and INDUSTRIAL ENTERPRISES, INC., respondents.

ROMERO, J.:
This is a petition for review on certiorari of the Decision 1 of the Court of Appeals affirming in toto the November
27, 1992 decision 2 of the Regional Trial Court of Makati, Branch 150 which disposed of Civil Case No. 8109,
"Industrial Enterprises, Inc. v. Marinduque Mining and Industrial Corporation, Geronimo Velasco (in his capasity
as the then Minister of Energy) and Philippine National Bank," an action for rescission of contract and damages,
as follows:
WHEREFORE, in the light of the foregoing, and as plaintiff Industrial Enterprises, Inc. was
able to establish by preponderant evidence the allegations in its Complaint and causes of
action against defendants Marinduque Mining and Industrial Corporation and Philippine
National Bank, the Court finds both defendants civilly liable to plaintiff and, therefore, orders
them to jointly and severally:
1. pay plaintiff the sum of P31.66 Million as of July 31, 1983, for the expenses invested by
plaintiff in the property subject of this case, as computed by Sycip, Gorres, Velayo and
Company and brought to current value per SGV formula, as agreed in the Memorandum of
Agreement;
2 pay plaintiff the sum of P37,569,733.00, for the indemnification and rehabilitation cost, plus
interest at the legal rate from March 31, 1991, until fully paid;
3. pay plaintiff the sum of P120 Million for unrealized profit for five (5) years from August,
1983, the date of defendant MMIC's takeover of the property, to October, 1988, when plaintiff
was re-awarded the contract, plus interest at the legal rate, from the date of this decision,
until fully paid;
4. pay plaintiff an amount not less than ten (10) percent of the losses it incurred and its
unrealized profits as indicated in Numbers 1 to 3, for the injury done to plaintiff's business
standing and commercial credit;
5. pay plaintiff an amount not less than five (5) percent of the above obligation as
reimbursement to plaintiff for litigation expenses and attorney's fees;
6. COST OF SUIT.
And finally, the extrajudicial foreclosure sale held on August 31, 1984, in Catbalogan, Samar,
over the property of plaintiff, part of the Giporlos Coal Project, is hereby declared NULL and
VOID.
SO ORDERED.
Marinduque Mining and Industrial Corporation (MMIC) was founded by Jesus S. Cabarrus in 1949. 3 Four years
later or in 1953, Cabarrus established J. Cabarrus, Inc. which subsequently was renamed Industrial Enterprises,
Inc. (IEI). During the period when most of the facts relevant to this case transpired, Cabarrus and his family
owned about 12% to 14% of the shares of stock in the MMIC 4 where he was the President. He was also the
President of IEI.
On July 27, 1979, IEI entered into a coal operating contract with the Bureau of Energy Development (BED), with
Cabarrus and then Minister of Energy Geronimo Velasco as signatories. 5 The contract was pursuant to the Coal
Development Act of 1976 (P.D. No. 972, as amended) and covered 2,000 hectares of two (2) coal blocks in
Barrio Carbon, Magsaysay, Eastern Samar.
While exploring this area, IEI found the adjacent areas, comprising of three (3) coal blocks, to be likewise coal
potentials. Hence, upon confirmation by the BED that these three (3) adjacent coal blocks were in the free area,
IEI filed an application for another coal operating contract on August 12, 1981. Simultaneously, IEI applied for the
conversion of its July 27, 1979 coal operating contract from exploration to development/production. IEI also
followed up its application on the three (3) newly-discovered coal blocks. All of these coal blocks were collectively
known as the Giporlos Coal Project.
Sometime in April, 1982, Minister Velasco informed Cabarrus that IEI's application for exploration of the three (3)
coal blocks had been disapproved and that, instead, the contract would be awarded to MMIC. Following
Cabarrus' letter of May 4, 1982 6 requesting that the rejection of IEI's application be made in writing, Minister
Velasco wrote him a letter dated June 2, 1982, 7 where Minister Velasco said:
We appreciate your desire to increase Industrial Enterprises, Inc.'s (IEI) involvement in coal

development. In line, however, with the objective of rationalizing the country's overall coal
supply-demand balance, we believe that coal users who have the capability to go into coal
production themselves should, as much as possible, be encouraged and given the
preference to do so. This ensures maximum utilization of local coal and will be beneficial to
coal producer/user in the long run. In your area of interest, therefore, we believe that the
logical coal operator should be Marinduque Mining and Industrial Corporation (MMIC) which
is now developing the Bagacay coal deposit in order to support MMIC's coal conversion
program at the Nonoc Nickel Refinery. As a member of the board of MMIC, I am fully aware
that this coal conversion program is critical to the profitability and the survival of the Nonoc
Nickel Refinery. It is, therefore, imperative that MMIC secure its own coal supply.
Consistent with the above rationale, you are aware that MMIC Board has in fact taken
concrete steps to consolidate the Giporlos and Bagacay coal areas under MMIC and, for this
purpose, has authorized Chairman Cesar C. Zalamea to create a committee (of which I was
asked to be Chairman) to evaluate the Giporlos coal blocks of IEI to serve as basis for their
acquisition by MMIC. As President of MMIC, you are likewise aware that the Board has
recently hired the services of SGV to make an evaluation of the proper pricing for the IEI
coal interest to be paid for by MMIC. With these developments indicating the imminent
formal acquisition of Giporlos coal areas by MMIC, it would indeed be inconsistent now for
us to award additional coal blocks in the same area to IEI. We believe that these additional
coal areas, if at all, should be applied for and awarded direct to MMIC.
In view of the foregoing, please be advised that we are denying IEI's application, and we
suggest instead that MMIC apply for the same blocks.
On March 28, 1983, Minister Velasco informed Cesar Zalamea, Chairman of the Board of the Development Bank
of the Philippines (DBP) and of the MMIC, that IEI's application for the conversion of its coal operating contract
for the Giporlos area from exploration to development/production had been put "under advisement in the light of
the ongoing discussion for the transfer of IEI's rights and obligations" to MMIC. 8
Thereafter, MMIC and IEI, through Chairman Zalamea and President Cabarrus, 9 respectively, entered into a
Memorandum of Agreement (MOA) whereby IEI assigned to MMIC all its rights and interests under the July 27,
1979 coal operating contract. The MOA provided as follows:
NOW, THEREFORE, the parties have agreed, as hereby they agree, one with the other, as
follows:
1. That IEI, subject and conformably with the whereas clauses hereinabove stated, hereby
assigns and transfers all its rights and interests on the Coal Operating Contract described in
the first whereas clause; and MMIC shall in consideration of the above assignment and
transfer
(a) Undertake all the obligations required of IEI under said Coal Operating
Contract;
(b) Reimburse all costs and expenses actually incurred as of 31 July 1983 by
IEI on the coal property and brought up to current values, as shall be audited
and confirmed by Sycip, Gorres and Velayo as of said date of 31 July 1983;
and
(c) Pay to IEI the total sum equivalent to P4.17 per ton of proven and positive
reserves of coal to be confirmed by an independent geologist who shall be
designated and appointed by mutual agreement of the parties.
2. That the total sum due from MMIC to IEI under this agreement shall be paid upon the
effectivity of this agreement in the following manner
(a) An assumption by MMIC of the outstanding loan obligation (evidenced by
Promissory Note No. 1516 for P3.3 Million and Promissory Note No. 11098 for
P5.0 Million) of IEI to Manila Banking Corporation which as of 31 July 1983
stands at P8.3 Million.
(b) Payment in cash to IEI of the difference between the above amount of P8.3
Million and the sum total of subparagraphs (b) and (c) par. 1, above.

3. That this agreement shall only become binding and effective upon its approval by the
BED, which approval shall be secured jointly by MMIC and IEI.
MMIC and IEI, again through Zalamea and Cabarrus, respectively, jointly informed the BED on August 10, 1983,
that they had entered into the MOA "at the instance and suggestion of the Hon. Minister of Energy in one of the
earlier meetings of the Board of Directors of MMIC." 10 MMIC and IEI were informed of the approval of the MOA
on August 29, 1983 by the then Acting BED Director Wenceslao R. de la Paz. 11
MMIC took over possession and control of the two (2) coal blocks even before the MOA was finalized. However,
instead of continuing the exploration and development work actively pursued by IEI, MMIC completely stopped
all works and dismissed the work force thereon, leaving only a caretaker crew.
Consequently, IEI made written demands to MMIC, pursuant to the MOA, for the reimbursement of all costs and
expenses it had incurred on the project which, as of July 31, 1983, had amounted to P31.66 million as audited by
the Sycip, Gorres and Velayo Company.
In view of MMIC's failure to comply with its obligations under the MOA, IEI filed a complaint against MMIC and
Minister Velasco on August 7, 1984, for rescission of the MOA and damages, before the Regional Trial Court of
Makati, Branch 137. Docketed as Civil Case No. 8109, the complaint alleged that MMIC acted in gross and
evident bad faith in entering into the MOA when it had no intention at all to operate the two (2) coal blocks and of
complying with any of its obligations under the said agreement. It likewise alleged that Minister Velasco was
instrumental in causing the assignment of the coal operating contracts to MMIC when he did not act on
complainant IEI's application for conversion of its coal operating contract from exploration to
development/production and in rejecting its application for another coal operating contract for the exploration of
additional three (3) coal blocks which he had reserved for MMIC.
Meanwhile, on July 13, 1981, for various credit accommodations secured from the Philippine National Bank
(PNB), aggregating to four billion pesos (P4,000,000,000.00) excluding interest and charges as of November 30,
1980, as well as from the DBP, amounting to two billion pesos (P2,000,000,000.00), MMIC entered into a
Mortgage Trust Agreement (MTA) 12 whereby it constituted a mortgage pari passu of its assets in favor of PNB
and DBP. These assets are described in the third "whereas clause" of the MTA as follows:
(1) all the MORTGAGOR'S assets described and covered under the Deed of Real Estate
and Chattel Mortgage executed by the MORTGAGOR in favor of PNB dated October 9,
1978, acknowledged before Notary Public of Manila, Lucas R. Vidad, as Dec. No. 1004,
Page No. 94, Book No. VII, Series of 1978, as amended, which are made integral parts of
this Agreement by way of reference; and
(2) additional assets of the MORTGAGOR described and identified in the list hereto attached
as Annex "A", including assets of whatever kind, nature or description, which the
MORTGAGOR may hereafter acquire whether in substitution of, in replenishment, or in
addition thereto, (the "Mortgaged Properties"). 13
Under the MTA, the PNB was constituted and appointed as the trustee tasked with holding in trust the mortgaged
properties "for the equal and ratable benefit of the Beneficiaries in proportion to the amount of the obligation of
the MORTGAGOR to each of them" as provided therein. 14 One of the conditions of the mortgage was that:
. . . Should the MORTGAGORS fail to deliver said properties, as aforestated, the TRUSTEE,
through its duly authorized representative, is authorized to take possession of said
properties and bring the same to the location of any of their respective offices or to any,
other place and the expenses of locating and bringing said properties to such place shall be
for the account of the MORTGAGOR and shall form part of the sums secured by this
mortgage; Provided, however, that the TRUSTEE shall have the option of selling said
properties at any place where their respective offices shall be located or at any place where
said properties may be found. 15 (Emphasis supplied.)
The MTA also provided that:
For the purpose of extra-judicial foreclosure, the MORTGAGOR hereby appoints the
TRUSTEE, through its duly authorized representatives, its attorney-in-fact to sell the
mortgaged properties in accordance with the provision of Act No. 3135, as amended, and/or
Act No. 1508, as amended, and subject to the stipulations herein set forth, to sign all
documents and perform any act requisite or necessary to accomplish said purpose and to

appoint their representatives or substitutes as such attorneys-in-fact with all the powers
herein conferred. In extra-judicial foreclosure under Act No. 3135, as amended, the auction
sale shall take place in the City or Capital of the Province where the mortgaged properties
are situated. In extra-judicial foreclosure under Act No. 1508, as amended, the auction sale
shall take place in such City or Municipality as the TRUSTEE at its option,
may elect by virtue of the provisions of the first paragraph of this Condition. 16 (Emphasis
supplied.)
The MTA was amended on April 27, 1984 with PNB Senior Vice President Gerardo Agulto, Jr. and MMIC Senior
Vice President Jose Luis Javier as signatories. 17 Premised on the fact that the mortgagor (MMIC) had "acquired
additional personal and real properties, including, but not limited to, leasehold rights on mining claims, which
pursuant to the terms of the Mortgage Trust Agreement are deemed covered by the mortgage as after-acquired
assets," the MTA amended Sec. 2.01 thereof to read as follows:
As security for the prompt and full payment by the MORTGAGOR of the Secured
Obligations, the MORTGAGOR hereby establishes and constitutes in favor of the
MORTGAGEES a first lien and mortgage of the first rank in and to each and every item of
the Mortgaged Properties, together with any and all substitutes or replacements for or
renewals of or additions to any thereof, all of which belong to and are in the possession of
(or will belong to and will be in the possession of) the MORTGAGOR, free end clear of any
liens or encumbrances of any nature whatsoever. (Emphasis supplied.) 18
MMIC defaulted in the payment of its loan obligation with PNB and DBP which, as of July 15, 1984 stood at
P23.55 billion. As a consequence thereof, PNB and DBP simultaneously filed in the provinces of Rizal, Samar,
Negros and Surigao, joint petitions for sale on foreclosure under Act Nos. 1508 and 3135, 19 of the MMIC assets
located at: (a) Island Cement in Antipolo, Rizal; (b) Sipalay Copper Mine in Negros; (c) Bagacay and Giporlos
Coal Projects in Samar, and (d) Nonoc Nickel Project in Surigao. The petitions were premised on: (1) the MOA of
July 13, 1984 which delineated MMIC's mortgaged properties; (2) the April 27, 1984 amendment to the MTA in
favor of DBP and PNB which included in the mortgage MMIC's additional after-acquired assets; (3) the liabilities
of MMIC secured by the mortgage being past due, and (4) Presidential Decree No. 385 mandating PNB and
DBP to institute foreclosure proceedings when the arrearages of the borrower have exceeded twenty percent
(20%) of the principal obligation.
Deputy Sheriff Esteban G. Malindog of the Regional Trial Court in Catbalogan, Samar, Branch XXVII, complied
with the requirements of the law as to the posting and publication of the notice of sale. Said notice, dated August
15, 1984, set for August 31, 1984 the auction sale of the various mining equipment and other assets of MMIC,
including the equipment at the Giporlos Project.
On August 15, 1984, IEI advised PNB and DBP at their respective Manila and Makati offices that the purchase
price of the Giporlos Coal Project that it had assigned to MMIC per the MOA, was still unpaid. 20 However,
despite said notice, the foreclosure sale proceeded as scheduled and the various machineries and equipment of
MMIC were sold to PNB as the sole bidder for P33,940,940.00.
In its letter of September 20, 1984 to PNB and DBP, 21 IEI requested that the movable properties in the Giporlos
Coal Project which were detailed in a list attached to its August 15, 1984 letter to said banks, be excluded from
the foreclosed assets of MMIC as the purchase price thereof under the MOA had remained unpaid. IEI further
informed PNB and DBP that a suit for rescission of the assignment of the Giporlos Coal Project to MMIC (and
damages) had been filed before the Regional Trial Court of Makati.
On June 24, 1985, in view of the inclusion of the mining equipment and other movable properties at the Giporlos
Coal Project in the foreclosure sale of the assets of MMIC, IEI filed an amended complaint impleading the PNB
as an additional defendant. 22 The amended complaint was admitted by the trial court on September 23, 1985. 23
On April 23, 1986, the lower court 24 rendered a decision finding that:
With respect to the plaintiff's claim against the Philippine National Bank, the evidence on
record is clear that said defendant bank is equally guilty of bad faith because it was advised
beforehand that the heavy equipment and movable property which are part of the Giporlos
Coal Project were still unpaid; however, despite that actual knowledge or information, the
said defendant bank proceeded to extrajudicially foreclose the mortgage on the said
properties; moreover, the foreclosure proceedings were held in Catbalogan, Province of

Samar, although the said movable properties are actually found or located at Giporlos,
Eastern Samar (Exhibit "ooo"), a province, distinct and separate from, and outside the
jurisdiction of, the Province of Samar; these foreclosure proceedings in Catbalogan, Samar,
are clearly contrary to the provisions of Act 1508, as amended; likewise, the inclusion of the
movable properties which are part of the Giporlos Coal Project is contrary to the provisions
of the last paragraph of Sec. 7 of said Act No. 1508, as amended, which provides that a
chattel mortgage shall be determined to cover only the properties described therein and not
like or substituted property thereafter acquired by the mortgagor and placed in the same
depository as the property originally mortgaged, anything in the mortgage to the contrary
notwithstanding. 25
Noting the futility of proceeding with the trial of the case because there was "no genuine issue of any material
facts," the lower court rendered a summary judgment disposing of Civil Case No. 8109 as follows:
WHEREFORE, judgment is hereby rendered:
a declaring the memorandum agreement, Exhibit "C" as rescinded or annulled and
without further force and effect between the parties thereto;
b declaring and sustaining the continued efficacy and validity of the coal operating
contract, Exhibit "A" between plaintiff and defendant BED;
c ordering the reversion or return of the two coal blocks covered by the coal operating
contract dated July 27, 1979, Exhibit "A", from the defendant MMIC to and in favor of the
plaintiff together with or including all the pieces of equipment MMIC received by said
defendant in virtue of the rescinded memorandum of agreement, Exhibit "C";
d ordering the defendant Bureau of Energy Development to issue its corresponding
formal written affirmation and confirmation of the coal operating contract, Exhibit "A", and to
expeditiously cause the conversion thereof from exploration to development/production or
exploitation contract in favor of the plaintiff;
e directing the Bureau of Energy Development and the Ministry of Energy to give due
course to plaintiff's application for a coal operating contract for the exploration of the three
additional coal blocks in the plaintiff's Giporlos Coal Project;
f condemning the defendant MMIC to pay the plaintiff the amount of P3,431,645.00
representing expenditures on the two coal blocks covered by Exhibit "A" from July 31, 1983
up to May 1984 and such further amounts from said date up to the finality of this decision to
be computed in accordance with the formula adopted in the report of Sycip, Gorres and
Velayo referred to in paragraph 14 of the Amended Complaint;
g ordering the defendant MMIC to pay the plaintiff the sum of P6,500,000.00 representing
rehabilitation expenses to be incurred by plaintiff in putting back the two coal blocks and the
pieces of equipment thereon in the same workable and operating condition as they were at
the time they were taken possession of by said defendant MMIC and the defendant PNB
shall be subsidiarily liable therefor;
h condemning the defendants MMIC and PNB jointly and solidarily liable to pay the
plaintiff moral damages in the amount of P300,000.00, as exemplary damages of
P200,000.00 and the amount of P200,000.00 as and for attorney's fees;
i declaring the extra-judicial foreclosure sale executed for and in behalf of the defendant
Philippine National Bank of the mining equipment and other movable property which are
enumerated in Exh. "ooo" and which are part of the Giporlos Coal Project, as null and void
and of no force and effect as against the plaintiff; in the event of the loss or deterioration of
the said mining equipment and other movable property, the said defendants PNB and MMIC
shall be held jointly and solidarily liable to the plaintiff for the current market value thereof;
and
j ordering the defendants MMIC and PNB to pay the cost of this suit.
SO ORDERED. 26
PNB and IEI filed separately motions for the reconsideration of said summary judgment. 27 PNB alleged that the
lower court did not have jurisdiction over the subject matter and nature of the action as the MOA between MMIC

and IEI was an incident arising out of a mining claim which was within the jurisdiction of the BED. Moreover, the
validity of the extrajudicial foreclosure proceedings which PNB effected on said properties was a genuine
material issue which was not determinable through summary judgment. Inasmuch as the merit of the case was
resolved through summary judgment, PNB was denied its constitutional right to due process. Furthermore, the
award of damages to IEI was improper as PNB was not a party to the MOA.
For its part, IEI contended that the decision failed to award consequential damages in its favor considering the
finding that MMIC and PNB acted in bad faith and that it failed to realize profits of about P14.5 million on the
confirmed coal reserves of 3,485,915 metric tons computed at P4.17 per metric ton.
On the other hand, the public defendant and MMIC filed their respective notices of appeal to the then
Intermediate Appellate Court. 28
On July 14, 1986, IEI filed a motion for execution pending appeal 29 alleging that MMIC had failed and refused to
fulfill its obligations under the MOA and that it even allowed the PNB to unlawfully foreclose the mortgage on the
heavy equipment and other movable properties in the Giporlos Coal Project. According to IEI, to allow this
situation to persist would only aggravate the damages suffered by all concerned parties. It added that the grant
of the motion for execution pending appeal would not only stop the continuing injury to the common weal but it
would also hasten the day when the coal blocks could be placed in useful production to provide gainful
employment to the people in the community. By the same token, IEI averred, granting of the motion would
accelerate realization of scarce foreign exchange savings occasioned by the local production of a substitute
energy source that would thereby contribute to the relief of an ailing economy.
This motion was opposed by the public defendant, the MMIC and the PNB. 30 The public defendant averred that
the execution of the decision "would cause great irreparable damage and injury to public interest" and that there
were no "good reasons" of superior circumstance that demand urgency of the execution pending appeal. MMIC
opposed the motion on the ground that the court had lost jurisdiction after the perfection of its appeal while
PNB's objection was on the ground that there were no good reasons to justify the issuance of a writ of execution
and that the issuance thereof was premature.
In its order of September 15, 1986, the lower court denied the motions for reconsideration of IEI and PNB for lack
of merit. It ordered the elevation of the records of the case to the Court of Appeals considering that the MMIC
and the public defendant had filed their notices of appeal on time. It likewise directed the issuance of a writ of
execution pending appeal to enforce the April 23, 1986 decision upon the filing of a bond in the amount of five
million pesos (P5,000,000.00) conditioned on the payment of damages the defendants might suffer should the
court finally rule that the plaintiff was not entitled to the writ.
In granting the writ of execution, the court held that "the immediate resumption of operation of the two coal
blocks in question became imperative and is of urgent necessity at this time when our government is in dire need
of capitalization to encourage the establishment of business to generate employment and dollar-producing
energy sources." In the court's perception, this was enough reason to entitle IEI to execution pending appeal
pursuant to Sec. 2, Rule 39 of the Rules of Court.
The corresponding writ having been issued on September 22, 1986, 31 on September 26, 1986, Pioquinto P.
Villapana was appointed Special Sheriff to assist and cooperate with Deputy Sheriff Arturo Flores in its
enforcement. However, execution of the writ was curtailed.
The appeal to the Court of Appeals was docketed as CA-G.R. CV No. 12660. On October 14, 1988, IEI filed a
motion to dismiss the case against Minister Velasco on the grounds of IEI's reapplication for the two coal blocks
with the Office of Energy Affairs (OEA) and its loss of interest in pursuing the case against Minister Velasco. 32
The motion was favorably acted upon by the Court of Appeals thereby effectively dropping Minister Velasco as a
defendant in Civil Case No. 8109 through the decision of May 29, 1989, 33 where the Court of Appeals disposed
of the appeal as follows:
WHEREFORE, the judgment appealed from is hereby reversed and set aside and the
appeal of plaintiff Industrial Enterprises, Inc., is DISMISSED. The complaint against the
defendants Marinduque Iron Mines Corporation and Minister of Energy is dismissed for lack
of jurisdiction. The case against defendant PNB is remanded to the lower court for further
proceedings.
Cost against appellant Industrial Enterprises, Inc.
SO ORDERED. 34

IEI elevated the decision to this Court through a petition for review on certiorari under G.R. No. 88550 while the
PNB filed in the Court of Appeals a motion for the reconsideration of the same decision. On September 21, 1989,
the Court of Appeals resolved the motion for reconsideration with the following findings:
Considering, therefore, that PNB was impleaded as party defendant only in connection with
its foreclosure of the mortgages on the properties of the principal defendant MMIC, and
considering that the main action against MMIC has been dismissed for lack of jurisdiction,
there appears to be no cogent reason to continue the case against PNB which is merely a
secondary defendant. There is thus merit in PNB's contention that since the case against
MMIC has been dismissed, the case against PNB should likewise be dismissed, considering
that PNB merely stepped into the shoes of MMIC.
Moreover, there is no privity of contract between PNB and IEI. Hence, there is no direct
cause of action by IEI against PNB independently of MMIC, it being merely a foreclosing
mortgage creditor of the latter. At any rate, the record shows that there is an on-going
litigation between MMIC stockholders and PNB before the Regional Trial Court of Makati
(Civil Case No. 9900) for the annulment of the PNB's extra-judicial foreclosure of MMIC's
mortgaged properties. 35
Accordingly, the Court of Appeals modified its decision of May 29, 1989 by dismissing the case
against the PNB.
Meanwhile, G.R. No. 88550 was eventually decided by this Court on April 18, 1990. 36 In denying the petition of
IEI, the Court held:
Clearly, the doctrine of primary jurisdiction finds application in this case since the question of
what coal areas should be exploited and developed and which entity should be granted coal
operating contracts over said areas involves a technical determination by the BED as the
administrative agency in possession of the specialized expertise to act on the matter. The
Trial Court does not have the competence to decide matters concerning activities relative to
the exploration, exploitation, development and extraction of mineral resources like coal.
These issues preclude an initial judicial determination. It behooves the courts to stand aside
even when apparently they have statutory power to proceed in recognition of the primary
jurisdiction of an administrative agency.
One thrust of the multiplication of administrative agencies is that the
interpretation of contracts and the determination of private rights thereunder is
no longer a uniquely judicial function, exercisable only by our regular courts
(Antipolo Realty Corp. v. National Housing Authority, 153 SCRA 399, at 407).
The application of the doctrine of primary jurisdiction, however, does not call for the
dismissal of the case below. It need only be suspended until after the matters within the
competence of the BED are threshed out and determined. Thereby, the principal purpose
behind the doctrine of primary jurisdiction is salutarily served.
Pursuant to this Decision, IEI lodged a complaint against MMIC and PNB before the OEA. After due hearing, a
decision was issued by Executive Director W. R. de la Paz on January 25, 1991, with a decretal portion which
reads:
Wherefore, in the light of the foregoing, insofar as the Memorandum of Agreement is
concerned, such agreement may already be deemed rescinded and of no force and effect in
view of the re-award made in IEI's favor of the same coal areas subject of this dispute.
However, on the issue of the effects and consequences of the right to claim damages for
unpaid financial obligations and such other damages incidental thereto, by one party as
against the other, this matter may be referred to the regular courts for appropriate
adjudication.
Similarly, this likewise holds true insofar as the foreclosed properties involved in this case
are concerned where respondent Philippine National Bank was impleaded. 37
In accordance with this ruling of the OEA, on March 1, 1991, IEI filed in the lower court a motion to set Civil Case
No. 8109 for hearing. 38 On June 17, 1991, PNB filed a motion to dismiss 39 alleging that the issue in this case,
i.e., the validity of the foreclosure of MMIC's assets, was virtually the same issue raised before the Regional Trial

Court of Makati in Civil Case No. 9900, "Jesus S. Cabarrus, Jesus Cabarrus, Jr., Jaime T. Cabarrus, Jose Miguel
Cabarrus, Alejandro S. Pastor, Jr., Antonio U. Miranda & Manuel M. Antonio v. Development Bank of the
Philippines and Philippine National Bank," a case filed by the plaintiffs as stockholders of MMIC in their behalf as
well as in behalf of other stockholders, which prayed, among others, that the foreclosures effected by DBP and
PNB on the assets of MMIC be declared null and void. 40
The motion to dismiss was denied by the lower court on July 10, 1991 on the ground that there was no
substantial identity in the cause of action, the relief sought and the parties in the two cases. 41
As aforestated, the lower court rendered the decision of November 27, 1992 finding MMIC and PNB jointly and
severally liable to IEI for damages and declaring null and void the August 31, 1994 extrajudicial foreclosure sale
in Catbalogan, Samar. This was affirmed on December 20, 1994 by the Court of Appeals under CA-G.R. CV No.
40836.
MMIC did not interpose an appeal from the Decision of the Court of Appeals but the PNB filed the instant petition
for review on certiorari questioning the following "conclusions" of the Court of Appeals:
(1) there was implied conspiracy or community of design among the defendants to ruin IEI;
(2) PNB acted in bad faith in including the IEI Giporlos equipment at the extrajudicial
foreclosure sale on August 31, 1984, and
(3) PNB is liable for a quasi-delict.
Petitioner PNB also contends that the Court of Appeals erred in not holding that (a) because
Minister Velasco had been dropped as party defendant, PNB was also absolved from liability
because it was solidarily liable with Minister Velasco, and (b) IEI's claim against PNB for actual,
consequential and moral damages including attorney's fees, litigation expenses and costs of suit,
has neither legal nor factual bases. 42
In its comment on the petition, private respondent IEI contends in the main that the issues raised by petitioner
PNB are all factual in nature and, therefore, they have no place before this Court. We hold otherwise.
At the core of the instant petition is the legal question of ownership of the chattels involved at the time of
foreclosure. This issue appears to have been glossed over by the courts below. Equally appropriate for
determination by this Court is the legality of the foreclosure proceedings on the assets of the MMIC. These two
issues are the keys to the resolution of the instant petition.
Privity between MMIC and private respondent was established by the execution of the MOA. An important issue
then is whether or not the chattels mortgaged to petitioner were covered by the MOA so as to legally subject the
same chattels to MMIC's ownership and, eventually, to the foreclosure proceedings.
The MOA was an assignment of private respondent's "rights and interests on the Coal Operating Contract
described in the first whereas clause" thereof. In its most general and comprehensive sense, an assignment is "a
transfer or making over to another of the whole of any property, real or personal, in possession or in action, or of
any estate or right therein. It includes transfers of all kinds of property, and is peculiarly applicable to intangible
personal property and, accordingly, it is ordinarily employed to describe the transfer of non-negotiable choses in
action and of rights in or connected with property as distinguished from the particular item or property." 43
An assignment is a contract between the assignor and the assignee. It generally operates by way of such
contract or agreement. It is subject to the same requisites as to validity of contracts. 44 Whether or not a transfer
of a particular right or interest is an assignment or some other transactions depends, not on the name by which it
calls itself, but on the legal effect of its provisions. This rule applies in determining whether a particular
transaction is an assignment or a sale. 45
As the aforequoted portions of the MOA state, its subject is described in the "whereas clauses" thereof as
follows:
WHEREAS, IEI is the duly authorized operator over two coal blocks over an area outlined
and more particularly described in Annex "A" of the Coal Operating Contract entered into on
the 27th day of July 1979 and between the Ministry of Energy, through the Bureau of Energy
Development ("BED"), and IEI; the Coal Operating Contract and Annex A thereof being
hereto attached and made an integral part of this contract;
Annex "A" of the coal operating contract is the technical description of the 2,000-hectare coalbearing land in Carbon, Magsaysay, Eastern Samar. Therefore, as expressed in the MOA, the
subject of the assignment was only private respondent's rights and interests over the coal

operating contract covering said coal-rich land in Eastern Samar.

However, a close scrutiny of the contract reveals that the MOA includes all tangible things found in the coalbearing land. Unquestionably, rights may be assigned as they are intangible personal properties. The term
"interests," on the other hand, is broader and more comprehensive than the word "title" and its definition in a
narrow sense by lexicographers as any right in the nature
of property less than title, indicates that the terms are not considered synonymous. 46 It is practically
synonymous, however, with the word "estate" which is the totality of interest which a person has from absolute
ownership down to naked possession. 47 An "interest" in land is the legal concern of a person in the thing or
property, or in the right to some of the benefits or uses from which the property is inseparable. 48
That the MOA conveyed to MMIC more than the title to or rights over the coal operating contract but also the
"things" covered thereby, is manifest in the manner by which the parties, particularly private respondent IEI,
implemented the MOA. It disclosed the intention to include in the MOA the equipment and machineries used in
coal exploration. This intention is evident in the following letters of private respondent: (1) letter of April 16, 1984
to Alfredo Velayo, President of MMIC, where private respondent, through Cabarrus, included in the conditions for
the negotiated rescission of the MOA, the payment to private respondent of the amount of ten million pesos
(P10,000,000.00) for expenses such as those for the "recondition (of) the equipment which have been left to the
elements;" 49 (2) letter of May 2, 1984 to Velayo, where private respondent mentioned a "list of probable
equipment(s) that IEI would be interested to apply as part payment in the event of rescission of contract;" 50 (3)
letter of June 4, 1984 to Zalamea as Chairman of the Board of the MMIC, 51 where private respondent attached
an updated statement of account and the expenses for rehabilitation of equipment, and (4) letter of August 15,
1984 to petitioner and the DBP where private respondent enclosed a copy of "the movable properties included in
said Memorandum of Agreement" of August 1983. 52 Notably, all these listed equipment were sold at the
foreclosure sale initiated by petitioner. 53
Also worth noting is the absence of proof that, like a good father of the family, private respondent exerted some
effort to take the chattels out of the premises upon the execution of the MOA. All that private respondent proved,
through the testimony of Cabarrus, was that the equipment and machineries were taken over by MMIC, piled up
and left to rot that trees even grew on them. 54 Coupled with this is private respondents' failure to prove the
presence of insurmountable force 55 that would have prevented it from retrieving its equipment and machineries
from the Giporlos Project area. All these show that private respondent considered these chattels as subjects of
the MOA.
Private respondent had all the right to exclude these chattels from the MOA because they were not expressly
stipulated therein. However, its sheer inaction upon the execution of the MOA and its subsequent admissions
through the aforesaid letters, conclusively show that these equipment and machineries were subjects of the
assignment of rights to MMIC. It was only when the foreclosure sale was about to take place that private
respondent lifted a finger to object thereto on the ground that the consideration stipulated in the MOA had not yet
been paid by MMIC.
Moreover, while the MOA was expressly a contract for the assignment of rights and interests, it is in fact a
contract of sale. Under Art. 1458 of the Civil Code, 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. By the MOA, private respondent obligated itself to transfer ownership of
the coal operating contract and the properties found therein. The coal operating contract is a determinate thing
as it has been particularly designated in the MOA. The subject of the coal operating contract was physically
segregated from all other pieces of coal-rich Eastern Samar property by the technical description attached to
said contract. 56 A list of the equipment and machineries found on the property might not have been attached to
the MOA but these were itemized with specificity in private respondent's letter of August 15, 1984.
Private respondent delivered the properties subject of the contract to MMIC, which immediately gained control
and possession of the Giporlos Project. This is explicit in private respondent's numerous demand letters 57 which
are exemplified by its letter of February 7, 1984 to Zalamea which states:
Considering that all details necessary to determine the final purchase price are in place;
considering that the property has already been transferred in your name; and considering
finally that cash payment is stipulated in the contract, demand is hereby respectfully made
for the payment of the purchase price soonest. 58 (Emphasis supplied.)

Another very telling letter of private respondent is that of April 16, 1984 to Mr. Alfredo Velayo,
President of MMIC, which partly reads:
After the Memorandum of Agreement was signed, BED promptly approved the transfer from
IEI to MMIC. After the price was fixed with the assistance of SGV and BED, MMIC took over
the entire project last July 1983. . . . 59
For its part, MMIC never denied that it had taken possession and control over the Giporlos Project. In its replies
to private respondent's demand letters, MMIC in fact acknowledged its obligations under the MOA while
professing incapacity to fulfill the same.
If the MOA merely embodied an assignment of rights over the coal-operating contract and the properties found in
the Giporlos Project and not a sale thereof, then private respondent would not have insisted on the payment of
MMIC's obligations under the MOA by attaching a statement of account to most of its demand letters. 60 In
assignments, a consideration is not always a requisite, unlike in sales. Thus, an assignee may maintain an action
based on his title and it is immaterial whether or not he paid any consideration therefor. 61 Furthermore, in an
assignment, title is transferred but possession need not be delivered. 62 In this case, private respondent
transferred possession over the subjects of the "assignment" to MMIC.
Since the MOA was actually a contract of sale, MMIC acquired ownership over the Giporlos Project when private
respondent delivered it to MMIC. Under the Civil Code, unless the contract contains a stipulation that ownership
of the thing sold shall not pass to the purchaser until he has fully paid the price, 63 ownership of the thing sold
shall be transferred to the vendee upon the actual or constructive delivery thereof. 64 In other words, payment of
the purchase price is not essential to the transfer of ownership as long as the property sold has been delivered.
65
Such delivery (traditio) operated to divest the vendor of title to the property which may not be regained or
recovered until and unless the contract is resolved or rescinded in accordance with law. 66
Consequently, the properties in the Giporlos Project were, therefore, owned by MMIC notwithstanding its failure
to pay the consideration stipulated in the MOA. Private respondent, after such delivery and MMIC's continuous
refusal to pay the consideration for the contract, correctly opted to rescind the contract. 67 That private
respondent did not succeed in collecting payment prior to the filing of the complaint for rescission with damages
is a fault entirely attributable to MMIC which at the time, acted upon the orders of government authorities.
It is erroneous for private respondent and the courts below to impute bad faith on the part of petitioner for
foreclosing the properties in the Giporlos Project. Petitioner was simply acting in accordance with its rights as
mortgagee. The MTA, as amended, clearly provides that the mortgage covers even "after-acquired" properties.
Because petitioner was simply implementing this contractual provision of the MTA, its knowledge that MMIC had
not yet paid the consideration stipulated in the MOA could not have resulted in foreclosure in bad faith. After all,
petitioner was a total stranger as regards the MOA.
Similarly, neither may petitioner be deemed to have conspired with MMIC and government authorities in
divesting private respondent of its rights over the Giporlos Project. Petitioner's involvement consisted in its
exercising its right to foreclose the mortgage only after the MOA, which effectively wrenched the Giporlos Project
from private respondent's control, had become a fait accompli. A lawful act, done in a lawful way, no matter how
damaging the result, never lays the basis for a claim of fraudulent conspiracy. 68 That a scheme to favor the
financially strapped MMIC over private respondent had been hatched and was in existence when the MOA was
executed is now beyond this Court's adjudicatory power. Suffice it to state that an action may be maintained
against persons who falsely and fraudulently recommend an insolvent person as worthy of credit, by reason of
which plaintiff is induced to trust him. 69
In view of the noninvolvement of petitioner in the alleged conspiracy to strip private respondent of the its rights
over the Giporlos Project, petitioner cannot be made solidarily liable with the MMIC for damages. However,
although petitioner's rights to foreclose the mortgage and to subject the equipment of private respondent to the
foreclosure sale are unassailable, we find that the foreclosure proceedings fell short of the requirements of the
law.
The provision of the MTA vesting petitioner as trustee with the authority to choose the place where the sale of the
properties involved therein should be made is clearly in contravention of the following provisions of Act No. 3135
as amended:
Sec. 2. Said sale cannot be made legally outside the province in which the property sold is
situated; and in case the place within said province in which the sale is to be made is the

subject of stipulation, such sale shall be made in said place or in the municipal building of
the municipality in which the property or part thereof is situated.
The Giporlos Project is situated in Eastern Samar, a province separate and distinct from Samar
where the foreclosure sale took place. 70 Hence, the foreclosure sale is null and void. Even the
Chattel Mortgage Law (Act No. 1508) relied upon by private respondent in assailing the propriety of
the public auction sale in Samar, provides that the said sale should be made "in the municipality
where the mortgagor resides" or "where the property is situated." 71 It has not been established that
petitioner considered Catbalogan, Samar where the foreclosure sale was conducted, as its
"residence."
Moreover, the designation of a special sheriff to conduct the foreclosure sale is questionable. According to Sheriff
Malindog, he was designated as a special sheriff by the judge of the Regional Trial Court of Samar, through the
clerk of court, upon the request of petitioner's counsel, one Atty. Aliena, even though there was a sheriff in
Eastern Samar. 72
Appointment of special sheriffs for the service of writs of execution or for the purpose of conducting a foreclosure
sale under Act No. 3135 is allowed only when there is no sheriff in the area where the property involved is
located or when the sheriff himself is involved in the action. This restriction is founded on the requirement of law
that sheriffs who take delivery of money or property in trust must be duly bonded. 73 The said situations calling for
the appointment of a special sheriff being absent in this case, the appointment of Malindog as a special sheriff by
the judge of the Regional Trial Court of Samar is unauthorized. Such lack of authority resulted in the nullification
of the foreclosure sale conducted by Malindog.
Ordinarily, by the nullification of the foreclosure sale, the properties involved would revert to their original status
of being mortgaged. 74 However, the situation in this case is an exception to that rule. The MOA, the source of
MMIC's right of ownership over the properties sold at the foreclosure sale, has been rescinded. Consequently,
petitioner should exclude said properties from the MMIC's properties which were mortgaged pari passu to the
petitioner and DBP through the MTA. However, since the foreclosed properties had been turned over to the Asset
Privatization Trust, 75 petitioner must reimburse private respondent the value thereof at the time of the foreclosure
sale.
WHEREFORE, the Decision of the Court of Appeals is hereby REVERSED and SET ASIDE insofar as it renders
petitioner solidarily liable with Marinduque Mining and Industrial Corporation for damages and AFFIRMED insofar
as it nullifies the foreclosure sale of August 31, 1984. Petitioner Philippine National Bank shall exclude the
properties sold at the foreclosure sale from the mortgaged properties of Marinduque Mining and Industrial
Corporation and return the same to private respondent Industrial Enterprises Inc. or, should such return be not
feasible, reimburse said private respondent the value thereof at the time of the foreclosure sale.
SO ORDERED.
Regalado, Puno, Mendoza and Torres, Jr., JJ., concur.
Footnotes
1 Penned by Associate Justice Ricardo J. Francisco and concurred in by Associate Justices
Ramon A. Barcelona and Godardo A. Jacinto.
2 Penned by Judge Zeus C. Abrogar.
3 TSN, October 21, 1991, p. 28.
4 Ibid., p. 32-34.
5 Exh. A.
6 Exh. B.
7 Exh. B-l.
8 Exh. B-2.
9 Records show that at the time of the signing of the MOA, Cabarrus was also the President
of MMIC as he retired from that position on December 31, 1983 (MMIC Report '83, Exh.
DDD-2, pp. 3 & 34).
10 Exh. C.
11 Exh. W.
12 Exh. 1-PNB.
13 Exh. 1-B.

14 Sec. 3.01 of MTA.

15 Sec. 5.08, ibid.
16 Ibid., Exh. l-C.
17 Exh. 2-PNB.
18 Exh. 2-A.
19 Exh. 3-PNB.
20 Exh. KKK.
21 Exh. LLL.
22 RTC Records, p. 206.
23 Ibid., p. 276.
24 Presided by Judge Benigno M. Puno.
25 Decision, p. 21; RTC Record, p. 369.
26 Record, pp. 370-371.
27 Ibid., pp. 372-376 & 387-389.
28 Ibid., pp. 378 & 391.
29 Ibid., pp. 414-416.
30 Ibid., pp. 419-447.
31 Ibid., pp. 484-486.
32 Rollo, p. 79.
33 Penned by Justice Nicolas P. Lapea, Jr. and concurred in by Justices Emeterio C. Cui
and Justo P. Torres, Jr.
34 RTC Record, p. 513.
35 Ibid., pp. 514-515.
36 The Decision was penned by Associate Justice Ameurfina A. Melencio-Herrera and
concurred in by Associate Justices Edgardo L. Paras, Teodoro R. Padilla, Abraham F.
Sarmiento and Florenz D. Regalado. It is published in 184 SCRA 426.
37 Exh ZZZ; RTC Record, pp. 520-527.
38 Ibid., pp. 517-518.
39 Ibid., pp. 538-540.
40 By virtue of Administrative Order No. 14 dated February 3, 1987 and the Deeds of
Transfer both dated February 27, 1987, the National Government, thru the Asset
Privatization Trust, became the assignee and transferee of all the PNB and DBP accounts
pertaining to MMIC. Pursuant to the Compromise and Arbitration Agreement entered into by
the parties in Civil Case No. 9900 and APT, said case was dismissed by the trial court on
October 14, 1992 and submitted instead to arbitration under R.A. 876. In its decision dated
November 24, 1993 the Arbitration Committee declared invalid the foreclosure on MMIC's
assets. (C.A. Rollo, pp. 198-263)
41 RTC Record, p. 566.
42 Petition, p. 40.
43 MORENO'S PHILIPPINE LAW DICTIONARY, 3rd ed., p. 75.
44 6A C.J.S. 593.
45 Ibid., p. 594.
46 22 WORDS AND PHRASES 87, citing In re Baldwin's Estate, 134 P. 2d 259, 263, 21 Cal.
2d 586.
47 Ibid., citing Providence Washington Ins. Co. v. Pass, for use of Nalley, 12 S.E. 2d 460,
461, 64 Ga. App. 221.
48 Ibid., at p. 92 citing Bahls v. Dean, 170 N.W. 861, 866, 222 Iowa 1291.
49 Exh. MM.
50 Exh. RR.
51 Exh. TT.
52 Exh. KKK.
53 Exh. OOO.

54 TSN, October 7, 1991, p. 12.

55 When mention of the presence of the insurgents in the area was made, Cabarrus claimed
at the witness stand that they were never a problem to him and his company. (TSN, January
15, 1992, pp. 29-30)
56 Art. 1460 of the Civil Code states that a thing is "determinate when it is particularly
designated or physically segregated from all others of the same class."
57 Exhs. Y, Z, BB, CC, EE, GG, II, KK, MM, PP, TT and WW.
58 Exh. Z.
59 Exh. MM.
60 Exhs. CC, CC-1, KK, KK-1, PP, PP-1, TT, TT-1.
61 6A C.J.S. 781.
62 4A WORDS AND PHRASES 106 citing Paramount Building & Loan Ass'n of City of
Newark v. Sacks, 152 A. 457, 458, 107 N.J. Eq. 328.
63 Art. 1478.
64 Art. 1477.
65 Sampaguita Pictures, Inc. v. Jalwindor Manufacturers, Inc., L-43059, October 11, 1979,
93 SCRA 420, 425.
66 See: Pingol v. Court of Appeals, G.R. No. 102909, September 6, 1993, 226 SCRA 118,
128.
67 Ocampo v. Court Of Appeals, G.R. No. 97442, June 30, 1944, 233 SCRA 551, 560.
68 15A C.J.S. 614.
69 Ibid., at p. 615.
70 Exhs. MMM & OOO.
71 Sec. 14.
72 TSN, July 27, 1992, p. 37.
73 Commissioner of Public Highways v. San Diego, L-30098, February 18, 1970, 31 SCRA
616, 631-632.
74 See: Seven Brothers Shipping Corporation v. Court of Appeals, G.R. No. 109573, July
13, 1995, 246 SCRA 33, 40.
75 TSN, October 21, 1991, pp. 5-6; TSN; December 21, 1991, pp. 22-23; RTC, decision, p.
18; Records, p. 751.
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l\epubhc of t{Je !'bihppine~

$>uprcme <!I:ourt
Jmanila
FIRST DIVISION
ALIAKANG,
Petitioner,
-versusMUNICIPALITY OF ISULAN,
SULTAN KUDARA T PROVINCE,
represented by its MUNICIPAL
MAYOR AND MUNICIPAL VICE
MAYOR AND MUNICIPAL
COUNCILORS/KAGA WADS,
Respondent.
DECISION
REYES, J.:
G.R. No. 186014
Present:
SERENO, C.J,
Chairperson,
LEONARDO-DE CASTRO,
BERSAMJN,
VILLARAMA, JR., and
REYES,JJ
Promulgated:
.JUN 2 6 2013
This case was originally filed as a petition for certiorari under Rule
65 of the Rules of Court. In the Court's Resolution dated March 9, 2009,
however, the petition was treated as one for review under Rule.45. 1 Assailed
is the Decision2 dated April 25, 2008 and Resolution3 dated October 29,
2008 of the Court of Appeals Mindanao Station (CA) in CA-G.R. CV No.
00156, which reversed the Judgment4 dated January 14, 2004 of the
Initially, the Court dismissed the petition in its Resolution dated March 3, 20 I 0 J()r failure
of the
petitioner to file a reply to the respondent's comment as directed by the Court in its
Resolution dated July
15, 2009. The Court, however, later reinstated the petition per Resolution dated July 21,
2010.
2 Penned by Associate Justice Rodrigo F. Lim, Jr. (now retired), with Associate Justices
Michael P.
Elbinias and Edgardo T. Lloren, concurring; rollo, pp. 20-41.
3 ld. at 42-43.
Penned by Judge Gennan M. Malcampo; id. at 44-93.
l
Decision 2 G.R. No. 186014
Regional Trial Court (RTC) of Isulan, Sultan Kudarat, Branch 19 in Civil
Case No. 1007 for Recovery of Possession of Subject Property and/or
Quieting of Title thereon and Damages.
The Facts

Ali Akang (petitioner) is a member of the national and cultural

community belonging to the Maguindanaon tribe of Isulan, Province of
Sultan Kudarat and the registered owner of Lot 5-B-2-B-14-F (LRC) Psd
1100183 located at Kalawag III, Isulan, Sultan Kudarat, covered by Transfer
Certificate of Title (TCT) No. T-3653,5 with an area of 20,030 square
meters.6
Sometime in 1962, a two-hectare portion of the property was sold by
the petitioner to the Municipality of Isulan, Province of Sultan Kudarat
(respondent) through then Isulan Mayor Datu Ampatuan under a Deed of
Sale executed on July 18, 1962, which states:
That for and in consideration of the sum of THREE
THOUSAND PESOS ([P]3,000.00), Philippine Currency, value to be
paid and deliver to me, and of which receipt of which shall be
acknowledged by me to my full satisfaction by the MUNICIPAL
GOVERNMENT OF ISULAN, represented by the Municipal Mayor,
Datu Sama Ampatuan, hereinafter referred to as the VENDEE, I
hereby sell, transfer, cede, convey and assign as by these presents do
have sold, transferred, ceded, conveyed and assigned, an area of TWO
(2) hectares, more or less, to and in favor of the MUNICIPAL
GOVERNMENT OF ISULAN, her (sic) heirs, assigns and
administrators to have and to hold forevery (sic) and definitely, which
portion shall be utilized purposely and exclusively as a GOVERNMENT
CENTER SITE x x x[.]7
The respondent immediately took possession of the property and
began construction of the municipal building.8
Thirty-nine (39) years later or on October 26, 2001, the petitioner,
together with his wife, Patao Talipasan, filed a civil action for Recovery of
Possession of Subject Property and/or Quieting of Title thereon and
Damages against the respondent, represented by its Municipal Mayor, et al.9
In his complaint, the petitioner alleged, among others, that the agreement
5 Under the name of Ali Akang married to Patao Talipasan stating on its face that it was
originally
registered on the 1st day of December 1965 with Original Certificate of Title No. P-26626
pursuant to
Homestead Patent No. V-4454 granted on the 17th day of March 1955 under Act 141; id.
at 44.
6 Id.
7 Id. at 34-35.
8 Id. at 25.
9 Id.
Decision 3 G.R. No. 186014
was one to sell, which was not consummated as the purchase price was not
paid.10
In its answer, the respondent denied the petitioners allegations,
claiming, among others: that the petitioners cause of action was already
barred by laches; that the Deed of Sale was valid; and that it has been in
open, continuous and exclusive possession of the property for forty (40)
years.11
After trial, the RTC rendered judgment in favor of the petitioner. The
RTC construed the Deed of Sale as a contract to sell, based on the wording
of the contract, which allegedly showed that the consideration was still to be

paid and delivered on some future date a characteristic of a contract to

sell.12 In addition, the RTC observed that the Deed of Sale was not
determinate as to its object since it merely indicated two (2) hectares of the
97,163 sq m lot, which is an undivided portion of the entire property owned
by the petitioner. The RTC found that segregation must first be made to
identify the parcel of land indicated in the Deed of Sale and it is only then
that the petitioner could execute a final deed of absolute sale in favor of the
respondent.13
As regards the payment of the purchase price, the RTC found the
same to have not been made by the respondent. According to the RTC, the
Municipal Voucher is not a competent documentary proof of payment but is
merely evidence of admission by the respondent that on the date of the
execution of the Deed of Sale, the consideration stipulated therein had not
yet been paid. The RTC also ruled that the Municipal Vouchers validity
and evidentiary value is in question as it suffers infirmities, that is, it was
neither duly recorded, numbered, signed by the Municipal Treasurer nor was
it pre-audited.14
The RTC also ruled that the Deed of Sale was not approved pursuant
to Section 145 of the Administrative Code for Mindanao and Sulu or Section
120 of the Public Land Act (PLA), as amended. Resolution No. 70,15 which
was issued by the respondent, appropriating the amount of P3,000.00 as
payment for the property, and Resolution No. 644 of the Provincial Board of
Cotabato, which approved Resolution No. 70, cannot be considered proof of
the sale as said Deed of Sale was not presented for examination and approval
10 Id. at 27-28.
11 Id. at 46-47.
12 Id. at 77-78.
13 Id. at 79.
14 Id. at 80.
15 Resolution No. 70, passed on October 6, 1962, states: Furthermore, by virtue of the
provision on
Section 3 of Republic Act No. 2264, let there be appropriated as appropriations be made
from funds not
unless otherwise appropriated in the sum of P3,000.00 to be expended for payment of
the purchase price of
the two-hectare lot and be made payable to Ali Akang subject to audit rules and
regulations.
Decision 4 G.R. No. 186014
of the Provincial Board.16 Further, since the respondents possession of the
property was not in the concept of an owner, laches cannot be a valid
defense for claiming ownership of the property, which has been registered in
the petitioners name under the Torrens System.17
The dispositive portion of the RTC Decision18 dated January 14, 2004
reads:
WHEREFORE, upon all the foregoing considerations, judgment is
hereby rendered:
a. Declaring the contract entered into between the plaintiffs
and the defendant, Municipal Government of Isulan,
Cotabato (now Sultan Kudarat), represented by its former
Mayor, Datu Suma Ampatuan, dated July 18, 1962, as a
contract to sell, without its stipulated consideration

having been paid; and for having been entered into

between plaintiff Ali Akang, an illiterate non-Christian,
and the defendant, Municipal Government of Isulan, in
violation of Section 120 of C.A. No. 141, said
contract/agreement is hereby declared null and void;
b. Declaring the Deed of Sale (Exh. 1-E) dated July 18,
1962, null and void [ab] initio, for having been executed
in violation of Section 145 of the Administrative Code of
Mindanao and Sulu, and of Section 120 of the Public
Land Law, as amended by R.A. No. 3872;
c. Ordering the defendants to pay plaintiffs, the value of the
lot in question, Lot No. 5-B-2-B-14-F (LRC) Psd
110183, containing an area of 20,030 Square Meters, at
the prevailing market value, as may [be] reflected in its
Tax Declaration, or in the alternative, to agree on the
payment of monthly back rentals, retroactive to 1996,
until defendants should decide to buy and pay the value
of said lot as aforestated, with legal interest in both cases;
d. Ordering the defendant, Municipal Government of
Isulan, Sultan Kudarat, to pay plaintiffs, by way of
attorneys fee, the equivalent of 30% of the value that
defendants would pay the plaintiffs for the lot in
question; and to pay plaintiffs the further sum of
[P]100,000.00, by way of moral and exemplary damages;
e. Ordering the defendants, members of the Sangguniang
Bayan of Isulan, Sultan Kudarat, to pass a
resolution/ordinance for the appropriation of funds for
the payment of the value of plaintiffs Lot 5-B-2-B-14-F
16 Rollo, p. 85.
17 Id. at 81-82.
18 Id. at 44-93.
Decision 5 G.R. No. 186014
(LRC) Psd-110183, and of the damages herein awarded
to the plaintiffs; and
f. Ordering the defendants to pay the costs of suit.
For lack of merit, the counterclaims of the defendants should be, as
it is hereby, dismissed.
IT IS SO ORDERED.19
By virtue of said RTC decision, proceedings for the Cancellation of
Certificate of Title No. T-49349 registered under the name of the respondent
was instituted by the petitioner under Miscellaneous Case No. 866 and as a
result, the respondents title over the property was cancelled and a new one
issued in the name of the petitioner.
The respondent appealed the RTC Decision dated January 14, 2004
and in the Decision20 dated April 25, 2008, the CA reversed the ruling of the
RTC and upheld the validity of the sale. The dispositive portion of the CA
Decision provides:
WHEREFORE, the assailed decision dated January 14, 2004 is
hereby REVERSED and a new one entered, upholding the contract of sale
executed on July 18, 1962 between the parties.
SO ORDERED.21

The CA sustained the respondents arguments and ruled that the

petitioner is not entitled to recover ownership and possession of the property
as the Deed of Sale already transferred ownership thereof to the respondent.
The CA held that the doctrines of estoppel and laches must apply against the
petitioner for the reasons that: (1) the petitioner adopted inconsistent
positions when, on one hand, he invoked the interpretation of the Deed of
Sale as a contract to sell but still demanded payment, and called for the
application of Sections 145 and 146 of the Administrative Code for
Mindanao and Sulu, on the other; and (2) the petitioner did not raise at the
earliest opportunity the nullity of the sale and remained passive for 39 years,
as it was raised only in 2001.22
The CA also ruled that the Deed of Sale is not a mere contract to sell
but a perfected contract of sale. There was no express reservation of
ownership of title by the petitioner and the fact that there was yet no
19 Id. at 91-93.
20 Id. at 20-41.
21 Id. at 40.
22 Id. at 28-30.
Decision 6 G.R. No. 186014
payment at the time of the sale does not affect the validity or prevent the
perfection of the sale.23
As regards the issue of whether payment of the price was made, the
CA ruled that there was actual payment, as evidenced by the Municipal
Voucher, which the petitioner himself prepared and signed despite the lack
of approval of the Municipal Treasurer. Even if he was not paid the
consideration, it does not affect the validity of the contract of sale for it is
not the fact of payment of the price that determines its validity.24
In addition, the CA noted that there was an erroneous cancellation of
the certificate of title in the name of the respondent and the registration of
the same property in the name of the petitioner in Miscellaneous Case No.
866. According to the CA, this does not affect in any way the ownership of
the respondent over the subject property because registration or issuance of a
certificate of title is not one of the modes of acquiring ownership.25
The petitioner sought reconsideration of the CA Decision, which was
denied by the CA in its Resolution26 dated October 29, 2008.
Hence, this petition.
Issue
WHETHER THE PETITIONER IS ENTITLED TO
RECOVER OWNERSHIP AND POSSESSION OF THE
PROPERTY IN DISPUTE.
Resolution of the above follows determination of these questions: (1)
whether the Deed of Sale dated July 18, 1962 is a valid and perfected
contract of sale; (2) whether there was payment of consideration by the
respondent; and (3) whether the petitioners claim is barred by laches.
The petitioner claims that the acquisition of the respondent was null
and void because: (1) he is an illiterate non-Christian who only knows how
to sign his name in Arabic and knows how to read the Quran but can neither
read nor write in both Arabic and English; (2) the respondent has not paid
the price for the property; (3) the Municipal Voucher is not admissible in
evidence as proof of payment; (4) the Deed of Sale was not duly approved in
23 Id. at 35-36.

24 Id. at 37-39.
25 Id. at 39.
26 Id. at 42-43.
Decision 7 G.R. No. 186014
accordance with Sections 145 and 146 of the Administrative Code of
Mindanao and Sulu, and Section 120 of the PLA, as amended; and (4) the
property is a registered land covered by a TCT and cannot be acquired by
prescription or adverse possession.27 The petitioner also explained that the
delayed filing of the civil action with the RTC was due to Martial Law and
the Ilaga-Blackshirt Troubles in the then Province of Cotabato.28
The respondent, however, counters that: (1) the petitioner is not an
illiterate non-Christian and he, in fact, was able to execute, sign in Arabic,
and understand the terms and conditions of the Special Power of Attorney
dated July 23, 1996 issued in favor of Baikong Akang (Baikong); (2) the
Deed of Sale is valid as its terms and conditions were reviewed by the
Municipal Council of Isulan and the Provincial Board of Cotabato; and (3)
the Deed of Sale is a contract of sale and not a contract to sell.29
Ruling of the Court
The Court finds the petition devoid of merit.
Issue Raised for the First Time
on Appeal is Barred by Estoppel
The petitioner asserts that the Deed of Sale was notarized by Atty.
Gualberto B. Baclig who was not authorized to administer the same, hence,
null and void. This argument must be rejected as it is being raised for the
first time only in this petition. In his arguments before the RTC and the CA,
the petitioner focused mainly on the validity and the nature of the Deed of
Sale, and whether there was payment of the purchase price. The rule is
settled that issues raised for the first time on appeal and not raised in the
proceedings in the lower court are barred by estoppel. To consider the
alleged facts and arguments raised belatedly would amount to trampling on
the basic principles of fair play, justice, and due process.30 Accordingly, the
petitioners attack on the validity of the Deed of Sale vis--vis its
compliance with the 2004 New Notarial Law must be disregarded.31
27 Id. at 7-8.
28 Id. at 15.
29 Id. at 100-120.
30 Imani v. Metropolitan Bank & Trust Company, G.R. No. 187023, November 17, 2010,
635 SCRA
357, 371.
31 Lorzano v. Tabayag, Jr., G.R. No. 189647, February 6, 2012, 665 SCRA 38.
Decision 8 G.R. No. 186014
The Deed of Sale is a Valid
Contract of Sale
The petitioner alleges that the Deed of Sale is merely an agreement to
sell, which was not perfected due to non-payment of the stipulated
consideration.32 The respondent, meanwhile, claims that the Deed of Sale is
a valid and perfected contract of absolute sale.33
A contract of sale is defined under Article 1458 of the Civil Code:
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 therefore a price certain in money or its equivalent.

The elements of a contract of sale are: (a) consent or meeting of the

minds, that is, consent to transfer ownership in exchange for the price; (b)
determinate subject matter; and (c) price certain in money or its equivalent.34
A contract to sell, on the other hand, is defined by Article 1479 of the
Civil Code:
[A] bilateral contract whereby the prospective seller, while expressly
reserving the ownership of the subject property despite delivery thereof to
the prospective buyer, binds himself to sell the said property exclusively to
the prospective buyer upon fulfillment of the condition agreed upon, that
is, full payment of the purchase price.
In a contract of sale, the title to the property passes to the buyer upon
the delivery of the thing sold, whereas in a contract to sell, the ownership is,
by agreement, retained by the seller and is not to pass to the vendee until full
payment of the purchase price.35
The Deed of Sale executed by the petitioner and the respondent is a
perfected contract of sale, all its elements being present. There was mutual
agreement between them to enter into the sale, as shown by their free and
voluntary signing of the contract. There was also an absolute transfer of
ownership of the property by the petitioner to the respondent as shown in the
stipulation: x x x I [petitioner] hereby sell, transfer, cede, convey and
assign as by these presents do have sold, transferred, ceded, conveyed and
32 Rollo, p. 45.
33 Id. at 108.
34 David v. Misamis Occidental II Electric Cooperative, Inc., G.R. No. 194785, July 11,
2012, 676
SCRA 367, 376-377.
35 Heirs of Paulino Atienza v. Espidol, G.R. No. 180665, August 11, 2010, 628 SCRA 256,
262,
citing Lim v. Court of Appeals, 261 Phil. 690, 695 (1990).
Decision 9 G.R. No. 186014
assigned, x x x.36 There was also a determinate subject matter, that is, the
two-hectare parcel of land as described in the Deed of Sale. Lastly, the price
or consideration is at Three Thousand Pesos (P3,000.00), which was to be
paid after the execution of the contract. The fact that no express reservation
of ownership or title to the property can be found in the Deed of Sale
bolsters the absence of such intent, and the contract, therefore, could not be
one to sell. Had the intention of the petitioner been otherwise, he could
have: (1) immediately sought judicial recourse to prevent further
construction of the municipal building; or (2) taken legal action to contest
the agreement.37 The petitioner did not opt to undertake any of such
recourses.
Payment of consideration or
purchase price
The petitioners allegation of non-payment is of no consequence
taking into account the Municipal Voucher presented before the RTC, which
proves payment by the respondent of Three Thousand Pesos (P3,000.00).
The petitioner, notwithstanding the lack of the Municipal Treasurers
approval, admitted that the signature appearing on the Municipal Voucher
was his and he is now estopped from disclaiming payment.
Even assuming, arguendo, that the petitioner was not paid, such non
payment is immaterial and has no effect on the validity of the contract of

sale. A contract of sale is a consensual contract and what is required is the

meeting of the minds on the object and the price for its perfection and
validity.38 In this case, the contract was perfected the moment the petitioner
and the respondent agreed on the object of the sale the two-hectare parcel
of land, and the price Three Thousand Pesos (P3,000.00). Non-payment of
the purchase price merely gave rise to a right in favor of the petitioner to
either demand specific performance or rescission of the contract of sale.39
Sections 145 and 146 of the
Administrative Code of Mindanao
and Sulu, and Section 120 of the
PLA, as amended, are not
applicable
36 Rollo, p. 35.
37 Id. at 36-37.
38 Province of Cebu v. Heirs of Rufina Morales, G.R. No. 170115, February 19, 2008, 546
SCRA
315, 323.
39 Id. at 324.
Decision 10 G.R. No. 186014
The petitioner relies on the foregoing laws in assailing the validity of
the Deed of Sale, claiming that the contract lacks executive approval and
that he is an illiterate non-Christian to whom the benefits of Sections 145
and 146 of the Administrative Code of Mindanao and Sulu should apply.
Section 145 of the Administrative Code of Mindanao and Sulu
essentially provides for the requisites of the contracts entered into by a
person with any Moro or other non-Christian inhabitants.40 Section 146,41
meanwhile, provides that contracts entered into in violation of Section 145
are void. These provisions aim to safeguard the patrimony of the less
developed ethnic groups in the Philippines by shielding them against
imposition and fraud when they enter into agreements dealing with realty.42
Section 120 of the PLA (Commonwealth Act No. 141) affords the
same protection.43 R.A. No. No. 387244 likewise provides that conveyances
and encumbrances made by illiterate non-Christian or literate non-Christians
40 These provisions read:
Sec. 145. Contracts with non-Christians: requisites.Save and except contracts of sale or
barter of
personal property and contracts of personal service comprehended in chapter seventeen
hereof no contract
or agreement shall be made in the Department by any person with any Moro or other
non-Christian
inhabitant of the same for the payment or delivery of money or other thing of value in
present or in
prospective, or any manner affecting or relating to any real property, unless such
contract or agreement be
executed and approved as follows:
(a) Such contract or agreement shall be in writing, and a duplicate thereof delivered to
each
party.
(b) It shall be executed before a judge of a court of record, justice or auxiliary justice of
the

peace, or notary public, and shall bear the approval of the provincial governor wherein
the same was
executed or his representative duly authorized in writing for such purpose, indorsed upon
it.
(c) It shall contain the names of all parties in interest, their residence and occupation; x x
x
(d) It shall state the time when and place where made, the particular purpose for which
made, the
special thing or things to be done under it, and, if for the collection of money, the basis
of the claim, the
source from which it is to be collected and the person or persons to whom payment is to
be made, the
disposition to be made thereof when collected, the amount or rate per centum of the fee
in all cases; and if
any contingent matter or condition constitutes a part of the contract or agreement, the
same shall be
specifically set forth.
(e) x x x
(f) The judge, justice or auxiliary justice of the peace, or notary public before whom such
contract or agreement is executed shall certify officially thereon the time when and the
place
where such contract or agreement was executed, and that it was in his presence, and
who are the
interested parties thereto, as stated to him at the time; the parties making the same; the
source and
extent of authority claimed at the time by the contracting parties to make the contract or
agreement, and whether made in person or by agent or attorney of any party or parties
thereto.
41 Sec. 146. Void contracts. Every contract or agreement made in violation of the next
preceding
section shall be null and void; x x x.
42 Jandoc-Gatdula v. Dimalanta, 528 Phil. 839, 858-859 (2006), citing Cunanan v. CA,
134 Phil.
338, 341-342 (1968).
43 Sec.120 states:
Conveyance and encumbrance made by persons belonging to the so-called nonchristian
Filipinos or national cultural minorities, when proper, shall be valid if the person making
the conveyance
or encumbrance is able to read and can understand the language in which the
instrument of conveyance or
encumbrances is written. Conveyances or encumbrances made by illiterate non-Christian
or literate nonChristians where the instrument of conveyance or encumbrance is in a language not
understood by the said
literate non-Christians shall not be valid unless duly approved by the Chairman of the
Commission on
National Integration.
44 Entitled, An Act to Amend Sections Forty-four, forty-eight and one hundred Twenty of
Commonwealth Act Numbered One Hundred Forty-one, As Amended otherwise Known as
the Public

Land Act, and for other Purposes, approved on June 18, 1964.
Decision 11 G.R. No. 186014
where the instrument of conveyance or encumbrance is in a language not
understood by said literate non-Christians shall not be valid unless duly
approved by the Chairman of the Commission on National Integration.
In Jandoc-Gatdula v. Dimalanta,45 however, the Court categorically
stated that while the purpose of Sections 145 and 146 of the Administrative
Code of Mindanao and Sulu in requiring executive approval of contracts
entered into by cultural minorities is indeed to protect them, the Court
cannot blindly apply that law without considering how the parties
exercised their rights and obligations. In this case, Municipality
Resolution No. 70, which approved the appropriation of P3,000.00, was, in
fact, accepted by the Provincial Board of Cotabato. In approving the
appropriation of P3,000.00, the Municipal Council of Isulan and the
Provincial Board of Cotabato, necessarily, scrutinized the Deed of Sale
containing the terms and conditions of the sale. Moreover, there is nothing
on record that proves that the petitioner was duped into signing the contract,
that he was taken advantage of by the respondent and that his rights were not
protected.
The courts duty to protect the native vendor, however, should not
be carried out to such an extent as to deny justice to the vendee when truth
and justice happen to be on the latters side. The law cannot be used to
shield the enrichment of one at the expense of another. More important,
the law will not be applied so stringently as to render ineffective a contract
that is otherwise valid, except for want of approval by the CNI. This
principle holds, especially when the evils sought to be avoided are not
obtaining.46
The Court must also reject the petitioners claim that he did not
understand the import of the agreement. He alleged that he signed in Arabic
the Deed of Sale, the Joint Affidavit and the Municipal Voucher, which were
all in English, and that he was not able to comprehend its contents. Records
show the contrary. The petitioner, in fact, was able to execute in favor of
Baikong a Special Power of Attorney (SPA) dated July 23, 1996, which was
written in English albeit signed by the petitioner in Arabic. Said SPA
authorized Baikong, the petitioners sister, to follow-up the payment of the
purchase price. This raises doubt on the veracity of the petitioners
allegation that he does not understand the language as he would not have
been able to execute the SPA or he would have prevented its enforcement.
The Petitioners Claim for
Recovery of Possession and
Ownership is Barred by Laches
45 528 Phil. 839 (2006).
46 Id. at 859.
Decision 12 G.R. No. 186014
Laches has been defined as the failure or neglect, for an unreasonable
and unexplained length of time, to do that which, by exercising due
diligence could or should have been done earlier.47 It should be stressed that
laches is not concerned only with the mere lapse of time.48
As a general rule, an action to recover registered land covered by the
Torrens System may not be barred by laches.49 Neither can laches be set up
to resist the enforcement of an imprescriptible legal right.50 In exceptional

cases, however, the Court allowed laches as a bar to recover a titled

property. Thus, in Romero v. Natividad,51 the Court ruled that laches will
bar recovery of the property even if the mode of transfer was invalid.
Likewise, in Vda. de Cabrera v. CA,52 the Court ruled:
In our jurisdiction, it is an enshrined rule that even a registered
owners of property may be barred from recovering possession of
property by virtue of laches. Under the Land Registration Act (now the
Property Registration Decree), no title to registered land in derogation to
that of the registered owner shall be acquired by prescription or adverse
possession. The same is not true with regard to laches. x x x.53 (Citation
omitted and emphasis supplied)
More particularly, laches will bar recovery of a property, even if the
mode of transfer used by an alleged member of a cultural minority lacks
executive approval.54 Thus, in Heirs of Dicman v. Cario,55 the Court
upheld the Deed of Conveyance of Part Rights and Interests in Agricultural
Land executed by Ting-el Dicman in favor of Sioco Cario despite lack of
executive approval. The Court stated that despite the judicial
pronouncement that the sale of real property by illiterate ethnic minorities is
null and void for lack of approval of competent authorities, the right to
recover possession has nonetheless been barred through the operation of the
equitable doctrine of laches.56 Similarly in this case, while the respondent
may not be considered as having acquired ownership by virtue of its long
and continued possession, nevertheless, the petitioners right to recover has
been converted into a stale demand due to the respondents long period of
possession and by the petitioners own inaction and neglect.57 The Court
cannot accept the petitioners explanation that his delayed filing and
assertion of rights was due to Martial Law and the Cotabato Ilaga-Black
Shirt Troubles. The Martial Law regime was from 1972 to 1986, while the
47 Id. at 854; Isabela Colleges, Inc. v. The Heirs of Tolentino-Rivera, 397 Phil. 955, 969
(2000).
48 Pineda v. Heirs of Eliseo Guevara, 544 Phil. 554, 562 (2007).
49 Mateo v. Diaz, 424 Phil. 772, 781 (2002).
50 Heirs of Ingjug-Tiro v. Spouses Casals, 415 Phil. 665, 674 (2001).
51 500 Phil. 322 (2005).
52 335 Phil. 19 (1997).
53 Id. at 34.
54 Supra note 45, at 854.
55 523 Phil. 630 (2006).
56 Id. at 661.
57 Mejia de Lucas v. Gamponia, 100 Phil. 277, 282-284 (1956).
Decision 13 G.R. No. 186014
Ilaga-Black Shirt Troubles were from the 1970s to the 1980s. The petitioner
could have sought judicial relief, or at the very least made his demands to
the respondent, as early as the third quarter of 1962 after the execution of the
Deed of Sale and before the advent of these events. Moreover, even if, as
the petitioner claims, access to courts were restricted during these times, he
could have immediately filed his claim after Martial Law and after the
Cotabato conflict has ended. The petitioner's reliance on the Court's
treatment of Martial Law as force majeure that suspended the running of
prescription in Development Bank of the Philippines v. Pundogar58 is
inapplicable because the Court's ruling therein pertained to prescription and

not laches. Consequently, the petitioner's lengthy inaction sufficiently

warrants the conclusion that he acquiesced or conformed to the sale.
Vigilantibus sed non dormientibus jura subverniunt. The law aids the
vigilant, not those who sleep on their rights. This legal percept finds
application in the petitioner's case.
WHEREFORE, the appeal is DENIED. The Decision dated April
25, 2008 and Resolution dated October 29, 2008 of the Court of Appeals
Mindanao Station in CA-G.R. CV No. 00156 are AFFIRMED.
SO ORDERED.
Associate Justice
WE CONCUR:
58
MARIA LOURDES P. A. SERENO
Chief Justice
Chairperson
G.R. No. 96921, January 29, 1993,218 SCRA 118.
Decision 14 G.R. No. 186014
. .w.J.=DO~E~O
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article Vlll of the Constitution, I certify that
the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's
Division.
MARIA LOURDES P. A. SERENO
Chief Justice.
Today is Friday, August 01, 2014

-------------------------------------------------------------------------------Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 173622

March 11, 2013

ROBERN DEVELOPMENT CORPORATION and RODOLFO M. BERNARDO, JR., Petitioners,

vs.
PEOPLE'S LANDLESS ASSOCIATION represented by FLORIDA RAMOS and NARDO LABORA,
Respondent.
DECISION
DEL CASTILLO, J.:

"This Court cannot presume the existence of a sale of land, absent any direct proof of
it."1
Challenged in this Petition for Review on Certiorari are the August 16, 2005 Decision2
and May 30, 2006 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 66071,
which ordered petitioner Robern Development Corporation (Robern) to reconvey the
2,000-square meter lot it bought from Al-Amanah Islamic Development Bank of the
Philippines (Al-Amanah) to respondent People's Landless Association (PELA).
Factual Antecedents
Al-Amanah owned a 2000-square meter lot located in Magtu-od, Davao City and covered
by Transfer Certificate of Title (TCT) No. 138914.4 On December 12, 1992, Al-Amanah
Davao Branch, thru its officer-in-charge Febe O. Dalig (OIC Dalig), asked5 some of the
members of PELA6 to desist from building their houses on the lot and to vacate the
same, unless they are interested to buy it. The informal settlers thus expressed their
interest to buy the lot at P100.00 per square meter, which Al-Amanah turned down for
being far below its asking price.7 Consequently, Al-Amanah reiterated its demand to the
informal settlers to vacate the lot.8
In a letter9 dated March 18, 1993, the informal settlers together with other members
comprising PELA offered to purchase the lot for P300,000.00, half of which shall be paid
as down payment and the remaining half to be paid within one year. In the lower portion
of the said letter, Al-Amanah made the following annotation:
Note:
Subject offer has been acknowledged/received but processing to take effect upon putting
up of the partial amt. of P150,000.00 on or before April 15, 1993.
By May 3, 1993, PELA had deposited P150,000.00 as evidenced by four bank receipts.10
For the first three receipts, the bank labelled the payments as "Partial deposit on sale of
TCT No. 138914", while it noted the 4th receipt as "Partial/Full payment on deposit on
sale of A/asset TCT No. 138914."
In the meantime, the PELA members remained in the property and introduced further
improvements.
On November 29, 1993, Al-Amanah, thru Davao Branch Manager Abraham D. UtutalumAl Haj, wrote then PELA President Bonifacio Cuizon, Sr. informing him of the Head Offices
disapproval of PELAs offer to buy the said 2,000-square meter lot, viz:
Dear Mr. Cuizon, Sr.,
Please be inform[ed] that your offer to purchase the lot covered by TCT No. T-138914,
containing an area of 2,000 square meters, located at Bakingan, Barangay Magtuod,
Davao City for P300,000.00 has been turned down by the top management, due to the
reason that your offered price is way below the selling price of the Bank which is P500.00
per square meter, or negotiate but on Cash basis only.

You had been told regarding this matter, but you failed to counter offer since you have
[conferred] with the Banks local management. Despite x x x the time given to you to
counter offer or to vacate the lot presently and illegally occupied by you and the
members of the association, still you refrain to hear our previous notices. You even
deliberately construct more residential structures without our permission. As such, you
are finally instructed to vacate the lot and remove all the house structures erected on
the said lot within 15 days upon receipt of this letter. Failure on your part including that
of the members, the Bank will be constrained to take legal action against you.
Furthermore, you can withdraw the amount deposited in the name of your association
anytime during banking hours.11
Subsequently, Al-Amanah sent similarly worded letters,12 all dated December 14, 1993,
to 19 PELA members demanding that they vacate the lot.
In a letter13 dated December 20, 1993, PELA, through Atty. Pedro S. Castillo, replied that
it had already reached an agreement with Al-Amanah regarding the sale of the subject
lot based on their offered price:
Dear Mr. Ututalum-Al-Haj,
The Peoples Landless Association, Inc., through Mr. Bonifacio Cuizon, Sr. has requested
us to assist them in communicating with you anent your letter of 29 November 1993.
According to Mr. Cuizon the present occupants of the lot covered by T.C.T. No. T-138914
with an area of 2,000 square meters, had a definite agreement with the Islamic Bank
through its previous Manager or
Officer-in-Charge to buy this foreclosed property at P300,000.00. As a matter of fact their
deposit of P150,000.00 was on that basis. For this reason, the occupants, who are
members of the association, have already made lot allocations among themselves and
have improved their respective houses.
It would be most unfair if the Bank would now renege on its commitment and eject these
occupants. In line with the national policy of granting landless members of our society
the opportunity of owning land and providing shelter to their families, it would be
equitable and socially justifiable to grant these occupants their occupied areas pursuant
to the earlier agreement with the Bank.
For the foregoing reasons we hope that the Islamic Bank, for legal, moral and social
grounds would reconsider.
Meanwhile, acting on Roberns undated written offer,14 Al-Amanah issued a
Recommendation Sheet15 dated December 27, 1993 addressed to its Board Operations
Committee, indicating therein that Robern is interested to buy the lot for P400,000.00;
that it has already deposited 20% of the offered purchase price; that it is buying the lot
on "as is" basis; and, that it is willing to shoulder the relocation of all informal settlers
therein. On December 29, 1993, the Head Office informed the Davao Branch Manager
that the Board Operations Committee had accepted Roberns offer.16
Eight days later, Robern was informed of the acceptance. Al-Amanah stressed that it is
Roberns responsibility to eject the occupants in the subject lot, if any, as well as the

payment of the remaining amount within 15 days; otherwise, the P80,000.00 deposit
shall be forfeited.17
In a letter18 dated January 13, 1994, Robern expressed to Al-Amanah its uncertainty on
the status of the subject lot, viz.:
This is in connection with TCT No. 138914 which your bank offered to sell to us and which
we committed to buy.
A group calling itself PEOPLES LANDLESS ASSOCIATION, INC. made representation with
our office bringing with them copies of official receipts totalling P150,000.00 issued by
your bank which stated---"PARTIAL PAYMENT/DEPOSIT on sale of TCT #138914".
While condition no. 6 in the sale of property to us states that the buyer shall be
responsible for ejecting the squatters of the property, the occupants of the said lot could
hardly be categorized as squatters considering the supposed transaction previously
entered by your bank with them. We were greatly appalled that we should learn about
this not from the bank but from outside sources.1wphi1
My company is ready to finalize our transaction provided, however, that the problem with
this group is cleared. In this connection, we are requesting for a definite statement from
your bank on whether the official receipts being brandished by this group are genuine or
not, and if they were, were they ever invalidated by virtue of the return of their deposit
and whether there was a cancellation of your agreement with them.
In the meantime, please consider the 15-day period for us to pay the amount of
P320,000.00 imposed by your bank suspended until such time that the legal problem
with the lot occupants is settled.
To convince Robern that it has no existing contract with PELA, Al-Amanah furnished it
with copies of the Head Offices rejection letter of PELAs bid, the demand letters to
vacate, and the proof of consignment of PELAs P150,000.00 deposit to the Regional Trial
Court (RTC) of Davao City that PELA refused to withdraw.19 Thereafter, on February 2,
1994, it informed Robern that should the latter fail to pay the balance by February 9,
1994, its P80,000.00 deposit will be forfeited and the lot shall be up for sale to other
prospective buyers.20 Meanwhile, Al-Amanah requested for assistance for the removal of
the houses not only from the Office of the City Engineer of Davao City21 but also from
Mayor Rodrigo Duterte. Gaining a favorable legal opinion from the City Legal Officer, the
matter was indorsed to the Chief of Demolition Consensus of the Department of Public
Services for action.22
On March 4, 1994, Robern paid the balance of the purchase price.23 The Deed of Sale24
over the realty was executed on April 6, 1994 and TCT No. T-21298325 was issued in
Roberns name the following day.
A week later, PELA consigned P150,000.00 in the RTC of Davao City.26 Then on April 14,
1994, it wrote27 Al-Amanah asking the latter to withdraw the amount consigned. Part of
the letter states:
xxxx

On March 21, 1994 (almost one month before the April 15, 1994 deadline) we came to
your bank to remit the balance and full payment [for] the abovementioned lot.
[Inasmuch] as you refuse[d] to accept the payment, we have decided to deposit the
amount consigned to your bank.
In our dialogue at your office in 1993, we have agreed that documents will be processed
as soon as we pay the P150,000.00 initial deposit. [Inasmuch] as we have not only paid
the deposit but have also made full payment of the account, kindly facilitate processing
of the documents to finalize transaction.
We have not been remiss in doing our part of the transaction; please do your share.
Thank you.
Very truly yours,
For the occupants/claimants
T.C.T. No. T-13891428
Three months later, as its members were already facing eviction and possible demolition
of their houses, and in order to protect their rights as vendees, PELA filed a suit for
Annulment and Cancellation of Void Deed of Sale29 against Al-Amanah, its Director Engr.
Farouk Carpizo (Engr. Carpizo), OIC Dalig, Robern, and Roberns President and General
Manager, petitioner Rodolfo Bernardo (Bernardo) before the RTC of Davao City. It insisted
that as early as March 1993 it has a perfected contract of sale with Al-Amanah. However,
in an apparent act of bad faith and in cahoots with Robern, Al-Amanah proceeded with
the sale of the lot despite the prior sale to PELA.
Incidentally, the trial court granted PELAs prayer for a temporary restraining order.30
Subsequently, it issued on August 12, 1994 an Order31 finding merit in the issuance of
the writ of preliminary injunction, inter alia. The RTCs grant of injunctive relief was
affirmed by the CA in CA-G.R. SP No. 3523832 when the factual and legal bases for its
issuance were questioned before the appellate court.
The respondents in the annulment case filed their respective Answers.33 Al-Amanah and
Engr. Carpizo claimed that the bank has every right to sell its lot to any interested buyer
with the best offer and thus they chose Robern. They clarified that the P150,000.00 PELA
handed to them is not part of the payment but merely a deposit in connection with its
offer. They asserted that PELA was properly apprised that its offer to buy was subject to
the approval of Al-Amanahs Head Office. They stressed that Al-Amanah never entered
into a sale with PELA for there was no perfected agreement as to the price since the
Head Office rejected
PELAs offer.
For their part, Robern and Bernardo asserted the corporations standing as a purchaser in
good faith and for value in the sale of the property, having relied on the clean title of AlAmanah. They also alleged that the purported sale to PELA is violative of the Statute of
Frauds34 as there is no written agreement covering the same.

Ruling of the Regional Trial Court

In its August 10, 1999 Decision,35 the RTC dismissed PELAs Complaint. It opined that
the March 18, 1993 letter PELA has been relying upon as proof of a perfected contract of
sale was a mere offer which was already rejected.
Furthermore, the annotation appearing in the bottom part of the said letter could not be
construed as an acceptance because the same is a mere acknowledgment of receipt of
the letter (not the offer) which will still be subject to processing. The RTC likewise ruled
that being a corporation, only Al-Amanahs board of directors can bind the bank with
third persons involving the sale of its property. Thus, the purported offer made by AlAmanahs OIC, who was never conferred authority by the board of directors to sell the
lot, cannot bind the bank. In contrast, when the Head Office accepted Roberns offered
price, it was duly approved by the board of directors, giving birth to a perfected contract
of sale between Al-Amanah and Robern.
Refusing to accept the Decision, PELA elevated its case to the CA.36
Ruling of the Court of Appeals
Reversing the RTC in its assailed Decision37 of August 16, 2005, the CA ruled that there
was already a perfected contract of sale between PELA and Al-Amanah. It held that the
annotationon the lower portion of the March 18, 1993 letter could be construed to mean
that for Al-Amanah to accept PELAs offer, the sum of P150,000.00 must be first put up.
The CA also observed that the subsequent receipt by Al-Amanah of the amounts totalling
P150,000.00, and the annotation of "deposit on sale of TCT No. 138914," on the receipts
it issued explicitly indicated an acceptance of the associations offer to buy.
Consequently, the CA invalidated the sale between Robern and Al-Amanah.
The CA also concluded that Al-Amanah is guilty of bad faith in dealing with PELA because
it took Al-Amanah almost seven months to reject PELAs offer while holding on to the
P150,000.00 deposit. The CA thus adjudged PELA entitled to moral and exemplary
damages as well as attorneys fees.
The dispositive portion of the CA Decision reads:
WHEREFORE, premises considered, the assailed Decision is SET ASIDE. Judgment is
hereby rendered:
1. DECLARING the contract of sale between PELA and defendant Bank valid and
subsisting.
2. ORDERING the defendant Bank to receive the balance of P150,000.00 of the purchase
price from PELA as consigned in court.
3. DECLARING the deed of sale executed by defendant Bank in favor or Robern
Development Corporation as invalid and, therefore, void.
4. ORDERING defendant Bank to return to Robern the full amount of P400,000.00 which
Robern paid as the purchase price of the subject property within ten (10) days from

finality of this decision. It shall earn a legal interest of twelve percent (12%) per annum
from the tenth (10th) day aforementioned if there is delay in payment.
5. ORDERING Robern Development Corporation to reconvey the land covered by T.C.T.
No. 212983 in favor of Peoples Landless Association within a similar period of ten (10)
days from finality of this decision.
6. ORDERING defendant Bank to pay plaintiffs-appellants the following:
a. The sum of P100,000.00 as moral damages;
b. The sum of P30,000.00 as exemplary damages;
c. The sum of P30,000.00 as attorneys fees;
d. A legal interest of SIX PERCENT (6%) per annum on the sums awarded in (a), (b), and
(c) from the date of this Decision up to the time of full payment thereof.
SO ORDERED.38
Robern and Bernardo filed a Motion for Reconsideration39 which Al-Amanah adopted.
The CA, however, was firm in its disposition and thus denied40 the same. Aggrieved,
Robern and Al-Amanah separately filed Petitions for Review on Certiorari before us.
However, Al-Amanahs Petition docketed as G.R. No. 173437, was denied on September
27, 2006 on procedural grounds.41 Al-Amanahs Motion for Reconsideration of the said
Resolution of dismissal was
denied with finality on December 4, 2006.42
Hence, only the Petition of Robern and Bernardo subsists.
Petitioners Arguments
Petitioners stress that there was no sale between PELA and Al-Amanah, for neither a
deed nor any written agreement was executed. They aver that Dalig was a mere OIC of
Al-Amanahs Davao Branch, who was never vested with authority by the board of
directors of Al-Amanah to sell the lot. With regard to the notation on the March 18, 1993
letter and the four bank receipts, Robern contends that these are only in connection with
PELAs offer.
Petitioners likewise contend that Robern is a purchaser in good faith. The PELA members
are mere informal settlers. The title to the lot was clean on its face, and at the time AlAmanah accepted Roberns offer, the latter was unaware of the alleged transaction with
PELA. And when PELA later represented to Robern that it entered into a transaction with
Al-Amanah regarding the subject lot, Robern even wrote Al-Amanah to inquire about
PELAs claim over the property. And when informed by Al-Amanah that it rejected the
offer of PELA and of its action of requesting assistance from the local government to
remove the occupants from the subject property, only then did Robern push through with
the sale.
Respondents Arguments

PELA, on the other hand, claims that petitioners are not the proper parties who can assail
the contract of sale between it and the bank. It likewise argues that the Petition should
be dismissed because the petitioners failed to attach the material portions of the records
that would support its allegations, as required by Section 4, Rule 45 of the Rules of
Court.43
Aside from echoing the finding of the CA that Al-Amanah has a perfected contract of sale
with PELA, the latter further invokes the reasoning of the RTC and the CA (CA-G.R. SP No.
35238) in finding merit in the issuance of the writ of preliminary injunction, that is, that
there was an apparent perfection of contract (of sale) between the Bank and PELA.44
Furthermore, PELA claims that Al-Amanah accepted its offered price and the
P150,000.00, thus barring the application of the Statute of Frauds as the contract was
already partially executed. As to the non-existence of a written contract evidencing the
same, PELA ascribes fault on the bank claiming that nothing happened despite its
repeated follow-ups for the OIC of Al-Amanah to execute the deed after payment of the
P150,000.00 in May 1993.
Issue
At issue before us is whether there was a perfected contract of sale between PELA and
Al-Amanah, the resolution of which will decide whether the sale of the lot to Robern
should be sustained or not.
Our Ruling
We shall first briefly address some matters raised by PELA.
PELAs contention that Robern cannot assail the alleged sale between PELA and AlAmanah is untenable. Robern is one of the parties who claim title to the disputed lot. As
such, it is a real party in interest since it stands to be benefited or injured by the
judgment.45
Petitioners failure to attach the material portions of the record that would support the
allegations in the Petition is not fatal. We ruled in F.A.T. Kee Computer Systems, Inc. v.
Online Networks International, Inc.,46 thus:
x x x However, such a requirement failure to attach material portions of the record was
not meant to be an ironclad rule such that the failure to follow the same would merit the
outright dismissal of the petition. In accordance with Section 7 of Rule 45, the Supreme
Court may require or allow the filing of such pleadings, briefs, memoranda or documents
as it may deem necessary within such periods and under such conditions as it may
consider appropriate. More importantly, Section 8 of Rule 45 declares that [i]f the
petition is given due course, the Supreme Court may require the elevation of the
complete record of the case or specified parts thereof within fifteen (15) days from
notice. x x x47
Anent the statement of the courts below that there was an apparent perfection of
contract (of sale) between Al-Amanah and PELA, we hold that the same is strictly
confined to the resolution of whether a writ of preliminary injunction should issue since
the PELA members were then about to be evicted. PELA should not rely on such

statement as the same is not decisive of the rights of the parties and the merits of this
case.
We shall now delve into the crucial issue of whether there was a perfected contract of
sale between PELA and Al-Amanah.
Essential Elements of a Contract of Sale
A contract of sale is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.48 Thus, for a contract of sale to
be valid, all of the following essential elements must concur: "a) consent or meeting of
the minds; b) determinate subject matter; and c) price certain in money or its
equivalent."49
In the case at bench, there is no controversy anent the determinate subject matter, i.e.,
the 2,000-square meter lot. This leaves us to resolve whether there was a concurrence of
the remaining elements.
As for the price, fixing it can never be left to the decision of only one of the contracting
parties.50 "But a price fixed by one of the contracting parties, if accepted by the other,
gives rise to a perfected sale."51
As regards consent, "when there is merely an offer by one party without acceptance of
the other, there is no contract."52 The decision to accept a bidders proposal must be
communicated to the bidder.53 However, a binding contract may exist between the
parties whose minds have met, although they did not affix their signatures to any written
document,54 as acceptance may be expressed or implied.55 It "can be inferred from the
contemporaneous and subsequent acts of the contracting parties."56 Thus, we held:
x x x 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.57
There is no perfected contract of sale between PELA and Al-Amanah for want of consent
and agreement on the price.
After scrutinizing the testimonial and documentary evidence in the records of the case,
we find no proof of a perfected contract of sale between Al-Amanah and PELA. The
parties did not agree on the price and no consent was given, whether express or implied.
When PELA Secretary Florida Ramos (Ramos) testified, she referred to the March 18,
1993 letter which PELA sent to Al-Amanah as the document supposedly embodying the
perfected contract of sale.58 However, we find that the March 18, 1993 letter referred to
was merely an offer to buy, viz:
March 18, 1993

The Manager
Islamic Bank
Davao Branch
Davao City
Sir/Madam:
This has reference to the offer made by Messrs. Alejandro Padilla, Leonardo Labora, Boy
Bartiana, Francisco Paig, and Mr. Asterio Aki for the purchase of the acquired asset of the
bank with an area of 2,000 square meters and covered by T.C.T. No. T-138914, portions
of which are occupied by their houses. These occupants have formed and registered a
group of x x x landless families who have occupied shoulders of National Highways, to be
able to raise an amount that would meet the approval of the Bank as the consideration
for the purchase of the property. The group which is known as PELA or Peoples Landless
Association, is offering the bank the amount of THREE HUNDRED THOUSAND PESOS
(P300,000.00) for the whole 2,000 sq. meters. Of this amount the buyers will pay a down
payment of ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00) and the balance
payable in one (1) year.
According to the plan of PELA, about 24 landless families can be accommodated in the
property. We hope the Bank can help these families own even a small plot for their
shelter. This would be in line with the governments program of housing which the
present administration promised to put in high gear this year.59 (Emphasis supplied)
Neither can the note written by the bank that "subject offer has been
acknowledged/received but processing to take effect upon putting up of the partial
amount of P150,000.00 on or before April 15, 1993" be construed as acceptance of
PELAs offer to buy. Taken at face value, the annotation simply means that the bank
merely acknowledged receipt of PELAs letter-offer. Furthermore, by processing, AlAmanah only meant that it will act on the offer, i.e., it still has to evaluate whether
PELAs offer is acceptable. Until and unless Al-Amanah accepts, there is as yet no
perfected contract of sale. Notably here, the bank never signified its approval or
acceptance of the offer.
We cannot agree with the CAs ratiocination that receipt of the amount, coupled with the
phrase written on the four receipts as "deposit on sale of TCT No. 138914," signified a
tacit acceptance by Al-Amanah of PELAs offer. For sure, the money PELA gave was not in
the concept of an earnest money. Besides, as testified to by then OIC Dalig, it is the usual
practice of Al-Amanah to require submission of a bid deposit which is acknowledged by
way of bank receipts before it entertains offers. Thus:
Atty. Bolcan:
Now, as far as you can remember, these receipts state that these are partial deposits,
what do you mean by that?
WITNESS:
A: x x x, we normally request an offeror to submit or make deposit, actually the bank
does not entertain any offer without any deposit and just like that, during my time x x x

in buying the property for those interested the bank does not entertain any offer unless
they make a deposit.
xxxx
Q: Why do you issue receipts as officer-in-charge stating only partial deposits?
A: Because there was no sale, there was no consu[m]mated sale, so any amount which
you will give as a deposit will be accepted by the bank for the offer and that if their offer
will be disapproved we will return the deposit because their offer was very low and this
might be disapproved by the head office in Manila.60
xxxx
Atty. Taasan:
Do you confirm that based on the interest of the plaintiff to acquire the property they
made a deposit with said bank, as evidenced by the receipts that were shown to you by
your counsel, correct?
A: Yes, sir.
Q: And according to you, the bank does not entertain any offer to buy the property
without deposits?
A: Yes, sir.
Q: In this case since the plaintiffs made a deposit x x x they were properly entertained,
correct?
A: Yes because it is under negotiation, now while their offer price is below the selling
price of the bank.61
The absence of a perfected contract of sale was further buttressed by the testimony of
PELA Secretary Ramos on cross examination, viz:
Atty. Rabor:
Since it was x x x hard earned money you did not require the Amanah Bank when you
gave that P150,000.00 to reduce your agreement into writing regarding the sale of this
property?
A: I insisted but she will not issue that.62
xxxx
Atty. Bolcan:
Now, on April 15, 1993 when the deposit was made, you were present?
A: Yes, sir.

Q: Now, after making the deposit of One Hundred Fifty Thousand (P150,000.00) Pesos on
April 15, 1993 did you not request for the bank to execute a document to prove that
actually you are buying the property?
A: I even said to the OIC or the manager that maam, now that you have received our
money, where is our paper that we were the ones to buy that property, sir.
Q: To whom are you referring to?
A: Febe Dalig, the OIC, sir.
Q: And this OIC Febe Dalig informed you that the Offer on your part to buy the property
is subject for approval by the head office in Manila, is that correct?
A: Yes she told me that it would be subject to approval in Manila x x x.
Q: And later on you were informed by the bank that your offer was not accepted by the
head office in Manila, is that correct?
A: She did not inform us but we kept on following it up with their office and she told us
that it did not arrive yet, sir.63 (Emphasis supplied)
PELA Secretary Ramos testimony thus corroborated OIC Daligs consistent stand that it
is the Head Office which will decide whether Al-Amanah would accept PELAs offer:
Atty. Bolcan:
And now, if there are interested persons making offer x x x what would you do?
A: Well, we have to screen the offer before we forward the offer to Manila for approval
because
Court:
What would you do before you forward that to Manila?
A: We will be screening the offer x x x.
Atty. Bolcan:
And you said that it is referred to Manila?
A: Yes, sir.
Q: Who will eventually approve the offer made by the interested persons to buy the
property?
A: We have a committee in Manila to approve the sale of the property.
Q: Do you have any idea who will approve the offer of the property?

A: I have no idea but the president, rather it consists of the president I think and then
signed also by the vice-president and some officers in the office, sir.
xxxx
Q: Now, in case of offers of the property of the bank, x x x the officer-in-charge of the
bank, Al-Amanah Bank branch, usually refers this matter to the head office in Manila?
A: Yes, sir.
Q: And it is the head office that will decide whether the offer will be approved or not?
A: Yes as head of the branch, we have to forward the offer whether it was acceptable or
not.64
It is thus undisputed, and PELA even acknowledges, that OIC Dalig made it clear that the
acceptance of the offer, notwithstanding the deposit, is subject to the approval of the
Head Office. Recognizing the corporate nature of the bank and that the power to sell its
real properties is lodged in the higher authorities,65 she never falsely represented to the
bidders that she has authority to sell the banks property. And regardless of PELAs
insistence that she execute a written agreement of the sale, she refused and told PELA to
wait for the decision of the Head Office, making it clear that she has no authority to
execute any deed of sale.
Contracts undergo three stages: "a) negotiation which begins from the time the
prospective contracting parties indicate interest in the contract and ends at the moment
of their agreement[; b) perfection or birth, x x x which takes place when the parties
agree upon all the essential elements of the contract x x x; and c) consummation, which
occurs when the parties fulfill or perform the terms agreed upon, culminating in the
extinguishment thereof."66
In the case at bench, the transaction between Al-Amanah and PELA remained in the
negotiation stage. The offer never materialized into a perfected sale, for no oral or
documentary evidence categorically proves that Al-Amanah expressed amenability to the
offered P300,000.00 purchase price. Before the lapse of the 1-year period PELA had set
to pay the remaining balance, Al-Amanah expressly rejected its offered purchase price,
although it took the latter around seven months to inform the former and this entitled
PELA to award of damages.67 Al-Amanahs act of selling the lot to another buyer is the
final nail in the coffin of the negotiation with PELA. Clearly, there is no double sale, thus,
we find no reason to disturb the consummated sale between Al-Amanah and Robern.
At this juncture, it is well to stress that Al-Amanahs Petition before this Court docketed
as G.R. No. 173437 was already denied with finality on December 4, 2006. Hence, we
see no reason to disturb paragraph 6 of the CAs Decision ordering Al-Amanah to pay
damages to PELA.
WHEREFORE, we PARTIALLY GRANT the Petition. Except for paragraph 6 of the Court of
Appeals Decision which had already been long settled,68 the rest of the judgment in the
assailed August 16, 2005 Decision and May 30, 2006 Resolution of the Court of Appeals
in CA-G.R. No. CV No. 66071 are hereby ANNULLED and SET ASIDE. The August 10, 1999

Decision of the Regional Trial Court of Davao City, Branch 12, dismissing the Complaint
for Annulment and Cancellation of Void Deed of Sale filed by respondent People's
Landless Association is REINSTATED and AFFIRMED. The amount of Pesos: Three Hundred
Thousand (P300,000.00) consigned with the Regional Trial Court of Davao City may now
be withdrawn by People's Landless Association.
SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
ARTURO D. BRION
Associate Justice MARTIN S. VILLARAMA, JR.*
Associate Justice
ESTELA M. PERLAS-BERNABE
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court's
Division.
MARIA LOURDES P. A. SERENO
Chief Justice

Footnotes
* Per Special Order No. 1426 dated March 8, 2013
1 Amado v. Salvador, G.R. No. 171401, December 13,2007, 540 SCRA 161, 176.

2 CA rollo, pp. 137-173; penned by Associate Justice Teresita Dy-Liacco Flores and
concurred in by Associate Justices Edgardo A. Camello and Myrna Dimaranan-Vidal.
3 Id. at 214.
4 Records, Vol. 2, p. 594.
5 Id. at 589.
6 Namely Alejandro Padilla Boy Bartiana, Leonardo Labora, Francisco Paig, and Asterio
Aki.
7 Records, Vol. 2, p. 636.
8 Id. at 653-656. No letter was sent to Asterio Aki.
9 Records, Vol. 1, p. 52.
10 Id. at 53. The receipts are as follows:
Receipt No. 139497 issued on April 15, 1993- P106,000.00
Receipt No. 139515 issued on April 27, 1993- P18,500.00
Receipt No. 139520 issued on April 30, 1993- P24,000.00
Receipt No. 139522 issued on May 3, 1993- P1,500.00
14 Id. at 637.
15 Id. at 640 and 642.
16 Id. at 641.
17 Id. at 643.
18 Id. at 644.
19 Records, Vol. 1, pp. 191-192.
20 Records, Vol. 2, p. 646.
21 Id. at 648.
22 Records, Vol. 1, pp. 192-193.
23 Id. at 192.
24 Records, Vol. 2, pp. 595-596.
25 Id. at 597.

26 Id. at 592.
27 Id. at 593.
28 Id.
29 Records, Vol. 1, pp. 1-6. The Complaint filed on July 14, 1994 and docketed as Civil
Case No. 23,037-94 was amended on July 18, 1994, pp. 19-25 to additionally pray for a
temporary restraining order and for injunction.
30 Id. at 36.
31 Id. at 76-83. The writ itself was issued on November 9, 1994, id. at 174-175.
32 Id. at 189-196; penned by Associate Justice Fidel F. Purisima and concurred in by
Associate Justices Jainal D. Rasul and Eubulo G. Verzola.
33 Id. at 55-60, 84-88, and 220-224.
34 CIVIL CODE, Art. 1403. The following contracts are unenforceable, unless they are
ratified:
xxxx
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless
the same, or some note or memorandum thereof, be in writing, and subscribed by the
party charged, or by his agent; evidence, therefore, of the agreement cannot be received
without the writing, or a secondary evidence of its contents:
xxxx
(e) An agreement x x x for the sale of real property or of an interest therein;
35 Records, Vol. 3, pp. 724-732; penned by Judge Paul T. Arcangel.
36 Id. at 733.
37 Supra note 2.
38 CA rollo, pp. 172-173.
39 Id. at 178-196.
40 Supra note 3.
41 CA rollo, p. 542. The said Petition was denied due to Al-Amanahs failure to take the
appeal within the reglementary period as well as to submit registry receipts as proof of
service.

42 Id. at 554.
43 Section 4. Contents of petition. The petition shall be filed in eighteen (18) copies,
with the original copy intended for the court being indicated as such by the petitioner,
and shall (a) state the full name of the appealing party as the petitioner and the adverse
party as respondent, without impleading the lower courts or judges thereof either as
petitioners or respondents; (b) indicate the material dates showing when notice of the
judgment or final order or resolution subject thereof was received, when a motion for
new trial or reconsideration, if any, was filed and when notice of the denial thereof was
received; (c) set forth concisely a statement of the matters involved, and the reasons or
arguments relied on for the allowance of the petition; (d) be accompanied by a clearly
legible duplicate original, or a certified true copy of the judgment or final order or
resolution certified by the clerk of court of the court a quo and the requisite number of
plain copies thereof, and such material portions of the record as would support the
petition; and (e) contain a sworn certification against forum shopping as provided in the
last paragraph of Section 2, Rule 42.
44 Records, Vol. 1, pp. 80-81 and 195.
45 1997 RULES OF CIVIL PROCEDURE, Rule 3, Section 2.
46 G.R. No. 171238, February 2, 2011, 641 SCRA 390.
47 Id. at 407.
48 CIVIL CODE, Article 1475.
49 Navarra v. Planters Development Bank, G.R. No. 172674, July 12, 2007, 527 SCRA
562, 574.
50 Bank of Commerce v. Manalo, 517 Phil. 328, 347 (2006).
51 Id.
52 Manila Metal Container Corporation v. Philippine National Bank, 540 Phil. 451, 471
(2006).
53 The Insular Life Assurance Company, Ltd.v. Asset Builders Corporation, 466 Phil. 751,
768 (2004).
54 Development Bank of the Philippines v. Medrano, G.R. No. 167004, February 7, 2011,
641 SCRA 559, 567, citing Traders Royal Bank v. Cuison Lumber Co., Inc., G.R. No.
174286, June 5, 2009, 588 SCRA 690, 701, 703.
55 CIVIL CODE, Article 1320.
56 Jardine Davies Inc. v. Court of Appeals, 389 Phil. 204, 214 (2000).
57 Adelfa Properties, Inc. v. Court of Appeals, 310 Phil 623, 642 (1995).
58 See TSN-Florida Ramos, November 19, 1998, Records, Vol. 8, pp. 262- 265.

59 Supra note 9.
60 TSN-Febe Dalig, March 11, 1999, Records, Vol. 8, pp. 441-442, 448.
61 Id. at 459-460.
62 TSN-Florida Ramos, August 2, 1994, Records, Vol. 7, pp. 27-28.
63 TSN-Florida Ramos, November 19, 1998, Records, Vol. 8, pp. 259- 261.
64 Id. at 443-446.
65 CORPORATION CODE, Sec. 23. The board of directors or trustees. Unless otherwise
provided in this Code, the corporate powers of all corporations formed under this Code
shall be exercised, all business conducted and all property of such corporations
controlled and held by the board of directors or trustees to be elected from among the
holders of stock, or where there is no stock, from among the members of the
corporation, who shall hold office for one (1) year and until their successors are elected
and qualified. x x x
Sec. 36. Corporate powers and capacity. Every corporation incorporated under this
Code has the power and capacity:
xxxx
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, including securities and bonds of
other corporations, as the transaction of the lawful business of the corporation may
reasonably and necessarily require, subject to the limitations prescribed by law and the
Constitution;
66 Navarra v. Planters Development Bank, supra note 49 at 571-572.
67 The CAs finding of bad faith entitled PELA to the award of damages, the judgment of
which became final and executory. See notes 42 and 43.
68 See notes 42 and 43.
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THIRD DIVISION
LAGRIMAS
ZAMORA,
DE
-versus
JESUS
Petitione:~.
SPOUSES BEATRIZ ZAMORA
HIDALGO MIRANDA and
ARTURO MIRANDA, ROSE
MARIE MIRANDA GUANIO,
MARY JULIE CRISTINA . S.
ANG, JESSIE JAY S. ANG,
JASPER JOHN S. ANG and the
REGISTER OF . DEEDS .. for
G.R. No. 162930
Present:
VELASCO, JR., J, Chairperson,
PERALTA,
ABAD,
MENDOZA, and
LEONEN,JJ.
Promulgated:
Davao City, 05 December 2012
Respondents. (J{(~~
x-------------------------------------------------------------------------------1----~----------x
DE ClSION
PERALTA,J.:
This is a petition for review on certiorari1 of the Court of Appeals'
Decision dated September 17, 2003 in CA-G.R. CV No. 74156, and its
Resolution dated February 9, 2004, denying petitioner's motion for
reconsideration.
The Court of Appeals affirmed the decision of the Regional Trial
Court (RTC) of Davao City, Branch 12, which tiismissed petitioner's
complaint for specific performance, annulment of sale and certificate of title
and damages.
Under Rule 45 of the Rules of Court.
Decision - 2 - G.R. No. 162930
The facts, as stated by the Court of Appeals and the trial court, are as
follows:
Petitioner is the widow of the late Fernando Zamora, the son of
Alberto Zamora. Respondent Beatriz Miranda is the cousin of Alberto
Zamora, while respondent Rose Marie Miranda-Guanio is the daughter of
respondent Beatriz Miranda.
Respondent Beatriz Miranda was the registered owner of the property
in question, which is a parcel of land, with an area of more or less 5,090
square meters, covered by Transfer Certificate of Title (TCT) No. 1594 of
the Register of Deeds for the City of Davao. The said parcel of land is
located at Carmelite, Bajada, Davao City.
According to petitioner, her father-in-law, Alberto Zamora, through
an encargado, Eduardo Cecilio, was in possession of the property in

question. In 1952, she (petitioner) was designated by Alberto Zamora as his

assistant on land matters. The property in question was turned over to her
and she was introduced to Eduardo Cecilio. After the year 1952, Alberto
Zamora told her that the property in question was owned by respondent
Beatriz Miranda whose family was permanently residing in Manila.
Petitioner allegedly contacted respondent Beatriz Miranda, and
petitioner was given a calling card and was told to see her (Beatriz). In
October 1972, petitioner claimed that she went to the residence of
respondent Beatriz Miranda in Quezon City. While there, they talked about
the property in question and respondent Beatriz Miranda drew a sketch
depicting the location of the property.2 Thereafter, petitioner alleged that
respondent Beatriz Miranda sold to her the said property for the sum of
P50,000.00. An acknowledgment3 of the receipt of the amount of
2 Exhibits B, to B-1, records, vol. I, p. 266.
3 Exhibit B-2, id.
Decision - 3 - G.R. No. 162930
P50,000.00 was prepared, and respondent Beatriz Miranda allegedly signed4
the same. The receipt was dated October 23, 1972.5 In the sketch, and
acknowledgment of the receipt of P50,000.00, marked as Exhibit "B,"6 there
is a notation "Documents for Agdao Property follows." This notation
referred to the property in Agdao, which was the subject of negotiation.
Petitioner prepared the document relative to the Agdao property.7
Petitioner further claimed that after 1972, she rented out portions of
the property in question. Eduardo Cecilio allegedly continued to be her
encargado as there were squatters on the property. In January 1996, the
tenants reported to her that there were two men who went to the property in
question. On the first week of February 1996, she (petitioner) met Atty.
Cabebe and Mr. Joe Ang. She informed them that she was the owner of the
property in question as she bought it in 1972. After sometime, she
(petitioner) learned that the occupants of the property in question were being
harassed and were told to vacate. She (petitioner) went to Manila and
confronted respondent Beatriz Miranda, and told her that she would file a
case in court.
On June 14, 1996, petitioner filed with the RTC of Davao City,
Branch 12 (trial court) an action for specific performance, annulment of sale
and certificate of title, damages, with preliminary injunction and temporary
restraining order.8
Petitioner prayed that the Court render judgment nullifying the deed
of sale between respondents Beatriz Miranda and Ang involving the
property covered by TCT No. T-1594; declaring petitioner to be the owner
of the parcel of land covered by TCT No. T-1594 and ordering respondent
4 Exhibit B-3, id.
5 Exhibit B-4, id.
6 Id.
7 Exhibit C, id. at 17.
8 Docketed as Civil Case No. 24,442-96.
Decision - 4 - G.R. No. 162930
Beatriz Miranda to execute the corresponding deed of sale in her favor; and
ordering respondents, except the Registrar of Deeds, to pay her (petitioner)
damages, including litigation expenses and attorney's fees.
On June 17, 1996, a Temporary Restraining Order was issued. The

said Temporary Restraining Order was extended for 15 days pursuant to the
Order dated June 24, 1996. On July 1, 1996, a Status Quo Order was issued.
Petitioner claimed that respondents did not respect the court orders as they
caused the demolition of the structures on the property in question. The
property was levelled and, thereafter, improvements were introduced
thereon by respondents.
Respondent Rose Marie Miranda-Guanio declared that before the year
1941, her mother, respondent Beatriz Miranda, was a resident of Davao
City. Her mother left Davao City in 1942 and resided in Manila, and she
went to Davao City for vacation only. Her mother owned the property in
question. When her mother (Beatriz) left Davao City, she did not appoint
anyone to administer or take care of her property. She (Rose Marie) disputed
the claim of petitioner that the latter visited her mother in 1972. She alleged
that on June 26, 1972, she gave birth to her first child and that she and her
mother, Beatriz, took care of her child. She declared that the signature on the
receipt dated October 23, 19729 was not the signature of her mother, Beatriz
Miranda. She identified the genuine signatures of her mother (Beatriz)
which were reflected on the Voter's Affidavit (Exhibits "1" - "24"); the 1973
Residence Certificate (Exhibits "3"-"20"); the 1980 Residence Certificate
(Exhibits "4"-"21"); the 1981 Residence Certificate (Exhibits "5"-"22"); the
1974 expired passport (Exhibits "6"-"17").10 She also alleged that because of
this case she suffered damages and incurred expenses of litigation.
9 Exhibit "B," records, vol. I, p. 266.
10 Id. at 347-351; 354-372.
Decision - 5 - G.R. No. 162930
Mr. Arcadio Ramos, Chief Document Examiner and Chief,
Questioned Documents Division of the National Bureau of Investigation
(NBI), Manila, was presented to determine whether or not the signature of
respondent Beatriz Miranda appearing on the receipt dated October 23,
1972 was her genuine signature per the Order dated November 17, 1997.
After samples of the genuine signatures of respondent Beatriz
Miranda (Exhibits "1" to "7" and "12" to "28") and the original copy of the
receipt dated October 23, 1972 were submitted to Mr. Ramos, he prepared
two reports with the following findings and conclusions:
FINDINGS:
Scientific comparative examination of the specimens submitted
under the stereoscopic microscope, with the aid of hand lens and
photographic enlargements (comparison chart), reveal significant
differences in handwriting characteristics existing between the questioned
and the sample signatures "Beatriz H. Miranda" to wit:
- manner of execution of strokes;
- structural pattern of letters; and
- other identifying minute details.
The questioned and the sample signatures "Beatriz H. Miranda" were NOT
WRITTEN by one and the same person.11
Atty. George Cabebe testified for respondents Mary Julie Cristina
Ang, Jessie Jay Ang and Jasper John Ang. He declared that as the lawyer of
Mr. Jose Ang, the father of respondents Ang, his advice was sought
regarding the purchase of the property in question, which was registered in
the name of respondent Beatriz Miranda. He asked for the copy of the title
(TCT No. T-1594) in the name of Beatriz Miranda, and verified from the

Register of Deeds whether or not there was an encumbrance. When he

found no encumbrance annotated on the title, he inspected the property in
question and found thereon several squatters, who agreed to vacate the
premises provided they were given financial assistance. With these findings,
11 Exhibits 8-A to 8-B; 9-A to 9-B, records, vol. II, pp. 366-369.
Decision - 6 - G.R. No. 162930
he recommended to respondents Ang to proceed in purchasing the property
of Beatriz Miranda. Thus, respondents Ang purchased the property in
question, and they were issued TCT No. T-258316.12 The
squatters/occupants of the property in question, including Eduardo Cecilio,
the alleged encargado of petitioner, were given financial assistance13 and
they vacated the property in question.
As agreed upon by the parties during the pre-trial conference, the
issues that had to be resolved were as follows: (1) whether or not the Deed
of Sale executed by defendant (respondent) Beatriz Miranda in favor of
defendants (respondents) Ang on February 26, 1996 was valid; (2) whether
or not the plaintiff (petitioner) can recover the claims in the complaint; (3)
whether or not defendants (respondents) can recover the claims in their
counterclaims; and (4) whether or not defendants (respondents) Ang can
recover the claims in the cross-claim.
On February 4, 2002, the trial court rendered a Decision,14 the
dispositive portion of which reads:
IN VIEW OF ALL THE FOREGOING, judgment is hereby
rendered dismissing the complaint.
All claims of the contending parties are disallowed.
Costs against the plaintiff.15
The trial court dismissed petitioner's complaint on the ground that the
receipt dated October 23, 1972 which was the basis of petitioner's claim of
ownership over the subject property, was a worthless piece of paper,
because it was established by Mr. Arcadio Ramos, an NBI handwriting
expert, that the signature appearing on the receipt was not the signature of
12 Exhibits "2" and "2-A," id. at 484.
13 Exhibits "3" to "45," id. at 486-611.
14 CA rollo, p. 52.
15 Id. at 60.
Decision - 7 - G.R. No. 162930
respondent Beatriz Miranda, as vendor of the property, and the testimony of
Mr. Ramos was not controverted.
The trial court observed that petitioner was an astute businesswoman
knowledgeable in transactions involving real estate. She would not have
been designated by her father-in-law as his assistant on land matters if she
did not know anything about transactions involving real estate. Thus, if the
property in question was really sold to petitioner by respondent Beatriz
Miranda in 1972, she should have taken the appropriate action to perfect her
title over the said property. She should have asked for the delivery of the
owner's duplicate copy of the title. The fact that the owner's duplicate copy
of the title remained in the possession of Beatriz Miranda until she sold the
property in question to respondents Ang only showed that the property was
not sold to petitioner. It also appeared that for more than 20 years, petitioner
did nothing to perfect her title to the property allegedly sold to her.
The trial court found that the Deed of Sale16 dated February 26, 1996,

executed by respondent Rose Marie Miranda-Guanio, as attorney-in-fact of

Beatriz Miranda, in favor of respondents Ang, involving the property in
question, was valid. All the requisites of a valid sale were present when the
deed was executed. The sale was registered in the Register of Deeds and a
new transfer certificate of title17 was issued in the name of respondents Ang.
The trial court declared that the certificate of title in the names of
respondents Ang was a conclusive evidence of ownership.
Petitioner appealed the trial court's decision to the Court of
Appeals.
Petitioner alleged that the trial court erred in finding that the receipt
evidencing the sale of the subject property was a worthless piece of paper
16 Exhibit G, records, vol. I, p. 25.
17 Exhibit 2, records, vol. II, p. 484.
Decision - 8 - G.R. No. 162930
which could not be made the basis of her claim of ownership over the land
in question; and that the trial court erred in dismissing the case.
On September 17, 2003, the Court of Appeals rendered a decision, the
dispositive portion of which reads:
IN VIEW OF THE FOREGOING, the appealed
decision is AFFIRMED in toto. Costs against appellant.18
The Court of Appeals stated that as the receipt presented by petitioner
was a private document, it could not be made the basis of her claim of
ownership over the property in question. More so, when the NBI
handwriting expert, Mr. Arcadio Ramos, found the signature of respondent
Beatriz Miranda on the receipt to be forged, as he concluded that the
questioned and the sample signatures presented were not written by one and
the same person.
Moreover, the Court of Appeals stated that even on the implausible
assumption that respondent Beatriz Miranda's signature on the disputed
document was not forged, and was therefore valid, such fact cannot be
successfully invoked to invalidate the title subsequently issued to respondents
Ang. At the time respondents purchased the land in question from attorneyinfact Rose Marie Miranda-Guanio on February 26, 1996, TCT No. T-1594
was in the name of respondent Beatriz Miranda. The Court of Appeals
stated that settled is the rule that where the certificate of title is in the name
of the vendor when the land is sold, the vendee for value has a right to rely
on what appears on the certificate of title. Thus, when innocent third
persons, such as respondents Ang, relying on the correctness of the
certificate thus issued, acquire rights over the property, the courts cannot
disregard such rights.19
18 Rollo, p. 49. (Emphasis in the original)
19 Citing Director of Lands v. Abache, 73 Phil. 606 (1941-1942).
Decision - 9 - G.R. No. 162930
Petitioner filed this petition raising these issues:
I
WHETHER OR NOT THE HONORABLE COURT OF
APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OF JURISDICTION WHEN IT RULED
THAT THE RECEIPT DATED OCTOBER 23, 1972, EVIDENCING
THE SALE OF THE LAND BY RESPONDENT BEATRIZ ZAMORA
HIDALGO MIRANDA TO PETITIONER LAGRIMAS DE JESUS

ZAMORA, BEING A PRIVATE DOCUMENT IS NOT VALID AND

BINDING AND CANNOT BE MADE A BASIS OF SAID
PETITIONER'S CLAIM OVER THE PROPERTY IN QUESTION.
II
WHETHER OR NOT THE HONORABLE COURT OF
APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OF JURISDICTION WHEN IT FOUND
THAT THE SIGNATURE OF RESPONDENT BEATRIZ ZAMORA
HIDALGO MIRANDA ON THE RECEIPT OR NOTE EVIDENCING
THE SALE OF THE LAND BY SAID RESPONDENT TO THE
PETITIONER LAGRIMAS DE JESUS ZAMORA IS FORGED,
CONSIDERING THE ABSENCE OF EVIDENCE TO SUPPORT SUCH
FINDING AND, CONSIDERING FURTHER THAT UNDER THE
RULES SHE IS DEEMED TO HAVE ADMITTED THE
GENUINENESS AND DUE EXECUTION OF SAID RECEIPT OR
NOTE FOR HER FAILURE TO SPECIFICALLY DENY THEM
UNDER OATH IN HER ANSWER.
III
WHETHER OR NOT THE HONORABLE COURT OF
APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OF JURISDICTION WHEN IT FOUND
THAT RESPONDENTS ANGS ARE PURCHASERS IN GOOD
FAITH AND FOR VALUE OF THE LAND IN DISPUTE EVEN IF
THEY HAD ACTUAL KNOWLEDGE OF THE PREVIOUS SALE OF
THE LAND BY RESPONDENT BEATRIZ HIDALGO MIRANDA TO
THE PETITIONER LAGRIMAS DE JESUS ZAMORA WHO WAS IN
POSSESSION THEREOF, TOGETHER WITH HER ENCARGADO
AND TENANTS.
IV
WHETHER OR NOT THE HONORABLE COURT OF
APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO EXCESS OF JURISDICTION WHEN IT FOUND
PETITIONER LAGRIMAS DE JESUS ZAMORA GUILTY OF
LACHES, INSTEAD OF FINDING THAT SINCE THE ACTION OF
SAID PETITIONER, WHO WAS IN POSSESSION OF THE LAND, IS
ACTUALLY ONE FOR QUIETING OF TITLE OF REAL PROPERTY,
AND RESPONDENT BEATRIZ ZAMORA HIDALGO MIRANDA,
RECOGNIZING THE EXISTENCE OF THE RIGHT OF SAID
PETITIONER TO THE EXECUTION OF THE DEED OF SALE, HAD
FROM TIME TO TIME PROMISED TO EXECUTE THE DEED OF
Decision - 10 - G.R. No. 162930
SALE, THE ACTION OF SAID PETITIONER DID NOT PRESCRIBE
NOR [WAS IT] BARRED BY LACHES.
V
WHETHER OR NOT THE HONORABLE COURT OF
APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF JURISDICTION IN DISMISSING THE
CASE INSTEAD OF (1) ANNULLING THE SALE BETWEEN
RESPONDENT BEATRIZ ZAMORA HIDALGO MIRANDA AND THE
RESPONDENTS ANGS; (2) DECLARING THE PETITIONER
LAGRIMAS DE JESUS ZAMORA TO BE THE OWNER OF THE

PROPERTY IN DISPUTE; (3) DIRECTING THE RESPONDENT

BEATRIZ ZAMORA HIDALGO MIRANDA TO EXECUTE THE
DEED OF SALE IN A PUBLIC INSTRUMENT IN FAVOR OF SAID
PETITIONER TO ENABLE THE LATTER TO REGISTER THE SALE;
AND (4) ORDERING ALL THE RESPONDENTS, EXCEPT THE
REGISTER OF DEEDS, TO PAY DAMAGES AND ATTORNEY'S
FEES IN SUCH SUMS AS THE HONORABLE COURT MAY FIX.20
The Court notes that the issues raised by petitioner alleged grave
abuse of discretion by the Court of Appeals, which is proper in a petition for
certiorari under Rule 65 of the Rules of Court, but not in the present petition
for review on certiorari under Rule 45 of the Rules of Court.
The main issue in this case is whether or not the Court of Appeals
erred in affirming the decision of the trial court, dismissing the complaint for
specific performance, annulment of sale and certificate of title and damages.
As stated by the trial court, petitioner principally prays that she be
declared the owner of the subject property; that respondent Beatriz Miranda
be ordered to execute a deed of sale in her (petitioner's) favor; and that the
sale of the subject property in favor of respondents Ang be nullified.
The sole evidence relied upon by petitioner to prove her claim of
ownership over the subject property is the receipt dated October 23, 197221
which states:
20 Memorandum of Petitioner, rollo, pp. 157-158.
21 Records, vol. I, p. 16.
Decision - 11 - G.R. No. 162930
Rec'd the amount of fifty thousand (P50,000) pesos from Lagrimas
Zamora as payment for the property at Carmelite, Bajada, Davao City.
Documents for Agdao property follows.
(signed)
Beatriz H. Miranda
Can the receipt dated October 23, 1972 evidencing sale of real
property, being a private document, be a basis of petitioner's claim over the
subject property?
Article 135822 of the Civil Code provides that acts and contracts
which have for their object the transmission of real rights over immovable
property or the sale of real property must appear in a public document. If the
law requires a document or other special form, the contracting parties may
compel each other to observe that form, once the contract has been
perfected.23
In Fule v. Court of Appeals,24 the Court held that Article 1358 of the
Civil Code, which requires the embodiment of certain contracts in a public
instrument, is only for convenience, and registration of the instrument only
adversely affects third parties. Formal requirements are, therefore, for the
benefit of third parties.25 Non-compliance therewith does not adversely
22 Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation, transmission,
modification or
extinguishment of real rights over immovable property; sales of real property or of an
interest
therein a governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of the
conjugal

partnership of gains;
(3) The power to administer property, or any other power which has for its object an act
appearing
or which should appear in a public document, or should prejudice a third person;
(4) The cession of actions or rights proceeding from an act appearing in a public
document.
All other contracts where the amount involved exceeds five hundred pesos must appear
in writing,
even a private one. But sales of goods, chattels or things in action are governed by
Articles, 1403, No. 2
and 1405. (Emphasis supplied.)
23 Civil Code, Art. 1357. If the law requires a document or other special form, as in the
acts and
contracts enumerated in the following article, the contracting parties may compel each
other to observe that
form, once the contract has been perfected. This right may be exercised simultaneously
with the action
upon the contract.
24 G.R. No. 112212, March 2, 1998, 286 SCRA 698.
25 Fule v. Court of Appeals, supra, at 713; 364.
Decision - 12 - G.R. No. 162930
affect the validity of the contract nor the contractual rights and obligations of
the parties thereunder.26
However, in this case, the trial court dismissed petitioner's complaint
on the ground that the receipt dated October 23, 1972 (Exhibit B) is a
worthless piece of paper, which cannot be made the basis of petitioners
claim of ownership over the property as Mr. Arcadio Ramos, an NBI
handwriting expert, established that the signature appearing on the said
receipt is not the signature of respondent Beatriz Miranda.
The Court of Appeals affirmed the trial court's dismissal of the
complaint.
The Court sustains the decision of the Court of Appeals.
The receipt dated October 23, 1972 cannot prove ownership over the
subject property as respondent Beatriz Miranda's signature on the receipt, as
vendor, has been found to be forged by the NBI handwriting expert, the trial
court and the Court of Appeals. It is a settled rule that the factual findings of
the Court of Appeals affirming those of the trial court are final and
conclusive and may not be reviewed on appeal, except under any of the
following circumstances: (1) the conclusion is grounded on speculations,
surmises or conjectures; (2) the inference is manifestly mistaken, absurd or
impossible; (3) there is grave abuse of discretion; (4) the judgment is based
on a misapprehension of facts; (5) the findings of fact are conflicting; (6)
there is no citation of specific evidence on which the factual findings are
based; (7) the finding of absence of facts is contradicted by the presence of
evidence on record; (8) the findings of the CA are contrary to those of the
trial court; (9) the CA manifestly overlooked certain relevant and undisputed
facts that, if properly considered, would justify a different conclusion; (10)
26 Id.
Decision - 13 - G.R. No. 162930
the findings of the CA are beyond the issues of the case; and ( 11) such
findings are contrary to the admissions of both parties.27

Considering that the aforementioned excepti~ms are not present in this

case, the factual finding of the Court of Appeals that the signature of
respondent Beatriz Miranda on the receipt dated October 23, 1972 is forged
is final and conclusive upon this Court. Consequently, the complaint of
petitioner has no leg to stand on and was properly dismissed by the trial
court.
As the receipt dated October 23, 1972 has no evidentiary value to
prove petitioner's claim of ownership over the property in question, there is
no need to discuss the other issues. raised by petitioner based on the
assumption that she has a valid claim over the subject property.
In fine, the Court of Appeals did not err in affirming the decision of
the trial court dismissing the complaint.
WHEREFORE, the petition is DENIED. Tl~te Court of Appeals'
Decision dated September 17, 2003 in CA-G.R. CV No. 74156, and its
Resolution dated February 9, 2004, are hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
Associate Justice
27 Larena v. Mapili, G.R. No. 146341, August 7, 2003,408 SCRA 484,488-489.
Decision - 14- G.R. No. 162930
WE CONCUR:
PRESBITE J. VELASCO, JR.
~
ROBERTO A. "ABAD
Associate Justice
JOSE CA~NDOZA
Ass~Jk~J:~~ce
ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court's Division.
J. VELASCO, JR.
Chai
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the
Division Chairperson's Attestation, I certify that the conclusions in the
above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.
Acting Chief Justice

THIRD DIVISION

STARBRIGHT SALES
ENTERPRISES, INC.,

G.R. No. 177936

Petitioner,

Present:

VELASCO, JR., J., Chairperson,

- versus -

PERALTA,

ABAD,
MENDOZA, and
PERLAS-BERNABE, JJ.
PHILIPPINE REALTY CORPORATION,
MSGR. DOMINGO A. CIRILOS,
TROPICANA PROPERTIES AND
DEVELOPMENT CORPORATION
and STANDARD REALTY

Promulgated:

CORPORATION,
Respondents.

January 18, 2012

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

DECISION
ABAD, J.:

The present case involves a determination of the perfection of contract of sale.

The Facts and the Case

On April 17, 1988 Ramon Licup wrote Msgr. Domingo A. Cirilos, offering to buy three
contiguous parcels of land in Paraaque that The Holy See and Philippine Realty
Corporation (PRC) owned for P1,240.00 per square meter. Licup accepted the
responsibility for removing the illegal settlers on the land and enclosed a check for
P100,000.00 to close the transaction.[1] He undertook to pay the balance of the
purchase price upon presentation of the title for transfer and once the property has been
cleared of its occupants.

Msgr. Cirilos, representing The Holy See and PRC, signed his name on the conforme
portion of the letter and accepted the check. But the check could not be encashed due
to Licups stop-order payment. Licup wrote Msgr. Cirilos on April 26, 1988, requesting
that the titles to the land be instead transferred to petitioner Starbright Sales
Enterprises, Inc. (SSE). He enclosed a new check for the same amount. SSEs
representatives, Mr. and Mrs. Cu, did not sign the letter.

On November 29, 1988 Msgr. Cirilos wrote SSE, requesting it to remove the occupants on
the property and, should it decide not to do this, Msgr. Cirilos would return to it the
P100,000.00 that he received. On January 24, 1989 SSE replied with an updated
proposal.[2] It would be willing to comply with Msgr. Cirilos condition provided the
purchase price is lowered to P1,150.00 per square meter.

On January 26, 1989 Msgr. Cirilos wrote back, rejecting the updated proposal. He said
that other buyers were willing to acquire the property on an as is, where is basis at
P1,400.00 per square meter. He gave SSE seven days within which to buy the property
at P1,400.00 per square meter, otherwise, Msgr. Cirilos would take it that SSE has lost
interest in the same. He enclosed a check for P100,000.00 in his letter as refund of what
he earlier received.

On February 4, 1989 SSE wrote Msgr. Cirilos that they already had a perfected contract
of sale in the April 17, 1988 letter which he signed and that, consequently, he could no
longer impose amendments such as the removal of the informal settlers at the buyers
expense and the increase in the purchase price.

SSE claimed that it got no reply from Msgr. Cirilos and that the next thing they knew, the
land had been sold to Tropicana Properties on March 30, 1989. On May 15, 1989 SSE
demanded rescission of that sale. Meanwhile, on August 4, 1989 Tropicana Properties
sold the three parcels of land to Standard Realty.

Its demand for rescission unheeded, SSE filed a complaint for annulment of sale and
reconveyance with damages before the Regional Trial Court (RTC) of Makati, Branch 61,
against The Holy See, PRC, Msgr. Cirilos, and Tropicana Properties in Civil Case 90-183.
SSE amended its complaint on February 24, 1992, impleading Standard Realty as
additional defendant.

The Holy See sought dismissal of the case against it, claiming that as a foreign
government, it cannot be sued without its consent. The RTC held otherwise but, on
December 1, 1994,[3] the Court reversed the ruling of the RTC and ordered the case
against The Holy See dismissed. By Order of January 26, 1996 the case was transferred
to the Paraaque RTC, Branch 258.

SSE alleged that Licups original letter of April 17, 1988 to Msgr. Cirilos constituted a
perfected contract. Licup even gave an earnest money of P100,000.00 to close the
transaction. His offer to rid the land of its occupants was a mere gesture of
accommodation if only to expedite the transfer of its title.[4] Further, SSE claimed that,
in representing The Holy See and PRC, Msgr. Cirilos acted in bad faith when he set the
price of the property at P1,400.00 per square meter when in truth, the property was sold
to Tropicana Properties for only P760.68 per square meter.

Msgr. Cirilos maintained, on the other hand, that based on their exchange of letters, no
contract of sale was perfected between SSE and the parties he represented. And, only
after the negotiations between them fell through did he sell the land to Tropicana
Properties.

In its Decision of February 14, 2000, the Paraaque RTC treated the April 17, 1988 letter
between Licum and Msgr. Cirilos as a perfected contract of sale between the parties.
Msgr. Cirilos attempted to change the terms of contract and return SSEs initial deposit
but the parties reached no agreement regarding such change. Since such agreement
was wanting, the original terms provided in the April 17, 1988 letter continued to bind
the parties.

On appeal to the Court of Appeals (CA), the latter rendered judgment on November 10,
2006,[5] reversing the Paraaque RTC decision. The CA held that no perfected contract
can be gleaned from the April 17, 1988 letter that SSE had relied on. Indeed, the
subsequent exchange of letters between SSE and Msgr. Cirilos show that the parties
were grappling with the terms of the sale. Msgr. Cirilos made no unconditional
acceptance that would give rise to a perfected contract.

As to the P100,000.00 given to Msgr. Cirilos, the CA considered it an option money that
secured for SSE only the privilege to buy the property even if Licup called it a deposit.
The CA denied SSEs motion for reconsideration on May 2, 2007.

The Issue Presented

The only issue in this case is whether or not the CA erred in holding that no perfected
contract of sale existed between SSE and the land owners, represented by Msgr. Cirilos.

The Courts Ruling

Three elements are needed to create a perfected contract: 1) the consent of the
contracting parties; (2) an object certain which is the subject matter of the contract; and
(3) the cause of the obligation which is established.[6] Under the law on sales, a
contract of sale is perfected when the seller, obligates himself, for a price certain, to
deliver and to transfer ownership of a thing or right to the buyer, over which the latter
agrees.[7] From that moment, the parties may demand reciprocal performance.

The Court believes that the April 17, 1988 letter between Licup and Msgr. Cirilos, the
representative of the propertys owners, constituted a perfected contract. When Msgr.
Cirilos affixed his signature on that letter, he expressed his conformity to the terms of
Licups offer appearing on it. There was meeting of the minds as to the object and
consideration of the contract.

But when Licup ordered a stop-payment on his deposit and proposed in his April 26, 1988
letter to Msgr. Cirilos that the property be instead transferred to SSE, a subjective
novation took place.

A subjective novation results through substitution of the person of the debtor or through
subrogation of a third person to the rights of the creditor. To accomplish a subjective
novation through change in the person of the debtor, the old debtor needs to be
expressly released from the obligation and the third person or new debtor needs to
assume his place in the relation.[8]

Novation serves two functions one is to extinguish an existing obligation, the other to
substitute a new one in its place requiring concurrence of four requisites: 1) a previous
valid obligation; 2) an agreement of all parties concerned to a new contract; 3) the
extinguishment of the old obligation; and 4) the birth of a valid new obligation.[9]

Notably, Licup and Msgr. Cirilos affixed their signatures on the original agreement
embodied in Licups letter of April 26, 1988. No similar letter agreement can be found
between SSE and Msgr. Cirilos.

The proposed substitution of Licup by SSE opened the negotiation stage for a new
contract of sale as between SSE and the owners. The succeeding exchange of letters
between Mr. Stephen Cu, SSEs representative, and Msgr. Cirilos attests to an unfinished
negotiation. Msgr. Cirilos referred to his discussion with SSE regarding the purchase as a
pending transaction.[10]

Cu, on the other hand, regarded SSEs first letter to Msgr. Cirilos as an updated
proposal.[11] This proposal took up two issues: which party would undertake to evict
the occupants on the property and how much must the consideration be for the property.
These are clear indications that there was no meeting of the minds between the parties.
As it turned out, the parties reached no consensus regarding these issues, thus
producing no perfected sale between them.

Parenthetically, Msgr. Cirilos did not act in bad faith when he sold the property to
Tropicana even if it was for a lesser consideration. More than a month had passed since
the last communication between the parties on February 4, 1989. It is not improbable
for prospective buyers to offer to buy the property during that time.

The P100,000.00 that was given to Msgr. Cirilos as deposit cannot be considered as
earnest money. Where the parties merely exchanged offers and counter-offers, no
contract is perfected since they did not yet give their consent to such offers.[12] Earnest
money applies to a perfected sale.

SSE cannot revert to the original terms stated in Licups letter to Msgr. Cirilos dated April
17, 1988 since it was not privy to such contract. The parties to it were Licup and Msgr.
Cirilos. Under the principle of relativity of contracts, contracts can only bind the parties
who entered into it. It cannot favor or prejudice a third person.[13] Petitioner SSE
cannot, therefore, impose the terms Licup stated in his April 17, 1988 letter upon the
owners.

WHEREFORE, the Court DISMISSES the petition and AFFIRMS the Court of Appeals
Decision dated November 10, 2006 in CA-G.R. CV 67366.

SO ORDERED.

ROBERTO A. ABAD
Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

DIOSDADO M. PERALTA

JOSE CATRAL MENDOZA

Associate Justice

Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts
Division.

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of the
Courts Division.

RENATO C. CORONA
Chief Justice

-------------------------------------------------------------------------------[1] Rollo, p. 14.

[2] Id. at 65.
[3] Holy See, The v. Rosario, Jr., G.R. No. 101949, December 1, 1994, 238 SCRA 524.
[4] CA rollo, p. 100.
[5] Penned by Associate Justice Monina Arevalo-Zearosa with the concurrence of
Associate Justices Martin S. Villarama, Jr. and Lucas P. Bersamin (both Members of the
Court), rollo, pp. 157-184.
[6] Civil Code, Article 1318.
[7] Ang Yu Asuncion v. Court of Appeals, G.R. No. 109125, December 2, 1994, 238 SCRA
602, 611.
[8] Ajax Marketing & Development Corporation v. Court of Appeals, G.R. No. 118585,
September 14, 1995, 248 SCRA 222, 227.
[9] Quinto v. People, 365 Phil. 259, 266 (1999).
[10] Rollo, p. 64.
[11] See note 2.
[12] XYST Corporation. v. DMC Urban Properties Development, Inc., G.R. No. 171968, July
31, 2009, 594 SCRA 598, 605.
[13] Ramos v. Court of Appeals, 362 Phil. 205, 215 (1999).
l\epubltc of tbe ~btHpptneg
~upreme QI:ou::
.:fflanila
. FIRST DIVISION

HEIRS OF FAUSTO C. IGNACIO,

namely MARFEL D. IGNACIOMANALO,
MILFA D .. IGNACIOMANALO
AND FAUSTINO D.
IGNACIO,
Petitioners,
-versusHOME BANKERS SAVINGS AND
TRUST COMPANY, SPOUSES
PHILLIP AND THELMA
RODRIGUEZ, CATHERINE,
REYNOLD & JEANETTE, all
surnamed ZUNIGA,
Respondents.
G.R. ~\0. 177783
Present:
SERENO, C.J.,
Chairperson,
CARPIO,*
LEONARDO-DE CASTRO,
BERSAMIN, and
VILLARAMA, JR., JJ.
Promulgated:
-JAN 2 3 .2013 ,
}(- - - - - - - - - - - - - - - - - - - - - - -- - - - - - - -- - - - - -- -- - ----------}(
DECISION
VILLARAMA, JR., J.:
Before the Court is a Petition for Review on Certiorari under Rule 45
assailing the Decision 1 dated July 18, 2006 and Resolution2 dated May 2,
2007 of the Court of Appeals (CA) in CA-G.R. CV No. 73551. The CA
reversed the Decision3 dated June 15, 1999 of the Regional Trial Court
(RTC) ofPasig City, Branch 151 in Civil Case No. 58980.
2
The factual antecedents:
Designated additional member per Raffie dated January 14, 2013 vice Associare Justice
Bienvenido L.
Reyes who recused himself from the case due to prior action in the Court of Appeals.
Rollo, pp. 47-70. Penned by Associate Justice Bienvenido L. Reyes (now a Member of this
Court)
with Associate Justices Regalado E. Maambong and Enrico A. Lanzanas concurring.
Id. at 71-72.
Records, Vol. 2, pp. 405-416. Penned by Judge Rodolfo R. Bonifacio.
Decision 2 G.R. No. 177783
In August 1981, petitioner Fausto C. Ignacio mortgaged two parcels
of land to Home Savings Bank and Trust Company, the predecessor of
respondent Home Bankers Savings and Trust Company, as security for the
P500,000.00 loan extended to him by said bank. These properties which are
located in Cabuyao, Laguna are covered by Transfer Certificate of Title Nos.
(T-40380) T-8595 and (T-45804) T-8350 containing an area of 83,303
square meters and 120,110 square meters, respectively.4
When petitioner defaulted in the payment of his loan obligation,

respondent bank proceeded to foreclose the real estate mortgage. At the

foreclosure sale held on January 26, 1983, respondent bank was the highest
bidder for the sum of P764,984.67. On February 8, 1983, the Certificate of
Sale issued to respondent bank was registered with the Registry of Deeds of
Calamba, Laguna. With the failure of petitioner to redeem the foreclosed
properties within one year from such registration, title to the properties were
consolidated in favor of respondent bank. Consequently, TCT Nos. T-8595
and T-8350 were cancelled and TCT Nos. 111058 and 111059 were issued
in the name of respondent bank.5
Despite the lapse of the redemption period and consolidation of title in
respondent bank, petitioner offered to repurchase the properties. While the
respondent bank considered petitioners offer to repurchase, there was no
repurchase contract executed. The present controversy was fuelled by
petitioners stance that a verbal repurchase/compromise agreement was
actually reached and implemented by the parties.
In the meantime, respondent bank made the following dispositions of
the foreclosed properties already titled in its name:
TCT No. 111059 (Subdivided into six lots with individual titles TCT Nos.
117771, 117772, 117773, 117774, 117775 and 117776)
A. TCT No. 117771 (16,350 sq.ms.) - Sold to Fermin Salvador and
Bella Salvador under Deed of Absolute Sale
4 Records, Vol. 1, pp. 59-70.
5 Supra note 3 at 107-109, 118-119, 255-259.
Decision 3 G.R. No. 177783
dated May 23, 1984 for the price of
P150,000.00
B. TCT No. 11772 (82,569 sq.ms. subdivided into 2 portions
1) Lot 3-B-1 (35,447 sq.ms.) - Sold to Dr. Oscar Remulla and
Natividad Pagtakhan, Dr. Edilberto Torres
and Dra. Rebecca Amores under Deed of
Absolute Sale dated April 17, 1985 for the
price of P150,000.00
2) Lot 3-B-2 covered by separate title TCT No. 124660 (Subdivided
into 3 portions
Lot 3-B-2-A (15,000 sq.ms.) - Sold to Dr. Myrna del Carmen
Reyes under Deed of Absolute Sale dated
March 23, 1987 for the price of P150,000.00
Lot 3-B-2-B (15,000 sq.ms.) - Sold to Dr. Rodito Boquiren under
Deed of Absolute Sale dated March 23, 1987
for the price of P150,000.00
Lot 3-B-2-C (17,122 sq.ms.) covered by TCT No. T-154568 C. TCT No.117773 (17,232 sq.ms.) - Sold to Rizalina Pedrosa under
Deed of Absolute Sale dated June 4, 1984 for
the price of P150,000.00
The expenses for the subdivision of lots covered by TCT No. 111059
and TCT No. 117772 were shouldered by petitioner who likewise negotiated
the above-mentioned sale transactions. The properties covered by TCT Nos.
T-117774 to 117776 are still registered in the name of respondent bank.6
In a letter addressed to respondent bank dated July 25, 1989,
petitioner expressed his willingness to pay the amount of P600,000.00 in
full, as balance of the repurchase price, and requested respondent bank to

release to him the remaining parcels of land covered by TCT Nos. 111058
and T-154658 (subject properties).7 Respondent bank however, turned
down his request. This prompted petitioner to cause the annotation of an
adverse claim on the said titles on September 18, 1989.8
Prior to the annotation of the adverse claim, on August 24, 1989, the
property covered by TCT No. 154658 was sold by respondent bank to
6 Id. at 98-101 (Joint Stipulation of Facts), 118-127, 260-277.
7 Supra note 4 at 85.
8 Id. at 86.
Decision 4 G.R. No. 177783
respondent spouses Phillip and Thelma Rodriguez, without informing the
petitioner. On October 6, 1989, again without petitioners knowledge,
respondent bank sold the property covered by TCT No T-111058 to
respondents Phillip and Thelma Rodriguez, Catherine M. Zuiga, Reynold
M. Zuiga and Jeannette M. Zuiga.9
On December 27, 1989, petitioner filed an action for specific
performance and damages in the RTC against the respondent bank. As
principal relief, petitioner sought in his original complaint the reconveyance
of the subject properties after his payment of P600,000.00.10 Respondent
bank filed its Answer denying the allegations of petitioner and asserting that
it was merely exercising its right as owner of the subject properties when the
same were sold to third parties.
For failure of respondent bank to appear during the pre-trial
conference, it was declared as in default and petitioner was allowed to
present his evidence ex parte on the same date (September 3, 1990).
Petitioner simultaneously filed an Ex-Parte Consignation tendering the
amount of P235,000.00 as balance of the repurchase price.11 On September
7, 1990, the trial court rendered judgment in favor of petitioner. Said
decision, as well as the order of default, were subsequently set aside by the
trial court upon the filing of a motion for reconsideration by the respondent
bank.12
In its Order dated November 19, 1990, the trial court granted the
motion for intervention filed by respondents Phillip and Thelma Rodriguez,
Catherine Zuiga, Reynold Zuiga and Jeannette Zuiga. Said intervenors
asserted their status as innocent purchasers for value who had no notice or
knowledge of the claim or interest of petitioner when they bought the
properties already registered in the name of respondent bank. Aside from a
counterclaim for damages against the petitioner, intervenors also prayed that
9 Supra note 3 at 110-112, 115-117,143-145.
10 Supra note 4 at 6.
11 Id. at 56-57.
12 Id. at 98-105.
Decision 5 G.R. No. 177783
in the event respondent bank is ordered to reconvey the properties,
respondent bank should be adjudged liable to the intervenors and return all
amounts paid to it.13
On July 8, 1991, petitioner amended his complaint to include as
alternative relief under the prayer for reconveyance the payment by
respondent bank of the prevailing market value of the subject properties
less whatever remaining obligation due the bank by reason of the mortgage
under the terms of the compromise agreement.14

On June 15, 1999, the trial court rendered its Decision, the dispositive
portion of which reads:
WHEREFORE, findings [sic] the facts aver[r]ed in the complaint
supported by preponderance of evidences adduced, judgment is hereby
rendered in favor of the plaintiff and against the defendant and intervenors
by:
1. Declaring the two Deeds of Sale executed by the defendant in
favor of the intervenors as null and void and the Register of
Deeds in Calamba, Laguna is ordered to cancel and/or annul
the two Transfer Certificate of Titles No. T-154658 and TCT
No. T-111058 issued to the intervenors.
2. Ordering the defendant to refund the amount of P1,004,250.00
to the intervenors as the consideration of the sale of the two
properties.
3. Ordering the defendant to execute the appropriate Deed of
Reconveyance of the two (2) properties in favor of the plaintiff
after the plaintiff pays in full the amount of P600,000.00 as
balance of the [re]purchase price.
4. Ordering the defendant bank to pay plaintiff the sum of
P50,000.00 as attorneys fees
5. Dismissing the counterclaim of the defendant and intervenors
against the plaintiff.
Costs against the defendant.
SO ORDERED.15
13 Id. at 130 -137, 144.
14 Id. at 225-232, 236.
15 Supra note 3 at 415-416.
Decision 6 G.R. No. 177783
The trial court found that respondent bank deliberately disregarded
petitioners substantial payments on the total repurchase consideration.
Reference was made to the letter dated March 22, 1984 (Exhibit I)16 as the
authority for petitioner in making the installment payments directly to the
Universal Properties, Inc. (UPI), respondent banks collecting agent. Said
court concluded that the compromise agreement amounts to a valid contract
of sale between petitioner, as Buyer, and respondent bank, as Seller. Hence,
in entertaining other buyers for the same properties already sold to petitioner
with intention to increase its revenues, respondent bank acted in bad faith
and is thus liable for damages to the petitioner. Intervenors were likewise
found liable for damages as they failed to exercise due diligence before
buying the subject properties.
Respondent bank appealed to the CA which reversed the trial courts
ruling, as follows:
WHEREFORE, the foregoing premises considered, the instant
appeal is hereby GRANTED. Accordingly, the assailed decision is hereby
REVERSED and SET ASIDE.
SO ORDERED.17
The CA held that by modifying the terms of the offer contained in the
March 22, 1984 letter of respondent bank, petitioner effectively rejected the
original offer with his counter-offer. There was also no written conformity
by respondent banks officers to the amended conditions for repurchase
which were unilaterally inserted by petitioner. Consequently, no contract of

repurchase was perfected and respondent bank acted well within its rights
when it sold the subject properties to herein respondents-intervenors.
As to the receipts presented by petitioner allegedly proving the
installment payments he had completed, the CA said that these were not
payments of the repurchase price but were actually remittances of the
16 Supra note 4 at 70.
17 Rollo, p. 70.
Decision 7 G.R. No. 177783
payments made by petitioners buyers for the purchase of the foreclosed
properties already titled in the name of respondent bank. It was noted that
two of these receipts (Exhibits K and K-1)18 were issued to Fermin
Salvador and Rizalina Pedrosa, the vendees of two subdivided lots under
separate Deeds of Absolute Sale executed in their favor by the respondent
bank. In view of the attendant circumstances, the CA concluded that
petitioner acted merely as a broker or middleman in the sales transactions
involving the foreclosed properties. Lastly, the respondents-intervenors
were found to be purchasers who bought the properties in good faith without
notice of petitioners interest or claim. Nonetheless, since there was no
repurchase contract perfected, the sale of the subject properties to
respondents-intervenors remains valid and binding, and the issue of whether
the latter were innocent purchasers for value would be of no consequence.
Petitioners motion for reconsideration was likewise denied by the
appellate court.
Hence, this petition alleging that:
A.
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE
ABUSE OF DISCRETION IN REVERSING THE FINDING OF THE
TRIAL COURT THAT THERE WAS A PERFECTED CONTRACT TO
REPURCHASE BETWEEN PETITIONER AND RESPONDENTBANK.
B.
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE
ABUSE OF DISCRETION IN REVERSING THE FINDING OF THE
TRIAL COURT THAT PETITIONER DID NOT ACT AS BROKER IN
THE SALE OF THE FORECLOSED PROPERTIES AND THUS
FAILED TO CONSIDER THE EXISTENCE OF OFFICIAL RECEIPTS
ISSUED IN THE NAME OF THE PETITIONER THAT ARE DULY
NOTED FOR HIS ACCOUNT.
C.
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE
ABUSE OF DISCRETION IN REVERSING THE FINDING OF THE
18 Supra note 3 at 52.
Decision 8 G.R. No. 177783
TRIAL COURT THAT RESPONDENT-BANK DID NOT HAVE THE
RIGHT TO DISPOSE THE SUBJECT PROPERTIES.
D.
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE
ABUSE OF DISCRETION IN REVERSING THE FINDING OF THE
TRIAL COURT THAT RESPONDENTS-INTERVENORS ARE NOT
INNOCENT PURCHASERS FOR VALUE IN GOOD FAITH.19
It is to be noted that the above issues raised by petitioner alleged grave
abuse of discretion committed by the CA, which is proper in a petition for

certiorari under Rule 65 of the 1997 Rules of Civil Procedure, as amended,

but not in the present petition for review on certiorari under Rule 45.
The core issue for resolution is whether a contract for the repurchase
of the foreclosed properties was perfected between petitioner and respondent
bank.
The Court sustains the decision of the CA.
Contracts are perfected by mere consent, which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which
are to constitute the contract.20 The requisite acceptance of the offer is
expressed in Article 1319 of the Civil Code which states:
ART. 1319. Consent 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. A
qualified acceptance constitutes a counter-offer.
In Palattao v. Court of Appeals,21 this Court held that if the
acceptance of the offer was not absolute, such acceptance is insufficient to
generate consent that would perfect a contract. Thus:
Contracts that are consensual in nature, like a contract of sale, are
perfected upon mere meeting of the minds. Once there is concurrence
between the offer and the acceptance upon the subject matter,
consideration, and terms of payment, a contract is produced. The offer
19 Rollo, p. 23.
20 Swedish Match, AB v. Court of Appeals, G.R. No. 128120, October 20, 2004, 441 SCRA
1, 18, citing
Gomez v. Court of Appeals, G.R. No. 120747, September 21, 2000, 340 SCRA 720.
21 G.R. No. 131726, May 7, 2002, 381 SCRA 681.
Decision 9 G.R. No. 177783
must be certain. To convert the offer into a contract, the acceptance must
be absolute and must not qualify the terms of the offer; it must be plain,
unequivocal, unconditional, and without variance of any sort from the
proposal. A qualified acceptance, or one that involves a new proposal,
constitutes a counter-offer and is a rejection of the original offer.
Consequently, when something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to generate consent
because any modification or variation from the terms of the offer annuls
the offer.22
The acceptance must be identical in all respects with that of the offer
so as to produce consent or meeting of the minds.23 Where a party sets a
different purchase price than the amount of the offer, such acceptance was
qualified which can be at most considered as a counter-offer; a perfected
contract would have arisen only if the other party had accepted this counteroffer.
24 In Villanueva v. Philippine National Bank25 this Court further
elucidated on the meaning of unqualified acceptance, as follows:
While it is impossible to expect the acceptance to echo every
nuance of the offer, it is imperative that it assents to those points in the
offer which, under the operative facts of each contract, are not only
material but motivating as well. Anything short of that level of mutuality
produces not a contract but a mere counter-offer awaiting acceptance.
More particularly on the matter of the consideration of the contract,
the offer and its acceptance must be unanimous both on the rate of the
payment and on its term. An acceptance of an offer which agrees to the

rate but varies the term is ineffective. 26 (Emphasis supplied)

Petitioner submitted as evidence of a perfected contract of repurchase
the March 22, 1984 letter (Exhibit I)27 from Rita B. Manuel, then
President of UPI, a corporation formed by respondent bank to dispose of its
acquired assets, with notations handwritten by petitioner himself. Said
letter reads:
March 22, 1984
Honorable Judge Fausto Ignacio
412 Bagumbayan Street, Pateros
Metro Manila
22 Id. at 691.
23 Manila Metal Container Corporation v. Philippine National Bank, G.R. No. 166862,
December 20,
2006, 511 SCRA 444, 466.
24 Id. at 468.
25 G.R. No. 154493, December 6, 2006, 510 SCRA 275.
26 Id. at 281-282 , citing Swedish Match, AB v. Court of Appeals, Supra note 20 at 19 and
Marnelego v.
Banco Filipino Savings and Mortgage Bank, G.R. No. 161524, January 27, 2006, 480 SCRA
399, 408.
27 Supra note 16.
Decision 10 G.R. No. 177783
Dear Judge Ignacio:
Your proposal to repurchase your foreclosed properties located at
Cabuyao, Laguna consisting of a total area of 203,413 square meters has
been favorably considered subject to the following terms and conditions:
1) Total Selling Price shall be P950,000.00
2) Downpayment of P150,00000 with the balance
Payable in Three (3) equal installments
as follows:
1st Installment P 266,667 - on or before May 31, 84
2nd Installment P 266,667 on or before Sept. 31, 84
3rd Installment P 266,666 - on or before Jan. 30, 85
TOTAL - P 800,000.00
3) All expenses pertinent to the subdivision of the parcel of land
consisting of 120,110 square meters shall be for your account.
Thank you,
Very truly yours,
RITA B. MANUEL
President
According to petitioner, he wrote the notations in the presence of a
certain Mr. Lazaro, the representative of Mrs. Manuel (President), and a
certain Mr. Fajardo, which notations supposedly represent their
compromise agreement.28 These notations indicate that the repurchase
price would be P900,000.00 which shall be paid as follows: P150,000 end
of May 84; P150,000 end of June 84; Balance Depending on financial
position. Petitioner further alleged the following conditions of the verbal
agreement: (1) respondent bank shall release the equivalent land area for
payments made by petitioner who shall shoulder the expenses for
subdivision of the land; (2) in case any portion of the subdivided land is
sold by petitioner, a separate document of sale would be executed directly to

the buyer; (3) the remaining portion of the properties shall not be subject of
respondent banks transaction without the consent and authority of
28 TSN, February 19, 1993, pp. 22-23.
Decision 11 G.R. No. 177783
petitioner; (4) the petitioner shall continue in possession of the properties
and whatever portion still remaining, and attending to the needs of its
tenants; and (5) payments shall be made directly to UPI.29
The foregoing clearly shows that petitioners acceptance of the
respondent banks terms and conditions for the repurchase of the foreclosed
properties was not absolute. Petitioner set a different repurchase price and
also modified the terms of payment, which even contained a unilateral
condition for payment of the balance (P600,000), that is, depending on
petitioners financial position. The CA thus considered the qualified
acceptance by petitioner as a counter-proposal which must be accepted by
respondent bank. However, there was no evidence of any document or
writing showing the conformity of respondent banks officers to this
counter-proposal.
Petitioner contends that the receipts issued by UPI on his installment
payments are concrete proof -- despite denials to the contrary by respondent
bank -- that there was an implied acceptance of his counter-proposal and
that he did not merely act as a broker for the sale of the subdivided portions
of the foreclosed properties to third parties. Since all these receipts, except
for two receipts issued in the name of Fermin Salvador and Rizalina
Pedrosa, were issued in the name of petitioner instead of the buyers
themselves, petitioner emphasizes that the payments were made for his
account. Moreover, petitioner asserts that the execution of the separate
deeds of sale directly to the buyers was in pursuance of the perfected
repurchase agreement with respondent bank, such an arrangement being an
accepted practice to save on taxes and shortcut paper works.
The Court is unconvinced.
In Adelfa Properties, Inc. v. CA,30 the Court ruled that:
29 Amended Complaint, supra note 4 at 227.
30 310 Phil. 623 (1995).
Decision 12 G.R. No. 177783
x x x 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.31
Even assuming that the bank officer or employee whom petitioner
claimed he had talked to regarding the March 22, 1984 letter had acceded to
his own modified terms for the repurchase, their supposed verbal exchange
did not bind respondent bank in view of its corporate nature. There was no
evidence that said Mr. Lazaro or Mr. Fajardo was authorized by respondent
banks Board of Directors to accept petitioners counter-proposal to
repurchase the foreclosed properties at the price and terms other than those
communicated in the March 22, 1984 letter. As this Court ruled in AF Realty
& Development, Inc. v. Dieselman Freight Services, Co.32

Section 23 of the Corporation Code expressly provides that the

corporate powers of all corporations shall be exercised by the board of
directors. Just as a natural person may authorize another to do certain acts
in his behalf, so may the board of directors of a corporation validly
delegate some of its functions to individual officers or agents appointed by
it. Thus, contracts or acts of a corporation must be made either by the
board of directors or by a corporate agent duly authorized by the board.
Absent such valid delegation/authorization, the rule is that the declarations
of an individual director relating to the affairs of the corporation, but not
in the course of, or connected with, the performance of authorized duties
of such director, are held not binding on the corporation.33
Thus, a corporation can only execute its powers and transact its
business through its Board of Directors and through its officers and agents
when authorized by a board resolution or its by-laws.34
In the absence of conformity or acceptance by properly authorized
bank officers of petitioners counter-proposal, no perfected repurchase
contract was born out of the talks or negotiations between petitioner and Mr.
31 Id. at 642.
32 424 Phil. 446 (2002).
33 Id. at 454.
34 Manila Metal Container Corporation v. Philippine National Bank, supra note 23 at 467468, citing
Firme v. Bukal Enterprises and Development Corporation, G.R. No. 146608, October 23,
2003, 414
SCRA 190.
Decision 13 G.R. No. 177783
Lazaro and Mr. Fajardo. Petitioner therefore had no legal right to compel
respondent bank to accept the P600,000 being tendered by him as payment
for the supposed balance of repurchase price.
A contract of sale is consensual in nature and is perfected upon mere
meeting of the minds. When there is merely an offer by one party without
acceptance of the other, there is no contract.35 When the contract of sale is
not perfected, it cannot, as an independent source of obligation, serve as a
binding juridical relation between the parties.36
In sum, we find the ruling of the CA more in accord with the
established facts and applicable law and jurisprudence. Petitioners claim of
utmost accommodation by respondent bank of his own terms for the
repurchase of his foreclosed properties are simply contrary to normal
business practice. As aptly observed by the appellate court:
The submission of the plaintiff-appellee is unimpressive.
First, if the counter-proposal was mutually agreed upon by both the
plaintiff-appellee and defendant-appellant, how come not a single
signature of the representative of the defendant-appellant was affixed
thereto. Second, it is inconceivable that an agreement of such great
importance, involving two personalities who are both aware and familiar
of the practical and legal necessity of reducing agreements into writing,
the plaintiff-appellee, being a lawyer and the defendant-appellant, a
banking institution, not to formalize their repurchase agreement. Third, it
is quite absurd and unusual that the defendant-appellant could have
acceded to the condition that the balance of the payment of the repurchase
price would depend upon the financial position of the plaintiff-appellee.

Such open[-]ended and indefinite period for payment is hardly acceptable

to a banking institution like the defendant-appellant whose core existence
fundamentally depends upon its financial arrangements and transactions
which, most, if not all the times are intended to bear favorable outcome to
its business. Last, had there been a repurchase agreement, then, there
should have been titles or deeds of conveyance issued in favor of the
plaintiff-appellee. But as it turned out, the plaintiff-appellee never had
any land deeded or titled in his name as a result of the alleged repurchase
agreement. All these, reinforce the conclusion that the counter-proposal
was unilaterally made and inserted by the plaintiff-appellee in Exhibit I
and could not have been accepted by the defendant-appellant, and that a
different agreement other than a repurchase agreement was perfected
between them.37
35 Id. at 464.
36 Id. citing Boston Bank of the Philippines v. Manalo, G.R. No. 158149, February 9, 2006,
482 SCRA
108, 129.
37 Rollo, pp. 66-67.
"
Decision 14 G.R. No. 177783
Petitioner Fausto C. Ignacio passed away on November 11, 2008 and
was substituted by his heirs, namely: Marfel D. Ignacio-Manalo, Milfa D.
Ignacio-Manalo and Faustino D. Ignacio.
WHEREFORE, the petition for review on certiorari is DENIED.
The Decision dated July 18, 2006 and Resolution dated May 2, 2007 of the
Court of Appeals in CA-G.R. CV No. 73551 are hereby AFFIRMED.
With costs against the petitioners.
SO ORDERED.
WE CONCUR:
MARIA LOURDES 2. A. SERENQ
Chief Justice
Ch.1irpersun
ANTONIO T. CA
Associate Justice
~~d!v~
TERESITAJ. LEONARDO-DE CASTRO
Associate Tustice
'f L I
f;~
AMIN
Decision 15 G.R. No. 177783
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that
the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's
Division.
MARIA LOURDES P. A. SERENO
Chief Justice

Republic of the Philippines

Supreme Court
Manila

THIRD Division

HEIRS OF POLICRONIO M. URETA, SR., namely: CONRADO B. URETA, MACARIO B. URETA,

GLORIA URETA-GONZALES, ROMEO B. URETA, RITA URETA-SOLANO, NENA URETATONGCUA, VENANCIO B. URETA, LILIA URETA-TAYCO, and HEIRS OF POLICRONIO B.
URETA, JR., namely: MIGUEL T. URETA, RAMON POLICRONIO T. URETA, EMMANUEL T.
URETA, and BERNADETTE T. URETA,
G.R. No. 165748

Petitioners,

- versus -

HEIRS OF LIBERATO M. URETA, namely: TERESA F. URETA, AMPARO URETA-CASTILLO,

IGNACIO F. URETA, SR., EMIRITO F. URETA, WILKIE F. URETA, LIBERATO F. URETA, JR., RAY F.
URETA, ZALDY F. URETA, and MILA JEAN URETA CIPRIANO;
HEIRS OF PRUDENCIA URETA PARADERO, namely: WILLIAM U. PARADERO, WARLITO U.
PARADERO, CARMENCITA P. PERLAS, CRISTINA P. CORDOVA, EDNA P. GALLARDO, LETICIA
P. REYES; NARCISO M. URETA;
VICENTE M. URETA;

HEIRS OF FRANCISCO M. URETA, namely: EDITA T. URETA-REYES and LOLLIE T. URETAVILLARUEL; ROQUE M. URETA; ADELA URETA-GONZALES; HEIRS OF INOCENCIO M.
URETA, namely: BENILDA V. URETA, ALFONSO V. URETA II, DICK RICARDO V. URETA, and
ENRIQUE V. URETA; MERLINDA U. RIVERA; JORGE URETA; ANDRES URETA, WENEFREDA U.
TARAN; and BENEDICT URETA,

Respondents.

x--------------------------------------------------x
HEIRS OF LIBERATO M. URETA, namely: TERESA F. URETA, AMPARO URETA-CASTILLO,
IGNACIO F. URETA, SR., EMIRITO F. URETA, WILKIE F. URETA, LIBERATO F. URETA, JR., RAY F.
URETA, ZALDY F. URETA, and MILA JEAN URETA CIPRIANO;
HEIRS OF PRUDENCIA URETA PARADERO, namely: WILLIAM U. PARADERO, WARLITO U.
PARADERO, CARMENCITA P. PERLAS, CRISTINA P. CORDOVA, EDNA P. GALLARDO, LETICIA
P. REYES; NARCISO M. URETA;
VICENTE M. URETA;
HEIRS OF FRANCISCO M. URETA, namely: EDITA T. URETA-REYES and LOLLIE T. URETAVILLARUEL; ROQUE M. URETA; ADELA URETA-GONZALES; HEIRS OF INOCENCIO M.
URETA, namely: BENILDA V. URETA, ALFONSO V. URETA II, DICK RICARDO V. URETA, and
ENRIQUE V. URETA; MERLINDA U. RIVERA; JORGE URETA; ANDRES URETA, WENEFREDA U.
TARAN; and BENEDICT URETA,
G.R. No. 165930
Petitioners,

- versus

HEIRS OF POLICRONIO M. URETA, SR., namely: CONRADO B. URETA, MACARIO B. URETA,

GLORIA URETA-GONZALES, ROMEO B. URETA, RITA URETA-SOLANO, NENA URETATONGCUA, VENANCIO B. URETA, LILIA URETA-TAYCO, and HEIRS OF POLICRONIO B.

URETA, JR., namely: MIGUEL T. URETA, RAMON POLICRONIO T. URETA, EMMANUEL T.

URETA, and BERNADETTE T. URETA,
Present:

VELASCO, JR., J., Chairperson,

PERALTA,
ABAD,
MENDOZA, and
SERENO,* JJ.

Promulgated:
Respondents.
September 14, 2011

x--------------------------------------------------x
DECISION

MENDOZA, J.:

These consolidated petitions for review on certiorari under Rule 45 of the 1997 Revised
Rules of Civil Procedure assail the April 20, 2004 Decision[1] of the Court of Appeals (CA),
and its October 14, 2004 Resolution[2] in C.A.-G.R. CV No. 71399, which affirmed with

modification the April 26, 2001 Decision[3] of the Regional Trial Court, Branch 9, Kalibo,
Aklan (RTC) in Civil Case No. 5026.

The Facts

In his lifetime, Alfonso Ureta (Alfonso) begot 14 children, namely, Policronio,

Liberato, Narciso, Prudencia, Vicente, Francisco, Inocensio, Roque, Adela, Wenefreda,
Merlinda, Benedicto, Jorge, and Andres. The children of Policronio (Heirs of Policronio),
are opposed to the rest of Alfonsos children and their descendants (Heirs of Alfonso).

Alfonso was financially well-off during his lifetime. He owned several fishpens, a
fishpond, a sari-sari store, a passenger jeep, and was engaged in the buying and selling
of copra. Policronio, the eldest, was the only child of Alfonso who failed to finish
schooling and instead worked on his fathers lands.

Sometime in October 1969, Alfonso and four of his children, namely, Policronio,
Liberato, Prudencia, and Francisco, met at the house of Liberato. Francisco, who was
then a municipal judge, suggested that in order to reduce the inheritance taxes, their
father should make it appear that he had sold some of his lands to his children.
Accordingly, Alfonso executed four (4) Deeds of Sale covering several parcels of land in
favor of Policronio,[4] Liberato,[5] Prudencia,[6] and his common-law wife, Valeriana Dela
Cruz.[7] The Deed of Sale executed on October 25, 1969, in favor of Policronio, covered
six parcels of land, which are the properties in dispute in this case.

Since the sales were only made for taxation purposes and no monetary
consideration was given, Alfonso continued to own, possess and enjoy the lands and
their produce.

When Alfonso died on October 11, 1972, Liberato acted as the administrator of his
fathers estate. He was later succeeded by his sister Prudencia, and then by her
daughter, Carmencita Perlas. Except for a portion of parcel 5, the rest of the parcels
transferred to Policronio were tenanted by the Fernandez Family. These tenants never
turned over the produce of the lands to Policronio or any of his heirs, but to Alfonso and,
later, to the administrators of his estate.

Policronio died on November 22, 1974. Except for the said portion of parcel 5, neither
Policronio nor his heirs ever took possession of the subject lands.

On April 19, 1989, Alfonsos heirs executed a Deed of Extra-Judicial Partition,[8] which
included all the lands that were covered by the four (4) deeds of sale that were
previously executed by Alfonso for taxation purposes. Conrado, Policronios eldest son,
representing the Heirs of Policronio, signed the Deed of Extra-Judicial Partition in behalf
of his co-heirs.

After their fathers death, the Heirs of Policronio found tax declarations in his name
covering the six parcels of land. On June 15, 1995, they obtained a copy of the Deed of
Sale executed on October 25, 1969 by Alfonso in favor of Policronio.

Not long after, on July 30, 1995, the Heirs of Policronio allegedly learned about the
Deed of Extra-Judicial Partition involving Alfonsos estate when it was published in the
July 19, 1995 issue of the Aklan Reporter.

Believing that the six parcels of land belonged to their late father, and as such, excluded
from the Deed of Extra-Judicial Partition, the Heirs of Policronio sought to amicably settle
the matter with the Heirs of Alfonso. Earnest efforts proving futile, the Heirs of Policronio
filed a Complaint for Declaration of Ownership, Recovery of Possession, Annulment of
Documents, Partition, and Damages[9] against the Heirs of Alfonso before the RTC on
November 17, 1995 where the following issues were submitted: (1) whether or not the
Deed of Sale was valid; (2) whether or not the Deed of Extra-Judicial Partition was valid;
and (3) who between the parties was entitled to damages.

The Ruling of the RTC

On April 26, 2001, the RTC dismissed the Complaint of the Heirs of Policronio and
ruled in favor of the Heirs of Alfonso in a decision, the dispositive portion of which reads:

WHEREFORE, the Court finds that the preponderance of evidence tilts in favor of the
defendants, hence the instant case is hereby DISMISSED.

The counterclaims are likewise DISMISSED.

With costs against plaintiffs.

SO ORDERED.

The RTC found that the Heirs of Alfonso clearly established that the Deed of Sale was null
and void. It held that the Heirs of Policronio failed to rebut the evidence of the Heirs of
Alfonso, which proved that the Deed of Sale in the possession of the former was one of
the four (4) Deeds of Sale executed by Alfonso in favor of his 3 children and second wife
for taxation purposes; that although tax declarations were issued in the name of
Policronio, he or his heirs never took possession of the subject lands except a portion of
parcel 5; and that all the produce were turned over by the tenants to Alfonso and the
administrators of his estate and never to Policronio or his heirs.

The RTC further found that there was no money involved in the sale. Even granting that
there was, as claimed by the Heirs of Policronio, 2,000.00 for six parcels of land, the
amount was grossly inadequate. It was also noted that the aggregate area of the subject
lands was more than double the average share adjudicated to each of the other children
in the Deed of Extra-Judicial Partition; that the siblings of Policronio were the ones who
shared in the produce of the land; and that the Heirs of Policronio only paid real estate
taxes in 1996 and 1997. The RTC opined that Policronio must have been aware that the
transfer was merely for taxation purposes because he did not subsequently take
possession of the properties even after the death of his father.

The Deed of Extra-Judicial Partition, on the other hand, was declared valid by the RTC as
all the heirs of Alfonso were represented and received equal shares and all the
requirements of a valid extra-judicial partition were met. The RTC considered Conrados
claim that he did not understand the full significance of his signature when he signed in
behalf of his co-heirs, as a gratutitous assertion. The RTC was of the view that when he
admitted to have signed all the pages and personally appeared before the notary public,
he was presumed to have understood their contents.

Lastly, neither party was entitled to damages. The Heirs of Alfonso failed to present
testimony to serve as factual basis for moral
damages, no document was
presented to prove actual damages, and the Heirs of Policronio were found to have filed
the case in good faith.

The Ruling of the CA

Aggrieved, the Heirs of Policronio appealed before the CA, which rendered a decision on
April 20, 2004, the dispositive portion of which reads as follows:

WHEREFORE, the appeal is PARTIALLY GRANTED. The appealed Decision, dated 26 April
2001, rendered by Hon. Judge Dean R. Telan of the Regional Trial Court of Kalibo, Aklan,
Branch 9, is hereby AFFIRMED with MODIFICATION:

1.) The Deed of Sale in favor of Policronio Ureta, Sr., dated 25 October 1969, covering six
(6) parcels of land is hereby declared VOID for being ABSOLUTELY SIMULATED;

2.) The Deed of Extra-Judicial Partition, dated 19 April 1989, is ANNULLED;

3.) The claim for actual and exemplary damages are DISMISSED for lack of factual and
legal basis.

The case is hereby REMANDED to the court of origin for the proper partition of ALFONSO
URETAS Estate in accordance with Rule 69 of the 1997 Rules of Civil Procedure. No costs
at this instance.

SO ORDERED.

The CA affirmed the finding of the RTC that the Deed of Sale was void. It found the
Deed of Sale to be absolutely simulated as the parties did not intend to be legally bound
by it. As such, it produced no legal effects and did not alter the juridical situation of the
parties. The CA also noted that Alfonso continued to exercise all the rights of an owner
even after the execution of the Deed of Sale, as it was undisputed that he remained in
possession of the subject parcels of land and enjoyed their produce until his death.

Policronio, on the other hand, never exercised any rights pertaining to an owner over the
subject lands from the time they were sold to him up until his death. He never took or
attempted to take possession of the land even after his fathers death, never demanded
delivery of the produce from the tenants, and never paid realty taxes on the properties.
It was also noted that Policronio never disclosed the existence of the Deed of Sale to his
children, as they were, in fact, surprised to discover its existence. The CA, thus,

concluded that Policronio must have been aware that the transfer was only made for
taxation purposes.

The testimony of Amparo Castillo, as to the circumstances surrounding the actual

arrangement and agreement between the parties prior to the execution of the four (4)
Deeds of Sale, was found by the CA to be unrebutted. The RTCs assessment of the
credibility of her testimony was accorded respect, and the intention of the parties was
given the primary consideration in determining the true nature of the contract.

Contrary to the finding of the RTC though, the CA annulled the Deed of Extra-Judicial
Partition due to the incapacity of one of the parties to give his consent to the contract. It
held that before Conrado could validly bind his co-heirs to the Deed of Extra-Judicial
Partition, it was necessary that he be clothed with the proper authority. The CA ruled that
a special power of attorney was required under Article 1878 (5) and (15) of the Civil
Code. Without a special power of attorney, it was held that Conrado lacked the legal
capactiy to give the consent of his co-heirs, thus, rendering the Deed of Extra-Judicial
Partition voidable under Article 1390 (1) of the Civil Code.

As a consequence, the CA ordered the remand of the case to the RTC for the
proper partition of the estate, with the option that the parties may still voluntarily effect
the partition by executing another agreement or by adopting the assailed Deed of
Partition with the RTCs approval in either case. Otherwise, the RTC may proceed with the
compulsory partition of the estate in accordance with the Rules.

With regard to the claim for damages, the CA agreed with the RTC and dismissed the
claim for actual and compensatory damages for lack of factual and legal basis.

Both parties filed their respective Motions for Reconsideration, which were denied by the
CA for lack of merit in a Resolution dated October 14, 2004.

In their Motion for Reconsideration, the Heirs of Policronio argued that the RTC
violated the best evidence rule in giving credence to the testimony of Amparo Castillo
with regard to the simulation of the Deed of Sale, and that prescription had set in
precluding any question on the validity of the contract.

The CA held that the oral testimony was admissible under Rule 130, Section 9 (b) and
(c), which provides that evidence aliunde may be allowed to explain the terms of the
written agreement if the same failed to express the true intent and agreement of the

parties thereto, or when the validity of the written agreement was put in issue.
Furthermore, the CA found that the Heirs of Policronio waived their right to object to
evidence aliunde having failed to do so during trial and for raising such only for the first
time on appeal. With regard to prescription, the CA ruled that the action or defense for
the declaration of the inexistence of a contract did not prescribe under Article 1410 of
the Civil Code.

On the other hand, the Heirs of Alfonso argued that the Deed of Extra-Judicial Partition
should not have been annulled, and instead the preterited heirs should be given their
share. The CA reiterated that Conrados lack of capacity to give his co-heirs consent to
the extra-judicial settlement rendered the same voidable.

Hence, the present Petitions for Review on Certiorari.

The Issues

The issues presented for resolution by the Heirs of Policronio in G.R. No. 165748 are as
follows:
I.

Whether the Court of Appeals is correct in ruling that the Deed of Absolute Sale of 25
October 1969 is void for being absolutely fictitious and in relation therewith, may parol
evidence be entertained to thwart its binding effect after the parties have both died?

Assuming that indeed the said document is simulated, whether or not the parties thereto
including their successors in interest are estopped to question its validity, they being
bound by Articles 1412 and 1421 of the Civil Code?

II.

Whether prescription applies to bar any question respecting the validity of the Deed of
Absolute Sale dated 25 October 1969? Whether prescription applies to bar any collateral
attack on the validity of the deed of absolute sale executed 21 years earlier?

III.

Whether the Court of Appeals correctly ruled in nullifying the Deed of Extrajudicial
Partition because Conrado Ureta signed the same without the written authority from his
siblings in contravention of Article 1878 in relation to Article 1390 of the Civil Code and
in relation therewith, whether the defense of ratification and/or preterition raised for the
first time on appeal may be entertained?
The issues presented for resolution by the Heirs of Alfonso in G.R. No. 165930 are as
follows:

I.

Whether or not grave error was committed by the Trial Court and Court of Appeals in
declaring the Deed of Sale of subject properties as absolutely simulated and null and
void thru parol evidence based on their factual findings as to its fictitious nature, and
there being waiver of any objection based on violation of the parol evidence rule.

II.

Whether or not the Court of Appeals was correct in holding that Conrado Uretas lack of
capacity to give his co-heirs consent to the Extra-Judicial Partition rendered the same
voidable.

III.

Granting arguendo that Conrado Ureta was not authorized to represent his co-heirs and
there was no ratification, whether or not the Court of Appeals was correct in ordering the
remand of the case to the Regional Trial Court for partition of the estate of Alfonso Ureta.

IV.

Since the sale in favor of Policronio Ureta Sr. was null and void ab initio, the properties
covered therein formed part of the estate of the late Alfonso Ureta and was correctly
included in the Deed of Extrajudicial Partition even if no prior action for nullification of
the sale was filed by the heirs of Liberato Ureta.

V.

Whether or not the heirs of Policronio Ureta Sr. can claim that estoppel based on Article
1412 of the Civil Code as well as the issue of prescription can still be raised on appeal.
These various contentions revolve around two major issues, to wit: (1) whether the Deed
of Sale is valid, and (2) whether the Deed of Extra-Judicial Partition is valid. Thus, the
assigned errors shall be discussed jointly and in seriatim.

The Ruling of the Court

Validity of the Deed of Sale

Two veritable legal presumptions bear on the validity of the Deed of Sale: (1) that there
was sufficient consideration for the contract; and (2) that it was the result of a fair and
regular private transaction. If shown to hold, these presumptions infer prima facie the
transactions validity, except that it must yield to the evidence adduced.[10]

As will be discussed below, the evidence overcomes these two presumptions.

Absolute Simulation

First, the Deed of Sale was not the result of a fair and regular private transaction
because it was absolutely simulated.

The Heirs of Policronio argued that the land had been validly sold
to Policronio
as the Deed of Sale contained all the essential elements of a valid contract of sale, by
virtue of which, the subject properties were transferred in his name as evidenced by the
tax declaration. There being no invalidation prior to the execution of the Deed of Extra-

Judicial Partition, the probity and integrity of the Deed of Sale should remain
undiminished and accorded respect as it was a duly notarized public instrument.

The Heirs of Policronio posited that his loyal services to his father and his being the
eldest among Alfonsos children, might have prompted the old man to sell the subject
lands to him at a very low price as an advance inheritance. They explained that
Policronios failure to take possession of the subject lands and to claim their produce
manifests a Filipino family practice wherein a child would take possession and enjoy the
fruits of the land sold by a parent only after the latters death. Policronio simply treated
the lands the same way his father Alfonso treated them - where his children enjoyed
usufructuary rights over the properties, as opposed to appropriating them exclusively to
himself. They contended that Policronios failure to take actual possession of the lands
did not prove that he was not the owner as he was merely exercising his right to dispose
of them. They argue that it was an error on the part of the CA to conclude that ownership
by Policronio was not established by his failure to possess the properties sold. Instead,
emphasis should be made on the fact that the tax declarations, being indicia of
possession, were in Policronios name.

They further argued that the Heirs of Alfonso failed to appreciate that the Deed of Sale
was clear enough to convey the subject parcels of land. Citing jurisprudence, they
contend that there is a presumption that an instrument sets out the true agreement of
the parties thereto and that it was executed for valuable consideration,[11] and where
there is no doubt as to the intention of the parties to a contract, the literal meaning of
the stipulation shall control.[12] Nowhere in the Deed of Sale is it indicated that the
transfer was only for taxation purposes. On the contrary, the document clearly indicates
that the lands were sold. Therefore, they averred that the literal meaning of the
stipulation should control.

The Court disagrees.

The Court finds no cogent reason to deviate from the finding of the CA that the Deed of
Sale is null and void for being absolutely simulated. The Civil Code provides:

Art. 1345. Simulation of a contract may be absolute or relative. The former takes place
when the parties do not intend to be bound at all; the latter, when the parties conceal
their true agreement.

Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation,

when it does not prejudice a third person and is not intended for any purpose contrary to

law, morals, good customs, public order or public policy binds the parties to their real
agreement.

Valerio v. Refresca[13] is instructive on the matter of simulation of contracts:

In absolute simulation, there is a colorable contract but it has no substance as the

parties have no intention to be bound by it. The main characteristic of an absolute
simulation is that the apparent contract is not really desired or intended to produce legal
effect or in any way alter the juridical situation of the parties. As a result, an absolutely
simulated or fictitious contract is void, and the parties may recover from each other what
they may have given under the contract. However, if the parties state a false cause in
the contract to conceal their real agreement, the contract is relatively simulated and the
parties are still bound by their real agreement. Hence, where the essential requisites of a
contract are present and the simulation refers only to the content or terms of the
contract, the agreement is absolutely binding and enforceable between the parties and
their successors in interest.

Lacking, therefore, in an absolutely simulated contract is consent which is essential to a

valid and enforceable contract.[14] Thus, where a person, in order to place his property
beyond the reach of his creditors, simulates a transfer of it to another, he does not really
intend to divest himself of his title and control of the property; hence, the deed of
transfer is but a sham.[15] Similarly, in this case, Alfonso simulated a transfer to
Policronio purely for taxation purposes, without intending to transfer ownership over the
subject lands.

The primary consideration in determining the true nature of a contract is the intention of
the parties. If the words of a contract appear to contravene the evident intention of the
parties, the latter shall prevail. Such intention is determined not only from the express
terms of their agreement, but also from the contemporaneous and subsequent acts of
the parties.[16] The true intention of the parties in this case was sufficiently proven by
the Heirs of Alfonso.

The Heirs of Alfonso established by a preponderance of evidence[17] that the Deed of

Sale was one of the four (4) absolutely simulated Deeds of Sale which involved no actual
monetary consideration, executed by Alfonso in favor of his children, Policronio, Liberato,
and Prudencia, and his second wife, Valeriana, for taxation purposes.

Amparo Castillo, the daughter of Liberato, testified, to wit:

Q:
Now sometime in the year 1969 can you recall if your grandfather and his
children [met] in your house?

A:
Yes sir, that was sometime in October 1969 when they [met] in our house, my
grandfather, my late uncle Policronio Ureta, my late uncle Liberato Ureta, my uncle
Francisco Ureta, and then my auntie Prudencia Ureta they talk[ed] about, that idea came
from my uncle Francisco Ureta to [sell] some parcels of land to his children to lessen the
inheritance tax whatever happened to my grandfather, actually no money involved in
this sale.

Q:
Now you said there was that agreement, verbal agreement. [W]here were you
when this Alfonso Ureta and his children gather[ed] in your house?

A:

I was near them in fact I heard everything they were talking [about]

xxx

Q:
Were there documents of sale executed by Alfonso Ureta in furtherance of their
verbal agreement?

A:

Yes sir.

Q:
To whom in particular did your grandfather Alfonso Ureta execute this deed of
sale without money consideration according to you?

A:

To my uncle Policronio Ureta and to Prudencia Ureta Panadero.

Q:

And who else?

A:

To Valeriana dela Cruz.

Q:

How about your father?

A:

He has.[18]

The other Deeds of Sale executed by Alfonso in favor of his children Prudencia and
Liberato, and second wife Valeriana, all bearing the same date of execution, were duly
presented in evidence by the Heirs of Alfonso, and were uncontested by the Heirs of
Policronio. The lands which were the subject of these Deeds of Sale were in fact included
in the Deed of Extra-Judicial Partition executed by all the heirs of Alfonso, where it was
expressly stipulated:

That the above-named Amparo U. Castillo, Prudencia U. Paradero, Conrado B. Ureta and
Merlinda U. Rivera do hereby recognize and acknowledge as a fact that the properties
presently declared in their respective names or in the names of their respective parents
and are included in the foregoing instrument are actually the properties of the deceased
Alfonso Ureta and were transferred only for the purpose of effective administration and
development and convenience in the payment of taxes and, therefore, all instruments
conveying or affecting the transfer of said properties are null and void from the
beginning.[19]

As found by the CA, Alfonso continued to exercise all the rights of an owner even after
the execution of the Deeds of Sale. It was undisputed that Alfonso remained in
possession of the subject lands and enjoyed their produce until his death. No credence
can be given to the contention of the Heirs of Policrionio that their father did not take
possession of the subject lands or enjoyed the fruits thereof in deference to a Filipino
family practice. Had this been true, Policronio should have taken possession of the
subject lands after his father died. On the contrary, it was admitted that neither
Policronio nor his heirs ever took possession of the subject lands from the time they were
sold to him, and even after the death of both Alfonso and Policronio.

It was also admitted by the Heirs of Policronio that the tenants of the subject lands never
turned over the produce of the properties to Policronio or his heirs but only to Alfonso
and the administrators of his estate. Neither was there a demand for their delivery to
Policronio or his heirs. Neither did Policronio ever pay real estate taxes on the properties,
the only payment on record being those made by his heirs in 1996 and 1997 ten years
after his death. In sum, Policronio never exercised any rights pertaining to an owner over
the subject lands.

The most protuberant index of simulation of contract is the complete absence of an

attempt in any manner on the part of the ostensible buyer to assert rights of ownership
over the subject properties. Policronios failure to take exclusive possession of the
subject properties or, in the alternative, to collect rentals, is contrary to the principle of
ownership. Such failure is a clear badge of simulation that renders the whole transaction
void. [20]

It is further telling that Policronio never disclosed the existence of the Deed of Sale to his
children. This, coupled with Policronios failure to exercise any rights pertaining to an
owner of the subject lands, leads to the conclusion that he was aware that the transfer
was only made for taxation purposes and never intended to bind the parties thereto.

As the above factual circumstances remain unrebutted by the Heirs of Policronio,

the factual findings of the RTC, which were affirmed by the CA, remain binding and
conclusive upon this Court.[21]

It is clear that the parties did not intend to be bound at all, and as such, the Deed of Sale
produced no legal effects and did not alter the juridical situation of the parties. The Deed
of Sale is, therefore, void for being absolutely simulated pursuant to Article 1409 (2) of
the Civil Code which provides:

Art. 1409. The following contracts are inexistent and void from the beginning:

xxx

(2) Those which are absolutely simulated or fictitious;

xxx

For guidance, the following are the most fundamental characteristics of void or inexistent
contracts:

1) As a general rule, they produce no legal effects whatsoever in accordance with the
principle "quod nullum est nullum producit effectum."

2) They are not susceptible of ratification.

3) The right to set up the defense of inexistence or absolute nullity cannot be waived or
renounced.

4) The action or defense for the declaration of their inexistence or absolute nullity is
imprescriptible.

5) The inexistence or absolute nullity of a contract cannot be invoked by a person whose

interests are not directly affected.[22]

Since the Deed of Sale is void, the subject properties were properly included in the Deed
of Extra-Judicial Partition of the estate of Alfonso.

Absence and Inadequacy of Consideration

The second presumption is rebutted by the lack of consideration for the Deed of Sale.

In their Answer,[23] the Heirs of Alfonso initially argued that the Deed of Sale was void
for lack of consideration, and even granting that there was consideration, such was
inadequate. The Heirs of Policronio counter that the defenses of absence or inadequacy
of consideration are not grounds to render a contract void.

The Heirs of Policronio contended that under Article 1470 of the Civil Code, gross
inadequacy of the price does not affect a contract of sale, except as it may indicate a
defect in the consent, or that the parties really intended a donation or some other act or
contract. Citing jurisprudence, they argued that inadequacy of monetary consideration
does not render a conveyance inexistent as liberality may be sufficient cause for a valid
contract, whereas fraud or bad faith may render it either rescissible or voidable, although
valid until annulled.[24] Thus, they argued that if the contract suffers from inadequate

consideration, it remains valid until annulled, and the remedy of rescission calls for
judicial intervention, which remedy the Heirs of Alfonso failed to take.

It is further argued that even granting that the sale of the subject lands for a
consideration of 2,000.00 was inadequate, absent any evidence of the fair market value
of the land at the time of its sale, it cannot be concluded that the price at which it was
sold was inadequate.[25] As there is nothing in the records to show that the Heirs of
Alfonso supplied the true value of the land in 1969, the amount of 2,000.00 must thus
stand as its saleable value.

On this issue, the Court finds for the Heirs of Alfonso.

For lack of consideration, the Deed of Sale is once again found to be void. It states that
Policronio paid, and Alfonso received, the 2,000.00 purchase price on the date of the
signing of the contract:

That I, ALFONSO F. URETA, x x x for and in consideration of the sum of TWO THOUSAND
(2,000.00) PESOS, Philippine Currency, to me in hand paid by POLICRONIO M. URETA, x
x x, do hereby CEDE, TRANSFER, and CONVEY, by way of absolute sale, x x x six (6)
parcels of land x x x.[26] [Emphasis ours]

Although, on its face, the Deed of Sale appears to be supported by valuable

consideration, the RTC found that there was no money involved in the sale.[27] This
finding was affirmed by the CA in ruling that the sale is void for being absolutely
simulated. Considering that there is no cogent reason to deviate from such factual
findings, they are binding on this Court.

It is well-settled in a long line of cases that where a deed of sale states that the
purchase price has been paid but in fact has never been paid, the deed of sale is null and
void for lack of consideration.[28] Thus, although the contract states that the purchase
price of 2,000.00 was paid by Policronio to Alfonso for the subject properties, it has
been proven that such was never in fact paid as there was no money involved. It must,
therefore, follow that the Deed of Sale is void for lack of consideration.

Given that the Deed of Sale is void, it is unnecessary to discuss the issue on the
inadequacy of consideration.

Parol Evidence and Hearsay

The Heirs of Policronio aver that the rules on parol evidence and hearsay were violated
by the CA in ruling that the Deed of Sale was void.

They argued that based on the parol evidence rule, the Heirs of Alfonso and, specifically,
Amparo Castillo, were not in a position to prove the terms outside of the contract
because they were not parties nor successors-in-interest in the Deed of Sale in question.
Thus, it is argued that the testimony of Amparo Castillo violates the parol evidence rule.

Stemming from the presumption that the Heirs of Alfonso were not parties to the
contract, it is also argued that the parol evidence rule may not be properly invoked by
either party in the litigation against the other, where at least one of the parties to the
suit is not a party or a privy of a party to the written instrument in question and does not
base a claim on the instrument or assert a right originating in the instrument or the
relation established thereby.[29]

Their arguments are untenable.

The objection against the admission of any evidence must be made at the proper time,
as soon as the grounds therefor become reasonably apparent, and if not so made, it will
be understood to have been waived. In the case of testimonial evidence, the objection
must be made when the objectionable question is asked or after the answer is given if
the objectionable features become apparent only by reason of such answer.[30] In this
case, the Heirs of Policronio failed to timely object to the testimony of Amparo Castillo
and they are, thus, deemed to have waived the benefit of the parol evidence rule.

Granting that the Heirs of Policronio timely objected to the testimony of Amparo Castillo,
their argument would still fail.

Section 9 of Rule 130 of the Rules of Court provides:

Section 9. Evidence of written agreements. When the terms of an agreement have
been reduced to writing, it is considered as containing all the terms agreed upon and

there can be, between the parties and their successors in interest, no evidence of such
terms other than the contents of the written agreement.
However, a party may present evidence to modify, explain or add to the terms of written
agreement if he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;
(b) The failure of the written agreement to express the true intent and agreement of the
parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors in interest
after the execution of the written agreement.
The term "agreement" includes wills.
[Emphasis ours]

Paragraphs (b) and (c) are applicable in the case at bench.

The failure of the Deed of Sale to express the true intent and agreement of the parties
was clearly put in issue in the Answer[31] of the Heirs of Alfonso to the Complaint. It was
alleged that the Deed of Sale was only made to lessen the payment of estate and
inheritance taxes and not meant to transfer ownership. The exception in paragraph (b) is
allowed to enable the court to ascertain the true intent of the parties, and once the
intent is clear, it shall prevail over what the document appears to be on its face.[32] As
the true intent of the parties was duly proven in the present case, it now prevails over
what appears on the Deed of Sale.

The validity of the Deed of Sale was also put in issue in the Answer, and was precisely
one of the issues submitted to the RTC for resolution.[33] The operation of the parol
evidence rule requires the existence of a valid written agreement. It is, thus, not
applicable in a proceeding where the validity of such agreement is the fact in dispute,
such as when a contract may be void for lack of consideration.[34] Considering that the
Deed of Sale has been shown to be void for being absolutely simulated and for lack of
consideration, the Heirs of Alfonso are not precluded from presenting evidence to modify,
explain or add to the terms of the written agreement.

The Heirs of Policronio must be in a state of confusion in arguing that the Heirs of Alfonso
may not question the Deed of Sale for not being parties or successors-in-interest therein
on the basis that the parol evidence rule may not be properly invoked in a proceeding or

litigation where at least one of the parties to the suit is not a party or a privy of a party
to the written instrument in question and does not base a claim on the instrument or
assert a right originating in the instrument or the relation established thereby. If their
argument was to be accepted, then the Heirs of Policronio would themselves be
precluded from invoking the parol evidence rule to exclude the evidence of the Heirs of
Alfonso.

Indeed, the applicability of the parol evidence rule requires that the case be between
parties and their successors-in-interest.[35] In this case, both the Heirs of Alfonso and
the Heirs of Policronio are successors-in-interest of the parties to the Deed of Sale as
they claim rights under Alfonso and Policronio, respectively. The parol evidence rule
excluding evidence aliunde, however, still cannot apply because the present case falls
under two exceptions to the rule, as discussed above.

With respect to hearsay, the Heirs of Policronio contended that the rule on hearsay was
violated when the testimony of Amparo Castillo was given weight in proving that the
subject lands were only sold for taxation purposes as she was a person alien to the
contract. Even granting that they did not object to her testimony during trial, they
argued that it should not have been appreciated by the CA because it had no probative
value whatsoever.[36]

The Court disagrees.

It has indeed been held that hearsay evidence whether objected to or not cannot be
given credence for having no probative value.[37] This principle, however, has been
relaxed in cases where, in addition to the failure to object to the admissibility of the
subject evidence, there were other pieces of evidence presented or there were other
circumstances prevailing to support the fact in issue. In Top-Weld Manufacturing, Inc. v.
ECED S.A.,[38] this Court held:

Hearsay evidence alone may be insufficient to establish a fact in an injunction suit

(Parker v. Furlong, 62 P. 490) but, when no objection is made thereto, it is, like any other
evidence, to be considered and given the importance it deserves. (Smith v. Delaware &
Atlantic Telegraph & Telephone Co., 51 A 464). Although we should warn of the
undesirability of issuing judgments solely on the basis of the affidavits submitted, where
as here, said affidavits are overwhelming, uncontroverted by competent evidence and
not inherently improbable, we are constrained to uphold the allegations of the
respondents regarding the multifarious violations of the contracts made by the
petitioner.

In the case at bench, there were other prevailing circumstances which corroborate the
testimony of Amparo Castillo. First, the other Deeds of Sale which were executed in favor
of Liberato, Prudencia, and Valeriana on the same day as that of Policronios were all
presented in evidence. Second, all the properties subject therein were included in the
Deed of Extra-Judicial Partition of the estate of Alfonso. Third, Policronio, during his
lifetime, never exercised acts of ownership over the subject properties (as he never
demanded or took possession of them, never demanded or received the produce thereof,
and never paid real estate taxes thereon). Fourth, Policronio never informed his children
of the sale.

As the Heirs of Policronio failed to controvert the evidence presented, and to timely
object to the testimony of Amparo Castillo, both the RTC and the CA correctly accorded
probative weight to her testimony.

Prior Action Unnecessary

The Heirs of Policronio averred that the Heirs of Alfonso should have filed an action to
declare the sale void prior to executing the Deed of Extra-Judicial Partition. They argued
that the sale should enjoy the presumption of regularity, and until overturned by a court,
the Heirs of Alfonso had no authority to include the land in the inventory of properties of
Alfonsos estate. By doing so, they arrogated upon themselves the power of invalidating
the Deed of Sale which is exclusively vested in a court of law which, in turn, can rule
only upon the observance of due process. Thus, they contended that prescription, laches,
or estoppel have set in to militate against assailing the validity of the sale.

The Heirs of Policronio are mistaken.

A simulated contract of sale is without any cause or consideration, and is, therefore, null
and void; in such case, no independent action to rescind or annul the contract is
necessary, and it may be treated as non-existent for all purposes.[39] A void or
inexistent contract is one which has no force and effect from the beginning, as if it has
never been entered into, and which cannot be validated either by time or ratification. A
void contract produces no effect whatsoever either against or in favor of anyone; it does
not create, modify or extinguish the juridical relation to which it refers.[40] Therefore, it
was not necessary for the Heirs of Alfonso to first file an action to declare the nullity of
the Deed of Sale prior to executing the Deed of Extra-Judicial Partition.
Personality to Question Sale

The Heirs of Policronio contended that the Heirs of Alfonso are not parties, heirs, or
successors-in-interest under the contemplation of law to clothe them with the personality
to question the Deed of Sale. They argued that under Article 1311 of the Civil Code,
contracts take effect only between the parties, their assigns and heirs. Thus, the genuine
character of a contract which personally binds the parties cannot be put in issue by a
person who is not a party thereto. They posited that the Heirs of Alfonso were not parties
to the contract; neither did they appear to be beneficiaries by way of assignment or
inheritance. Unlike themselves who are direct heirs of Policronio, the Heirs of Alfonso are
not Alfonsos direct heirs. For the Heirs of Alfonso to qualify as parties, under Article 1311
of the Civil Code, they must first prove that they are either heirs or assignees. Being
neither, they have no legal standing to question the Deed of Sale.

They further argued that the sale cannot be assailed for being barred under Article 1421
of the Civil Code which provides that the defense of illegality of a contract is not
available to third persons whose interests are not directly affected.

Again, the Court disagrees.

Article 1311 and Article 1421 of the Civil Code provide:

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, x x x

Art. 1421. The defense of illegality of contracts is not available to third persons whose
interests are not directly affected.

The right to set up the nullity of a void or non-existent contract is not limited to the
parties, as in the case of annullable or voidable contracts; it is extended to third persons
who are directly affected by the contract. Thus, where a contract is absolutely simulated,
even third persons who may be prejudiced thereby may set up its inexistence.[41] The
Heirs of Alfonso are the children of Alfonso, with his deceased children represented by
their children (Alfonsos grandchildren). The Heirs of Alfonso are clearly his heirs and
successors-in-interest and, as such, their interests are directly affected, thereby giving
them the right to question the legality of the Deed of Sale.

Inapplicability of Article 842

The Heirs of Policronio further argued that even assuming that the Heirs of Alfonso have
an interest in the Deed of Sale, they would still be precluded from questioning its validity.
They posited that the Heirs of Alfonso must first prove that the sale of Alfonsos
properties to Policronio substantially diminished their successional rights or that their
legitimes would be unduly prejudiced, considering that under Article 842 of the Civil
Code, one who has compulsory heirs may dispose of his estate provided that he does not
contravene the provisions of the Civil Code with regard to the legitime of said heirs.
Having failed to do so, they argued that the Heirs of Alfonso should be precluded from
questioning the validity of the Deed of Sale.

Still, the Court disagrees.

Article 842 of the Civil Code provides:

Art. 842. One who has no compulsory heirs may dispose by will of all his estate or any
part of it in favor of any person having capacity to succeed.

One who has compulsory heirs may dispose of his estate provided he does not
contravene the provisions of this Code with regard to the legitime of said heirs.

This article refers to the principle of freedom of disposition by will. What is involved in
the case at bench is not a disposition by will but by Deed of Sale. Hence, the Heirs of
Alfonso need not first prove that the disposition substantially diminished their
successional rights or unduly prejudiced their legitimes.

Inapplicability of Article 1412

The Heirs of Policronio contended that even assuming that the contract was simulated,
the Heirs of Alfonso would still be barred from recovering the properties by reason of
Article 1412 of the Civil Code, which provides that if the act in which the unlawful or
forbidden cause does not constitute a criminal offense, and the fault is both on the
contracting parties, neither may recover what he has given by virtue of the contract or
demand the performance of the others undertaking. As the Heirs of Alfonso alleged that
the purpose of the sale was to avoid the payment of inheritance taxes, they cannot take
from the Heirs of Policronio what had been given to their father.

On this point, the Court again disagrees.

Article 1412 of the Civil Code is as follows:

Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute
a criminal offense, the following rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may recover what
he has given by virtue of the contract, or demand the performance of the others
undertaking;

(2) When only one of the contracting parties is at fault, he cannot recover what he has
given by reason of the contract, or ask for the fulfillment of what has been promised him.
The other, who is not at fault, may demand the return of what he has given without any
obligation to comply with his promise.

Article 1412 is not applicable to fictitious or simulated contracts, because they refer to
contracts with an illegal cause or subject-matter.[42] This article presupposes the
existence of a cause, it cannot refer to fictitious or simulated contracts which are in
reality non-existent.[43] As it has been determined that the Deed of Sale is a simulated
contract, the provision cannot apply to it.

Granting that the Deed of Sale was not simulated, the provision would still not apply.
Since the subject properties were included as properties of Alfonso in the Deed of ExtraJudicial Partition, they are covered by corresponding inheritance and estate taxes.
Therefore, tax evasion, if at all present, would not arise, and Article 1412 would again be
inapplicable.

Prescription

From the position that the Deed of Sale is valid and not void, the Heirs of Policronio
argued that any question regarding its validity should have been initiated through
judicial process within 10 years from its notarization in accordance with Article 1144 of
the Civil Code. Since 21 years had already elapsed when the Heirs of Alfonso assailed the
validity of the Deed of Sale in 1996, prescription had set in. Furthermore, since the Heirs

of Alfonso did not seek to nullify the tax declarations of Policronio, they had impliedly
acquiesced and given due recognition to the Heirs of Policronio as the rightful inheritors
and should, thus, be barred from laying claim on the land.

The Heirs of Policronio are mistaken.

Article 1410 of the Civil Code provides:

Art. 1410. The action for the declaration of the inexistence of a contract does not
prescribe.

This is one of the most fundamental characteristics of void or inexistent contracts.[44]

As the Deed of Sale is a void contract, the action for the declaration of its nullity,
even if filed 21 years after its execution, cannot be barred by prescription for it is
imprescriptible. Furthermore, the right to set up the defense of inexistence or absolute
nullity cannot be waived or renounced.[45] Therefore, the Heirs of Alfonso cannot be
precluded from setting up the defense of its inexistence.

Validity of the Deed of Extra-Judicial Partition

The Court now resolves the issue of the validity of the Deed of Extra-Judicial
Partition.

Unenforceability

The Heirs of Alfonso argued that the CA was mistaken in annulling the Deed of
Extra-Judicial Partition due to the incapacity of Conrado to give the consent of his coheirs for lack of a special power of attorney. They contended that what was involved was
not the capacity to give consent in behalf of the co-heirs but the authority to represent
them. They argue that the Deed of Extra-Judicial Partition is not a voidable or an
annullable contract under Article 1390 of the Civil Code, but rather, it is an
unenforceable or, more specifically, an unauthorized contract under Articles 1403 (1) and

1317 of the Civil Code. As such, the Deed of Extra-Judicial Partition should not be
annulled but only be rendered unenforceable against the siblings of Conrado.

They further argued that under Article 1317 of the Civil Code, when the persons
represented without authority have ratified the unauthorized acts, the contract becomes
enforceable and binding. They contended that the Heirs of Policronio ratified the Deed of
Extra-Judicial Partition when Conrado took possession of one of the parcels of land
adjudicated to him and his siblings, and when another parcel was used as collateral for a
loan entered into by some of the Heirs of Policronio. The Deed of Extra-Judicial Partition
having been ratified and its benefits accepted, the same thus became enforceable and
binding upon them.

The Heirs of Alfonso averred that granting arguendo that Conrado was not authorized to
represent his co-heirs and there was no ratification, the CA should not have remanded
the case to the RTC for partition of Alfonsos estate. They argued that the CA should not
have applied the Civil Code general provision on contracts, but the special provisions
dealing with succession and partition. They contended that contrary to the ruling of the
CA, the extra-judicial parition was not an act of strict dominion, as it has been ruled that
partition of inherited land is not a conveyance but a confirmation or ratification of title or
right to the land.[46] Therefore, the law requiring a special power of attorney should not
be applied to partitions.

On the other hand, the Heirs of Policronio insisted that the CA pronouncement on the
invalidity of the Deed of Extra-Judicial Partition should not be disturbed because the
subject properties should not have been included in the estate of Alfonso, and because
Conrado lacked the written authority to represent his siblings. They argued with the CA
in ruling that a special power of attorney was required before Conrado could sign in
behalf of his co-heirs.

The Heirs of Policronio denied that they ratified the Deed of Extra-Judicial Partition. They
claimed that there is nothing on record that establishes that they ratified the partition.
Far from doing so, they precisely questioned its execution by filing a complaint. They
further argued that under Article 1409 (3) of the Civil Code, ratification cannot be
invoked to validate the illegal act of including in the partition those properties which do
not belong to the estate as it provides another mode of acquiring ownership not
sanctioned by law.

Furthermore, the Heirs of Policronio contended that the defenses of unenforceability,

ratification, and preterition are being raised for the first time on appeal by the Heirs of
Alfonso. For having failed to raise them during the trial, the Heirs of Alfonso should be
deemed to have waived their right to do so.

The Court agrees in part with the Heirs of Alfonso.

To begin, although the defenses of unenforceability, ratification and preterition were

raised by the Heirs of Alfonso for the first time on appeal, they are concomitant matters
which may be taken up. As long as the questioned items bear relevance and close
relation to those specifically raised, the interest of justice would dictate that they, too,
must be considered and resolved. The rule that only theories raised in the initial
proceedings may be taken up by a party thereto on appeal should refer to independent,
not concomitant matters, to support or oppose the cause of action.[47]

In the RTC, the Heirs of Policronio alleged that Conrados consent was vitiated by mistake
and undue influence, and that he signed the Deed of Extra-Judicial Partition without the
authority or consent of his co-heirs.

The RTC found that Conrados credibility had faltered, and his claims were rejected by
the RTC as gratuitous assertions. On the basis of such, the RTC ruled that Conrado duly
represented his siblings in the Deed of Extra-Judicial Partition.

On the other hand, the CA annulled the Deed of Extra-Judicial Partition under Article
1390 (1) of the Civil Code, holding that a special power of attorney was lacking as
required under Article 1878 (5) and (15) of the Civil Code. These articles are as follows:

Art. 1878. Special powers of attorney are necessary in the following cases:
xxx

(5) To enter into any contract by which the ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable consideration;
xxx

(15) Any other act of strict dominion.

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

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

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.

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

This Court finds that Article 1878 (5) and (15) is inapplicable to the case at bench. It has
been held in several cases[48] that partition among heirs is not legally deemed a
conveyance of real property resulting in change of ownership. It is not a transfer of
property from one to the other, but rather, it is a confirmation or ratification of title or
right of property that an heir is renouncing in favor of another heir who accepts and
receives the inheritance. It is merely a designation and segregation of that part which
belongs to each heir. The Deed of Extra-Judicial Partition cannot, therefore, be considered
as an act of strict dominion. Hence, a special power of attorney is not necessary.

In fact, as between the parties, even an oral partition by the heirs is valid if no creditors
are affected. The requirement of a written memorandum under the statute of frauds
does not apply to partitions effected by the heirs where no creditors are involved
considering that such transaction is not a conveyance of property resulting in change of
ownership but merely a designation and segregation of that part which belongs to each
heir.[49]

Neither is Article 1390 (1) applicable. Article 1390 (1) contemplates the incapacity of a
party to give consent to a contract. What is involved in the case at bench though is not
Conrados incapacity to give consent to the contract, but rather his lack of authority to
do so. Instead, Articles 1403 (1), 1404, and 1317 of the Civil Code find application to the
circumstances prevailing in this case. They are as follows:

Art. 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no
authority or legal representation, or who has acted beyond his powers;

Art. 1404. Unauthorized contracts are governed by Article 1317 and the principles of
agency in Title X of this Book.

Art. 1317. No one may contract in the name of another without being authorized by the
latter, or unless he has by law a right to represent him.

A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party.

Such was similarly held in the case of Badillo v. Ferrer:

The Deed of Extrajudicial Partition and Sale is not a voidable or an annullable contract
under Article 1390 of the New Civil Code. Article 1390 renders a contract voidable if one
of the parties is incapable of giving consent to the contract or if the contracting partys
consent is vitiated by mistake, violence, intimidation, undue influence or fraud. x x x

The deed of extrajudicial parition and sale is an unenforceable or, more specifically, an
unauthorized contract under Articles 1403(1) and 1317 of the New Civil Code.[50]

Therefore, Conrados failure to obtain authority from his co-heirs to sign the Deed of
Extra-Judicial Partition in their behalf did not result in his incapacity to give consent so as
to render the contract voidable, but rather, it rendered the contract valid but
unenforceable against Conrados co-heirs for having been entered into without their
authority.

A closer review of the evidence on record, however, will show that the Deed of ExtraJudicial Partition is not unenforceable but, in fact, valid, binding and enforceable against
all the Heirs of Policronio for having given their consent to the contract. Their consent to
the Deed of Extra-Judicial Partition has been proven by a preponderance of evidence.

Regarding his alleged vitiated consent due to mistake and undue influence to the Deed
of Extra-Judicial Partition, Conrado testified, to wit:

Q:
Mr. Ureta you remember having signed a document entitled deed of extra judicial
partition consisting of 11 pages and which have previously [been] marked as Exhibit I for
the plaintiffs?

A:

Yes sir.

Q:

Can you recall where did you sign this document?

A:

The way I remember I signed that in our house.

Q:

And who requested or required you to sign this document?

A:

My aunties.

Q:

Who in particular if you can recall?

A:

Nay Pruding Panadero.

Q:
You mean that this document that you signed was brought to your house by your
Auntie Pruding Pa[r]adero [who] requested you to sign that document?

A:
When she first brought that document I did not sign that said document because I
[did] no[t] know the contents of that document.

Q:
How many times did she bring this document to you [until] you finally signed the
document?

A:

Perhaps 3 times.

Q:

Can you tell the court why you finally signed it?

A:
Because the way she explained it to me that the land of my grandfather will be
partitioned.

Q:
When you signed this document were your brothers and sisters who are your coplaintiffs in this case aware of your act to sign this document?

A:

They do not know.

xxx

Q:
After you have signed this document did you inform your brothers and sisters that
you have signed this document?

A:

No I did not. [51]

xxx

Q:
Now you read the document when it was allegedly brought to your house by your
aunt Pruding Pa[r]adero?

A:
I did not read it because as I told her I still want to ask the advise of my brothers
and sisters.

Q:
So do I get from you that you have never read the document itself or any part
thereof?

A:

I have read the heading.

xxx

Q:
And why is it that you did not read all the pages of this document because I
understand that you know also how to read in English?

A:
Because the way Nay Pruding explained to me is that the property of my
grandfather will be partitioned that is why I am so happy.

xxx

Q:
You mean to say that after you signed this deed of extra judicial partition up to
the present you never informed them?

A:
Perhaps they know already that I have signed and they read already the
document and they have read the document.

Q:

My question is different, did you inform them?

A:

The document sir? I did not tell them.

Q:

Even until now?

A:

Until now I did not inform them.[52]

This Court finds no cogent reason to reverse the finding of the RTC that Conrados
explanations were mere gratuitous assertions not entitled to any probative weight. The
RTC found Conrados credibility to have faltered when he testified that perhaps his
siblings were already aware of the Deed of Extra-Judicial Partition. The RTC was in the
best position to judge the credibility of the witness testimony. The CA also recognized
that Conrados consent was not vitiated by mistake and undue influence as it required a
special power of attorney in order to bind his co-heirs and, as such, the CA thereby
recognized that his signature was binding to him but not with respect to his co-heirs.
Findings of fact of the trial court, particularly when affirmed by the CA, are binding to this
Court.[53]

Furthermore, this Court notes other peculiarities in Conrados testimony. Despite claims
of undue influence, there is no indication that Conrado was forced to sign by his aunt,
Prudencia Paradero. In fact, he testified that he was happy to sign because his
grandfathers estate would be partitioned. Conrado, thus, clearly understood the
document he signed. It is also worth noting that despite the document being brought to
him on three separate occasions and indicating his intention to inform his siblings about
it, Conrado failed to do so, and still neglected to inform them even after he had signed
the partition. All these circumstances negate his claim of vitiated consent. Having duly
signed the Deed of Extra-Judicial Partition, Conrado is bound to it. Thus, it is enforceable
against him.

Although Conrados co-heirs claimed that they did not authorize Conrado to sign
the Deed of Extra-Judicial Partition in their behalf, several circumstances militate against
their contention.

First, the Deed of Extra-Judicial Partition was executed on April 19, 1989, and the
Heirs of Policronio claim that they only came to know of its existence on July 30, 1995
through an issue of the Aklan Reporter. It is difficult to believe that Conrado did not
inform his siblings about the Deed of Extra-Judicial Partition or at least broach its subject
with them for more than five years from the time he signed it, especially after indicating
in his testimony that he had intended to do so.

Second, Conrado retained possession of one of the parcels of land adjudicated to him
and his co-heirs in the Deed of Extra-Judicial Partition.

Third, after the execution of the partition on April 19, 1989 and more than a year before
they claimed to have discovered the existence of the Deed of Extra-Judicial Partition on
July 30, 1995, some of the Heirs of Policronio, namely, Rita Solano, Macario Ureta, Lilia
Tayco, and Venancio Ureta executed on June 1, 1994, a Special Power of Attorney[54] in
favor of their sister Gloria Gonzales, authorizing her to obtain a loan from a bank and to
mortgage one of the parcels of land adjudicated to them in the Deed of Extra-Judicial
Partition to secure payment of the loan. They were able to obtain the loan using the land
as collateral, over which a Real Estate Mortgage[55] was constituted. Both the Special
Power of Attorney and the Real Estate Mortgage were presented in evidence in the RTC,
and were not controverted or denied by the Heirs of Policronio.

Fourth, in the letter dated August 15, 1995, sent by the counsel of the Heirs of Policronio
to the Heirs of Alfonso requesting for amicable settlement, there was no mention that
Conrados consent to the Deed of Extra-Judicial Partition was vitiated by mistake and
undue influence or that they had never authorized Conrado to represent them or sign the
document on their behalf. It is questionable for such a pertinent detail to have been
omitted. The body of said letter is reproduced hereunder as follows:

Greetings:

Your nephews and nieces, children of your deceased brother Policronio Ureta, has
referred to me for appropriate legal action the property they inherited from their father
consisting of six (6) parcels of land which is covered by a Deed of Absolute Sale dated
October 25, 1969. These properties ha[ve] already been transferred to the name of their
deceased father immediately after the sale, machine copy of the said Deed of Sale is
hereto attached for your ready reference.

Lately, however, there was published an Extra-judicial Partition of the estate of

Alfonso Ureta, which to the surprise of my clients included the properties already sold to
their father before the death of said Alfonso Ureta. This inclusion of their property is
erroneous and illegal because these properties were covered by the Deed of Absolute
Sale in favor of their father Policronio Ureta no longer form part of the estate of Alfonso
Ureta. Since Policronio Ureta has [sic] died in 1974 yet, these properties have passed by
hereditary succession to his children who are now the true and lawful owners of the said
properties.

My clients are still entitled to a share in the estate of Alfonso Ureta who is also
their grandfather as they have stepped into the shoes of their deceased father Policronio
Ureta. But this estate of Alfonso Ureta should already exclude the six (6) parcels of land
covered by the Deed of Absolute Sale in favor of Policronio Ureta.

My clients cannot understand why the properties of their late father [should] be included
in the estate of their grandfather and be divided among his brothers and sisters when
said properties should only be divided among themselves as children of Policronio Ureta.

Since this matter involves very close members of the same family, I have
counseled my clients that an earnest effort towards a compromise or amicable
settlement be first explored before resort to judicial remedy is pursued. And a
compromise or amicable settlement can only be reached if all the parties meet and
discuss the problem with an open mind. To this end, I am suggesting a meeting of the
parties on September 16, 1995 at 2:00 P.M. at B Place Restaurant at C. Laserna St.,
Kalibo, Aklan. It would be best if the parties can come or be represented by their duly
designated attorney-in-fact together with their lawyers if they so desire so that the
problem can be discussed unemotionally and intelligently.

I would, however, interpret the failure to come to the said meeting as an

indication that the parties are not willing to or interested in amicable settlement of this
matter and as a go signal for me to resort to legal and/or judicial remedies to protest the
rights of my clients.

Thank you very much.[56]

Based on the foregoing, this Court concludes that the allegation of Conrados vitiated
consent and lack of authority to sign in behalf of his co-heirs was a mere afterthought on
the part of the Heirs of Policronio. It appears that the Heirs of Policronio were not only
aware of the existence of the Deed of Extra-Judicial Partition prior to June 30, 1995 but
had, in fact, given Conrado authority to sign in their behalf. They are now estopped from
questioning its legality, and the Deed of Extra-Judicial Partition is valid, binding, and
enforceable against them.

In view of the foregoing, there is no longer a need to discuss the issue of ratification.

Preterition

The Heirs of Alfonso were of the position that the absence of the Heirs of Policronio in the
partition or the lack of authority of their representative results, at the very least, in their
preterition and not in the invalidity of the entire deed of partition. Assuming there was

actual preterition, it did not render the Deed of Extra-Judicial Partition voidable. Citing
Article 1104 of the Civil Code, they aver that a partition made with preterition of any of
the compulsory heirs shall not be rescinded, but the heirs shall be proportionately
obliged to pay the share of the person omitted. Thus, the Deed of Extra-Judicial Partition
should not have been annulled by the CA. Instead, it should have ordered the share of
the heirs omitted to be given to them.

The Heirs of Alfonso also argued that all that remains to be adjudged is the right of the
preterited heirs to represent their father, Policronio, and be declared entitled to his share.
They contend that remand to the RTC is no longer necessary as the issue is purely legal
and can be resolved by the provisions of the Civil Code for there is no dispute that each
of Alfonsos heirs received their rightful share. Conrado, who received Policronios share,
should then fully account for what he had received to his other co-heirs and be directed
to deliver their share in the inheritance.

These arguments cannot be given credence.

Their posited theory on preterition is no longer viable. It has already been determined
that the Heirs of Policronio gave their consent to the Deed of Extra-Judicial Partition and
they have not been excluded from it. Nonetheless, even granting that the Heirs of
Policronio were denied their lawful participation in the partition, the argument of the
Heirs of Alfonso would still fail.

Preterition under Article 854 of the Civil Code is as follows:

Art. 854. The preterition or omission of one, some, or all of the compulsory heirs in the
direct line, whether living at the time of the execution of the will or born after the death
of the testator, shall annul the institution of heir; but the devises and legacies shall be
valid insofar as they are not inofficious.
If the omitted compulsory heirs should die before the testator, the institution shall be
effectual, without prejudice to the right of representation.

Preterition has been defined as the total omission of a compulsory heir from the
inheritance. It consists in the silence of the testator with regard to a compulsory heir,
omitting him in the testament, either by not mentioning him at all, or by not giving him
anything in the hereditary property but without expressly disinheriting him, even if he is
mentioned in the will in the latter case.[57] Preterition is thus a concept of testamentary
succession and requires a will. In the case at bench, there is no will involved. Therefore,
preterition cannot apply.

Remand Unnecessary

The Deed of Extra-Judicial Partition is in itself valid for complying with all the legal
requisites, as found by the RTC, to wit:

A persual of the Deed of Extra-judicial Partition would reveal that all the heirs and
children of Alfonso Ureta were represented therein; that nobody was left out; that all of
them received as much as the others as their shares; that it distributed all the properties
of Alfonso Ureta except a portion of parcel 29 containing an area of 14,000 square
meters, more or less, which was expressly reserved; that Alfonso Ureta, at the time of his
death, left no debts; that the heirs of Policronio Ureta, Sr. were represented by Conrado
B. Ureta; all the parties signed the document, was witnessed and duly acknowledged
before Notary Public Adolfo M. Iligan of Kalibo, Aklan; that the document expressly
stipulated that the heirs to whom some of the properties were transferred before for
taxation purposes or their children, expressly recognize and acknowledge as a fact that
the properties were transferred only for the purpose of effective administration and
development convenience in the payment of taxes and, therefore, all instruments
conveying or effecting the transfer of said properties are null and void from the
beginning (Exhs. 1-4, 7-d).[58]

Considering that the Deed of Sale has been found void and the Deed of Extra-Judicial
Partition valid, with the consent of all the Heirs of Policronio duly given, there is no need
to remand the case to the court of origin for partition.

WHEREFORE, the petition in G.R. No. 165748 is DENIED. The petition in G.R. No. 165930
is GRANTED. The assailed April 20, 2004 Decision and October 14, 2004 Resolution of
the Court of Appeals in CA-G.R. CV No. 71399, are hereby MODIFIED in this wise:

(1)

The Deed of Extra-Judicial Partition, dated April 19, 1989, is

VALID, and

(2)

The order to remand the case to the court of origin is hereby DELETED.

SO ORDERED.

JOSE CATRAL MENDOZA

Associate Justice
WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

DIOSDADO M. PERALTA
Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

ROBERTO A. ABAD
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts
Division.

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts
Division.

RENATO C. CORONA
Chief Justice

-------------------------------------------------------------------------------* Designated as additional member of the Third Division per Special Order No. 1028
dated June 21, 2011.
[1] Penned by Associate Justice Perlita J. Tria Tirona with Associate Justice B.A. Adefuin-De
La Cruz and Associate Justice Arturo D. Brion (now a member of this Court), concurring.

[2] Penned by Associate Justice Perlita J. Tria Tirona with Associate Justice Ruben T. Reyes
and Associate Justice Arturo D. Brion (now a member of this Court), concurring.
[3] Rollo (G.R. No. 165748), pp. 75-81.
[4] Exhibit G, records, p. 349.
[5] Exhibit 5, id. at 526.
[6] Exhibit 11, id. at 528.
[7] Exhibit 6, id. at 527.
[8] Exhibit 7, id. at 529-539.
[9] Rollo (G.R. No. 165748), pp. 51-65.
[10] Manila Banking Corporation v. Silverio, 504 Phil. 17, 25-26 (2005), citing Suntay v.
Court of Appeals, 321 Phil. 809 (1995) and Rules of Court, Rule 131, Sec. 3 (r) and (p).
[11] Gatmaitan v. Court of Appeals, G.R. No. 76500, August 2, 1991, 200 SCRA 38.
[12] Ascalon v. Court of Appeals, 242 Phil. 265 (1988).
[13] G.R. No. 163687, March 28, 2006, 485 SCRA 494, 500-501; citing Loyola v. Court of
Appeals, 383 Phil. 171 (2000), and Balite v. Lim, 487 Phil. 281 (2004).
[14] Manila Banking Corporation v. Silverio, supra note 10 at 27, citing Peoples Aircargo
and Warehousing Co., Inc. v. Court of Appeals, 357 Phil. 850 (1998).
[15] Tongoy v. Court of Appeals, 208 Phil. 95, 113 (1983); citing Rodriguez v. Rodriguez,
127 Phil. 294, 301-302 (1967).
[16] Lopez v. Lopez, G.R. No. 161925, November 25, 2009, 605 SCRA 358, 367.
[17] Rules of Court, Rule 133, Sec. 1. Preponderance of evidence, how determined. In
civil cases, the party having the burden of proof must establish his case by a
preponderance of evidence. In determining where the preponderance or superior weight
of evidence on the issues involved lies, the court may consider all the facts and
circumstance of the case, the witnesses manner of testifying, their intelligence, their
means and opportunity of knowing the facts to which they are testifying, the nature of
the facts to which they testify, the probability of their testimony, their interest or want of
interest, and also their personal credibility so far as the same may legitimately appear
upon the trial. The court may also consider the number of witnesses, though the
preponderance is not necessarily with the greater number.
[18] TSN, April 6, 1998, pp. 9-10.
[19] Exhibit 7-d, records, p. 533.

[20] Manila Banking Corporation v. Silverio, supra note 10 at 31, citing Suntay v. Court of
Appeals, 321 Phil. 809 (1995); Santiago v. Court of Appeals, 343 Phil. 612 (1997); Cruz v.
Bancom Finance Corporation, 429 Phil. 225 (2002); and Ramos v. Heirs of Ramos, 431
Phil. 337 (2002).
[21] Samala v. Court of Appeals, 467 Phil. 563, 568 (2004).
[22] Tongoy v. Court of Appeals, supra note 15; Manila Banking Corporation v. Silverio,
504 Phil. 17, 33 (2005).
[23] Rollo (G.R. No. 165748), p. 69-70.
[24] Morales Development Company, Inc. v. Court of Appeals, 137 Phil. 307 (1969).
[25] Acabal v. Acabal, 494 Phil. 528 (2005).
[26] Exhibit G, records, p. 349.
[27] Rollo (G.R. No. 165748), p. 79; and TSN, April 6, 1998, p. 9.
[28] Montecillo v. Reynes, 434 Phil. 456, 469 (2002); citing Ocejo Perez & Co. v. Flores, 40
Phil 921 (1920); Mapalo v. Mapalo, 123 Phil. 979 (1966); Vda. de Catindig v. Roque, 165
Phil. 707 (1976); Rongavilla v. Court of Appeals, 355 Phil. 721 (1998); and Yu Bu Guan v.
Ong, 419 Phil. 845 (2001).
[29] Lechugas v. Court of Appeals, 227 Phil. 310 (1986).
[30] Rules of Court, Rule 132, Sec. 36.
[31] Rollo (G.R. No. 165748), pp. 66-74.
[32] Premier Insurance v. Intermediate Appellate Court, 225 Phil. 370, 381 (1986); citing
Labasan v. Lacuesta, 175 Phil. 216 (1978).
[33] Rollo (G.R No. 165748), p. 77.
[34] Herrera, Remedial Law, Vol. V, pp. 208-209, [1999].
[35] Lechugas v. Court of Appeals, 227 Phil. 310, 319 (1986).
[36] Eugenio v. Court of Appeals, G.R. No. 103737, December 15, 1994, 239 SCRA 207.
[37] People v. Parungao, 332 Phil. 917, 924 (1996).
[38] 222 Phil. 424, 437 (1985).
[39] Ocejo Perez & Co. v. Flores, 40 Phil. 921 (1920); De Belen v. Collector of Customs, 46
Phil. 241 (1924); Gallion v. Gayares, 53 Phil. 43 (1929); Escutin v. Escutin, 60 Phil. 922
(1934); Gonzales v. Trinidad, 67 Phil. 682 (1939); Portugal v. IAC, 242 Phil. 709 (1988).
[40] Tongoy v. Court of Appeals, supra note 15.

[41] Arsenal v. Intermediate Appellate Court, 227 Phil. 36, 46-47 (1986); Tolentiono, Civil
Code of the Philippines, Vol. IV, p. 643, [2002].
[42] Sta. Romana v. Imperio, 122 Phil. 1001, 1007 (1965); Tolentino, Civil Code of the
Philippines, Vol. IV, p. 634, (2002).
[43] Gonzales v. Trinidad, 67 Phil. 682, 683-684 (1939); Castro v. Escutin, 179 Phil. 277,
284 (1979).
[44] Tongoy v. Court of Appeals, supra note 15; Manila Banking Corporation v. Silverio,
504 Phil. 17, 33 (2005).
[45] Id.
[46] Barcelona v. Barcelona, 100 Phil 251, 255 (1956).
[47] Borbon II v. Servicewide Specialists, Inc., 328 Phil. 150, 160 (1996).
[48] Barcelona v. Barcelona, 100 Phil. 251, 255 (1956); Maestrado v. Court of Appeals,
384 Phil. 418, 432 (2000); Castro v. Miat, 445 Phil. 282 297-298 (2003), citing PadaKilario v. Court of Appeals, 379 Phil. 515 (2000).
[49] Maestrado v. Court of Appeals, 384 Phil. 418, 432 (2000).
[50] 236 Phil. 438, 447-448 (1987).
[51] TSN, October 1, 1997, pp. 4-6.
[52] Id. at 8-11.
[53] Philippine Rabbit Bus Lines Inc. v. Macalinao, 491 Phil. 249, 255 (2005).
[54] Exhibit 2, records, p. 524.
[55] Exhibit 3, id. at 525.
[56] Exhibit A, id. at 335-336.
[57] Neri v. Akutin, 72 Phil. 322, 325 (1914); Maninang v. Court of Appeals, 199 Phil. 640,
647 (1982).
[58] Rollo (G.R. No. 165748), p. 80.

THIRD DIVISION

DEVELOPMENT BANK OF THE PHILIPPINES,

Petitioner,

- versus G.R. No. 167004

Present:

CARPIO MORALES, J.,

Chairperson,
BRION,
BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.

BEN P. MEDRANO and PRIVATIZATION MANAGEMENT OFFICE [PMO],

Respondents.
Promulgated:

February 7, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
VILLARAMA, JR., J.:

This petition for review on certiorari assails the Decision[1] dated December 14,
2004 and Resolution[2] dated February 8, 2005 of the Court of Appeals (CA) in CA-G.R.
CV No. 65436. The CA affirmed in toto the Decision[3] dated January 26, 1999 of the
Regional Trial Court (RTC) of Pasig City, Branch 158, ordering petitioner Development
Bank of the Philippines (DBP) to pay respondent Ben Medrano the following: (1) the
amount of P2,449,265.00 representing the value of the purchase price of Medranos
37,681 shares in Paragon Paper Industries, Inc. plus legal interest from date of first
demand; (2) attorneys fees in the amount of P100,000.00; and (3) the cost of suit.
The facts, as culled from the records, are as follows.
Respondent Ben Medrano was the President and General Manager of Paragon
Paper Industries, Inc. (Paragon) wherein he owned 37,681 shares. Sometime in 1980,
petitioner DBP sought to consolidate its ownership in Paragon. In one of the meetings of
the Paragon Executive Committee, the Chairman Jose B. de Ocampo, instructed Medrano,
as President and General Manager of Paragon, to contact or sound off the minority
stockholders and to convince them to sell their shares to DBP at P65.00 per share, or
65% of the stocks par value of P100.00. Medrano followed the instructions and began to
contact each member of the minority stockholders. He was able to contact all except one
who was in Singapore. Medrano testified that all, including himself, agreed to sell, and
all took steps to have their shares surrendered to DBP for payment.[4] They made
proposals to DBP and the Board of Directors of DBP approved the sale under DBP
Resolution No. 4270 subject to the following terms and conditions: (1) that prior to the
implementation of the approval, 57,596 shares of Paragons stock issued to the
stockholders concerned shall first be surrendered to the DBP; (2) that all the parties
concerned shall give their written conformity to the arrangement; and (3) that the
transaction shall be implemented within forty-five (45) days from the date of approval
(December 24, 1980); otherwise, the same shall be deemed canceled. Medrano then
indorsed and delivered to DBP all his 37,681 shares which had a value of P2,449,265.00.
DBP accepted said shares and took over Paragon.
DBP, through Jose de Ocampo, who was also a member of its Board of Governors,
also offered Medrano a commission of P185,010.00 if the latter could persuade all the
other Paragon minority stockholders to sell their shares. Medrano was able to convince
only two stockholders, Alberto Wong and Gerardo Ledonio III, to sell their respective
shares. Thus, his commission was reduced to P155,455.00.
Thereafter, Medrano demanded that DBP pay the value of his shares, which he
had already turned over, and his P155,455.00 commission. When DBP did not heed his
demand, Medrano filed a complaint for specific performance and damages against DBP
on September 2, 1981.
DBP filed an Answer arguing that there was no perfected contract of sale as the
three conditions in DBP Resolution No. 4270 were not fulfilled. Likewise, certain minority
stockholders owning 17,635 shares refused to sell their shares. Hence, DBP exercised its
right to cancel the sale under Resolution No. 4270.
Later, during the pendency of the case, DBP conveyed the shares to the Asset
Privatization Trust (APT) in a Deed of Transfer when the APT took over certain assets, and
assumed the liabilities, of government financial institutions including DBP. As the
transferee of the shares, the APT was impleaded as party-defendant. DBP thereafter filed

a cross-claim against the APT which was later on substituted by the Privatization
Management Office (PMO). Medrano adopted his evidence against DBP as his evidence
against the APT while the APT adopted DBPs evidence and defenses against Medrano.
On the cross-claim, the APT raised the defense that the liabilities assumed by the
National Government and referred to in the Deed of Transfer are liabilities to local and
foreign intermediaries and guarantees and not to individual persons like Medrano.
On January 26, 1999, the RTC ruled in Medranos favor and dismissed DBPs
cross-claim against the APT, to wit:
WHEREFORE, in view of the foregoing, judgment is rendered in favor of the
plaintiff and against defendant Development Bank of the Philippines ordering the latter
to pay the former the following: (1) the amount of P2,449,265.00 representing the value
of the purchase price of plaintiff's 37,681 shares in Paragon plus legal rate of interest
from date of first demand; (2) attorneys fees in the amount of P100,000.00; and (3) the
cost of suit.

The cross-claim of defendant DBP against the other defendant Asset Privatization
Trust is dismissed because defendant Development Bank of the Philippines
accountability to the plaintiff [is] based on act[s] solely imputable to it.

SO ORDERED.[5]
Dissatisfied, DBP elevated the case to the CA. DBP prayed that the trial courts
decision be reversed and that DBP be absolved from any and all liabilities to Medrano.
Medrano, for his part, prayed in his appellees brief that DBP be ordered to pay
his commission of P155,445.00.[6]
On December 14, 2004, the CA issued the challenged Decision[7] and affirmed
the decision of the trial court. The CA, however, refused to grant Medranos prayer for
the payment of commission because Medrano did not appeal the trial courts decision
but instead prayed for the payment of his commission only in his appellees brief.
The CA held that there existed between DBP and Medrano a contract of sale and the
conditions imposed by Resolution No. 4270 were merely conditions imposed on the
performance of an obligation. Hence, while under Article 1545[8] of the Civil Code, DBP
had the right not to proceed with the agreement upon Medranos failure to comply with
the conditions, DBP was deemed to have waived the performance of the conditions when
it chose to retain Medranos shares and later transfer them to the APT. The CA noted
that the retention of the shares was contrary to DBPs claim of rescission because if
indeed DBP rescinded the sale, then it should have returned to Medrano his shares
together with their fruits and the price with interests, as provided by Article 1385[9] of
the Civil Code.
DBP filed a motion for reconsideration, but the same was denied by the CA in a
Resolution[10] dated February 8, 2005. Hence, this appeal.

DBP alleges that the CA erred

I
WHEN IT REACHED A CONCLUSION WHICH IS NOT A LOGICAL CONSEQUENCE OF ITS
FINDING THAT THERE WAS NO PERFECTED CONTRACT OF SALE BETWEEN DBP AND
MEDRANO AND PROCEEDED TO MAKE A CONTRACT FOR THE PARTIES IN THE INSTANT
CASE.
II
WHEN IT APPLIED ARTICLE 1545 OF THE CIVIL CODE OF THE PHILIPPINES
NOTWITHSTANDING ITS FINDING THAT THERE WAS NO PERFECTED CONTRACT OF SALE
BETWEEN MEDRANO AND DBP.
III
WHEN IT FAILED TO EXERCISE ITS AUTHORITY TO RULE ON MATTERS WHICH ARE THE
NATURAL AND LOGICAL CONSEQUENCE OF ITS FINDINGS OF FACTS OR THAT ARE
INDISPENSABLE AND NECESSARY TO THE JUST RESOLUTION OF THE PLEADED ISSUES,
EVEN IF NOT RAISED AS ISSUES IN THE APPEAL.
IV
WHEN IT FAILED TO CONSIDER THE ESTABLISHED FACT THAT THE ASSETS OF
PARAGON PAPER INDUSTRIES, INC., INCLUDING THE SUBJECT CERTIFICATE OF STOCKS,
WERE TRANSFERRED TO THE ASSET PRIVATIZATION TRUST, NOW THE PRIVATIZATION
MANAGEMENT OFFICE, HEREIN CO-DEFENDANT. HENCE, THE PMO SHOULD BE THE
PARTY THAT SHOULD BE MADE TO RETURN THE SUBJECT CERTIFICATES OF STOCKS OR
PAY THE SAID SHARES OF STOCKS.
V
WHEN IT AFFIRMED THE AWARD OF ATTORNEYS FEES, DAMAGES AND COST OF SUIT
IN FAVOR OF RESPONDENT MEDRANO CONTRARY TO LAW AND THE PERTINENT
DECISIONS OF THIS HONORABLE SUPREME COURT.[11]
Essentially, the issue in this case is whether the CA erred in applying Article 1545 of the
Civil Code and holding that DBP exercised the second option under the said article to
justify the order against DBP to pay the value of Medranos shares of stock. As a side
issue, DBP also questions the award of attorneys fees in Medranos favor.
In fine, DBP contends that the trial court and the CA both ruled that there was no
perfected contract of sale in this case and that accordingly, it was erroneous for them to
order DBP to pay Medrano the value or price of the object of the sale. DBP insists that
the proper order was to direct DBP or the PMO, which now has possession of the shares,
to return the shares of stock. By ordering DBP to pay the purchase price of the stocks,
DBP argues that the CA in effect created a new contract of sale between the parties.[12]

DBP adds that the CA erred in applying Article 1545 of the Civil Code. According
to DBP, Article 1545 of the Civil Code only applies to a perfected contract of sale and
since there is no such perfected contract in this case because of Medranos failure to
meet all the conditions agreed upon, the application of this article by the CA is
misplaced.
Lastly, DBP questions the award of attorneys fees to Medrano. DBP maintains that
there was no unjustified refusal to pay for the shares of stock transferred to DBP as there
was no perfected contract of sale.
Medrano, for his part, argues that by retaining the shares of stock transferred to it
and later even appropriating and transferring them to the APT, DBP is deemed to have
exercised the second option under Article 1545 of the Civil Code, that is, it waived
performance of the conditions imposed by Resolution No. 4270. The original conditional
sale was thus converted into, and correctly treated by the courts a quo, as an absolute,
unconditional sale where compliance with the obligation of the buyer to pay the
purchase price may be demanded.
As regards the award of attorneys fees, Medrano maintains that he was
constrained to acquire the services of a lawyer and use legal means to enforce his rights
over the shares in question. He argues that since DBP refused to pay for or return the
shares that he transferred to it, he was left with no other option but to go to court.
Hence, the award of attorney's fees is legally justified.
We sustain the CA.
As a rule, a contract is perfected upon the meeting of the minds of the two
parties. Under Article 1475[13] of the Civil Code, a contract of sale is perfected the
moment there is a meeting of the minds on the thing which is the object of the contract
and on the price.
In the case of Traders Royal Bank v. Cuison Lumber Co., Inc.,[14] the Court ruled:
Under the law, a contract is perfected by mere consent, that is, from the moment that
there is a meeting of the offer and the acceptance upon the thing and the cause that
constitute the contract. The law requires that the offer must be certain and the
acceptance absolute and unqualified. An acceptance of an offer may be express and
implied; a qualified offer constitutes a counter-offer. Case law holds that an offer, to be
considered certain, must be definite, while an acceptance is considered absolute and
unqualified when it is identical in all respects with that of the offer so as to produce
consent or a meeting of the minds. We have also previously held that the ascertainment
of whether there is a meeting of minds on the offer and acceptance depends on the
circumstances surrounding the case.
the offer must be certain and definite with respect to the cause or consideration and
object of the proposed contract, while the acceptance of this offer - express or implied must be unmistakable, unqualified, and identical in all respects to the offer. The
required concurrence, however, may not always be immediately clear and may have to
be read from the attendant circumstances; in fact, a binding contract may exist between
the parties whose minds have met, although they did not affix their signatures to any
written document. (Italics supplied.)

Also, in Manila Metal Container Corporation v. Philippine National Bank,[15] the

Court ruled,
A qualified acceptance or one that involves a new proposal constitutes a counteroffer and a rejection of the original offer. A counter-offer is considered in law, a rejection
of the original offer and an attempt to end the negotiation between the parties on a
different basis. Consequently, when something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to guarantee consent because
any modification or variation from the terms of the offer annuls the offer. The
acceptance must be identical in all respects with that of the offer so as to produce
consent or meeting of the minds. (Italics supplied.)
In the present case, Medranos offer to sell the shares of the minority
stockholders at the price of 65% of the par value was not absolutely and unconditionally
accepted by DBP. DBP imposed several conditions to its acceptance and it is clear that
Medrano indeed tried in good faith to comply with the conditions given by DBP but
unfortunately failed to do so. Hence, there was no birth of a perfected contract of sale
between the parties.
The petitioner is also correct that Paragraph 1, Article 1545 of the Civil Code
speaks of a perfected contract of sale. Paragraph 1, Article 1545 of the Civil Code
provides:
ART. 1545. Where the obligation of either party to a contract of sale is subject to
any condition which is not performed, such party may refuse to proceed with the
contract or he may waive performance of the condition. If the other party has promised
that the condition should happen or be performed, such first mentioned party may also
treat the nonperformance of the condition as a breach of warranty.

x x x x (Italics supplied.)
It is clear from a plain reading of this article that it speaks of a party to a contract
of sale who fails in the performance of his/her obligation. The application of this article
presupposes that there is a perfected contract between the parties and that one of them
fails in the performance of an obligation under the contract.
The present case does not fall under this article because there is no perfected
contract of sale to speak of. Medranos failure to comply with the conditions set forth by
DBP prevented the perfection of the contract of sale. Hence, Medrano and DBP remained
as prospective-seller and prospective-buyer and not parties to a contract of sale.
This notwithstanding, however, we cannot simply agree with DBPs argument that
since there is no perfected contract of sale, DBP should not be ordered to pay Medrano
any amount.
The factual scenario of this case took place in 1980 or over thirty (30) years ago.
Medrano had turned over and delivered his own shares of stock to DBP in his attempt to
comply with the conditions given by DBP. DBP then accepted the shares of stock as

partial fulfillment of the conditions that it imposed on Medrano. However, after the lapse
of some time and after it became clear that Medrano would not be able to comply with
the conditions, DBP decided to retain Medranos shares of stock without paying Medrano.
After the realization that DBP would in fact not pay him for his shares of stock, Medrano
was constrained to file a suit to enforce his rights.[16]
In civil law, DBPs act of keeping the shares delivered by Medrano without paying
for them constitutes unjust enrichment. As we held in Car Cool Philippines, Inc. v. Ushio
Realty and Development Corporation[17],
[t]here is unjust enrichment when a person unjustly retains a benefit to the loss
of another, or when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience. Article 22 of the Civil
Code provides that [e]very person who through an act of performance by another, or
any other means, acquires or comes into possession of something at the expense of the
latter without just or legal ground, shall return the same to him. The principle of unjust
enrichment under Article 22 requires two conditions: (1) that a person is benefited
without a valid basis or justification, and (2) that such benefit is derived at anothers
expense or damage.
It was not proper for DBP to hold on to Medranos shares of stock after it became
obvious that he will not be able to comply with the conditions for the contract of sale.
From that point onwards, the prudent and fair thing to do for DBP was to return
Medranos shares because DBP had no just or legal ground to retain them.
We find that equitable considerations militate against DBPs claimed right over the
subject shares. First, it is clear that DBP did not buy the shares from Medrano as it even
asserts there was no perfected contract of sale because of the failure of the latter to
comply with DBPs conditions. Second, it cannot be said that Medrano voluntarily
donated his shares of stock as he is in fact still trying to recover them 30 years later.
Third, it cannot be said that DBP was merely holding the shares of stock for safekeeping
as DBP even claims that the shares were transferred to the APT (now PMO). In fine, there
is no reason whatsoever for DBP to continue in the possession of the shares of stock
against Medrano. For nearly 30 years, Medrano was deprived of his shares without any
compensation at all from DBP. To this Court, such situation is tantamount to the loss of
respondent's shares of stock, by reason of DBPs unjustified retention.
As to the issue of attorneys fees, it is well settled that the law allows the courts
discretion as to the determination of whether or not attorney's fees are appropriate. The
surrounding circumstances of each case are to be considered in order to determine if
such fees are to be awarded. In the case of Servicewide Specialists, Incorporated v.
Court of Appeals,[18] the Court ruled:
Article 2208 of the Civil Code allows attorney's fees to be awarded by a court when its
claimant is compelled to litigate with third persons or to incur expenses to protect his
interest by reason of an unjustified act or omission on the part of the party from whom it
is sought.
In the present case, it is clear that Medrano was constrained to use legal means
to recover his shares of stock. Records showed that indeed respondent Medrano followed
up[19] the payment of his shares of stock that were transferred to DBP. After some time,

he became convinced that DBP will not pay for the shares of stock for reasons unknown
to him. That was when he decided to bring the matter to court.
DBPs unjustified refusal to pay for the shares or even offer an explanation to
Medrano why payment was being withheld indicates bad faith on its part. Besides
having no legal or just reason to hold on to Medranos shares of stock, DBP also refused
to enlighten Medrano of the reason why he was being denied payment. Further,
Medranos failure to comply with the conditions of the acceptance should have prompted
DBP either to return the shares of Medrano or accept the shares of Medrano as a sale
and pay a fair price or at least communicate to Medrano why his shares were being
withheld. Instead, DBP did nothing but to hold on to the shares. Because of this,
Medrano was left with no other option but to seek redress from the courts.
WHEREFORE, the Decision dated December 14, 2004 and Resolution dated
February 8, 2005 of the Court of Appeals in CA-G.R. CV No. 65436 are hereby AFFIRMED.
No pronouncement as to costs.
SO ORDERED.

MARTIN S. VILLARAMA, JR.

Associate Justice

WE CONCUR:
CONCHITA CARPIO MORALES
Associate Justice
Chairperson
ARTURO D. BRION
Associate Justice
LUCAS P. BERSAMIN
Associate Justice
MARIA LOURDES P. A. SERENO

Associate Justice
ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts
Division.
CONCHITA CARPIO MORALES
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the 1987 Constitution and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of the
Courts Division.

RENATO C. CORONA
Chief Justice

-------------------------------------------------------------------------------[1]
Rollo, pp. 51-56. Penned by Associate Justice Jose Catral Mendoza (now a member
of this Court) with Associate Justices Godardo A. Jacinto and Edgardo P. Cruz concurring.
[2]
[3]

Id. at 58-59.
Id. at 101-106.

[4]

TSN, June 16, 1983, pp. 10-13, 30.

[5]

Rollo, pp. 105-106.

[6]

CA rollo, p. 100.

[7]

Supra note 1.

[8]
ART. 1545. Where the obligation of either party to a contract of sale is subject to
any condition which is not performed, such party may refuse to proceed with the
contract or he may waive performance of the condition. If the other party has promised
that the condition should happen or be performed, such first mentioned party may also
treat the nonperformance of the condition as a breach of warranty.
Where the ownership in the things has not passed, the buyer may treat the
fulfillment by the seller of his obligation to deliver the same as described and as
warranted expressly or by implication in the contract of sale as a condition of the
obligation of the buyer to perform his promise to accept and pay for the thing.
[9]
ART. 1385. Rescission creates the obligation to return the things which were the
object of the contract, together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who demands rescission can return
whatever he may be obliged to restore.
Neither shall rescission take place when the things which are the object of the
contract are legally in the possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person
causing the loss.
[10]

Supra note 2.

[11]

Id. at 34.

[12]

Id. at 36-37.

[13]
Art. 1475. The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to
the provisions of the law governing the form of contracts.
[14]

G.R. No. 174286, June 5, 2009, 588 SCRA 690, 701, 703.

[15]
G.R. No. 166862, December 20, 2006, 511 SCRA 444, 465-466, citing Logan v.
Philippine Acetylene Co., 33 Phil. 177, 183-184 (1916) and ABS-CBN Broadcasting
Corporation v. Court of Appeals, G.R. No. 128690, January 21, 1999, 301 SCRA 572, 592593.
[16]

TSN, June 16, 1983, pp. 22-25.

[17]
G.R. No. 138088, January 23, 2006, 479 SCRA 404, 412, citing Reyes v. Lim, G.R.
No. 134241, August 11, 2003, 408 SCRA 560 and 1 J. Vitug, Civil Law 30 (2003).
[18]
G.R. No. 110597, May 8, 1996, 256 SCRA 649, 655, citing Gonzales v. National
Housing Corporation, No. L-50092, December 18, 1979, 94 SCRA 786.
[19]

TSN, June 16, 1983, p. 24.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

ANUNCIACION VDA. DE OUANO, MARIO P. OUANO, LETICIA OUANO ARNAIZ, and CIELO
OUANO MARTINEZ,
Petitioners,

- versus -

THE REPUBLIC OF THE PHILIPPINES, THE MACTAN-CEBU INTERNATIONAL AIRPORT

AUTHORITY, and THE REGISTER OF DEEDS FOR THE CITY OF CEBU,
Respondents.
x-------------------------------------------x

MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA),

Petitioner,

- versus -

RICARDO L. INOCIAN, in his personal capacity and as Attorney-in-Fact of OLYMPIA E.

ESTEVES, EMILIA E. BACALLA, RESTITUTA E. MONTANA, and RAUL L. INOCIAN; and
ALETHA SUICO MAGAT, in her personal capacity and as Attorney-in-Fact of PHILIP M.
SUICO, DORIS S. DELA CRUZ, JAMES M. SUICO, EDWARD M. SUICO, ROSELYN SUICOLAWSIN, REX M. SUICO, KHARLA SUICO-GUTIERREZ, ALBERT CHIONGBIAN, and JOHNNY
CHAN,
Respondents.
G.R. No. 168770

Present:

CORONA, C.J., Chairperson,

VELASCO, JR.,
LEONARDO-DE CASTRO,
DEL CASTILLO,
PEREZ, JJ.

G.R. No. 168812

Promulgated:

February 9, 2011
x-----------------------------------------------------------------------------------------x

DECISION
VELASCO, JR., J.:

At the center of these two (2) Petitions for Review on Certiorari under Rule 45 is
the issue of the right of the former owners of lots acquired for the expansion of the
Lahug Airport in Cebu City to repurchase or secure reconveyance of their respective
properties.

In the first petition, docketed as G.R. No. 168770, petitioners Anunciacion vda. de Ouano,
Mario Ouano, Leticia Ouano Arnaiz and Cielo Ouano Martinez (the Ouanos) seek to nullify

the Decision[1] dated September 3, 2004 of the Court of Appeals (CA) in CA-G.R. CV No.
78027, affirming the Order dated December 9, 2002 of the Regional Trial Court (RTC),
Branch 57 in Cebu City, in Civil Case No. CEB-20743, a suit to compel the Republic of the
Philippines and/or the Mactan-Cebu International Airport Authority (MCIAA) to reconvey
to the Ouanos a parcel of land.

The second petition, docketed as G.R. No. 168812, has the MCIAA seeking
principally to annul and set aside the Decision[2] and Resolution[3] dated January 14,
2005 and June 29, 2005, respectively, of the CA in CA-G.R. CV No. 64356, sustaining the
RTC, Branch 13 in Cebu City in its Decision of October 7, 1988 in Civil Case No. CEB18370.

Per its October 19, 2005 Resolution, the Court ordered the consolidation of both
cases.

Except for the names of the parties and the specific lot designation involved, the
relevant factual antecedents which gave rise to these consolidated petitions are, for the
most part, as set forth in the Courts Decision[4] of October 15, 2003, as reiterated in a
Resolution[5] dated August 9, 2005, in G.R. No. 156273 entitled Heirs of Timoteo Moreno
and Maria Rotea v. Mactan-Cebu International Airport Authority (Heirs of Moreno), and in
other earlier related cases.[6]

In 1949, the National Airport Corporation (NAC), MCIAAs predecessor agency, pursued a
program to expand the Lahug Airport in Cebu City. Through its team of negotiators, NAC
met and negotiated with the owners of the properties situated around the airport, which
included Lot Nos. 744-A, 745-A, 746, 747, 761-A, 762-A, 763-A, 942, and 947 of the
Banilad Estate. As the landowners would later claim, the government negotiating team,
as a sweetener, assured them that they could repurchase their respective lands should
the Lahug Airport expansion project do not push through or once the Lahug Airport
closes or its operations transferred to Mactan-Cebu Airport. Some of the landowners
accepted the assurance and executed deeds of sale with a right of repurchase. Others,
however, including the owners of the aforementioned lots, refused to sell because the
purchase price offered was viewed as way below market, forcing the hand of the
Republic, represented by the then Civil Aeronautics Administration (CAA), as successor
agency of the NAC, to file a complaint for the expropriation of Lot Nos. 744-A, 745-A, 746,
747, 761-A, 762-A, 763-A, 942, and 947, among others, docketed as Civil Case No. R1881 entitled Republic v. Damian Ouano, et al.

On December 29, 1961, the then Court of First Instance (CFI) of Cebu rendered judgment
for the Republic, disposing, in part, as follows:

IN VIEW OF THE FOREGOING, judgment is hereby rendered:

1. Declaring the expropriation of Lots Nos. 75, 76, 76, 89, 90, 91, 92, 105, 106,
107, 108, 104, 921-A, 88, 93, 913-B, 72, 77, 916, 777-A, 918, 919, 920, 764-A, 988, 744A, 745-A, 746, 747, 762-A, 763-A, 951, 942, 720-A, x x x and 947, included in the Lahug
Airport, Cebu City, justified in and in lawful exercise of the right of eminent domain.

xxxx
3. After the payment of the foregoing financial obligation to the landowners,
directing the latter to deliver to the plaintiff the corresponding Transfer Certificates of
Title to their respective lots; and upon the presentation of the said titles to the Register
of Deeds, ordering the latter to cancel the same and to issue, in lieu thereof, new
Transfer Certificates of Title in the name of the plaintiff.[7]

In view of the adverted buy-back assurance made by the government, the owners of the
lots no longer appealed the decision of the trial court.[8] Following the finality of the
judgment of condemnation, certificates of title for the covered parcels of land were
issued in the name of the Republic which, pursuant to Republic Act No. 6958,[9] were
subsequently transferred to MCIAA.

At the end of 1991, or soon after the transfer of the aforesaid lots to MCIAA, Lahug
Airport completely ceased operations, Mactan Airport having opened to accommodate
incoming and outgoing commercial flights. On the ground, the expropriated lots were
never utilized for the purpose they were taken as no expansion of Lahug Airport was
undertaken. This development prompted the former lot owners to formally demand from
the government that they be allowed to exercise their promised right to repurchase. The
demands went unheeded. Civil suits followed.

G.R. No. 168812 (MCIAA Petition)

On February 8, 1996, Ricardo L. Inocian and four others (all children of Isabel
Limbaga who originally owned six [6] of the lots expropriated); and Aletha Suico Magat
and seven others, successors-in-interest of Santiago Suico, the original owner of two (2)
of the condemned lots (collectively, the Inocians), filed before the RTC in Cebu City a
complaint for reconveyance of real properties and damages against MCIAA. The

complaint, docketed as Civil Case No. CEB-18370, was eventually raffled to Branch 13 of
the court.

On September 29, 1997, one Albert Chiongbian (Chiongbian), alleging to be the

owner of Lot Nos. 761-A and 762-A but which the Inocians were now claiming, moved
and was later allowed to intervene.

During the pre-trial, MCIAA admitted the following facts:

1.
That the properties, which are the subject matter of Civil Case No. CEB18370, are also the properties involved in Civil Case R-1881;

2.
That the purpose of the expropriation was for the expansion of the old
Lahug Airport; that the Lahug Airport was not expanded;

3.

That the old Lahug Airport was closed sometime in June 1992;

4.
That the price paid to the lot owners in the expropriation case is found in
the decision of the court; and

5.
That some properties were reconveyed by the MCIAA because the previous
owners were able to secure express waivers or riders wherein the government agreed to
return the properties should the expansion of the Lahug Airport not materialize.

During trial, the Inocians adduced evidence which included the testimony of Ricardo
Inocian (Inocian) and Asterio Uy (Uy). Uy, an employee of the CAA, testified that he was
a member of the team which negotiated for the acquisition of certain lots in Lahug for
the proposed expansion of the Lahug Airport. He recalled that he acted as the
interpreter/spokesman of the team since he could speak the Cebuano dialect. He stated
that the other members of the team of negotiators were Atty. Pedro Ocampo, Atty.
Lansang, and Atty. Saligumba. He recounted that, in the course of the negotiation, their
team assured the landowners that their landholdings would be reconveyed to them in
the event the Lahug Airport would be abandoned or if its operation were transferred to
the Mactan Airport. Some landowners opted to sell, while others were of a different bent
owing to the inadequacy of the offered price.

Inocian testified that he and his mother, Isabel Lambaga, attended a meeting called by
the NAC team of negotiators sometime in 1947 or 1949 where he and the other
landowners were given the assurance that they could repurchase their lands at the same
price in the event the Lahug Airport ceases to operate. He further testified that they
rejected the NACs offer. However, he said that they no longer appealed the decree of
expropriation due to the repurchase assurance adverted to.

The MCIAA presented Michael Bacarizas (Bacarizas), who started working for MCIAA as
legal assistant in 1996. He testified that, in the course of doing research work on the lots
subject of Civil Case No. CEB-18370, he discovered that the same lots were covered by
the decision in Civil Case No. R-1881. He also found out that the said decision did not
expressly contain any condition on the matter of repurchase.

Ruling of the RTC

On October 7, 1998, the RTC rendered a Decision in Civil Case No. CEB-18370, the
dispositive portion of which reads as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered directing defendant

Mactan Cebu International Airport Authority (MCIAA) to reconvey (free from liens and
encumbrances) to plaintiffs Ricardo Inocian, Olimpia E. Esteves, Emilia E. Bacalla,
Restituta E. Montana and Raul Inocian Lots No. 744-A, 745-A, 746, 762-A, 747, 761-A and
to plaintiffs Aletha Suico Magat, Philip M. Suico, Doris S. dela Cruz, James M. Suico,
Edward M. Suico, Roselyn S. Lawsin, Rex M. Suico and Kharla Suico-Gutierrez Lots No.
942 and 947, after plaintiffs shall have paid MCIAA the sums indicated in the decision in
Civil Case No. R-1881. Defendant MCIAA is likewise directed to pay the aforementioned
plaintiffs the sum or P50,000.00 as and for attorneys fees and P10,000.00 for litigation
expenses.

Albert Chiongbians intervention should be, as it is hereby DENIED for utter lack of
factual basis.
With costs against defendant MCIAA.[10]

Therefrom, MCIAA went to the CA on appeal, docketed as CA-G.R. CV No. 64356.

Ruling of the CA

On January 14, 2005, the CA rendered judgment for the Inocians, declaring them
entitled to the reconveyance of the questioned lots as the successors-in-interest of the
late Isabel Limbaga and Santiago Suico, as the case may be, who were the former
registered owners of the said lots. The decretal portion of the CAs Decision reads:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by

us DISMISSING the appeal filed in this case and AFFFIRMING the decision rendered by the
court a quo on October 7, 1998 in Civil Case No. CEB-18370.

SO ORDERED.

The CA, citing and reproducing excerpts from Heirs of Moreno,[11] virtually held that the
decision in Civil Case No. R-1881 was conditional, stating that the expropriation of
[plaintiff-appellees] lots for the proposed expansion of the Lahug Airport was ordered by
the CFI of Cebu under the impression that Lahug Airport would continue in
operation.[12] The condition, as may be deduced from the CFIs decision, was that
should MCIAA, or its precursor agency, discontinue altogether with the operation of
Lahug Airport, then the owners of the lots expropriated may, if so minded, demand of
MCIAA to make good its verbal assurance to allow the repurchase of the properties. To
the CA, this assurance, a demandable agreement of repurchase by itself, has been
adequately established.

On September 21, 2005, the MCIAA filed with Us a petition for review of the CAs
Decision, docketed as G.R. No. 168812.

G.R. No. 168770 (Ouano Petition)

Soon after the MCIAA jettisoned the Lahug Airport expansion project, informal
settlers entered and occupied Lot No. 763-A which, before its expropriation, belonged to
the Ouanos. The Ouanos then formally asked to be allowed to exercise their right to
repurchase the aforementioned lot, but the MCIAA ignored the demand. On August 18,
1997, the Ouanos instituted a complaint before the Cebu City RTC against the Republic
and the MCIAA for reconveyance, docketed as Civil Case No. CEB-20743.

Answering, the Republic and MCIAA averred that the Ouanos no longer have enforceable
rights whatsoever over the condemned Lot No. 763-A, the decision in Civil Case No. R1881 not having found any reversionary condition.

Ruling of the RTC

By a Decision dated November 28, 2000, the RTC, Branch 57 in Cebu City ruled in favor
of the Ouanos, disposing as follows:

WHEREFORE, in the light of the foregoing, the Court hereby renders judgment in
favor of the plaintiffs, Anunciacion Vda. De Ouano, Mario P. Ouano, Leticia Ouano Arnaiz
and Cielo Ouano Martinez and against the Republic of the Philippines and Mactan Cebu
International Airport Authority (MCIAA) to restore to plaintiffs, the possession and
ownership of their land, Lot No. 763-A upon payment of the expropriation price to
defendants; and

2. Ordering the Register of Deeds to effect the transfer of the Certificate of Title
from defendant Republic of the Philippines on Lot 763-A, canceling TCT No. 52004 in the
name of defendant Republic of the Philippines and to issue a new title on the same lot in
the names of Anunciacion Vda. De Ouano, Mario P. Ouano, Leticia Ouano Arnaiz and Cielo
Ouano Martinez.

No pronouncement as to costs.[13]

Acting on the motion of the Republic and MCIAA for reconsideration, however, the
RTC, Branch 57 in Cebu City, presided this time by Judge Enriqueta L. Belarmino, issued,
on December 9, 2002, an Order[14] that reversed its earlier decision of November 28,
2000 and dismissed the Ouanos complaint.

Ruling of the CA

In time, the Ouanos interposed an appeal to the CA, docketed as CA-G.R. CV No.
78027. Eventually, the appellate court rendered a Decision[15] dated September 3,
2004, denying the appeal, thus:

WHEREFORE, premises considered, the Order dated December 9, 2002, of the

Regional Trial Court, 7th Judicial Region, Branch 57, Cebu City, in Civil Case No. CEB20743, is hereby AFFIRMED. No pronouncement as to costs.

SO ORDERED.

Explaining its case disposition, the CA stated that the decision in Civil Case No. R1881 did not state any condition that Lot No. 763-A of the Ouanosand all covered lots
for that matterwould be returned to them or that they could repurchase the same
property if it were to be used for purposes other than for the Lahug Airport. The
appellate court also went on to declare the inapplicability of the Courts pronouncement
in MCIAA v. Court of Appeals, RTC, Branch 9, Cebu City, Melba Limbago, et al.,[16] to
support the Ouanos cause, since the affected landowners in that case, unlike the
Ouanos, parted with their property not through expropriation but via a sale and purchase
transaction.

The Ouanos filed a motion for reconsideration of the CAs Decision, but was denied per
the CAs May 26, 2005 Resolution.[17] Hence, they filed this petition in G.R. No. 168770.

The Issues

G.R. No. 168812

GROUNDS FOR ALLOWANCE OF THE PETITION

l.
THE ASSAILED ISSUANCES ILLEGALLY STRIPPED THE REPUBLIC OF ITS
ABSOLUTE AND UNCONDITIONAL TITLE TO THE SUBJECT EXPROPRIATED PROPERTIES.

ll.
THE IMPUNGED DISPOSITIONS INVALIDLY OVERTURNED THIS HONORABLE
COURTS FINAL RULINGS IN FERY V. MUNICIPALITY OF CABANATUAN, MCIAA V. COURT OF
APPEALS AND REYES V. NATIONAL HOUSING AUTHORITY.

lll. THE COURT OF APPEALS GRAVELY ERRED IN APPLYING THIS HONORABLE COURTS
RULING IN MORENO, ALBEIT IT HAS NOT YET ATTAINED FINALITY.[18]

G.R. No. 168770

Questions of law presented in this Petition

Whether or not the testimonial evidence of the petitioners proving the promises,
assurances and representations by the airport officials and lawyers are inadmissbale
under the Statute of Frauds.

Whether or not under the ruling of this Honorable Court in the heirs of Moreno Case, and
pursuant to the principles enunciated therein, petitioners herein are entitiled to recover
their litigated property.

Reasons for Allowances of this Petition

Respondents did not object during trial to the admissibility of petitioners testimonial
evidence under the Statute of Frauds and have thus waived such objection and are now
barred from raising the same. In any event, the Statute of Frauds is not applicable
herein. Consequently, petitioners evidence is admissible and should be duly given
weight and credence, as initially held by the trial court in its original Decision.[19]

While their respective actions against MCIAA below ended differently, the Ouanos
and the Inocians proffered arguments presented before this Court run along parallel
lines, both asserting entitlement to recover the litigated property on the strength of the
Courts ruling in Heirs of Moreno. MCIAA has, however, formulated in its Consolidated
Memorandum the key interrelated issues in these consolidated cases, as follows:

I
WHETHER ABANDONMENT OF THE PUBLIC USE FOR WHICH THE SUBJECT PROPERTIES
WERE EXPROPRIATED ENTITLES PETITIONERS OUANOS, ET AL. AND RESPONDENTS
INOCIAN, ET AL. TO REACQUIRE THEM.

II

WHETHER PETITIONERS OUANOS, ET AL. AND RESPONDENTS INOCIAN, ET AL. ARE

ENTITLED TO RECONVEYANCE OF THE SUBJECT PROPERTIES SIMPLY ON THE BASIS OF AN
ALLEGED VERBAL PROMISE OR ASSURANCE OF SOME NAC OFFICIALS THAT THE SUBJECT
PROPERTIES WILL BE RETUNRED IF THE AIRPORT PROJECT WOULD BE ABANDONED.

The Courts Ruling

The Republic and MCIAAs petition in G.R. No. 168812 is bereft of merit, while the
Ouano petition in G.R. No. 168770 is meritorious.

At the outset, three (3) fairly established factual premises ought to be

emphasized:

First, the MCIAA and/or its predecessor agency had not actually used the lots
subject of the final decree of expropriation in Civil Case No. R-1881 for the purpose they
were originally taken by the government, i.e., for the expansion and development of
Lahug Airport.

Second, the Lahug Airport had been closed and abandoned. A significant portion of it
had, in fact, been purchased by a private corporation for development as a commercial
complex.[20]

Third, it has been preponderantly established by evidence that the NAC, through its team
of negotiators, had given assurance to the affected landowners that they would be
entitled to repurchase their respective lots in the event they are no longer used for
airport purposes.[21] No less than Asterio Uy, the Court noted in Heirs of Moreno, one
of the members of the CAA Mactan Legal Team, which interceded for the acquisition of
the lots for the Lahug Airports expansion, affirmed that persistent assurances were
given to the landowners to the effect that as soon as the Lahug Airport is abandoned or
transferred to Mactan, the lot owners would be able to reacquire their properties.[22] In
Civil Case No. CEB-20743, Exhibit G, the transcript of the deposition[23] of Anunciacion
vda. de Ouano covering the assurance made had been formally offered in evidence and
duly considered in the initial decision of the RTC Cebu City. In Civil Case No. CEB-18370,
the trial court, on the basis of testimonial evidence, and later the CA, recognized the
reversionary rights of the suing former lot owners or their successors in interest[24] and
resolved the case accordingly. In point with respect to the representation and promise of
the government to return the lots taken should the planned airport expansion do not
materialize is what the Court said in Heirs of Moreno, thus:

This is a difficult case calling for a difficult but just solution. To begin with there exists an
undeniable historical narrative that the predecessors of respondent MCIAA had
suggested to the landowners of the properties covered by the Lahug Airport expansion
scheme that they could repurchase their properties at the termination of the airports
venue. Some acted on this assurance and sold their properties; other landowners held
out and waited for the exercise of eminent domain to take its course until finally coming
to terms with respondents predecessors that they would not appeal nor block further
judgment of condemnation if the right of repurchase was extended to them. A handful
failed to prove that they acted on such assurance when they parted with ownership of
their land.[25] (Emphasis supplied; citations omitted.)

For perspective, Heirs of Morenolater followed by MCIAA v. Tudtud (Tudtud)[26]

and the consolidated cases at baris cast under the same factual setting and centered
on the expropriation of privately-owned lots for the public purpose of expanding the
Lahug Airport and the alleged promise of reconveyance given by the negotiating NAC
officials to the private lot owners. All the lots being claimed by the former owners or
successors-in-interest of the former owners in the Heirs of Moreno, Tudtud, and the
present cases were similarly adjudged condemned in favor of the Republic in Civil Case
No. R-1881. All the claimants sought was or is to have the condemned lots reconveyed
to them upon the payment of the condemnation price since the public purpose of the
expropriation was never met. Indeed, the expropriated lots were never used and were,
in fact, abandoned by the expropriating government agencies.

In all then, the issues and supporting arguments presented by both sets of petitioners in
these consolidated cases have already previously been passed upon, discussed at
length, and practically peremptorily resolved in Heirs of Moreno and the November 2008

Tudtud ruling. The Ouanos, as petitioners in G.R. No. 168770, and the Inocians, as
respondents in G.R. No. 168812, are similarly situated as the heirs of Moreno in Heirs of
Moreno and Benjamin Tudtud in Tudtud. Be that as it may, there is no reason why the
ratio decidendi in Heirs of Moreno and Tudtud should not be made to apply to petitioners
Ouanos and respondents Inocians such that they shall be entitled to recover their or their
predecessors respective properties under the same manner and arrangement as the
heirs of Moreno and Tudtud. Stare decisis et non quieta movere (to adhere to precedents,
and not to unsettle things which are established).[27]

Just like in Tudtud and earlier in Heirs of Moreno, MCIAA would foist the theory that
the judgment of condemnation in Civil Case No. R-1881 was without qualification and
was unconditional. It would, in fact, draw attention to the fallo of the expropriation
courts decision to prove that there is nothing in the decision indicating that the
government gave assurance or undertook to reconvey the covered lots in case the Lahug
airport expansion project is aborted. Elaborating on this angle, MCIAA argues that the
claim of the Ouanos and the Inocians regarding the alleged verbal assurance of the NAC
negotiating team that they can reacquire their landholdings is barred by the Statute of
Frauds.[28]

Under the rule on the Statute of Frauds, as expressed in Article 1403 of the Civil Code, a
contract for the sale or acquisition of real property shall be unenforceable unless the
same or some note of the contract be in writing and subscribed by the party charged.
Subject to defined exceptions, evidence of the agreement cannot be received without
the writing, or secondary evidence of its contents.

MCIAAs invocation of the Statute of Frauds is misplaced primarily because the statute
applies only to executory and not to completed, executed, or partially consummated
contracts.[29] Carbonnel v. Poncio, et al., quoting Chief Justice Moran, explains the
rationale behind this rule, thusly:

x x x The reason is simple. In executory contracts there is a wide field for fraud
because unless they may be in writing there is no palpable evidence of the intention of
the contracting parties. The statute has been precisely been enacted to prevent fraud.
x x x However, if a contract has been totally or partially performed, the exclusion of parol
evidence would promote fraud or bad faith, for it would enable the defendant to keep the
benefits already derived by him from the transaction in litigation, and at the same time,
evade the obligations, responsibilities or liabilities assumed or contracted by him
thereby.[30] (Emphasis in the original.)

Analyzing the situation of the cases at bar, there can be no serious objection to the
proposition that the agreement package between the government and the private lot
owners was already partially performed by the government through the acquisition of
the lots for the expansion of the Lahug airport. The parties, however, failed to
accomplish the more important condition in the CFI decision decreeing the expropriation
of the lots litigated upon: the expansion of the Lahug Airport. The projectthe public
purpose behind the forced property takingwas, in fact, never pursued and, as a
consequence, the lots expropriated were abandoned. Be that as it may, the two groups
of landowners can, in an action to compel MCIAA to make good its oral undertaking to
allow repurchase, adduce parol evidence to prove the transaction.

At any rate, the objection on the admissibility of evidence on the basis of the Statute of
Frauds may be waived if not timely raised. Records tend to support the conclusion that
MCIAA did not, as the Ouanos and the Inocians posit, object to the introduction of parol
evidence to prove its commitment to allow the former landowners to repurchase their
respective properties upon the occurrence of certain events.

In a bid to deny the lot owners the right to repurchase, MCIAA, citing cases,[31] points to
the dispositive part of the decision in Civil Case R-1881 which, as couched, granted the
Republic absolute title to the parcels of land declared expropriated. The MCIAA is correct
about the unconditional tone of the dispositive portion of the decision, but that actuality
would not carry the day for the agency. Addressing the matter of the otherwise absolute
tenor of the CFIs disposition in Civil Case No. R-1881, the Court, in Heirs of Moreno, after
taking stock of the ensuing portion of the body of the CFIs decision, said:

As for the public purpose of the expropriation proceeding, it cannot now be

doubted. Although Mactan Airport is being constructed, it does not take away the actual
usefulness and importance of the Lahug Airport: it is handling the air traffic of both
civilian and military. From it aircrafts fly to Mindanao and Visayas and pass thru it on their
flights to the North and Manila. Then, no evidence was adduced to show how soon is the
Mactan Airport to be placed in operation and whether the Lahug Airport will be closed
immediately thereafter. It is up to the other departments of the Government to
determine said matters. The Court cannot substitute its judgments for those of the said
departments or agencies. In the absence of such showing, the court will presume that
the Lahug Airport will continue to be in operation.[32] (Emphasis supplied.)

We went on to state as follows:

While the trial court in Civil Case No. R-1881 could have simply acknowledged the
presence of public purpose for the exercise of eminent domain regardless of the survival
of the Lahug Airport, the trial court in its Decision chose not to do so but instead prefixed
its finding of public purpose upon its understanding that Lahug Airport will continue to
be in operation. Verily, these meaningful statements in the body of the Decision warrant
the conclusion that the expropriated properties would remain to be so until it was
confirmed that Lahug Airport was no longer in operation. This inference further implies
two (2) things: (a) after the Lahug Airport ceased its undertaking as such and the
expropriated lots were not being used for any airport expansion project, the rights vis-vis the expropriated lots x x x as between the State and their former owners, petitioners
herein, must be equitably adjusted; and (b) the foregoing unmistakable declarations in
the body of the Decision should merge with and become an intrinsic part of the fallo
thereof which under the premises is clearly inadequate since the dispositive portion is
not in accord with the findings as contained in the body thereof.[33]

Not to be overlooked of course is what the Court said in its Resolution disposing of
MCIAAs motion to reconsider the original ruling in Heirs of Moreno. In that resolution,
We stated that the fallo of the decision in Civil Case R-1881 should be viewed and
understood in connection with the entire text, which contemplated a return of the
property taken if the airport expansion project were abandoned. For ease of reference,
following is what the Court wrote:

Moreover, we do not subscribe to the [MCIAAs] contention that since the possibility of
the Lahug Airports closure was actually considered by the trial court, a stipulation on
reversion or repurchase was so material that it should not have been discounted by the
court a quo in its decision in Civil Case No. R-1881, if, in fact, there was one. We find it
proper to cite, once more, this Courts ruling that the fallo of the decision in Civil Case
No. R-1881 must be read in reference to the other portions of the decision in which it
forms a part. A reading of the Courts judgment must not be confined to the dispositive
portion alone; rather it should be meaningfully construed in unanimity with the ratio
decidendi thereof to grasp the true intent and meaning of a decision.[34]

The Court has, to be sure, taken stock of Fery v. Municipality of Cabanatuan,[35]

a case MCIAA cites at every possible turn, where the Court made these observations:

If, for example, land is expropriated for a particular purpose, with the condition that
when that purpose is ended or abandoned the property shall return to its former owner,
then of course, when the purpose is terminated or abandoned, the former owner
reacquires the property so expropriated. x x x If, upon the contrary, however the decree
of expropriation gives to the entity a fee simple title, then, of course, the land becomes
the absolute property of the expropriator x x x and in that case the non-user does not
have the effect of defeating the title acquired by the expropriation proceedings x x x.

Fery notwithstanding, MCIAA cannot really rightfully say that it has absolute title
to the lots decreed expropriated in Civil Case No. R-1881. The correct lesson of Fery is
captured by what the Court said in that case, thus: the government acquires only such
rights in expropriated parcels of land as may be allowed by the character of its title over
the properties. In light of our disposition in Heirs of Moreno and Tudtud, the statement
immediately adverted to means that in the event the particular public use for which a
parcel of land is expropriated is abandoned, the owner shall not be entitled to recover or
repurchase it as a matter of right, unless such recovery or repurchase is expressed in or
irresistibly deducible from the condemnation judgment. But as has been determined
below, the decision in Civil Case No. R-1881 enjoined MCIAA, as a condition of approving
expropriation, to allow recovery or repurchase upon abandonment of the Lahug airport
project. To borrow from our underlying decision in Heirs of Moreno, [n]o doubt, the
return or repurchase of the condemned properties of petitioners could readily be justified
as the manifest legal effect of consequence of the trial courts underlying presumption
that Lahug Airport will continue to be in operation when it granted the complaint for
eminent domain and the airport discontinued its activities.[36]

Providing added support to the Ouanos and the Inocians right to repurchase is
what in Heirs of Moreno was referred to as constructive trust, one that is akin to the
implied trust expressed in Art. 1454 of the Civil Code,[37] the purpose of which is to
prevent unjust enrichment.[38] In the case at bench, the Ouanos and the Inocians
parted with their respective lots in favor of the MCIAA, the latter obliging itself to use the
realties for the expansion of Lahug Airport; failing to keep its end of the bargain, MCIAA
can be compelled by the former landowners to reconvey the parcels of land to them,
otherwise, they would be denied the use of their properties upon a state of affairs that
was not conceived nor contemplated when the expropriation was authorized. In effect,
the government merely held the properties condemned in trust until the proposed public
use or purpose for which the lots were condemned was actually consummated by the
government. Since the government failed to perform the obligation that is the basis of
the transfer of the property, then the lot owners Ouanos and Inocians can demand the
reconveyance of their old properties after the payment of the condemnation price.

Constructive trusts are fictions of equity that courts use as devices to remedy any
situation in which the holder of the legal title, MCIAA in this case, may not, in good
conscience, retain the beneficial interest. We add, however, as in Heirs of Moreno, that
the party seeking the aid of equitythe landowners in this instance, in establishing the
trustmust himself do equity in a manner as the court may deem just and reasonable.

The Court, in the recent MCIAA v. Lozada, Sr., revisited and abandoned the Fery
ruling that the former owner is not entitled to reversion of the property even if the public
purpose were not pursued and were abandoned, thus:

On this note, we take this opportunity to revisit our ruling in Fery, which involved an
expropriation suit commenced upon parcels of land to be used as a site for a public
market. Instead of putting up a public market, respondent Cabanatuan constructed
residential houses for lease on the area. Claiming that the municipality lost its right to
the property taken since it did not pursue its public purpose, petitioner Juan Fery, the
former owner of the lots expropriated, sought to recover his properties. However, as he
had admitted that, in 1915, respondent Cabanatuan acquired a fee simple title to the
lands in question, judgment was rendered in favor of the municipality, following
American jurisprudence, particularly City of Fort Wayne v. Lake Shore & M.S. RY. Co.,
McConihay v. Theodore Wright, and Reichling v. Covington Lumber Co., all uniformly
holding that the transfer to a third party of the expropriated real property, which
necessarily resulted in the abandonment of the particular public purpose for which the
property was taken, is not a ground for the recovery of the same by its previous owner,
the title of the expropriating agency being one of fee simple.

Obviously, Fery was not decided pursuant to our now sacredly held constitutional right
that private property shall not be taken for public use without just compensation. It is
well settled that the taking of private property by the Governments power of eminent
domain is subject to two mandatory requirements: (1) that it is for a particular public
purpose; and (2) that just compensation be paid to the property owner. These
requirements partake of the nature of implied conditions that should be complied with to
enable the condemnor to keep the property expropriated.

More particularly, with respect to the element of public use, the expropriator should
commit to use the property pursuant to the purpose stated in the petition for
expropriation filed, failing which, it should file another petition for the new purpose. If
not, it is then incumbent upon the expropriator to return the said property to its private
owner, if the latter desires to reacquire the same. Otherwise, the judgment of
expropriation suffers an intrinsic flaw, as it would lack one indispensable element for the
proper exercise of the power of eminent domain, namely, the particular public purpose
for which the property will be devoted. Accordingly, the private property owner would be
denied due process of law, and the judgment would violate the property owners right to
justice, fairness, and equity.

In light of these premises, we now expressly hold that the taking of private property,
consequent to the Governments exercise of its power of eminent domain, is always
subject to the condition that the property be devoted to the specific public purpose for
which it was taken. Corollarily, if this particular purpose or intent is not initiated or not at
all pursued, and is peremptorily abandoned, then the former owners, if they so desire,
may seek the reversion of the property, subject to the return of the amount of just
compensation received. In such a case, the exercise of the power of eminent domain has
become improper for lack of the required factual justification.[39] (Emphasis supplied.)

Clinging to Fery, specifically the fee simple concept underpinning it, is no longer
compelling, considering the ensuing inequity such application entails. Too, the Court
resolved Fery not under the cover of any of the Philippine Constitutions, each decreeing
that private property shall not be taken for public use without just compensation. The
twin elements of just compensation and public purpose are, by themselves, direct
limitations to the exercise of eminent domain, arguing, in a way, against the notion of fee
simple title. The fee does not vest until payment of just compensation.[40]

In esse, expropriation is forced private property taking, the landowner being really
without a ghost of a chance to defeat the case of the expropriating agency. In other
words, in expropriation, the private owner is deprived of property against his will. Withal,
the mandatory requirement of due process ought to be strictly followed, such that the
state must show, at the minimum, a genuine need, an exacting public purpose to take
private property, the purpose to be specifically alleged or least reasonably deducible
from the complaint.

Public use, as an eminent domain concept, has now acquired an expansive

meaning to include any use that is of usefulness, utility, or advantage, or what is
productive of general benefit [of the public].[41] If the genuine public necessitythe
very reason or condition as it wereallowing, at the first instance, the expropriation of a
private land ceases or disappears, then there is no more cogent point for the
governments retention of the expropriated land. The same legal situation should hold if
the government devotes the property to another public use very much different from the
original or deviates from the declared purpose to benefit another private person. It has
been said that the direct use by the state of its power to oblige landowners to renounce
their productive possession to another citizen, who will use it predominantly for that
citizens own private gain, is offensive to our laws.[42]

A condemnor should commit to use the property pursuant to the purpose stated in the
petition for expropriation, failing which it should file another petition for the new
purpose. If not, then it behooves the condemnor to return the said property to its private
owner, if the latter so desires. The government cannot plausibly keep the property it
expropriated in any manner it pleases and, in the process, dishonor the judgment of
expropriation. This is not in keeping with the idea of fair play,

The notion, therefore, that the government, via expropriation proceedings, acquires
unrestricted ownership over or a fee simple title to the covered land, is no longer
tenable. We suggested as much in Heirs of Moreno and in Tudtud and more recently in
Lozada, Sr. Expropriated lands should be differentiated from a piece of land, ownership of
which was absolutely transferred by way of an unconditional purchase and sale contract

freely entered by two parties, one without obligation to buy and the other without the
duty to sell. In that case, the fee simple concept really comes into play. There is really no
occasion to apply the fee simple concept if the transfer is conditional. The taking of a
private land in expropriation proceedings is always conditioned on its continued devotion
to its public purpose. As a necessary corollary, once the purpose is terminated or
peremptorily abandoned, then the former owner, if he so desires, may seek its reversion,
subject of course to the return, at the very least, of the just compensation received.

To be compelled to renounce dominion over a piece of land is, in itself, an already bitter
pill to swallow for the owner. But to be asked to sacrifice for the common good and yield
ownership to the government which reneges on its assurance that the private property
shall be for a public purpose may be too much. But it would be worse if the power of
eminent domain were deliberately used as a subterfuge to benefit another with influence
and power in the political process, including development firms. The mischief thus
depicted is not at all far-fetched with the continued application of Fery. Even as the
Court deliberates on these consolidated cases, there is an uncontroverted allegation that
the MCIAA is poised to sell, if it has not yet sold, the areas in question to Cebu Property
Ventures, Inc. This provides an added dimension to abandon Fery.

Given the foregoing disquisitions, equity and justice demand the reconveyance by MCIAA
of the litigated lands in question to the Ouanos and Inocians. In the same token, justice
and fair play also dictate that the Ouanos and Inocian return to MCIAA what they
received as just compensation for the expropriation of their respective properties plus
legal interest to be computed from default, which in this case should run from the time
MCIAA complies with the reconveyance obligation.[43] They must likewise pay MCIAA
the necessary expenses it might have incurred in sustaining their respective lots and the
monetary value of its services in managing the lots in question to the extent that they,
as private owners, were benefited thereby.

In accordance with Art. 1187 of the Civil Code on mutual compensation, MCIAA may keep
whatever income or fruits it may have obtained from the parcels of land expropriated. In
turn, the Ouanos and Inocians need not require the accounting of interests earned by the
amounts they received as just compensation.[44]

Following Art. 1189 of the Civil Code providing that [i]f the thing is improved by its
nature, or by time, the improvement shall inure to the benefit of the creditor x x x, the
Ouanos and Inocians do not have to settle the appreciation of the values of their
respective lots as part of the reconveyance process, since the value increase is merely
the natural effect of nature and time.

Finally, We delete the award of PhP 50,000 and PhP 10,000, as attorneys fees and
litigation expenses, respectively, made in favor of the Inocians by the Cebu City RTC in
its judgment in Civil Case No. CEB-18370, as later affirmed by the CA. As a matter of
sound policy, no premium should be set on the right to litigate where there is no doubt
about the bona fides of the exercise of such right,[45] as here, albeit the decision of
MCIAA to resist the former landowners claim eventually turned out to be untenable.

WHEREFORE, the petition in G.R. No. 168770 is GRANTED. Accordingly, the CA Decision
dated September 3, 2004 in CA-G.R. CV No. 78027 is REVERSED and SET ASIDE. MactanCebu International Airport Authority is ordered to reconvey subject Lot No. 763-A to
petitioners Anunciacion vda. de Ouano, Mario P. Ouano, Leticia Ouano Arnaiz, and Cielo
Ouano Martinez. The Register of Deeds of Cebu City is ordered to effect the necessary
cancellation of title and transfer it in the name of the petitioners within fifteen (15) days
from finality of judgment.
The petition of the Mactan-Cebu International Airport Authority in G.R. No. 168812 is
DENIED, and the CAs Decision and Resolution dated January 14, 2005 and June 29,
2005, respectively, in CA-G.R. CV No. 64356 are AFFIRMED, except insofar as they
awarded attorneys fees and litigation expenses that are hereby DELETED. Accordingly,
Mactan-Cebu International Airport Authority is ordered to reconvey to respondents
Ricardo L. Inocian, Olympia E. Esteves, Emilia E. Bacalla, Restituta E. Montana, and Raul
L. Inocian the litigated Lot Nos. 744-A, 745-A, 746, 762-A, 747, and 761-A; and to
respondents Aletha Suico Magat, Philip M. Suico, Dolores S. dela Cruz, James M. Suico,
Edward M. Suico, Roselyn S. Lawsin, Rex M. Suico, and Kharla Suico-Gutierrez the
litigated Lot Nos. 942 and 947. The Register of Deeds of Cebu City is ordered to effect
the necessary cancellation of title and transfer it in the name of respondents within a
period of fifteen (15) days from finality of judgment.

The foregoing dispositions are subject to QUALIFICATIONS, to apply to these consolidated

petitions, when appropriate, as follows:

(1) Petitioners Ouano, et al. in G.R. No. 168770 and respondents Ricardo L Inocian, et al.
in G.R. No. 168812 are ordered to return to the MCIAA the just compensation they or
their predecessors-in-interest received for the expropriation of their respective lots as
stated in Civil Case No. R-1881, within a period of sixty (60) days from finality of
judgment;

(2) The MCIAA shall be entitled to RETAIN whatever fruits and income it may have
obtained from the subject expropriated lots without any obligation to refund the same to
the lot owners; and

(3) Petitioners Ouano, et al. in G.R. No. 168770 and respondents Ricardo L. Inocian, et al.
in G.R. No. 168812 shall RETAIN whatever interests the amounts they received as just
compensation may have earned in the meantime without any obligation to refund the
same to MCIAA.
SO ORDERED.

PRESBITERO J. VELASCO, JR.

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions
in the above Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Courts Division.

RENATO C. CORONA
Chief Justice

-------------------------------------------------------------------------------[1] Rollo (G.R. No.168770), pp. 45-56. Penned by Associate Justice Mercedes GozoDadole and concurred in by Associate Justices Pampio A. Abarintos and Ramon M. Bato,
Jr.
[2] Penned by Associate Justice Isaias P. Dicdican and concurred in by Associate Justices
Sesinando E. Villon and Ramon M. Bato, Jr.
[3] Rollo (G.R. No.168812), pp. 77-78.
[4] Heirs of Timoteo Moreno and Maria Rotea v. Mactan-Cebu International Airport
Authority, G.R. No. 156273, October 15, 2003, 413 SCRA 502.
[5] Heirs of Timoteo Moreno and Maria Rotea v. Mactan-Cebu International Airport
Authority, G.R. No. 156273, August 9, 2005, 466 SCRA 288.

[6] Air Transportation Office v. Gopuco, Jr., G.R. No. 158563, June 30, 2005, 462 SCRA
544; MCIAA v. Court of Appeals, G.R. No. 139495, November 27, 2000, 346 SCRA 126.
[7] Rollo (G.R. No.168812), pp. 31-32.
[8] Id. at 10.
[9] An Act Creating [MCIAA], Transferring Existing Assets of the Mactan International
Airport to the [MCIAA], Vesting the [MCIAA] with Powers to Administer and Operate the
Mactan International Airport and the Lahug Airport.
[10] Rollo (G.R. No. 168812), pp. 95-96. Penned by Judge Meinrado P. Paredes.
[11] Supra note 4.
[12] Rollo (G.R. No. 168812), p. 70.
[13] Rollo (G.R. No. 168770), pp. 77-78. Penned by Judge Victorio U. Montecillo.
[14] Id. at 79-81.
[15] Id. at 57-58.
[16] G.R. No. 121506, October 30, 1996, 263 SCRA 736. This case should not be
confused with MCIAA v. Court of Appeals, supra note 6, which involved the complaint by
Virginia Chiongbian.
[17] Rollo (G.R. No. 168770), pp. 57-58.
[18] Rollo (G.R. No. 168812), p. 39.
[19] Rollo (G.R. No. 168770), p. 22.
[20] MCIAA v. Tudtud, G.R. No. 174012, November 14, 2008, 571 SCRA 165; Heirs of
Moreno, supra note 4.
[21] Id.
[22] Supra note 5, at 303.
[23] Rollo (G.R. No. 168770), pp. 180-194.
[24] Id. at 93.
[25] Supra note 4, at 507-508.
[26] Supra note 20.

[27] Confederation of Sugar Producers Association, Inc. v. Department of Agrarian

Reform (DAR), G.R. No. 169514, March 30, 2007, 519 SCRA 582, 618; citing Blacks Law
Dictionary (5th ed.).
[28] Civil Code, Art. 1403(2)(e), as a general proposition, places agreements for the sale
of real property within the coverage of the Statute of Fraud, a postulate that declares
unenforceable all contracts of realty unless made in writing. Contracts infringing the
Statute of Frauds referred to in Art. 1403 of the Code are ratified by the failure to object
to the presentation of oral evidence to prove the same, or by acceptance of benefits
under them.
[29] Arrogante v. Deliarte, G.R. No. 152132, July 24, 2007, 528 SCRA 63, 74; Tudtud,
supra note 20.
[30] 103 Phil. 655, 659 (1958); citing 3 Moran, Comments on the Rules of Court 178
(1957).
[31] Air Transportation Office v. Gopuco, Jr., supra note 6; Reyes v. National Housing
Authority, G.R. No. 147511, January 20, 2003, 395 SCRA 494; MCIAA v. Court of Appeals,
supra note 6; Fery v. Municipality of Cabanatuan, 42 Phil. 28 (1921).
[32] Heirs of Moreno, supra note 4, at 510.
[33] Id.
[34] Heirs of Moreno, supra note 5, at 305.
[35] Supra note 31.
[36] Supra note 4, at 512. Emphasis in the original.
[37] Art. 1454.If an absolute conveyance of property is made in order to secure the
performance of an obligation of the grantor towards the grantee, a trust by virtue of law
is established. If the fulfillment of the obligation is offered by the grantor when it
becomes due, he may demand the reconveyance of the property to him.
[38] 4 Paras, Civil Code of the Philippines Annotated 668 (10th ed.).
[39] G.R. No. 176625, February 25, 2010, 613 SCRA 618, 629-631.
[40] Association of Small Landowners in the Philippines, Inc. v. Secretary of Agrarian
Reform, G.R. Nos. 78742, 79310, 79744 & 79777, July 14, 1989, 175 SCRA 343, 389-390.
[41] Bernas, The 1987 Constitution of the Republic of the Philippines: A
Commentary 391 (2003).
[42] Heirs of Moreno, supra note 5, at 302; citing City of Owensboro v. McCormick, 581
S.W.2d 3, 5 (1979).
[43] Eastern Shipping Lines, Inc. v. CA, G.R. No. 97412, July 12, 1994, 234 SCRA 78, 95;
and Civil Code, Art. 1169: In reciprocal obligations, neither party incurs delay if the

other does not comply or is not ready to comply in a proper manner what is incumbent
upon him. From the moment one of the parties fulfills his obligation, delay by the other
begins.

[44] Civil Code, Art. 1187: The effects of a conditional obligation to give, once the
condition has been fulfilled, shall retroact to the day of the constitution of the obligation.
Nevertheless, when the obligation imposes prestations upon parties, the fruits and
interests during the pendency of the condition shall be deemed to have been mutually
compensated.
[45] Cordero v. F.S. Management & Development Corporation, G.R. No. 167213, October
31, 2006, 506 SCRA 451, 465.
Today is Friday, August 01, 2014

-------------------------------------------------------------------------------Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 168325

December 8, 2010

ROBERTO D. TUAZON, Petitioner,

vs.
LOURDES Q. DEL ROSARIO-SUAREZ, CATALINA R. SUAREZ-DE LEON, WILFREDO DE LEON,
MIGUEL LUIS S. DE LEON, ROMMEL LEE S. DE LEON, and GUILLERMA L. SANDICO-SILVA,
as attorney-in-fact of the defendants, except Lourdes Q. Del Rosario-Suarez,
Respondents.
DECISION
DEL CASTILLO, J.:
In a situation where the lessor makes an offer to sell to the lessee a certain property at a
fixed price within a certain period, and the lessee fails to accept the offer or to purchase
on time, then the lessee loses his right to buy the property and the owner can validly
offer it to another.
This Petition for Review on Certiorari1 assails the Decision2 dated May 30, 2005 of the
Court of Appeals (CA) in CA-G.R. CV No. 78870, which affirmed the Decision3 dated
November 18, 2002 of the Regional Trial Court (RTC), Branch 101, Quezon City in Civil
Case No. Q-00-42338.
Factual Antecedents

Respondent Lourdes Q. Del Rosario-Suarez (Lourdes) was the owner of a parcel of land,
containing more or less an area of 1,211 square meters located along Tandang Sora
Street, Barangay Old Balara, Quezon City and previously covered by Transfer Certificate
of Title (TCT) No. RT-561184 issued by the Registry of Deeds of Quezon City.
On June 24, 1994, petitioner Roberto D. Tuazon (Roberto) and Lourdes executed a
Contract of Lease5 over the abovementioned parcel of land for a period of three years.
The lease commenced in March 1994 and ended in February 1997. During the effectivity
of the lease, Lourdes sent a letter6 dated January 2, 1995 to Roberto where she offered
to sell to the latter subject parcel of land. She pegged the price at P37,541,000.00 and
gave him two years from January 2, 1995 to decide on the said offer.
On June 19, 1997, or more than four months after the expiration of the Contract of Lease,
Lourdes sold subject parcel of land to her only child, Catalina Suarez-De Leon, her son-inlaw Wilfredo De Leon, and her two grandsons, Miguel Luis S. De Leon and Rommel S. De
Leon (the De Leons), for a total consideration of only P2,750,000.00 as evidenced by a
Deed of Absolute Sale7 executed by the parties. TCT No. 1779868 was then issued by
the Registry of Deeds of Quezon City in the name of the De Leons.
The new owners through their attorney-in-fact, Guillerma S. Silva, notified Roberto to
vacate the premises. Roberto refused hence, the De Leons filed a complaint for Unlawful
Detainer before the Metropolitan Trial Court (MeTC) of Quezon City against him. On
August 30, 2000, the MeTC rendered a Decision9 ordering Roberto to vacate the property
for non-payment of rentals and expiration of the contract.
Ruling of the Regional Trial Court
On November 8, 2000, while the ejectment case was on appeal, Roberto filed with the
RTC of Quezon City a Complaint10 for Annulment of Deed of Absolute Sale,
Reconveyance, Damages and Application for Preliminary Injunction against Lourdes and
the De Leons. On November 13, 2000, Roberto filed a Notice of Lis Pendens11 with the
Registry of Deeds of Quezon City.
On January 8, 2001, respondents filed An Answer with Counterclaim12 praying that the
Complaint be dismissed for lack of cause of action. They claimed that the filing of such
case was a mere leverage of Roberto against them because of the favorable Decision
issued by the MeTC in the ejectment case.
On September 17, 2001, the RTC issued an Order13 declaring Lourdes and the De Leons
in default for their failure to appear before the court for the second time despite notice.
Upon a Motion for Reconsideration,14 the trial court in an Order15 dated October 19,
2001 set aside its Order of default.
After trial, the court a quo rendered a Decision declaring the Deed of Absolute Sale made
by Lourdes in favor of the De Leons as valid and binding. The offer made by Lourdes to
Roberto did not ripen into a contract to sell because the price offered by the former was
not acceptable to the latter. The offer made by Lourdes is no longer binding and effective
at the time she decided to sell the subject lot to the De Leons because the same was not
accepted by Roberto. Thus, in a Decision dated November 18, 2002, the trial court
dismissed the complaint. Its dispositive portion reads:

WHEREFORE, premises considered, judgment is hereby rendered dismissing the aboveentitled Complaint for lack of merit, and ordering the Plaintiff to pay the Defendants, the
following:
1. the amount of P30,000.00 as moral damages;
2. the amount of P30,000.00 as exemplary damages;
3. the amount of P30,000.00 as attorneys fees; and
4. cost of the litigation.
SO ORDERED.16
Ruling of the Court of Appeals
On May 30, 2005, the CA issued its Decision dismissing Robertos appeal and affirming
the Decision of the RTC.
Hence, this Petition for Review on Certiorari filed by Roberto advancing the following
arguments:
I.
The Trial Court and the Court of Appeals had decided that the "Right of First Refusal"
exists only within the parameters of an "Option to Buy", and did not exist when the
property was sold later to a third person, under favorable terms and conditions which the
former buyer can meet.
II.
What is the status or sanctions of an appellee in the Court of Appeals who has not filed
or failed to file an appellees brief?17
Petitioners Arguments
Roberto claims that Lourdes violated his right to buy subject property under
the principle of "right of first refusal" by not giving him "notice" and the opportunity to
buy the property under the same terms and conditions or specifically based on the much
lower price paid by the De Leons.
Roberto further contends that he is enforcing his "right of first refusal" based on
Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.18 which is the leading case
on the "right of first refusal."
Respondents Arguments
On the other hand, respondents posit that this case is not covered by the principle of
"right of first refusal" but an unaccepted unilateral promise to sell or, at best, a contract

of option which was not perfected. The letter of Lourdes to Roberto clearly embodies an
option contract as it grants the latter only two years to exercise the option to buy the
subject property at a price certain of P37,541,000.00. As an option contract, the said
letter would have been binding upon Lourdes without need of any consideration, had
Roberto accepted the offer. But in this case there was no acceptance made neither was
there a distinct consideration for the option contract.
Our Ruling
The petition is without merit.
This case involves an option contract and not a contract of a right of first refusal
In Beaumont v. Prieto,19 the nature of an option contract is explained thus:
In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the
following language:
A contract by virtue of which A, in consideration of the payment of a certain sum to B,
acquires the privilege of buying from, or selling to, B certain securities or properties
within a limited time at a specified price. (Story vs. Salamon, 71 N. Y., 420.)
From Vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs. Leiser
(24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following quotation has been taken:
An agreement in writing to give a person the option to purchase lands within a given
time at a named price is neither a sale nor an agreement to sell. 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 is, the right or privilege to
buy at the election or option of the other party. The second party gets in praesenti, not
lands, nor an agreement that he shall have lands, but he does get something of value;
that is, the right to call for and receive lands if he elects. The owner parts with his right
to sell his lands, except to the second party, for a limited period. The second party
receives this right, or rather, from his point of view, he receives the right to elect to buy.
But the two definitions above cited refer to the contract of option, or, what amounts to
the same thing, to the case where there was cause or consideration for the obligation x x
x. (Emphasis supplied.)
On the other hand, in Ang Yu Asuncion v. Court of Appeals,20 an elucidation on the "right
of first refusal" was made thus:
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 of the same Code.
An option or an offer would require, among other things, 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. It is not to say, however, that the right of
first refusal would be inconsequential for, such as already intimated above, an unjustified
disregard thereof, given, for instance, the circumstances expressed in Article 19 of the
Civil Code, can warrant a recovery for damages. (Emphasis supplied.)
From the foregoing, it is thus clear that an option contract is entirely different and
distinct from a right of first refusal in that in the former, the option granted to the offeree
is for a fixed period and at a determined price. Lacking these two essential requisites,
what is involved is only a right of first refusal.
In this case, the controversy is whether the letter of Lourdes to Roberto dated January 2,
1995 involved an option contract or a contract of a right of first refusal. In its entirety,
the said letter-offer reads:
206 Valdes Street
Josefa Subd. Balibago
Angeles City 2009
January 2, 1995
Tuazon Const. Co.
986 Tandang Sora Quezon City
Dear Mr. Tuazon,
I received with great joy and happiness the big box of sweet grapes and ham, fit for a
kings party. Thanks very much.
I am getting very old (79 going 80 yrs. old) and wish to live in the U.S.A. with my only
family. I need money to buy a house and lot and a farm with a little cash to start.
I am offering you to buy my 1211 square meter at P37,541,000.00 you can pay me in
dollars in the name of my daughter. I never offered it to anyone. Please shoulder the
expenses for the transfer. I wish the Lord God will help you buy my lot easily and you will
be very lucky forever in this place. You have all the time to decide when you can, but not
for 2 years or more.
I wish you long life, happiness, health, wealth and great fortune always!

I hope the Lord God will help you be the recipient of multi-billion projects aid from other
countries.
Thank you,
Lourdes Q. del Rosario vda de Suarez
It is clear that the above letter embodies an option contract as it grants Roberto a fixed
period of only two years to buy the subject property at a price certain of P37,541,000.00.
It being an option contract, the rules applicable are found in Articles 1324 and 1479 of
the Civil Code which provide:
Art. 1324. When the offerer has allowed 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 something paid or promised.
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by a consideration distinct from
the price.
It is clear from the provision of Article 1324 that there is a great difference between the
effect of an option which is without a consideration from one which is founded upon a
consideration. If the option is without any consideration, the offeror may withdraw his
offer by communicating such withdrawal to the offeree at anytime before acceptance; if
it is founded upon a consideration, the offeror cannot withdraw his offer before the lapse
of the period agreed upon.
The second paragraph of Article 1479 declares that "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." Sanchez v. Rigos21
provided an interpretation of the said second paragraph of Article 1479 in relation to
Article 1324. Thus:
There is no question that under Article 1479 of the new Civil Code "an option to sell," or
"a promise to buy or to sell," as used in said article, to be valid must be "supported by a
consideration distinct from the price." This is clearly inferred from the context of said
article that a unilateral promise to buy or to sell, even if accepted, is only binding if
supported by consideration. In other words, "an accepted unilateral promise can only
have a binding effect if supported by a consideration, which means that the option can
still be withdrawn, even if accepted, if the same is not supported by any consideration.
Hence, it is not disputed that the option is without consideration. It can therefore be
withdrawn notwithstanding the acceptance made of it by appellee.
It is true that under Article 1324 of the new Civil Code, the general rule regarding offer
and acceptance is that, when the offerer gives to the offeree a certain period to accept,
"the offer may be withdrawn at any time before acceptance" except when the option is
founded upon consideration, but this general rule must be interpreted as modified by the
provision of Article 1479 above referred to, which applies to "a promise to buy and sell"

specifically. As already stated, this rule requires that a promise to sell to be valid must be
supported by a consideration distinct from the price.
In Diamante v. Court of Appeals,22 this Court further declared that:
A unilateral promise to buy or sell is a mere offer, which is not converted into a contract
except at the moment it is accepted. Acceptance is the act that gives life to a juridical
obligation, because, before the promise is accepted, the promissor may withdraw it at
any time. Upon acceptance, however, a bilateral contract to sell and to buy is created,
and the offeree ipso facto assumes the obligations of a purchaser; the offeror, on the
other hand, would be liable for damages if he fails to deliver the thing he had offered for
sale.
xxxx
Even if the promise was accepted, private respondent was not bound thereby in the
absence of a distinct consideration. (Emphasis ours.)
In this case, it is undisputed that Roberto did not accept the terms stated in the letter of
Lourdes as he negotiated for a much lower price. Robertos act of negotiating for a much
lower price was a counter-offer and is therefore not an acceptance of the offer of
Lourdes. Article 1319 of the Civil Code provides:
Consent 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. A qualified acceptance constitutes a counter-offer. (Emphasis
supplied.)
The counter-offer of Roberto for a much lower price was not accepted by Lourdes. There
is therefore no contract that was perfected between them with regard to the sale of
subject property. Roberto, thus, does not have any right to demand that the property be
sold to him at the price for which it was sold to the De Leons neither does he have the
right to demand that said sale to the De Leons be annulled.
Equatorial Realty Development, Inc. v. Mayfair Theater, Inc. is not applicable here
It is the position of Roberto that the facts of this case and that of Equatorial are similar in
nearly all aspects. Roberto is a lessee of the property like Mayfair Theater in Equatorial.
There was an offer made to Roberto by Lourdes during the effectivity of the contract of
lease which was also the case in Equatorial. There were negotiations as to the price
which did not bear fruit because Lourdes sold the property to the De Leons which was
also the case in Equatorial wherein Carmelo and Bauermann sold the property to
Equatorial. The existence of the lease of the property is known to the De Leons as they
are related to Lourdes while in Equatorial, the lawyers of Equatorial studied the lease
contract of Mayfair over the property. The property in this case was sold by Lourdes to
the De Leons at a much lower price which is also the case in Equatorial where Carmelo
and Bauerman sold to Equatorial at a lesser price. It is Robertos conclusion that as in the
case of Equatorial, there was a violation of his right of first refusal and hence annulment
or rescission of the Deed of Absolute Sale is the proper remedy.

Robertos reliance in Equatorial is misplaced. Despite his claims, the facts in Equatorial
radically differ from the facts of this case. Roberto overlooked the fact that in Equatorial,
there was an express provision in the Contract of Lease that
(i)f the LESSOR should desire to sell the leased properties, the LESSEE shall be given 30days exclusive option to purchase the same.
There is no such similar provision in the Contract of Lease between Roberto and Lourdes.
What is involved here is a separate and distinct offer made by Lourdes through a letter
dated January 2, 1995 wherein she is selling the leased property to Roberto for a definite
price and which gave the latter a definite period for acceptance. Roberto was not given a
right of first refusal. The letter-offer of Lourdes did not form part of the Lease Contract
because it was made more than six months after the commencement of the lease.
It is also very clear that in Equatorial, the property was sold within the lease period. In
this case, the subject property was sold not only after the expiration of the period
provided in the letter-offer of Lourdes but also after the effectivity of the Contract of
Lease.
Moreover, even if the offer of Lourdes was accepted by Roberto, still the former is not
bound thereby because of the absence of a consideration distinct and separate from the
price. The argument of Roberto that the separate consideration was the liberality on the
part of Lourdes cannot stand. A perusal of the letter-offer of Lourdes would show that
what drove her to offer the property to Roberto was her immediate need for funds as she
was already very old. Offering the property to Roberto was not an act of liberality on the
part of Lourdes but was a simple matter of convenience and practicality as he was the
one most likely to buy the property at that time as he was then leasing the same.
All told, the facts of the case, as found by the RTC and the CA, do not support Robertos
claims that the letter of Lourdes gave him a right of first refusal which is similar to the
one given to Mayfair Theater in the case of Equatorial. Therefore, there is no justification
to annul the deed of sale validly entered into by Lourdes with the De Leons.
What is the effect of the failure of Lourdes to file her appellees brief at the CA?
Lastly, Roberto argues that Lourdes should be sanctioned for her failure to file her
appellees brief before the CA.
Certainly, the appellees failure to file her brief would not mean that the case would be
automatically decided against her. Under the circumstances, the prudent action on the
part of the CA would be to deem Lourdes to have waived her right to file her appellees
brief. De Leon v. Court of Appeals,23 is instructive when this Court decreed:
On the second issue, we hold that the Court of Appeals did not commit grave abuse of
discretion in considering the appeal submitted for decision. The proper remedy in case of
denial of the motion to dismiss is to file the appellees brief and proceed with the appeal.
Instead, petitioner opted to file a motion for reconsideration which, unfortunately, was
pro forma. All the grounds raised therein have been discussed in the first resolution of
the respondent Court of Appeals. There is no new ground raised that might warrant
reversal of the resolution. A cursory perusal of the motion would readily show that it was
a near verbatim repetition of the grounds stated in the motion to dismiss; hence, the

filing of the motion for reconsideration did not suspend the period for filing the appellees
brief. Petitioner was therefore properly deemed to have waived his right to file appellees
brief. (Emphasis supplied.)lawphi1
In the above cited case, De Leon was the plaintiff in a Complaint for a sum of money in
the RTC. He obtained a favorable judgment and so defendant went to the CA. The appeal
of defendant-appellant was taken cognizance of by the CA but De Leon filed a Motion to
Dismiss the Appeal with Motion to Suspend Period to file Appellees Brief. The CA denied
the Motion to Dismiss. De Leon filed a Motion for Reconsideration which actually did not
suspend the period to file the appellees brief. De Leon therefore failed to file his brief
within the period specified by the rules and hence he was deemed by the CA to have
waived his right to file appellees brief.
The failure of the appellee to file his brief would not result to the rendition of a decision
favorable to the appellant. The former is considered only to have waived his right to file
the Appellees Brief. The CA has the jurisdiction to resolve the case based on the
Appellants Brief and the records of the case forwarded by the RTC. The appeal is
therefore considered submitted for decision and the CA properly acted on it.
WHEREFORE, the instant petition for review on certiorari is DENIED. The assailed
Decision of the Court of Appeals in CA-G.R. CV No. 78870, which affirmed the Decision
dated November 18, 2002 of the Regional Trial Court, Branch 101, Quezon City in Civil
Case No. Q-00-42338 is AFFIRMED.
SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice
WE CONCUR:
RENATO C. CORONA
Chief Justice
Chairperson
TERESITA J. LEONARDO-DE CASTRO
Associate Justice ROBERTO A. ABAD*
Associate Justice
JOSE PORTUGAL PEREZ
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the
conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
RENATO C. CORONA
Chief Justice

Footnotes
* In lieu of Associate Justice Presbitero J. Velasco, Jr., per Special Order No. 917 dated
November 24, 2010.
1 Rollo, pp. 9-26.
2 CA rollo, pp. 41-55; penned by Associate Justice Vicente S.E. Veloso and concurred in
by Associate Justices Roberto A. Barrios and Amelita G. Tolentino.
3 Records, pp. 154-162.
4 Id. at 7-9.
5 Id. at 10-11.
6 Id. at 14.
7 Id. at 15-16.
8 Id. at 17-18.
9 Id. at 23-25.
10 Id. at 1-6.
11 Id. at 33-35.
12 Id. at 48-54.
13 Id. at 74.
14 Id. at 75-78.
15 Id. at 97.
16 Id. at 162.
17 Id. at 121-122.
18 332 Phil 525, 550 (1996).
19 41 Phil 670, 686-687 (1916).
20 G.R. No. 109125, December 2, 1994, 238 SCRA 602, 614-615.
21 150-A Phil. 714, 721-722 (1972), citing Southwestern Sugar and Molasses Co. v.
Atlantic Gulf and Pacific Co., 97 Phil. 249 251-252 (1955).

22 G.R. No. 51824, February 7, 1992, 206 SCRA 52, 62, citing Tolentino, Civil Code of the
Philippines, vol. V, 1959 ed., 20-21.
23 432 Phil. 775, 791 (2002).
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Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

ANTHONY ORDUA, DENNIS ORDUA, and ANTONITA ORDUA,

Petitioners,

- versus -

EDUARDO J. FUENTEBELLA, MARCOS S. CID, BENJAMIN F. CID, BERNARD G. BANTA, and

ARMANDO GABRIEL, JR.,
Respondents.
G.R. No. 176841

Present:

CORONA, C.J., Chairperson,

VELASCO, JR.,
LEONARDO-DE CASTRO,
DEL CASTILLO, and
PEREZ, JJ.

Promulgated:

June 29, 2010

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

DECISION

VELASCO, JR., J.:

In this Petition for Review[1] under Rule 45 of the Rules of Court, Anthony Ordua,
Dennis Ordua and Antonita Ordua assail and seek to set aside the Decision[2] of the
Court of Appeals (CA) dated December 4, 2006 in CA-G.R. CV No. 79680, as reiterated in
its Resolution of March 6, 2007, which affirmed the May 26, 2003 Decision[3] of the
Regional Trial Court (RTC), Branch 3 in Baguio City, in Civil Case No. 4984-R, a suit for
annulment of title and reconveyance commenced by herein petitioners against herein
respondents.

Central to the case is a residential lot with an area of 74 square meters located at
Fairview Subdivision, Baguio City, originally registered in the name of Armando Gabriel,
Sr. (Gabriel Sr.) under Transfer Certificate of Title (TCT) No. 67181 of the Registry of
Deeds of Baguio City.[4]

As gathered from the petition, with its enclosures, and the comments thereon of four of
the five respondents,[5] the Court gathers the following relevant facts:

Sometime in 1996 or thereabouts, Gabriel Sr. sold the subject lot to petitioner Antonita
Ordua (Antonita), but no formal deed was executed to document the sale. The contract
price was apparently payable in installments as Antonita remitted from time to time and
Gabriel Sr. accepted partial payments. One of the Orduas would later testify that
Gabriel Sr. agreed to execute a final deed of sale upon full payment of the purchase
price.[6]

As early as 1979, however, Antonita and her sons, Dennis and Anthony Ordua, were
already occupying the subject lot on the basis of some arrangement undisclosed in the
records and even constructed their house thereon. They also paid real property taxes for
the house and declared it for tax purposes, as evidenced by Tax Declaration No. (TD) 9604012-111087[7] in which they place the assessed value of the structure at PhP 20,090.

After the death of Gabriel Sr., his son and namesake, respondent Gabriel Jr., secured TCT
No. T-71499[8] over the subject lot and continued accepting payments from the
petitioners. On December 12, 1996, Gabriel Jr. wrote Antonita authorizing her to fence
off the said lot and to construct a road in the adjacent lot.[9] On December 13, 1996,
Gabriel Jr. acknowledged receipt of a PhP 40,000 payment from petitioners.[10] Through
a letter[11] dated May 1, 1997, Gabriel Jr. acknowledged that petitioner had so far made
an aggregate payment of PhP 65,000, leaving an outstanding balance of PhP 60,000. A
receipt Gabriel Jr. issued dated November 24, 1997 reflected a PhP 10,000 payment.

Despite all those payments made for the subject lot, Gabriel Jr. would later sell it to
Bernard Banta (Bernard) obviously without the knowledge of petitioners, as later
developments would show.

As narrated by the RTC, the lot conveyance from Gabriel Jr. to Bernard was effected
against the following backdrop: Badly in need of money, Gabriel Jr. borrowed from
Bernard the amount of PhP 50,000, payable in two weeks at a fixed interest rate, with
the further condition that the subject lot would answer for the loan in case of default.
Gabriel Jr. failed to pay the loan and this led to the execution of a Deed of Sale[12] dated
June 30, 1999 and the issuance later of TCT No. T-72782[13] for subject lot in the name
of Bernard upon cancellation of TCT No. 71499 in the name of Gabriel, Jr. As the RTC
decision indicated, the reluctant Bernard agreed to acquire the lot, since he had by then
ready buyers in respondents Marcos Cid and Benjamin F. Cid (Marcos and Benjamin or
the Cids).

Subsequently, Bernard sold to the Cids the subject lot for PhP 80,000. Armed with a Deed
of Absolute Sale of a Registered Land[14] dated January 19, 2000, the Cids were able to

cancel TCT No. T-72782 and secure TCT No. 72783[15] covering the subject lot. Just like
in the immediately preceding transaction, the deed of sale between Bernard and the Cids
had respondent Eduardo J. Fuentebella (Eduardo) as one of the instrumental witnesses.

Marcos and Benjamin, in turn, ceded the subject lot to Eduardo through a Deed of
Absolute Sale[16] dated May 11, 2000. Thus, the consequent cancellation of TCT No. T72782 and issuance on May 16, 2000 of TCT No. T-3276[17] over subject lot in the name
of Eduardo.

As successive buyers of the subject lot, Bernard, then Marcos and Benjamin, and finally
Eduardo, checked, so each claimed, the title of their respective predecessors-in-interest
with the Baguio Registry and discovered said title to be free and unencumbered at the
time each purchased the property. Furthermore, respondent Eduardo, before buying the
property, was said to have inspected the same and found it unoccupied by the Orduas.
[18]

Sometime in May 2000, or shortly after his purchase of the subject lot, Eduardo, through
his lawyer, sent a letter addressed to the residence of Gabriel Jr. demanding that all
persons residing on or physically occupying the subject lot vacate the premises or face
the prospect of being ejected.[19]

Learning of Eduardos threat, petitioners went to the residence of Gabriel Jr. at No. 34
Dominican Hill, Baguio City. There, they met Gabriel Jr.s estranged wife, Teresita, who
informed them about her having filed an affidavit-complaint against her husband and the
Cids for falsification of public documents on March 30, 2000. According to Teresita, her
signature on the June 30, 1999 Gabriel Jr.Bernard deed of sale was a forgery. Teresita
further informed the petitioners of her intent to honor the aforementioned 1996 verbal
agreement between Gabriel Sr. and Antonita and the partial payments they gave her
father-in-law and her husband for the subject lot.

On July 3, 2001, petitioners, joined by Teresita, filed a Complaint[20] for Annulment of

Title, Reconveyance with Damages against the respondents before the RTC, docketed as
Civil Case No. 4984-R, specifically praying that TCT No. T-3276 dated May 16, 2000 in the
name of Eduardo be annulled. Corollary to this prayer, petitioners pleaded that Gabriel
Jr.s title to the lot be reinstated and that petitioners be declared as entitled to acquire
ownership of the same upon payment of the remaining balance of the purchase price
therefor agreed upon by Gabriel Sr. and Antonita.

While impleaded and served with summons, Gabriel Jr. opted not to submit an answer.

Ruling of the RTC

By Decision dated May 26, 2003, the RTC ruled for the respondents, as defendants a quo,
and against the petitioners, as plaintiffs therein, the dispositive portion of which reads:

WHEREFORE, the instant complaint is hereby DISMISSED for lack of merit. The
four (4) plaintiffs are hereby ordered by this Court to pay each defendant (except
Armando Gabriel, Jr., Benjamin F. Cid, and Eduardo J. Fuentebella who did not testify on
these damages), Moral Damages of Twenty Thousand (P20,000.00) Pesos, so that each
defendant shall receive Moral Damages of Eighty Thousand (P80,000.00) Pesos each.
Plaintiffs shall also pay all defendants (except Armando Gabriel, Jr., Benjamin F. Cid, and
Eduardo J. Fuentebella who did not testify on these damages), Exemplary Damages of
Ten Thousand (P10,000.00) Pesos each so that each defendant shall receive Forty
Thousand (P40,000.00) Pesos as Exemplary Damages. Also, plaintiffs are ordered to pay
each defendant (except Armando Gabriel, Jr., Benjamin F. Cid, and Eduardo J. Fuentebella
who did not testify on these damages), Fifty Thousand (P50,000.00) Pesos as Attorneys
Fees, jointly and solidarily.

Cost of suit against the plaintiffs.[21]

On the main, the RTC predicated its dismissal action on the basis of the following
grounds and/or premises:

1. Eduardo was a purchaser in good faith and, hence, may avail himself of the provision
of Article 1544[22] of the Civil Code, which provides that in case of double sale, the party
in good faith who is able to register the property has better right over the property;

2. Under Arts. 1356[23] and 1358[24] of the Code, conveyance of real property must be
in the proper form, else it is unenforceable;

3. The verbal sale had no adequate consideration; and

4. Petitioners right of action to assail Eduardos title prescribes in one year from date of
the issuance of such title and the one-year period has already lapsed.

From the above decision, only petitioners appealed to the CA, their appeal docketed as
CA-G.R. CV No. 79680.

The CA Ruling

On December 4, 2006, the appellate court rendered the assailed Decision affirming the
RTC decision. The fallo reads:
WHEREFORE, premises considered, the instant appeal is hereby DISMISSED and the 26
May 2003 Decision of the Regional Trial Court, Branch 3 of Baguio City in Civil Case No.
4989-R is hereby AFFIRMED.

SO ORDERED.[25]

Hence, the instant petition on the submission that the appellate court committed
reversible error of law:

1.
xxx WHEN IT HELD THAT THE SALE OF THE SUBJECT LOT BY ARMANDO GABRIEL,
SR. AND RESPONDENT ARMANDO GABRIEL, JR. TO THE PETITIONERS IS UNENFORCEABLE.

2.
xxx IN NOT FINDING THAT THE SALE OF THE SUBJECT LOT BY RESPONDENT
ARMANDO GABRIEL, JR. TO RESPONDENT BERNARD BANTA AND ITS SUBSEQUENT SALE
BY THE LATTER TO HIS CO-RESPONDENTS ARE NULL AND VOID.

3.

xxx IN NOT FINDING THAT THE RESPONDENTS ARE BUYERS IN BAD FAITH

4.
xxx IN FINDING THAT THE SALE OF THE SUBJECT LOT BETWEEN GABRIEL, SR. AND
RESPONDENT GABRIEL, JR. AND THE PETITIONERS HAS NO ADEQUATE CONSIDERATION.

5.

xxx IN RULING THAT THE INSTANT ACTION HAD ALREADY PRESCRIBED.

6.
xxx IN FINDING THAT THE PLAINTIFFS-APPELLANTS ARE LIABLE FOR MORAL AND
EXEMPLARY DAMAGES AND ATTORNEYS FEES.[26]

The Courts Ruling

The core issues tendered in this appeal may be reduced to four and formulated as
follows, to wit: first, whether or not the sale of the subject lot by Gabriel Sr. to Antonita
is unenforceable under the Statute of Frauds; second, whether or not such sale has
adequate consideration; third, whether the instant action has already prescribed; and,
fourth, whether or not respondents are purchasers in good faith.
The petition is meritorious.

Statute of Frauds Inapplicable

to Partially Executed Contracts

It is undisputed that Gabriel Sr., during his lifetime, sold the subject property to Antonita,
the purchase price payable on installment basis. Gabriel Sr. appeared to have been a
recipient of some partial payments. After his death, his son duly recognized the sale by
accepting payments and issuing what may be considered as receipts therefor. Gabriel Jr.,
in a gesture virtually acknowledging the petitioners dominion of the property, authorized
them to construct a fence around it. And no less than his wife, Teresita, testified as to
the fact of sale and of payments received.

Pursuant to such sale, Antonita and her two sons established their residence on the lot,
occupying the house they earlier constructed thereon. They later declared the property
for tax purposes, as evidenced by the issuance of TD 96-04012-111087 in their or

Antonitas name, and paid the real estates due thereon, obviously as sign that they are
occupying the lot in the concept of owners.

Given the foregoing perspective, Eduardos assertion in his Answer that persons
appeared in the property[27] only after he initiated ejectment proceedings[28] is
clearly baseless. If indeed petitioners entered and took possession of the property after
he (Eduardo) instituted the ejectment suit, how could they explain the fact that he sent a
demand letter to vacate sometime in May 2000?

With the foregoing factual antecedents, the question to be resolved is whether or not the
Statute of Frauds bars the enforcement of the verbal sale contract between Gabriel Sr.
and Antonita.
The CA, just as the RTC, ruled that the contract is unenforceable for non-compliance with
the Statute of Frauds.

We disagree for several reasons. Foremost of these is that the Statute of Frauds
expressed in Article 1403, par. (2),[29] of the Civil Code applies only to executory
contracts, i.e., those where no performance has yet been made. Stated a bit differently,
the legal consequence of non-compliance with the Statute does not come into play
where the contract in question is completed, executed, or partially consummated.[30]

The Statute of Frauds, in context, provides that a contract for the sale of real property or
of an interest therein shall be unenforceable unless the sale or some note or
memorandum thereof is in writing and subscribed by the party or his agent. However,
where the verbal contract of sale has been partially executed through the partial
payments made by one party duly received by the vendor, as in the present case, the
contract is taken out of the scope of the Statute.

The purpose of the Statute is to prevent fraud and perjury in the enforcement of
obligations depending for their evidence on the unassisted memory of witnesses, by
requiring certain enumerated contracts and transactions to be evidenced by a writing
signed by the party to be charged.[31] The Statute requires certain contracts to be
evidenced by some note or memorandum in order to be enforceable. The term Statute
of Frauds is descriptive of statutes that require certain classes of contracts to be in
writing. The Statute does not deprive the parties of the right to contract with respect to
the matters therein involved, but merely regulates the formalities of the contract
necessary to render it enforceable.[32]

Since contracts are generally obligatory in whatever form they may have been entered
into, provided all the essential requisites for their validity are present,[33] the Statute
simply provides the method by which the contracts enumerated in Art. 1403 (2) may be
proved but does not declare them invalid because they are not reduced to writing. In
fine, the form required under the Statute is for convenience or evidentiary purposes only.

There can be no serious argument about the partial execution of the sale in question.
The records show that petitioners had, on separate occasions, given Gabriel Sr. and
Gabriel Jr. sums of money as partial payments of the purchase price. These payments
were duly receipted by Gabriel Jr. To recall, in his letter of May 1, 1997, Gabriel, Jr.
acknowledged having received the aggregate payment of PhP 65,000 from petitioners
with the balance of PhP 60,000 still remaining unpaid. But on top of the partial payments
thus made, possession of the subject of the sale had been transferred to Antonita as
buyer. Owing thus to its partial execution, the subject sale is no longer within the
purview of the Statute of Frauds.

Lest it be overlooked, a contract that infringes the Statute of Frauds is ratified by the
acceptance of benefits under the contract.[34] Evidently, Gabriel, Jr., as his father earlier,
had benefited from the partial payments made by the petitioners. Thus, neither Gabriel
Jr. nor the other respondentssuccessive purchasers of subject lotscould plausibly set
up the Statute of Frauds to thwart petitioners efforts towards establishing their lawful
right over the subject lot and removing any cloud in their title. As it were, petitioners
need only to pay the outstanding balance of the purchase price and that would complete
the execution of the oral sale.

There was Adequate Consideration

Without directly saying so, the trial court held that the petitioners cannot sue upon the
oral sale since in its own words: x x x for more than a decade, [petitioners] have not
paid in full Armando Gabriel, Sr. or his estate, so that the sale transaction between
Armando Gabriel Sr. and [petitioners] [has] no adequate consideration.

The trial courts posture, with which the CA effectively concurred, is patently flawed. For
starters, they equated incomplete payment of the purchase price with inadequacy of
price or what passes as lesion, when both are different civil law concepts with differing
legal consequences, the first being a ground to rescind an otherwise valid and
enforceable contract. Perceived inadequacy of price, on the other hand, is not a sufficient
ground for setting aside a sale freely entered into, save perhaps when the inadequacy is
shocking to the conscience.[35]

The Court to be sure takes stock of the fact that the contracting parties to the 1995 or
1996 sale agreed to a purchase price of PhP 125,000 payable on installments. But the
original lot owner, Gabriel Sr., died before full payment can be effected. Nevertheless,
petitioners continued remitting payments to Gabriel, Jr., who sold the subject lot to
Bernard on June 30, 1999. Gabriel, Jr., as may be noted, parted with the property only
for PhP 50,000. On the other hand, Bernard sold it for PhP 80,000 to Marcos and
Benjamin. From the foregoing price figures, what is abundantly clear is that what
Antonita agreed to pay Gabriel, Sr., albeit in installment, was very much more than what
his son, for the same lot, received from his buyer and the latters buyer later. The Court,
therefore, cannot see its way clear as to how the RTC arrived at its simplistic conclusion
about the transaction between Gabriel Sr. and Antonita being without adequate
consideration.

The Issues of Prescription and the Bona

Fides of the Respondents as Purchasers

Considering the interrelation of these two issues, we will discuss them jointly.

There can be no quibbling about the fraudulent nature of the conveyance of the subject
lot effected by Gabriel Jr. in favor of Bernard. It is understandable that after his fathers
death, Gabriel Jr. inherited subject lot and for which he was issued TCT No. No. T-71499.
Since the Gabriel Sr. Antonita sales transaction called for payment of the contract price
in installments, it is also understandable why the title to the property remained with the
Gabriels. And after the demise of his father, Gabriel Jr. received payments from the
Orduas and even authorized them to enclose the subject lot with a fence. In sum,
Gabriel Jr. knew fully well about the sale and is bound by the contract as predecessor-ininterest of Gabriel Sr. over the property thus sold.

Yet, the other respondents (purchasers of subject lot) still maintain that they are
innocent purchasers for value whose rights are protected by law and besides which
prescription has set in against petitioners action for annulment of title and
reconveyance.

The RTC and necessarily the CA found the purchaser-respondents thesis on prescription
correct stating in this regard that Eduardos TCT No. T-3276 was issued on May 16, 2000
while petitioners filed their complaint for annulment only on July 3, 2001. To the courts

below, the one-year prescriptive period to assail the issuance of a certificate of title had
already elapsed.

We are not persuaded.

The basic complaint, as couched, ultimately seeks the reconveyance of a fraudulently

registered piece of residential land. Having possession of the subject lot, petitioners
right to the reconveyance thereof, and the annulment of the covering title, has not
prescribed or is not time-barred. This is so for an action for annulment of title or
reconveyance based on fraud is imprescriptible where the suitor is in possession of the
property subject of the acts,[36] the action partaking as it does of a suit for quieting of
title which is imprescriptible.[37] Such is the case in this instance. Petitioners have
possession of subject lots as owners having purchased the same from Gabriel, Sr. subject
only to the full payment of the agreed price.

The prescriptive period for the reconveyance of fraudulently registered real property is
10 years, reckoned from the date of the issuance of the certificate of title, if the plaintiff
is not in possession, but imprescriptible if he is in possession of the property.[38] Thus,
one who is in actual possession of a piece of land claiming to be the owner thereof may
wait until his possession is disturbed or his title is attacked before taking steps to
vindicate his right.[39] As it is, petitioners action for reconveyance is imprescriptible.

This brings us to the question of whether or not the respondent-purchasers, i.e., Bernard,
Marcos and Benjamin, and Eduardo, have the status of innocent purchasers for value, as
was the thrust of the trial courts disquisition and disposition.

We are unable to agree with the RTC.

It is the common defense of the respondent-purchasers that they each checked the title
of the subject lot when it was his turn to acquire the same and found it clean, meaning
without annotation of any encumbrance or adverse third party interest. And it is upon
this postulate that each claims to be an innocent purchaser for value, or one who buys
the property of another without notice that some other person has a right to or interest
in it, and who pays therefor a full and fair price at the time of the purchase or before
receiving such notice.[40]

The general rule is that one dealing with a parcel of land registered under the Torrens
System may safely rely on the correctness of the certificate of title issued therefor and is
not obliged to go beyond the certificate.[41] Where, in other words, the certificate of
title is in the name of the seller, the innocent purchaser for value has the right to rely on
what appears on the certificate, as he is charged with notice only of burdens or claims on
the res as noted in the certificate. Another formulation of the rule is that (a) in the
absence of anything to arouse suspicion or (b) except where the party has actual
knowledge of facts and circumstances that would impel a reasonably cautious man to
make such inquiry or (c) when the purchaser has knowledge of a defect of title in his
vendor or of sufficient facts to induce a reasonably prudent man to inquire into the
status of the title of the property,[42] said purchaser is without obligation to look beyond
the certificate and investigate the title of the seller.
Eduardo and, for that matter, Bernard and Marcos and Benjamin, can hardly claim to be
innocent purchasers for value or purchasers in good faith. For each knew or was at least
expected to know that somebody else other than Gabriel, Jr. has a right or interest over
the lot. This is borne by the fact that the initial seller, Gabriel Jr., was not in possession
of subject property. With respect to Marcos and Benjamin, they knew as buyers that
Bernard, the seller, was not also in possession of the same property. The same goes with
Eduardo, as buyer, with respect to Marcos and Benjamin.

Basic is the rule that a buyer of a piece of land which is in the actual possession of
persons other than the seller must be wary and should investigate the rights of those in
possession. Otherwise, without such inquiry, the buyer can hardly be regarded as a
buyer in good faith. When a man proposes to buy or deal with realty, his duty is to read
the public manuscript, i.e., to look and see who is there upon it and what his rights are.
A want of caution and diligence which an honest man of ordinary prudence is
accustomed to exercise in making purchases is, in contemplation of law, a want of good
faith. The buyer who has failed to know or discover that the land sold to him is in
adverse possession of another is a buyer in bad faith.[43]

Where the land sold is in the possession of a person other than the vendor, the
purchaser must go beyond the certificates of title and make inquiries concerning the
rights of the actual possessor.[44] And where, as in the instant case, Gabriel Jr. and the
subsequent vendors were not in possession of the property, the prospective vendees are
obliged to investigate the rights of the one in possession. Evidently, Bernard, Marcos
and Benjamin, and Eduardo did not investigate the rights over the subject lot of the
petitioners who, during the period material to this case, were in actual possession
thereof. Bernard, et al. are, thus, not purchasers in good faith and, as such, cannot be
accorded the protection extended by the law to such purchasers.[45] Moreover, not
being purchasers in good faith, their having registered the sale, will not, as against the
petitioners, carry the day for any of them under Art. 1544 of the Civil Code prescribing
rules on preference in case of double sales of immovable property. Occea v.
Esponilla[46] laid down the following rules in the application of Art. 1544: (1) knowledge
by the first buyer of the second sale cannot defeat the first buyers rights except when

the second buyer first register in good faith the second sale; and (2) knowledge gained
by the second buyer of the first sale defeats his rights even if he is first to register, since
such knowledge taints his registration with bad faith.

Upon the facts obtaining in this case, the act of registration by any of the three
respondent-purchasers was not coupled with good faith. At the minimum, each was
aware or is at least presumed to be aware of facts which should put him upon such
inquiry and investigation as might be necessary to acquaint him with the defects in the
title of his vendor.

The award by the lower courts of damages and attorneys fees to some of the herein
respondents was predicated on the filing by the original plaintiffs of what the RTC
characterized as an unwarranted suit. The basis of the award, needless to stress, no
longer obtains and, hence, the same is set aside.

WHEREFORE, the petition is hereby GRANTED. The appealed December 4, 2006 Decision
and the March 6, 2007 Resolution of the Court of Appeals in CA-G.R. CV No. 79680
affirming the May 26, 2003 Decision of the Regional Trial Court, Branch 3 in Baguio City
are hereby REVERSED and SET ASIDE. Accordingly, petitioner Antonita Ordua is hereby
recognized to have the right of ownership over subject lot covered by TCT No. T-3276 of
the Baguio Registry registered in the name of Eduardo J. Fuentebella. The Register of
Deeds of Baguio City is hereby ORDERED to cancel said TCT No. T-3276 and to issue a
new one in the name of Armando Gabriel, Jr. with the proper annotation of the
conditional sale of the lot covered by said title in favor of Antonita Ordua subject to the
payment of the PhP 50,000 outstanding balance. Upon full payment of the purchase
price by Antonita Ordua, Armando Gabriel, Jr. is ORDERED to execute a Deed of
Absolute Sale for the transfer of title of subject lot to the name of Antonita Ordua,
within three (3) days from receipt of said payment.

No pronouncement as to costs.

SO ORDERED.

PRESBITERO J. VELASCO, JR.

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the
conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA
Chief Justice

-------------------------------------------------------------------------------[1] Rollo, pp. 9-24, dated April 21, 2007.

[2] Id. at 25-35. Penned by Associate Justice Arturo G. Tayag and concurred in by
Associate Justices Remedios A. Salazar-Fernando and Noel G. Tijam.
[3] Id. at 38-49. Penned by Presiding Judge Fernando Vil Pamintuan.
[4] Exh. D.
[5] Respondent Gabriel, Jr. did not file his comment.
[6] RTC Decision, p. 5, Rollo, p. 42.
[7] Exh. A.
[8] Records, p. 221.
[9] Exh. H
[10] Exh. G.
[11] Exh. E.
[12] Exh. J. Records, p. 223. Also Exh. 1.
[13] Exh. K.
[14] Records, p. 226.
[15] Exh. M.
[16] Records, p. 230. Exh. N.
[17] Id. at 232.
[18] Rollo, p. 40
[19] Id. at 39.
[20] Id. at 56-61.
[21] Supra note 3 at 48-49.
[22] Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof, to the person who presents
the oldest title, provided there is good faith.
[23] Art. 1356. Contracts shall be obligatory, in whatever form they may have been
entered into, provided all the essential requisites for their validity are present. However,
when the law requires that a contract be in some form in order that it may be valid or
enforceable, or that a contract to be proved in a certain way, that requirement is
absolute and indispensable. In such cases, the right of the parties stated in the following
article cannot be exercised.
[24] Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property; sales of real
property or of an interest therein are governed by Articles 1403, No. 2, and 1405;
xxxx
(4) The cession of actions or rights proceeding from an act appearing in a public
document.
All other contracts where the amount involved exceeds Five hundred pesos must appear
in writing even a private one. But sales of goods, chattels or things in action are
governed by Articles 1403, No. 2 and 1405.
[25] Supra note 2 at 34-35.
[26] Supra note 1 at 14-15.
[27] Rollo, p. 40.
[28] Id.
[29] Art. 1403. The following contracts are unenforceable, unless they are ratified:
xxx
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In
the following cases an agreement hereafter made shall be unenforceable by action,
unless the same, or some note or memorandum thereof, be in writing, and subscribed by
the party charged, or by his agent; evidence, therefore, of the agreement cannot be
received without the writing, or a secondary evidence of its contents:
xxxx
(e) An agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;
xxx

[30] Arrogante v. Deliarte, G.R. No. 152132, July 24, 2007, 528 SCRA 63, 74, citing Averia
v. Averia, G.R. No. 141877, August 13, 2004, 436 SCRA 459, 466.
[31] Asia Productions Co., Inc. v. Pao, G.R. No. 51058, January 27, 1992, 205 SCRA 458,
465, citing C.J.S. 513; Shoemaker v. La Tondea, 68 Phil. 24 (1939).
[32] Rosencor Development Corporation v. Court of Appeals, G.R. No. 140479, March 8,
2001, 354 SCRA 119, 127.
[33] Art. 1356, Civil Code.
[34] Article 1405, Civil Code, which states:
Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified
by the failure to object to the presentation of oral evidence to prove the same, or by the
acceptance of benefits under them.
[35] 4 Paras, Civil Code of the Philippines Annotated 723 (13th ed., 1995).
[36] Llemos v. Llemos, G.R. No. 150162, January 26, 2007, 513 SCRA 128, 134; citing
Occea v. Esponilla, G.R. No. 156973, June 4, 2004, 431 SCRA 116, 126; and Delfin v.
Billones, G.R. No. 146550, March 17, 2006, 485 SCRA 38, 47-48.
[37] Occea v. Esponilla, G.R. No. 156973, June 4, 2004, 431 SCRA 116.
[38] Heirs of Salvador Hermosilla v. Remoquillo, G.R. No. 167320, January 30, 2007, 513
SCRA 403, 408-409.
[39] Id. at 409; citing Arlegui v. Court of Appeals, G.R. No. 126437, March 6, 2002, 378
SCRA 322, 324.
[40] Potenciano v. Reynoso, G.R. No. 140707, April 22, 2003, 401 SCRA 391, 401-402;
citing Tsai v. Court of Appeals, G.R. No. 120109, October 2, 2001, 366 SCRA 324.
[41] Republic v. Mendoza, Sr., G.R. Nos. 153726 & 154014, March 28, 2007, 519 SCRA
203, 231.
[42] Sandoval v. Court of Appeals, G.R. No. 106657, August 1, 1996, 260 SCRA 283, 295.
[43] Embrado v. Court of Appeals, G.R. No. 51457, June 27, 1994, 233 SCRA 335, 347;
citing J.M. Tuason & Co., Inc. v. Court of Appeals, No. L-41233, November 21, 1979, 94
SCRA 413, 422-423 and Angelo v. Pacheco, 56 Phil. 70 (1931).
[44] Heirs of Trinidad De Leon Vda. de Roxas v. Court of Appeals, G.R. No. 138660,
February 5, 2004, 422 SCRA 101, 117; citing Development Bank of the Philippines v.
Court of Appeals, G.R. No. 129471, April 28, 2000, 331 SCRA 267.
[45] Sec. 32 of Presidential Decree No. 1529, which provides:

Section 32. Review of decree of registration; Innocent purchaser for value.The decree
of registration shall not be reopened or revised by reason of absence, minority, or other
disability of any person adversely affected thereby, nor by any proceeding in any court
for reversing judgments, subject, however, to the right of any person, x x x deprived of
land or of any estate or interest therein by such adjudication or confirmation of title
obtained by actual fraud, to file in the proper [RTC] a petition for reopening and review of
the decree of registration not later than one year from and after the date of the entry of
such decree of registration, but in no case shall such petition be entertained by the court
where an innocent purchaser for value has acquired the land or an interest therein,
whose rights may be prejudiced. Whenever the phrase innocent purchaser for value or
an equivalent phrase occurs in this Decree, it shall be deemed to include an innocent
lessee, mortgagee, or other encumbrance for value.
Upon the expiration of said period of one year, the decree of registration and the
certificate of title issued shall become incontrovertible. Any person aggrieved by such
decree of registration in any case may pursue his remedy by action for damages against
the applicant or any other persons responsible for the fraud.
[46] Supra note 37.
FIRST DIVISION

POLYTECHNIC UNIVERSITY
OF THE PHILIPPINES,
Petitioner,

- versus -

GOLDEN HORIZON REALTY

CORPORATION,
Respondent.
G.R. No. 183612

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

NATIONAL DEVELOPMENT
COMPANY,
Petitioner,

- versus -

GOLDEN HORIZON REALTY

CORPORATION,
Respondent.

G.R. No. 184260

Present:

PUNO, C.J., Chairperson,

CARPIO MORALES,
LEONARDO-DE CASTRO,
BERSAMIN, and
VILLARAMA, JR., JJ.

Promulgated:

March 15, 2010

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

DECISION

VILLARAMA, JR., J.:

The above-titled consolidated petitions filed under Rule 45 of the 1997 Rules of
Civil Procedure, as amended, seek to reverse the Decision[1] dated June 25, 2008 and
Resolution dated August 22, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 84399
which affirmed the Decision[2] dated November 25, 2004 of the Regional Trial Court
(RTC) of Makati City, Branch 144 in Civil Case No. 88-2238.
The undisputed facts are as follows:
Petitioner National Development Company (NDC) is a government- owned and
controlled corporation, created under Commonwealth Act No. 182, as amended by Com.
Act No. 311 and Presidential Decree (P.D.) No. 668. Petitioner Polytechnic University of
the Philippines (PUP) is a public, non-sectarian, non-profit educational institution created
in 1978 by virtue of P.D. No. 1341.
In the early sixties, NDC had in its disposal a ten (10)-hectare property located
along Pureza St., Sta. Mesa, Manila. The estate was popularly known as the NDC
Compound and covered by Transfer Certificate of Title Nos. 92885, 110301 and 145470.
On September 7, 1977, NDC entered into a Contract of Lease (C-33-77) with Golden
Horizon Realty Corporation (GHRC) over a portion of the property, with an area of 2,407
square meters for a period of ten (10) years, renewable for another ten (10) years with
mutual consent of the parties.[3]
On May 4, 1978, a second Contract of Lease (C-12-78) was executed between NDC
and GHRC covering 3,222.80 square meters, also renewable upon mutual consent after
the expiration of the ten (10)-year lease period. In addition, GHRC as lessee was granted
the option to purchase the area leased, the price to be negotiated and determined at
the time the option to purchase is exercised.[4]
Under the lease agreements, GHRC was obliged to construct at its own expense
buildings of strong material at no less than the stipulated cost, and other improvements
which shall automatically belong to the NDC as lessor upon the expiration of the lease
period. Accordingly, GHRC introduced permanent improvements and structures as
required by the terms of the contract. After the completion of the industrial complex
project, for which GHRC spent P5 million, it was leased to various manufacturers,
industrialists and other businessmen thereby generating hundreds of jobs.[5]
On June 13, 1988, before the expiration of the ten (10)-year period under the
second lease contract, GHRC wrote a letter to NDC indicating its exercise of the option to

renew the lease for another ten (10) years. As no response was received from NDC,
GHRC sent another letter on August 12, 1988, reiterating its desire to renew the contract
and also requesting for priority to negotiate for its purchase should NDC opt to sell the
leased premises.[6] NDC still did not reply but continued to accept rental payments from
GHRC and allowed the latter to remain in possession of the property.
Sometime after September 1988, GHRC discovered that NDC had decided to
secretly dispose the property to a third party. On October 21, 1988, GHRC filed in the RTC
a complaint for specific performance, damages with preliminary injunction and
temporary restraining order.[7]
In the meantime, then President Corazon C. Aquino issued Memorandum Order No.
214 dated January 6, 1989, ordering the transfer of the whole NDC Compound to the
National Government, which in turn would convey the said property in favor of PUP at
acquisition cost. The memorandum order cited the serious need of PUP, considered the
Poor Mans University, to expand its campus, which adjoins the NDC Compound, to
accommodate its growing student population, and the willingness of PUP to buy and of
NDC to sell its property. The order of conveyance of the 10.31-hectare property would
automatically result in the cancellation of NDCs total obligation in favor of the National
Government in the amount of P57,193,201.64.[8]
On February 20, 1989, the RTC issued a writ of preliminary injunction enjoining NDC
and its attorneys, representatives, agents and any other persons assisting it from
proceeding with the sale and disposition of the leased premises.[9]
On February 23, 1989, PUP filed a motion to intervene as party defendant, claiming
that as a purchaser pendente lite of a property subject of litigation it is entitled to
intervene in the proceedings. The RTC granted the said motion and directed PUP to file
its Answer-in-Intervention.[10]
PUP also demanded that GHRC vacate the premises, insisting that the latters lease
contract had already expired. Its demand letter unheeded by GHRC, PUP filed an
ejectment case (Civil Case No. 134416) before the Metropolitan Trial Court (MeTC) of
Manila on January 14, 1991.[11]
Due to this development, GHRC filed an Amended and/or Supplemental Complaint
to include as additional defendants PUP, Honorable Executive Secretary Oscar Orbos and
Judge Ernesto A. Reyes of the Manila MeTC, and to enjoin the afore-mentioned
defendants from prosecuting Civil Case No. 134416 for ejectment. A temporary
restraining order was subsequently issued by the RTC enjoining PUP from prosecuting
and Judge Francisco Brillantes, Jr. from proceeding with the ejectment case.[12]
In its Second Amended and/or Supplemental Complaint, GHRC argued that
Memorandum Order No. 214 is a nullity, for being violative of the writ of injunction issued
by the trial court, apart from being an infringement of the Constitutional prohibition
against impairment of obligation of contracts, an encroachment on legislative functions
and a bill of attainder. In the alternative, should the trial court adjudge the memorandum
order as valid, GHRC contended that its existing right must still be respected by allowing
it to purchase the leased premises.[13]

Pre-trial was set but was suspended upon agreement of the parties to await the
final resolution of a similar case involving NDC, PUP and another lessee of NDC, Firestone
Ceramics, Inc. (Firestone), then pending before the RTC of Pasay City.[14]
On November 14, 2001, this Court rendered a decision in G.R. Nos. 143513
(Polytechnic University of the Philippines v. Court of Appeals) and 143590 (National
Development Corporation v. Firestone Ceramics, Inc.),[15] which declared that the sale
to PUP by NDC of the portion leased by Firestone pursuant to Memorandum Order No.
214 violated the right of first refusal granted to Firestone under its third lease contract
with NDC. We thus decreed:
WHEREFORE, the petitions in G.R. No. 143513 and G.R. No. 143590 are DENIED.
Inasmuch as the first contract of lease fixed the area of the leased premises at 2.90118
hectares while the second contract placed it at 2.60 hectares, let a ground survey of the
leased premises be immediately conducted by a duly licensed, registered surveyor at the
expense of private respondent FIRESTONE CERAMICS, INC., within two (2) months from
the finality of the judgment in this case. Thereafter, private respondent FIRESTONE
CERAMICS, INC., shall have six (6) months from receipt of the approved survey within
which to exercise its right to purchase the leased property at P1,500.00 per square
meter, and petitioner Polytechnic University of the Philippines is ordered to reconvey the
property to FIRESTONE CERAMICS, INC., in the exercise of its right of first refusal upon
payment of the purchase price thereof.

SO ORDERED.[16]

The RTC resumed the proceedings and when mediation and pre-trial failed to settle
the case amicably, trial on the merits ensued.[17]
On November 25, 2004, the RTC rendered its decision upholding the right of first
refusal granted to GHRC under its lease contract with NDC and ordering PUP to reconvey
the said portion of the property in favor of GHRC. The dispositive portion reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff
and against the defendants ordering the plaintiff to cause immediate ground survey of
the premises subject of the leased contract under Lease Contract No. C-33-77 and C-1278 measuring 2,407 and 3,222.8 square meters respectively, by a duly licensed and
registered surveyor at the expense of the plaintiff within two months from receipt of this
Decision and thereafter, the plaintiff shall have six (6) months from receipt of the
approved survey within which to exercise its right to purchase the leased property at
P554.74 per square meter. And finally, the defendant PUP, in whose name the property
is titled, is hereby ordered to reconvey the aforesaid property to the plaintiff in the
exercise of its right of its option to buy or first refusal upon payment of the purchase
price thereof.

The defendant NDC is hereby further ordered to pay the plaintiff attorneys fees in the
amount of P100,000.00.

The case against defendant Executive Secretary is dismissed and this decision shall bind
defendant Metropolitan Trial Court, Branch 20 of Manila.

With costs against defendants NDC and PUP.

SO ORDERED.[18]

NDC and PUP separately appealed the decision to the CA.[19] By Decision of June
25, 2008, the CA affirmed in toto the decision of the RTC.[20]
Both the RTC and the CA applied this Courts ruling in Polytechnic University of the
Philippines v. Court of Appeals (supra), considering that GHRC is similarly situated as a
lessee of NDC whose right of first refusal under the lease contract was violated by the
sale of the property to PUP without NDC having first offered to sell the same to GHRC
despite the latters request for the renewal of the lease and/or to purchase the leased
premises prior to the expiration of the second lease contract. The CA further agreed with
the RTCs finding that there was an implied renewal of the lease upon the failure of NDC
to act on GHRCs repeated requests for renewal of the lease contract, both verbal and
written, and continuing to accept monthly rental payments from GHRC which was
allowed to continue in possession of the leased premises.
The CA also rejected the argument of NDC and PUP that even assuming that GHRC
had the right of first refusal, said right pertained only to the second lease contract, C-1278 covering 3,222.80 square meters, and not to the first lease contract, C-33-77 covering
2,407 square meters, which had already expired. It sustained the RTCs finding that the
two (2) lease contracts were interrelated because each formed part of GHRCs industrial
complex, such that business operations would be rendered useless and inoperative if the
first contract were to be detached from the other, as similarly held in the aforementioned case of Polytechnic University of the Philippines v. Court of Appeals.
Petitioner PUP argues that respondents right to exercise the option to purchase
had expired with the termination of the original contract of lease and was not carried
over to the subsequent implied new lease between respondent and petitioner NDC. As
testified to by their witnesses Leticia Cabantog and Atty. Rhoel Mabazza, there was no
agreement or document to the effect that respondents request for extension or renewal
of the subject contracts of lease for another ten (10) years was approved by NDC.
Hence, respondent can no longer exercise the option to purchase the leased premises
when the same were conveyed to PUP pursuant to Memorandum Order No. 214 dated
January 6, 1989, long after the expiration of C-33-77 and C-12-78 in September 1988.
[21]

Petitioner PUP further contends that while it is conceded that there was an implied
new lease between respondent and petitioner NDC after the expiration of the lease
contracts, the same did not include the right of first refusal originally granted to
respondent. The CA should have applied the ruling in Dizon v. Magsaysay[22] that the
lessee cannot any more exercise its option to purchase after the lapse of the one (1)-year
period of the lease contract. With the implicit renewal of the lease on a monthly basis,
the other terms of the original contract of lease which are revived in the implied new
lease under Article 1670 of the Civil Code are only those terms which are germane to the
lessees right of continued enjoyment of the property leased. The provision entitling the
lessee the option to purchase the leased premises is not deemed incorporated in the
impliedly renewed contract because it is alien to the possession of the lessee.
Consequently, as in this case, respondents right of option to purchase the leased
premises was not violated despite the impliedly renewed contract of lease with NDC.
Respondent cannot favorably invoke the decision in G.R. Nos. 143513 and 143590
(Polytechnic University of the Philippines v. Court of Appeals) for the simple reason,
among others, that unlike in said cases, the contracts of lease of respondent with NDC
were not mutually extended or renewed for another ten (10) years. Thus, when the
leased premises were conveyed to PUP, respondent did not any more have any right of
first refusal, which incidentally appears only in the second lease contract and not in the
first lease contract.[23]
On its part, petitioner NDC assails the CA in holding that the contracts of lease
were impliedly renewed for another ten (10)-year period. The provisions of C-33-77 and
C-12-78 clearly state that the lessee is granted the option to renew for another ten (10)
years with the mutual consent of both parties. As regards the continued receipt of
rentals by NDC and possession by the respondent of the leased premises, the impliedly
renewed lease was only month-to-month and not ten (10) years since the rentals are
being paid on a monthly basis, as held in Dizon v. Magsaysay.[24]
Petitioner NDC further faults the CA in sustaining the RTCs decision which
erroneously granted respondent the option to purchase the leased premises at the rate
of P554.74 per square meter, the same rate for which NDC sold the property to petitioner
PUP and/or the National Government, which is the mere acquisition cost thereof. It must
be noted that such consideration or rate was imposed by Memorandum Order No. 214
under the premise that it shall, in effect, be a sale and/or purchase from one (1)
government agency to another. It was intended merely as a transfer of one (1) user of
the National Government to another, with the beneficiary, PUP in this case, merely
returning to the petitioner/transferor the cost of acquisition thereof, as appearing on its
accounting books. It does not in any way reflect the true and fair market value of the
property, nor was it a price a willing seller would demand and accept for parting with
his real property. Such benefit, therefore, cannot be extended to respondent as a
private entity, as the latter does not share the same pocket, so to speak, with the
National Government.[25]
The issue to be resolved is whether or not our ruling in Polytechnic University of the
Philippines v. Court of Appeals applies in this case involving another lessee of NDC who
claimed that the option to purchase the portion leased to it was similarly violated by the
sale of the NDC Compound in favor of PUP pursuant to Memorandum Order No. 214.
We rule in the affirmative.

The second lease contract contained the following provision:

III. It is mutually agreed by the parties that this Contract of Lease shall be in full force
and effect for a period of ten (10) years counted from the effectivity of the payment of
rental as provided under sub-paragraph (b) of Article I, with option to renew for another
ten (10) years with the mutual consent of both parties. In no case should the rentals be
increased by more than 100% of the original amount fixed.

Lessee shall also have the option to purchase the area leased, the price to be negotiated
and determined at the time the option to purchase is exercised. [emphasis supplied]

An option is a contract by which the owner of the property agrees with another
person that the latter shall have the right to buy the formers property at a fixed price
within a certain time. It is a condition offered 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.[26] It binds the
party, who has given the option, not to enter into the principal contract with any other
person during the period designated, and, within that period, to enter into such contract
with the one to whom the option was granted, if the latter should decide to use the
option.[27]
Upon the other hand, a right of first refusal is a contractual grant, not of the sale of
a property, but of the first priority to buy the property in the event the owner sells the
same.[28] As distinguished from an option contract, in a right of first refusal, while the
object might be made determinate, the exercise of the right of first refusal would be
dependent not only on the owners eventual intention to enter into a binding juridical
relation with another but also on terms, including the price, that are yet to be firmed up.
[29]
As the option to purchase clause in the second lease contract has no definite
period within which the leased premises will be offered for sale to respondent lessee and
the price is made subject to negotiation and determined only at the time the option to
buy is exercised, it is obviously a mere right of refusal, usually inserted in lease contracts
to give the lessee the first crack to buy the property in case the lessor decides to sell the
same. That respondent was granted a right of first refusal under the second lease
contract appears not to have been disputed by petitioners. What petitioners assail is the
CAs erroneous conclusion that such right of refusal subsisted even after the expiration of
the original lease period, when respondent was allowed to continue staying in the leased
premises under an implied renewal of the lease and without the right of refusal carried
over to such month-to-month lease. Petitioners thus maintain that no right of refusal was
violated by the sale of the property in favor of PUP pursuant to Memorandum Order No.
214.

Petitioners position is untenable.

When a lease contract contains a right of first refusal, the lessor has the legal duty
to the lessee not to sell the leased property to anyone at any price until after the lessor
has made an offer to sell the property to the lessee and the lessee has failed to accept it.
Only after the lessee has failed to exercise his right of first priority could the lessor sell
the property to other buyers under the same terms and conditions offered to the lessee,
or under terms and conditions more favorable to the lessor.[30]
Records showed that during the hearing on the application for a writ of preliminary
injunction, respondent adduced in evidence a letter of Antonio A. Henson dated 15 July
1988 addressed to Mr. Jake C. Lagonera, Director and Special Assistant to Executive
Secretary Catalino Macaraeg, reviewing a proposed memorandum order submitted to
President Corazon C. Aquino transferring the whole NDC Compound, including the
premises leased by respondent, in favor of petitioner PUP. This letter was offered in
evidence by respondent to prove the existence of documents as of that date and even
prior to the expiration of the second lease contract or the lapse of the ten (10)-year
period counted from the effectivity of the rental payment -- that is, one hundred and fifty
(150) days from the signing of the contract (May 4, 1978), as provided in Art. I,
paragraph (b) of C-12-78, or on October 1, 1988.
Respondent thus timely exercised its option to purchase on August 12, 1988.
However, considering that NDC had been negotiating through the National Government
for the sale of the property in favor of PUP as early as July 15, 1988 without first offering
to sell it to respondent and even when respondent communicated its desire to exercise
the option to purchase granted to it under the lease contract, it is clear that NDC violated
respondents right of first refusal. Under the premises, the matter of the right of refusal
not having been carried over to the impliedly renewed month-to-month lease after the
expiration of the second lease contract on October 21, 1988 becomes irrelevant since at
the time of the negotiations of the sale to a third party, petitioner PUP, respondents
right of first refusal was still subsisting.
Petitioner NDC in its memorandum contended that the CA erred in applying the
ruling in Polytechnic University of the Philippines v. Court of Appeals pointing out that the
case of lessee Firestone Ceramics, Inc. is different because the lease contract therein
had not yet expired while in this case respondents lease contracts have already expired
and never renewed. The date of the expiration of the lease contract in said case is
December 31, 1989 which is prior to the issuance of Memorandum Order No. 214 on
January 6, 1989. In contrast, respondents lease contracts had already expired
(September 1988) at the time said memorandum order was issued.[31]
Such contention does not hold water. As already mentioned, the reckoning point of
the offer of sale to a third party was not the issuance of Memorandum Order No. 214 on
January 6, 1989 but the commencement of such negotiations as early as July 1988 when
respondents right of first refusal was still subsisting and the lease contracts still in force.
Petitioner NDC did not bother to respond to respondents letter of June 13, 1988
informing it of respondents exercise of the option to renew and requesting to discuss
further the matter with NDC, nor to the subsequent letter of August 12, 1988 reiterating
the request for renewing the lease for another ten (10) years and also the exercise of the
option to purchase under the lease contract. Petitioner NDC had dismissed these letters
as mere informative in nature, and a request at its best.[32]

Perusal of the letter dated August 12, 1988, however, belies such claim of
petitioner NDC that it was merely informative, thus:

August 12, 1988

HON. ANTONIO HENSON

General Manager
NATIONAL DEVELOPMENT COMPANY
377 Se(n). Gil J. Puyat Avenue
Makati, Metro Manila

REF:

Contract of Lease
Nos. C-33-77 & C-12-78

Dear Sir:

This is further to our earlier letter dated June 13, 1988 formally advising your
goodselves of our intention to exercise our option for another ten (10) years. Should the
National Development Company opt to sell the property covered by said leases, we also
request for priority to negotiate for its purchase at terms and/or conditions mutually
acceptable.

As a backgrounder, we wish to inform you that since the start of our lease, we
have improved on the property by constructing bodega-type buildings which presently
house all legitimate trading and manufacturing concerns. These business are substantial
taxpayers, employ not less than 300 employees and contribute even foreign earnings.

It is in this context that we are requesting for the extension of the lease contract
to prevent serious economic disruption and dislocation of the business concerns, as well
as provide ourselves, the lessee, an opportunity to recoup our investments and obtain a
fair return thereof.

Your favorable consideration on our request will be very much appreciated.

very truly yours,

TIU HAN TENG

President[33]

As to petitioners argument that respondents right of first refusal can be invoked

only with respect to the second lease contract which expressly provided for the option to
purchase by the lessee, and not in the first lease contract which contained no such
clause, we sustain the RTC and CA in finding that the second contract, covering an area
of 3,222.80 square meters, is interrelated to and inseparable from the first contract over
2,407 square meters. The structures built on the leased premises, which are adjacent to
each other, form part of an integrated system of a commercial complex leased out to
manufacturers, fabricators and other businesses. Petitioners submitted a sketch plan
and pictures taken of the driveways, in an effort to show that the leased premises can be
used separately by respondent, and that the two (2) lease contracts are distinct from
each other.[34] Such was a desperate attempt to downplay the commercial purpose of
respondents substantial improvements which greatly contributed to the increased value
of the leased premises. To prove that petitioner NDC had considered the leased
premises as a single unit, respondent submitted evidence showing that NDC issued only
one (1) receipt for the rental payments for the two portions.[35] Respondent further
presented the blueprint plan prepared by its witness, Engr. Alejandro E. Tinio, who
supervised the construction of the structures on the leased premises, to show the
building concept as a one-stop industrial site and integrated commercial complex.[36]
In fine, the CA was correct in declaring that there exists no justifiable reason not to
apply the same rationale in Polytechnic University of the Philippines v. Court of Appeals
in the case of respondent who was similarly prejudiced by petitioner NDCs sale of the
property to PUP, as to entitle the respondent to exercise its option to purchase until
October 1988 inasmuch as the May 4, 1978 contract embodied the option to renew the
lease for another ten (10) years upon mutual consent and giving respondent the option
to purchase the leased premises for a price to be negotiated and determined at the time
such option was exercised by respondent. It is to be noted that Memorandum Order No.
214 itself declared that the transfer is subject to such liens/leases existing [on the
subject property]. Thus:
...we now proceed to determine whether FIRESTONE should be allowed to exercise its
right of first refusal over the property. Such right was expressly stated by NDC and
FIRESTONE in par. XV of their third contract denominated as A-10-78 executed on 22
December 1978 which, as found by the courts a quo, was interrelated to and inseparable

from their first contract denominated as C-30-65 executed on 24 August 1965 and their
second contract denominated as C-26-68 executed on 8 January 1969. Thus Should the LESSOR desire to sell the leased premises during the term of this Agreement,
or any extension thereof, the LESSOR shall first give to the LESSEE, which shall have the
right of first option to purchase the leased premises subject to mutual agreement of both
parties.

In the instant case, the right of first refusal is an integral and indivisible part of the
contract of lease and is inseparable from the whole contract. The consideration for the
right is built into the reciprocal obligations of the parties. Thus, it is not correct for
petitioners to insist that there was no consideration paid by FIRESTONE to entitle it to the
exercise of the right, inasmuch as the stipulation is part and parcel of the contract of
lease making the consideration for the lease the same as that for the option.

It is a settled principle in civil law that when a lease contract contains a right of first
refusal, the lessor is under a legal duty to the lessee not to sell to anybody at any price
until after he has made an offer to sell to the latter at a certain price and the lessee has
failed to accept it. The lessee has a right that the lessors first offer shall be in his favor.
The option in this case was incorporated in the contracts of lease by NDC for the benefit
of FIRESTONE which, in view of the total amount of its investments in the property,
wanted to be assured that it would be given the first opportunity to buy the property at a
price for which it would be offered. Consistent with their agreement, it was then implicit
for NDC to have first offered the leased premises of 2.60 hectares to FIRESTONE prior to
the sale in favor of PUP. Only if FIRESTONE failed to exercise its right of first priority
could NDC lawfully sell the property to petitioner PUP.[37] [emphasis supplied]

As we further ruled in the afore-cited case, the contractual grant of a right of first
refusal is enforceable, and following an earlier ruling in Equatorial Realty Development,
Inc. v. Mayfair Theater, Inc.,[38] the execution of such right consists in directing the
grantor to comply with his obligation according to the terms at which he should have
offered the property in favor of the grantee and at that price when the offer should have
been made. We then determined the proper rate at which the leased portion should be
reconveyed to respondent by PUP, to whom the lessor NDC sold it in violation of
respondent lessees right of first refusal, as follows:

It now becomes apropos to ask whether the courts a quo were correct in fixing the
proper consideration of the sale at P1,500.00 per square meter. In contracts of sale, the
basis of the right of first refusal must be the current offer of the seller to sell or the offer
to purchase of the prospective buyer. Only after the lessee-grantee fails to exercise its

right under the same terms and within the period contemplated can the owner validly
offer to sell the property to a third person, again, under the same terms as offered to the
grantee. It appearing that the whole NDC compound was sold to PUP for P554.74 per
square meter, it would have been more proper for the courts below to have ordered the
sale of the property also at the same price. However, since FIRESTONE never raised this
as an issue, while on the other hand it admitted that the value of the property stood at
P1,500.00 per square meter, then we see no compelling reason to modify the holdings of
the courts a quo that the leased premises be sold at that price.[39] [emphasis supplied]

In the light of the foregoing, we hold that respondent, which did not offer any
amount to petitioner NDC, and neither disputed the P1,500.00 per square meter actual
value of NDCs property at that time it was sold to PUP at P554.74 per square meter, as
duly considered by this Court in the Firestone case, should be bound by such
determination. Accordingly, the price at which the leased premises should be sold to
respondent in the exercise of its right of first refusal under the lease contract with
petitioner NDC, which was pegged by the RTC at P554.74 per square meter, should be
adjusted to P1,500.00 per square meter, which more accurately reflects its true value at
that time of the sale in favor of petitioner PUP.
Indeed, basic is the rule that a party to a contract cannot unilaterally withdraw a
right of first refusal that stands upon valuable consideration.[40] We have categorically
ruled that it is not correct to say that there is no consideration for the grant of the right
of first refusal if such grant is embodied in the same contract of lease. Since the
stipulation forms part of the entire lease contract, the consideration for the lease
includes the consideration for the grant of the right of first refusal. In entering into the
contract, the lessee is in effect stating that it consents to lease the premises and to pay
the price agreed upon provided the lessor also consents that, should it sell the leased
property, then, the lessee shall be given the right to match the offered purchase price
and to buy the property at that price.[41]
We have further stressed that not even the avowed public welfare or the
constitutional priority accorded to education, invoked by petitioner PUP in the Firestone
case, would serve as license for us, and any party for that matter, to destroy the sanctity
of binding obligations. While education may be prioritized for legislative and budgetary
purposes, it is doubtful if such importance can be used to confiscate private property
such as the right of first refusal granted to a lessee of petitioner NDC.[42] Clearly, no
reversible error was committed by the CA in sustaining respondents contractual right of
first refusal and ordering the reconveyance of the leased portion of petitioner NDCs
property in its favor.
WHEREFORE, the petitions are DENIED. The Decision dated November 25, 2004 of
the Regional Trial Court of Makati City, Branch 144 in Civil Case No. 88-2238, as affirmed
by the Court of Appeals in its Decision dated June 25, 2008 in CA-G.R. CV No. 84399, is
hereby AFFIRMED with MODIFICATION in that the price to be paid by respondent Golden
Horizon Realty Corporation for the leased portion of the NDC Compound under Lease
Contract Nos. C-33-77 and C-12-78 is hereby increased to P1,500.00 per square meter.

No pronouncement as to costs.
SO ORDERED.
MARTIN S. VILLARAMA, JR.
Associate Justice

WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson
CONCHITA CARPIO MORALES
Associate Justice
TERESITA J. LEONARDO-DE CASTRO
Associate Justice
LUCAS P. BERSAMIN
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the 1987 Constitution, I certify that the
conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

-------------------------------------------------------------------------------[1]
Rollo (G.R. No. 184260), pp. 35-48. Penned by Associate Justice Fernanda Lampas
Peralta and concurred in by Associate Justices Edgardo P. Cruz and Ricardo R. Rosario.
[2]

Records, Vol. III, pp. 389-403. Penned by Judge Oscar B. Pimentel.

[3]

Records, Vol. III, pp. 83-89.

[4]

Id., at pp. 91-97.

[5]

Id., at pp. 77, 137-138.

[6]

Records, Vol. I, pp. 25-26.

[7]

Id., at pp. 1-8.

[8]

Records, Vol. III, pp. 100-101.

[9]

Records, Vol. I, pp. 143-144.

[10]
[11]
[12]

Id., at pp. 163-170, 224, 232-246.

Id., at pp. 411-418.
Id., at pp. 290-328.

[13]

Id., at pp. 390-391.

[14]

Records, Vol. II, pp. 757, 770-806.

[15]

368 SCRA 691.

[16]

Id., at p. 799.

[17]

Records, Vol. III, pp. 6-73.

[18]

Id., at pp. 402-403.

[19]

Id., at pp. 404-415.

[20]

CA rollo, pp. 223-236.

[21]

Rollo (G.R. No. 183612), pp. 20-21.

[22]

No. L-23399, May 31, 1974, 57 SCRA 250.

[23]

Id., at pp. 21-25.

[24]

Rollo (G.R. No. 184260), pp. 22-26.

[25]

Id., at pp. 27-28.

[26]
Eulogio v. Apeles, G.R. No. 167884, January 20, 2009, 576 SCRA 561, citing Tayag
v. Lacson, G.R. No. 134971, March 25, 2004, 426 SCRA 282, 304.
[27]
Carceller v. Court of Appeals, G.R. No. 124791, February 10, 1999, 302 SCRA 718,
724, citing Tolentino, Commentaries and Jurisprudence on the Civil Code of the
Philippines (Vol. IV), 1991 ed., pp. 466-467.
[28]
Rosencor Development Corporation v. Inquing, G.R. No. 140479, March 8, 2001,
354 SCRA 119.
[29]
Vazquez v. Ayala Corporation, G.R. No. 149734, November 19, 2004, 443 SCRA
231, 255, citing Ang Yu Asuncion v. Court of Appeals, G.R. No. 109125, December 2,
1994, 238 SCRA 602.
[30]
Villegas v. Court of Appeals, G.R. Nos. 111495 and 122404, August 18, 2006, 499
SCRA 276, 288, citing Riviera Filipina, Inc. v. Court of Appeals, 430 Phil. 8 (2002);
Paraaque Kings Enterprises, Inc. v. Court of Appeals, G.R. No. 111538, February 26,
1997, 268 SCRA 727; Guzman, Bocaling & Co. v. Bonnevie, G.R. No. 86150, March 2,
1992, 206 SCRA 668.
[31]

Rollo (G.R. No. 184260), pp. 282-283.

[32]

Id., at p. 278.

[33]

Records, Vol. III, p. 99.

[34]

Records, Vol. III, pp. 163 to 163-A, 330, 337-341.

[35]
Exhibit M, Records, Vol. III, pp. 173 and 185; Judicial Affidavit of Mr. Tiu Han
Teng, Records, Vol. III, pp. 77 and 79.
[36]

Records, Vol. III, pp. 159-161, 163 to 163-A (Exhibits N and O).

[37]
708.

Polytechnic University of the Philippines v. Court of Appeals, supra, at pp. 707-

[38]

G.R. No. 106063, November 21, 1996, 264 SCRA 483.

[39]
709.

Polytechnic University of the Philippines v. Court of Appeals, supra, at pp. 708-

[40]

Id., at p. 702.

[41]
Lucrative Realty and Development Corporation v. Bernabe, Jr., G.R. No. 148514,
November 26, 2002, 392 SCRA 679, 685, citing Equatorial Realty Development, Inc. v.
Mayfair Theater, Inc., supra.

[42]

Polytechnic University of the Philippines v. Court of Appeals, supra at p. 703.

SECOND DIVISION

TRADERS ROYAL BANK,

Petitioner,

- versus -

CUISON LUMBER CO., INC.,

and JOSEFA JERODIAS VDA. DE CUISON,
Respondents.
G.R. No. 174286
Present:

QUISUMBING, Chairperson,
*YNARES-SANTIAGO,
VELASCO, JR.,
**LEONARDO-DE CASTRO, and
BRION, JJ.

Promulgated:

June 5, 2009

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

DECISION
BRION, J.:

We review in this petition for review on certiorari[1] the decision[2] and

resolution[3] of the Court of Appeals (CA) in CA-G.R. CV No. 49900. The CA affirmed with
modifications the decision[4] of the Regional Trial Court (RTC), Davao City, Branch 13.
The RTC ruled in favor of respondents Cuison Lumber Co., Inc. (CLCI) and Josefa Vda. De
Cuison (Mrs. Cuison), collectively referred to as respondents, in the action they
commenced for breach of contract, specific performance, damages, and attorneys fees,
with prayer for the issuance of a writ of preliminary injunction against petitioner Traders
Royal Bank (bank).

THE BACKGROUND FACTS

On July 14, 1978 and December 9, 1979, respectively, CLCI, through its then
president, Roman Cuison Sr., obtained two loans from the bank. The loans were secured
by a real estate mortgage over a parcel of land covered by Transfer Certificate of Title
No. 10282 (subject property). CLCI failed to pay the loan, prompting the bank to
extrajudicially foreclose the mortgage on the subject property. The bank was declared
the highest bidder at the public auction that followed, conducted on August 1, 1985. A
Certificate of Sale and a Sheriffs Final Certificate of Sale were subsequently issued in the
banks favor.

In a series of written communications between CLCI and the bank, CLCI manifested its
intention to restructure its loan obligations and to repurchase the subject property. On
July 31, 1986, Mrs. Cuison, the widow and administratrix of the estate of Roman Cuison
Sr., wrote the banks Officer-in-Charge, Remedios Calaguas, a letter indicating her offered
terms of repurchase. She stated:
1.
That I will pay the interest of P115,538.66, plus the additional expenses of
P17,293.69, the total amount of which is P132,832.35 on August 8, 1986;

2.
That I will pay 20% of the bid price of P949,632.84, plus whatever interest
accruing within sixty (60) days from August 8, 1986;

3.
That whatever remaining balance after the above two (2) payments shall be
amortized for five (5) years on equal monthly installments including whatever interest
accruing lease on diminishing balance.[5]

CLCI paid the bank P50,000.00 (on August 8, 1986) and P85,000.00 (on September 3,
1986). The bank received and regarded these amounts as earnest money for the
repurchase of the subject property. On October 20, 1986, the bank sent Atty. Roman
Cuison, Jr. (Atty. Cuison), as the president and general manager of CLCI, a letter
informing CLCI of the banks board of directors resolution of October 10, 1986 (TRB
Repurchase Agreement), laying down the conditions for the repurchase of the subject
property:
This is to formally inform you that our Board of Directors, in its regular meeting held on
October 10, 1986, passed a resolution for the repurchase of your property acquired by
the bank, subject to the following terms and conditions, viz:

1. That the repurchase price shall be at total banks claim as of the date of
implementation;

2. That client shall initially pay P132,000.00 within fifteen (15) days from the expiration
of the redemption period (August 8, 1986) and further payment of P200,632.84,
representing 20% of the bid price, to be remitted on or before October 31, 1986;

3. That the balance of P749,000.00 to be paid in three (3) years in twelve (12) quarterly
amortizations, with interest rate at 26% computed on diminishing balance;

4. That all the interest and other charges starting from August 8, 1986 to date of
approval shall be paid first before implementation of the request; interest as of October
31, 1986 is P65,669.53;

5. Possession of the property shall be deemed transferred after signing of the Contract to
Sell. However, title to the property shall be delivered only upon full payment of the
repurchase price via Deed of Absolute Sale;

6. Registration fees, documentary stamps, transfer taxes at the date of sale and other
similar government impost shall be for the exclusive account of the buyer;

7. The improvement of the property shall at all times be covered by insurance against
loss with a policy to be obtained from a reputable company which designates the bank
as beneficiary but premiums shall be paid by the client;

8. That the sale is good for thirty (30) days from the buyers receipt of notice of approval
of the offer; otherwise, sale is automatically cancelled;

9. Effective upon signing of the Contract to Sell, all realty taxes which will become due
on the property shall be for the account of the buyer;

10. That the first quarterly installment shall be due within ninety (90) days of approval
hereof, and the succeeding installment shall be due every three (3) months thereafter;

11. Upon default of the buyer to pay two (2) successive quarterly installments, contract
is automatically cancelled at the Banks option and all payments already made shall be
treated as rentals or as liquidated damages; and

12. Other terms and conditions that the bank may further impose to protect its interest.

Should you agree with the above terms and conditions please sign under Conforme on
the space provided below.

We attach herewith your Statement of Account[6] as of October 31, 1986, for your
reference.

Thank you.

Very truly yours,

(Signed)

Conforme: (Not signed)[7]

CLCI failed to comply with the above terms notwithstanding the extensions of time given
by the bank. Nevertheless, CLCI tendered, on February 3, 1987, a check for P135,091.57
to cover fifty percent (50%) of the twenty percent (20%) bid price. The check, however,
was returned for insufficiency of funds. On May 13, 1987, CLCI tendered an additional
P50,000.00.[8] On May 29, 1987, the bank sent Atty. Cuison a letter informing him that
the P185,000.00 CLCI paid was not a deposit, but formed part of the earnest money
under the TRB Repurchase Agreement. On August 28, 1987, Atty. Cuison, by letter,
requested that CLCIs outstanding obligation of P1,221,075.61 (as of July 31, 1987) be
reduced to P1 million, and the amount of P221,075.61 be condoned by the bank. To
show its commitment to the request, CLCI paid the bank P100,000.00 and P200,000.00
on August 28, 1987. The bank credited both payments as earnest money.

A year later, CLCI inquired about the status of its request. The bank responded that the
request was still under consideration by the banks Manila office. On September 30,
1988, the bank informed CLCI that it would resell the subject property at an offered price
of P3 million, and gave CLCI 15 days to make a formal offer; otherwise, the bank would
sell the subject property to third parties. On October 26, 1988, CLCI offered to
repurchase the subject property for P1.5 million, given that it had already tendered the
amount of P400,000.00 as earnest money.

CLCI subsequently claimed that the bank breached the terms of repurchase, as it had
wrongly considered its payments (in the amounts of P140,485.18, P200,000.00 and

P100,000.00) as earnest money, instead of applying them to the purchase price. Through
its counsel, CLCI demanded that the bank rectify the repurchase agreement to reflect the
true consideration agreed upon for which the earnest money had been given. The bank
did not act on the demand. Instead, it informed CLCI that the amounts it received were
not earnest money, and that the bank was willing to return these sums, less the amounts
forfeited to answer for the unremitted rentals on the subject property.

In view of these developments, CLCI and Mrs. Cuison, on February 10, 1989, filed with
the RTC a complaint for breach of contract, specific performance, damages, and
attorneys fees against the bank. On April 20, 1989, the bank filed its Answer alleging
that the TRB repurchase agreement was already cancelled given CLCIs failure to comply
with its provisions; by way of counterclaim, the bank also demanded the payment of the
accrued rentals in the subject property as of January 31, 1989, and the award of moral
damages and exemplary damages as well as attorneys fees and litigation expenses for
the unfounded suit instituted against the bank by CLCI.[9] After trial on the merits, the
RTC ruled in respondents favor. The dispositive portion of its November 4, 1994
Decision states:

WHEREFORE, premises considered, judgment is hereby rendered in favor of

plaintiffs and against the defendant bank, ordering said defendant bank to:

1. Execute and consummate a Contract to Sell which is reflective of the true

consideration indicated in the Resolution of the Board of Directors of Traders Royal Bank
held on October 10, 1986 (Exhibit F and Exhibit 13), duly accrediting the amount of
P435,000 as earnest money to be part of the price, the mode of payment being on
quarterly installment, but the period within which the first quarterly payment being on
quarterly payment shall be made to commence upon the execution of said Contract to
Sell;

2. Pay to plaintiffs the amounts of P50,000.00 in concept of moral damages, P20,000.00

as exemplary damages;

3. Pay attorneys fees of P20,000.00; and

4. Pay litigation expenses in the amount of P2,000.00.

The counterclaim of defendant bank is hereby dismissed.

SO ORDERED.

On appeal to the CA, the bank pointed out the misappreciation of facts the RTC
committed and argued that: first, the repurchase agreement did not ripen into a
perfected contract; and second, even assuming that there was a perfected repurchase
agreement, the bank had the right to revoke it and apply the payments already made to
the rentals due for the use of the subject property, or as liquidated damages under
paragraph 11 of the TRB Repurchase Agreement, since CLCI violated its terms and
conditions. Further, the bank contended that CLCI had abandoned the TRB Repurchase
Agreement in its letters dated August 28, 1987 and October 26, 1988 when it proposed
to repurchase the subject property for P1 million and P1.5 million, respectively. Lastly,
the bank objected to the award of damages in the plaintiffs favor.

THE CA DECISION

On March 31, 2006, the CA issued the challenged Decision and affirmed the RTCs
factual findings and legal conclusions. Although it deleted the awards of attorneys fees,
moral and exemplary damages, the CA ruled that there was a perfected contract to
repurchase the subject property given the banks acceptance (as stated in the letter
dated October 20, 1986) of CLCIs proposal contained in Mrs. Cuisons letter of July 31,
1986. The CA distinguished between a condition imposed on the perfection of the
contract and a condition imposed on the performance of an obligation, and declared that
the conditions laid down in the letter dated October 20, 1986 merely relate to the
manner the obligation is to be performed and implemented; failure to comply with the
latter obligation does not result in the failure of the contract and only gives the other
party the options and/or remedies to protect its interest. The CA held that the same
conclusion obtains even if the letter of October 20, 1986 is considered a counter-offer by
the bank; CLCIs payment of P135,000.00 operated as an implied acceptance of the
banks counter-offer, notwithstanding CLCIs failure to expressly manifest its conforme.
In light of these findings, the CA went on to acknowledge the validity of the terms of
paragraph 11 of the TRB Repurchase Agreement, but nonetheless held that CLCI has not
yet violated its terms given the banks previous acts (i.e., the grant of extensions to pay),
which showed that it had waived the agreements original terms of payment.

The CA rejected the theory that CLCI had abandoned the terms of the TRB Repurchase
Agreement and found no incompatibility between the agreement and the contents of the
August 28, 1987 and October 26, 1988 letters which did not show an implied

abandonment by CLCI, nor the latters expressed intent to cancel or abandon the
perfected repurchase agreement. In the same manner, the CA struck down the banks
position that CLCIs payments were deposits rather than earnest money. The appellate
court reasoned that while the amounts tendered cannot be strictly considered as earnest
money under Article 1482 of the New Civil Code,[10] they were nevertheless within the
concept of earnest money under this Courts ruling in Spouses Doromal, Sr. v. CA,[11]
since they were paid as a guarantee so that the buyer would not back out of the
contract.

The CA however ruled that the award of moral and exemplary damages, attorneys fees
and litigation expenses lacked factual and legal support. The CA found that the bank
acted in good faith and based its actions on the erroneous belief that CLCI had already
abandoned the repurchase agreement. Likewise, the award of moral damages was not in
order as there was no showing that CLCIs reputation was debased or besmirched by the
banks action of applying the previous payments made to the interest and rentals due on
the subject property; neither is Mrs. Cuison entitled to moral damages without any
evidence to justify this award. The CA also ruled that there was nothing in the records to
warrant the awards of exemplary damages and attorneys fees.

The bank subsequently moved but failed to secure a reconsideration of the CA decision.
The bank thus came to us with the following

ISSUES

I.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN APPREHENDING THE

SIGNIFICATION (SIC) OF THE TERM OFFER ON THE ONE HAND AND ACCEPTANCE ON
THE OTHER HAND IN SALES CONTRACT WHICH ERROR LED IT TO ARRIVE AT A WRONG
CONCLUSION OF LAW.

II.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN ITS INTERPRETATION OF THE

STIPULATIONS AND TERMS AND CONDITIONS EMBODIED IN THE PROPOSED REPURCHASE
AGREEMENT xxx WHICH LED IT TO ERRONEOUSLY CONCLUDE THAT THERE WAS A
PERFECTED REPURCHASE AGREEMENT BETWEEN RESPONDENTS AND PETITIONER AND

WHICH INTERPRETATION IS NOT IN ACCORDANCE WITH THE APPLICABLE LAW AND

ESTABLISHED JURISPRUDENCE.

Reduced to the most basic, the main issue posed is whether or not a perfected contract
of repurchase existed and can be enforced between the parties.

THE COURTS RULING

We GRANT the petition.

The case presents to us as threshold issue the presence or absence of consent as a

requisite for a perfected contract to repurchase the subject property. The RTC ruled that
a perfected contract existed based mainly on the following facts: first, the existence of
the TRB Repurchase Agreement which clearly depicts the repurchase agreement of the
subject property under the terms therein embodied; and second, the payment of
earnest money in the total amount of P435,000.00 which forms part of the price and, as
initial payment, is proof of the perfection of the contract.[12] In concurring with the
foregoing findings on appeal, the CA, in turn, declared that there was a meeting of the
minds between the parties on the offer and acceptance
for the repurchase of the subject property under the following quoted facts:

It may be recalled that it was Mrs. Cuison, through her letter of July 31, 1986, who
proposed to repurchase the foreclosed property. She in fact had tendered right away an
amount of P50,000.00 as partial payment of the P132,000.00 she had promised to pay as
initial payment. In response, TRB sent a letter dated October 20, 1986 to Atty. Cuison
informing him of the resolution passed by the Board of Directors of TRB acknowledging
the proposal of Ms. Cuison to repurchase the property. Under the circumstance, the
proposal made by Ms. Cuison constituted the offer contemplated by law, and the reply
of TRB was the corresponding acceptance of the proposal-offer.

Conceding arguendo that TRBs letter-response October 20, 1986 constituted a

counter-offer or politacion, CLCIs ensuing remittance of P135,000.00 as initial payment
of the price, operates effectively as an implied acceptance of TRBs counter-offer. The
absence of a signature to signify plaintiffs conforme to the repurchase agreement is of
no moment. While the conforme portion of the subject repurchase agreement indeed
bears no signature at all, this fact, however, does not detract from the accomplished fact
that plaintiffs had acquiesced or assented to the standing conditional counter-offer of
TRB. Plaintiffs conforme would at best be a mere formality considering that the
repurchase agreement had already been perfected, if impliedly.[13]

Based on these findings, the crucial points that the lower courts apparently considered
were Mrs. Cuisons letter of July 31, 1986 to the bank; the banks letter of October 20,
1986 to CLCI; and the parties subsequent conduct showing their acknowledgement of
the existence of their agreement, specifically, the respondents payments (designated as
earnest money) and the banks acceptance of these payments. However, unlike the
RTCs conclusion that relied on CLCIs payment and the banks acceptance of the
payment as earnest money, the CA concluded that there was a perfected contract,
either because of the banks acceptance of CLCIs offer (made through Mrs. Cuisons
letter of July 31, 1986), or by CLCIs implied acceptance indicated by its initial payments
in compliance with the terms of the TRB Repurchase Agreement.

The petitioner bank, of course, argues differently and concludes that the undisputed
facts of the case show that there was no meeting of the minds between the parties given
CLCIs failure to give its consent and conformity to the banks letter of October 20, 1986,
confirmed by the testimony of Atty. Cuison, no less, when he denied that CLCI consented
to the agreements terms of implementation.

Our task in this petition for review on certiorari is not to review the factual findings of the
CA and the RTC, but to determine whether or not, on the basis of the said findings, the
conclusions of law reached by the said courts are correct.

Under the law, a contract is perfected by mere consent, that is, from the moment that
there is a meeting of the offer and the acceptance upon the thing and the cause that
constitute the contract.[14] The law requires that the offer must be certain and the
acceptance absolute and unqualified.[15] An acceptance of an offer may be express and
implied; a qualified offer constitutes a counter-offer.[16] Case law holds that an offer, to
be considered certain, must be definite,[17] while an acceptance is considered absolute
and unqualified when it is identical in all respects with that of the offer so as to produce
consent or a meeting of the minds.[18] We have also previously held that the
ascertainment of whether there is a meeting of minds on the offer and acceptance
depends on the circumstances surrounding the case.[19]

In Villonco Realty Co. v. Bormacheco,[20] the Court found a perfected contract of sale
between the parties after considering the parties written communications showing the
offer (counter-offer) and acceptance by the seller who formally manifested his conformity
with the offer in the buyers letter. We took note of the acts of the parties the payment
of the buyer of an amount representing the partial payment under the contract; the
acceptance of the partial payment by the seller; the allowance of the buyer for the seller
to encash the check containing the partial payment; the subsequent return of the
amount representing the partial payment by the buyer with the corresponding interest
stated in the buyers letter (offer) and considered them evidence of the perfection of
the sale. Under these circumstances, we also declared that a change in a phrase in the
offer to purchase, that does not essentially change the terms of the offer, does not
amount to a rejection of the offer and the tender of a counter-offer.

In Schuback & Sons Philippine Trading Corp. v. CA,[21] we declared a meeting of minds
between the vendor and the vendee even though the quantity of goods purchased had
not been fully determined. We noted that the vendee, after expressing his intention to
purchase the merchandise, simultaneously enclosed a purchase order whose receipt
prompted the vendor to immediately order the merchandise. We also took into account
the act of the vendee in requesting for a discount as proof of his acceptance of the
quoted price.

Yuviengco v. Dacuycuy[22] yielded a different result, as we considered that the letter and
telegrams sent by the parties to each other showed that there was no meeting of minds
in the absence of an unconditional acceptance to the terms of the contract of sale;
otherwise, the buyers would not have included the phrase to negotiate details when
they agreed to the property that was subject of the proposed contract.

Similarly, in Philippine National Bank v. CA,[23] we ruled that there was no perfected
contract of sale because the specified terms and conditions imposed under the facts of
the case constituted counter-offers against each other that were not accepted by either
of the parties. This case involved a first contract, involving the same property, which the
parties mutually cancelled; we said that the terms of this earlier contract cannot be
considered in determining the acceptance and compliance with the terms of a proposed
second contract a distinct and separate contract from the one earlier aborted.

The incomplete details of the agreement led us to conclude in Insular Life Assurance Co.
Ltd. v. Assets Builders Corp.[24] that no perfected contract existed; there were other
matters or details in addition to the subject matter and the consideration [that] would
be stipulated and agreed. We likewise considered the subsequent acts between the

parties and the existence of a second proposal which belied the perfection of any initial
contract.

The recent Navarra v. Planters Development Bank[25] is another case where we saw no
perfected contract, as the offer was incomplete for lack of agreed details on the manner
of paying the purchase price; there was also no acceptance as the letter of Planters
Development Bank indicated the need to discuss other details of the transaction.

All these cases illustrate the rule that the concurrence of the offer and acceptance is vital
to the birth and the perfection of a contract. The clear and neat principle is that the offer
must be certain and definite with respect to the cause or consideration and object of the
proposed contract, while the acceptance of this offer express or implied must be
unmistakable, unqualified, and identical in all respects to the offer. The required
concurrence, however, may not always be immediately clear and may have to be read
from the attendant circumstances; in fact, a binding contract may exist between the
parties whose minds have met, although they did not affix their signatures to any written
document.[26]

The facts of the present case, although ambivalent in some respects, point on the whole
to the conclusion that both parties agreed to the repurchase of the subject property.

A reading of the petitioners letter of October 20, 1986 informing CLCI that the banks
board of directors passed a resolution for the repurchase of [your] property shows that
the tenor of acceptance, except for the repurchase price, was subject to conditions not
identical in all respects with the CLCIs letter-offer of July 31, 1986. In this sense, the
banks October 20, 1986 letter was effectively a counter-offer that CLCI must be shown
to have accepted absolutely and unqualifiedly in order to give birth to a perfected
contract. Evidence exists showing that CLCI did not sign any document to show its
conformity with the banks counter-offer. Testimony also exists explaining why CLCI did
not sign; Atty. Cuison testified that CLCI did not agree with the implementation of the
repurchase transaction since the bank made a wrong computation.[27]

These indicators notwithstanding, we find that CLCI accepted the terms of the TRC
Repurchase Agreement and thus unqualifiedly accepted the banks counter-offer under
the TRB Repurchase Agreement and, in fact, partially executed the agreement, as shown
from the following undisputed evidence:

(a)
The letter-reply dated November 29, 1986 of Atty. Cuison, as president and
general manager of CLCI, to the bank (in response to the banks demand letter dated

November 27, 1986 to pay 20% of the bid price); CLCI requested an extension of time,
until the end of December 1986, to pay its due obligation;[28]

(b)
Mrs. Cuisons letter-reply of February 3, 1987 (to the banks letter of January 13,
1987) showed that she acknowledged CLCIs failure to comply with its requested
extension and proposed a new payment scheme that would be reasonable given CLCIs
critical economic difficulties; Mrs. Cuizon tendered a check for P135,091.57, which
represented 50% of the 20% bid price;[29]

(c)
The CLCIs continuous payments of the repurchase price after their receipt of the
banks letter of October 20, 1986;

(d)
CLCIs possession of the subject property pursuant to paragraph 5 of the TRB
Repurchase Agreement, notwithstanding the absence of a signed contract to sell
between the parties;

x x x

We counted the following facts, too, as indicators leading to the conclusion that a
perfected contract existed: CLCI did not raise any objection to the terms and conditions
of the TRB Repurchase Agreement, and instead, unconditionally paid without protests or
objections[30]; CLCIs acknowledgment of their obligations under the TRB Repurchase
Agreement (as shown by Atty. Cuisons letter of November 29, 1986); and Atty. Cuisons
admission that the TRB Repurchase Agreement was already a negotiated agreement
between CLCI and the bank, as shown by the following testimony:

Q
When you received this document, this Exh. F from the defendant bank, did you
already consider this as an agreement?
A
We consider that as a negotiated agreement pending the documentation of the
formal contract to sell which is stated under the repurchase agreement.

Q
In other words, at the time you received this document Exh. F, which was on
October 23, 1986 date of receipt, was there already a meeting of the minds between the
parties?
A
That is precisely we put [sic] the earnest money because we were of the opinion
that the bank is already agreeable to the implementation of the repurchase agreement.

COURT

Insofar as Exh. F is concerned?

A
There was initially, that is precisely we [sic] deposited in consideration of the
repurchase agreement.[31]

The bank, for its part, showed its recognition of the existence of a repurchase
agreement between itself and CLCI by the following acts:

(a)
The letter dated November 27, 1986 of the bank, reminding CLCI that it was
remiss in its commitments to pay 20% of the bid price under the terms of the TRB
Repurchase Agreement;

(b)
In the same letter, the bank gave CLCI an extension of time (until November 30,
1986) to comply with its past due obligations under the agreement;

(c)
The banks acceptance of CLCIs payments as earnest money for the repurchase of
the property;

(d)

CLCIs continued possession of the subject property with the banks consent;

(e)
The banks grant of extensions to CLCI for the payment of its obligations under
the contract;

(f)
The Statement of Account dated July 31, 1987 showing that the bank applied
CLCIs payments according to the terms of the TRB Repurchase Agreement;

(g)
The letter of January 26, 1989 of the banks counsel, Atty. Abarquez, addressed to
CLCIs counsel, showing the banks recognition that there was an agreement between
the bank and CLCI, which the latter failed to honor; and

(h)
The testimonies of the banks witnesses Mr. Eulogio Giramis[32] and Ms. Arlene
Aportadera,[33] the banks employees who handled the CLCI transactions who
admitted the existence of the repurchase agreement with CLCI and the latters failure to
comply with the agreements terms.

Admittedly, some evidence on record may be argued to point to the absence of a

meeting of the minds (more particularly, the previous offers made by CLCI to change the
payment scheme of the repurchase of the subject property which was not accepted; the
banks expressed intent to offer the subject property for sale to third persons at a higher
price; and the unaccepted counter-offer by the respondents after the bank increased the
purchase price).[34] These incidents, however, were the results of CLCIs failure to
comply with its obligations to pay the amounts due on the stipulated time and were
made after the parties minds had met on the terms of the contract. The seemingly
contrary indications, therefore, do not go into and affect the perfection of the contract;
they came after the contract had been perfected and, as discussed below, were
indicative of the banks cancellation of the repurchase agreement.

In light of this conclusion, we now determine the consequential rights, obligations and
liabilities of the parties. It is at this point that we diverge from the conclusions of the CA
and the RTC, as we conclude that while there was a perfected contract between the
parties, the bank effectively cancelled the contract when it communicated with CLCI that
it would sell the subject property at a higher price to third parties, giving CLCI 15 days to
make a formal offer, and disregarding CLCIs counter-offer to buy the subject property for
P1.5 million. We arrive at this conclusion after considering the following reasons:

First, the bank communicated its intent not to proceed with the repurchase as above
outlined and formally cancelled the TRB Repurchase Agreement in its letters dated
January 11 and 30, 1989 to CLCI.[35] Thus, CLCIs rights acquired under the TRB
Repurchase Agreement to repurchase the subject property have been defeated by its
own failure to comply with its obligations under the agreement. The right to cancel for
breach is provided under paragraph 11 of the TRB Repurchase Agreement, as follows:

11. Upon default of the buyer to pay two (2) successive quarterly installments, contract
is automatically cancelled at the Banks option and all payments already made shall be
treated as rentals or as liquidated damages;

We note, additionally, that the TRB Repurchase Agreement is in the nature of a contract
to sell where the title to the subject property remains in the banks name, as the vendor,
and shall only pass to the respondents, as vendees, upon the full payment of the
repurchase price.[36] The settled rule for contracts to sell is that the full payment of the
purchase price is a positive suspensive condition; the failure to pay in full is not to be
considered a breach, casual or serious, but simply an event that prevents the obligation
of the vendor to convey title from acquiring any obligatory force.[37] Viewed in this
light, the bank cannot be compelled to perform its obligations under the TRB Repurchase
Agreement that has been rendered ineffective by the respondents non-performance of
their own obligations.

Second, the respondents violated the terms and conditions of the TRB Repurchase
Agreement when they failed to pay their obligations under the agreement as these
obligations fell due. Paragraphs 2 and 10 of the TRB Repurchase Agreement are clear on
the respondents obligation to pay the bid price and the quarterly installments.
Paragraphs 2 and 10 state:

2.
That client shall initially pay P132,000.00 within fifteen (15) days from the
expiration of the redemption period (August 8, 1986) and further payment of
P200,632.84 representing 20% of the bid price to be remitted on or before October 31,
1986;

xxx

xxx

xxx

10. That the first quarterly installment shall be due within ninety (90) days of approval
hereof, and the succeeding installment shall be due every three (3) months thereafter;

The approval referred to under paragraph 10 is the approval by the bank of the
repurchase of the subject property, as indicated in the banks letter of October 20, 1986
which states, This is to formally inform you that our Board of Directors in its regular
meeting held on October 10, 1986, passed a resolution for the repurchase of your
property acquired by the bank. It was on the basis of this approval and the quoted
terms of the agreement that the bank issued its Statement of Account dated July 31,
1987 indicating that the respondents were already in default, not only with respect to the
20% of the bid price, but also with the three quarterly installments.

Third, the respondents themselves claim that the bank violated the agreement when it
applied the respondents payments to the interest and penalties due without the
respondents consent, instead of applying these to the repurchase price for the subject
property.[38] An examination of the provisions of the TRB Repurchase Agreement
reveals that the bank is allowed to apply the respondents payments first to the amounts
due as interests and other charges, before applying any payment to the repurchase
price. Paragraph 4 of the agreement provides:

4. That all the interest and other charges starting from August 8, 1986 to date of
approval shall be paid first before implementation of the request; interest as of October
31, 1986 is P65,669.53;

Under these terms, the bank cannot be faulted for the application of payments it made.
Likewise, the bank cannot be faulted for the application of other amounts paid as rentals
as this is allowed under paragraph 11, quoted above, of the agreement.

Fourth, the petitioner bank cannot be said, as the CA ruled, to have already waived the
terms of the TRB Repurchase Agreement by extending the time to pay and subsequently
accepting late payments. The CAs conclusion lacks factual and legal basis taking into
account that the Statement of Account of July 31, 1987, heretofore cited, which shows
that the bank considered the respondents already in default. At this point, Atty. Cuison,
by letter, requested that part of its outstanding obligation be condoned by the bank,
paying P300,000.00 as of August 31, 1987, which amount the bank accepted as earnest
money. For one whole year thereafter, neither party moved. Significantly, the
respondents, who had continuing payments to make and who had the burden of
complying with the terms of the agreement, failed to act except to ask the bank for the
status of its requested condonation. Under these facts, a continuing breach of the
agreement took place, even granting that a waiver had intervened as of August 31,
1987. Thus, the bank was well within its right to consider the agreement cancelled
when, in September 1988, it changed the repurchase terms to P3.0 million. We find it
significant that the respondents, instead of asserting its rights under the TRB Repurchase
Agreement, counter-offered P1.5 million with the P400,000.00 already paid as part of the
purchase price. At that point, it was clear that even the respondents themselves
considered the TRB Repurchase Agreement cancelled.

Lastly, the perfected repurchase agreement itself provides for the respondents
possession of the subject property; in fact, the respondents have been in continuous
possession of the subject property since October 1986, despite the absence of a contract
to sell apparently with the banks consent. The agreement also provides under its
paragraph 11 that upon the respondents default and the cancellation of the agreement,
all payments already made shall be treated as rentals or as liquidated damages.

The undisputed facts show that the bank has been deprived of the use and benefit of its
property that has been in the possession of the respondents for the latters use and
benefit without paying any rentals thereon. The records reveal that until now, the
respondents are still in possession of the subject property.[39]

We note that subsequent to the banks counterclaim for the payment of rentals due as of
January 31, 1989, the bank also seeks to recover the rentals that accrued after January
31, 1989, which as of August 8, 1993 amounted to P1,123,500.00 as shown by the
evidence presented by the bank before the RTC and in the pleadings it had filed before
the RTC, CA, and the Court.[40] Although this claim was not alleged in the banks Answer
being an after-acquired claim which was only raised during the trial proper through the
testimony dated August 17, 1993 of Ms. Arlene Aportadera,[41] the bank is not barred
from recovering these rentals. As we explained in Banco de Oro Universal Bank v. CA,[42]
a party is not barred from setting up a claim even after the filing of the answer if the
claim did not exist or had not matured at the time said party filed its answer. Moreover,
we note that the respondents did not object to the presentation of this evidence, hence,
the issue of rentals from August 8, 1993 and onwards was tried with the implied consent
of the parties; applying Section 5, Rule 10 of the 1997 Rules of Civil Procedure,[43] the
issue should be treated in all respects as if it had been raised in the pleadings.[44] Given
the implied consent, judgment may be validly rendered on this issue even if no motion
had been filed and no amendment had been ordered.[45]

In National Power Corporation v. CA,[46] we held that where there is a variance in the
defendants pleadings and the evidence adduced by it at the trial, the Court may treat
the pleading as amended to conform to the evidence.

Additionally, the respondents are also liable to pay interest by way of damages for their
failure to pay the rentals due for the use of the subject property. In Eastern Shipping
Lines v. CA,[47] we laid down the following guidelines with respect to the award and the
computation of legal interest, as follows:
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169 Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the
date the judgment of the court is made (at which time quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.
[Emphasis supplied]

The records are unclear on when the bank made a demand outside of the judicial
proceedings for the rentals on the subject property.[48] However, the records show that
the bank made a counterclaim for the payments of the rentals due as of January 31,
1989 in its Answer and subsequently, a claim for the after-acquired rentals was made by
the bank through the testimony of Ms. Arlene Aportadera. Applying Eastern Shipping
Lines, the payment of interest for the rentals shall be reckoned from the date the judicial
demand was made by the bank or on April 20, 1989 when the bank set up its
counterclaim for rentals in the subject property.

Under the circumstances, we can impose a 6% interest on the rentals from April 20,
1989 up to the finality of this decision. Thereafter, the interest shall be computed at
12% per annum from such finality up to full satisfaction.

We find no basis for the award of exemplary damages. Article 2232 of the Civil Code
declares:
Article 2232. In contracts and quasi-contracts, the court may award exemplary damages
if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner.

Considering the factual circumstances we have discussed above, we can hardly

characterize respondents act of insisting on the enforcement of the repurchase
agreement as wanton, fraudulent, reckless, oppressive, or malevolent.

As there is no basis for an award of exemplary damages, the awards of attorneys fees
and litigation expenses to the bank are not justified under Article 2208 of the Civil Code.

WHEREFORE, premises considered, we hereby GRANT the petition. The Decision dated
March 31, 2006 and Resolution dated August 11, 2006 of the Court of Appeals in CA-G.R.
CV No. 49900 are hereby REVERSED and SET ASIDE.

The complaint in Civil Case No. 19416-89 for breach of contract, specific performance,
damages, and attorneys fees, with preliminary injunction filed by Cuison Lumber Co.,
Inc. and Mrs. Cuison against Traders Royal Bank is hereby DISMISSED. The respondents
are ordered to vacate the subject property and to restore its possession to the petitioner
bank.

The respondents are further ordered to pay reasonable compensation, for the use and
occupation of the subject property in the amount of P1,123,500.00, representing the
accrued rentals as of August 8, 1993, less the amount of P485,000.00 representing
deposits paid by the respondents. In additiodn, respondents are also ordered to pay the
amount of P13,700.00 a month by way of rentals starting from August 8, 1993 until they
vacate the subject property. The rentals shall earn a corresponding legal interest of six
percent (6%) per annum to be computed from April 20, 1989 until the finality of this
decision. After this decision becomes final and executory, the rate of legal interest shall
be computed at twelve percent (12%) per annum from such finality until its satisfaction.

Costs against the respondents.

SO ORDERED.

ARTURO D. BRION
Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CONSUELO YNARES-SANTIAGO
Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and Division Chairpersons
Attestation, it is hereby certified that the conclusions in the above Decision were reached
in consultation before the case was assigned to the writer of the opinion of the Courts
Division.

REYNATO S. PUNO
Chief Justice

-------------------------------------------------------------------------------* Designated additional Member of the Second Division per Special Order No. 645 dated
May 15, 2009.

** Designated additional Member of the Second Division effective May 11, 2009 per
Special Order No. 635 dated May 7, 2009.
[1] Under Rule 45 of the Rules of Court.
[2] Dated March 31, 2006; penned by Associate Justice Edgardo A. Camello, with
Associate Justice Normandie B. Pizarro and Associate Justice Ricardo R. Rosario,
concurring; rollo, pp. 45-66.
[3] Dated August 11, 2006; id., pp. 85-86.
[4] Dated November 4, 1994; records, pp. 254-275.
[5] Id., p. 47.
[6] The total amount due was P1,082,465.10; see note 17 of CA Decision, id., p. 48.
[7] Italics theirs; rollo, pp. 48-49.
[8] Records, p. 16.
[9] Id., pp. 14-22.
[10]
Article 1492 states: 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.
[11]

G.R. No. L-36083, September 5, 1975, 66 SCRA 75.

[12] RTC Decision dated November 4, 1994, pp. 8 and 13; records, pp. 261 and 266.
[13] Rollo, pp. 55-56.
[14] CIVIL CODE, Articles 1315 and 1319.
[15] Id., Articles 1319 and 1320.
[16] Ibid.
[17] Rosenstock v. Burke, 46 Phil. 217 (1924).
[18] Limketkai Milling, Inc. v. Court of Appeals, G.R. No. 11850, March 29, 1996, 255
SCRA 626, 639.
[19] See Insular Life Assurance Co. Ltd. v. Assets Builders Corp., G.R. No. 147410,
February 5, 2004, 422 SCRA 148; Firme v. Bukal Enterprises and Development Corp., G.R.
No. 146608, October 23, 2003, 414 SCRA 190; Philippine National Bank v. Court of
Appeals, G.R. No. 119580, September 26, 1996, 262 SCRA 464; Schuback & Sons
Philippine Trading Corp. v. Court of Appeals, G.R. No. 105387, November 11, 1993, 227
SCRA 717; Yuviengco v. Dacuycuy, G.R. No. L-55048, May 27, 1981, 104 SCRA 668;
Villonco Realty Co. v. Bormacheco, Inc., G.R. No. L-26872, July 25, 1975, 65 SCRA 352,

where the Supreme Court considered the circumstances of the case to determine
whether there was a meeting of the offer and acceptance.
[20] Id., pp. 363-366.
[21] Id., pp. 721-722.
[22] Id., pp. 676-677.
[23] Id., pp. 476-477.
[24] G.R. No. 147410, February 5, 2004, 422 SCRA 148, 162 and 164.
[25] G.R. No. 172674, July 12, 2007, 527 SCRA 562, 573-575.
[26] Peoples Industrial and Commercial Corp. v. Court of Appeals, G.R. No. 112733,
October 24, 1997, 281 SCRA 206, 220.
[27] TSN, February 20, 1991, p. 3.
[28] Exhibits 15 and 16.
[29] Exhibit 19.
[30] Shown, among others, by the following testimony of Atty. Cuison (TSN, February 19,
1991, p. 8 and TSN, February 20, 1991, p. 2) where he stated:

Atty. Abarquez:
x

Q
Let us make this clear, you said you did not accept, did you write the bank a letter
that you did not accept the proposal of the bank?
A

We did not write.

You never told the bank that you did not accept?

We did not.
x

Did you not tell the bank?

What we did, we deposited.

[31] TSN, February 20, 1999, p. 2.

[32] TSN, May 20, 1993, p. 17.

[33] TSN, November 22, 1993, p. 7; also referred to as Arleen Arpotadera in the records.
[34] Letter dated January 13, 1987 (Exhibit 18); Letter dated March 27, 1987 (Exhibit
20); Letter dated April 6, 1987 (Exhibit 22); and Letter dated April 27, 1987 (Exhibit
26).
[35] Exhibits 37 and 39, respectively.
[36] See Paragraph 5 of the TRB Repurchase Agreement, Exhibit F.
[37] Rillo v. Court of Appeals, G.R. No. 125347, June 19, 1997, 274 SCRA 461, 467.
[38] Records, p. 2.
[39] Rollo, p. 39.
[40] Id., p. 39; CA rollo, p. 52; records, p. 251, and Exhibit 43.
[41] TSN, August 17, 1993, p. 7. See Exhibit 43.
[42] G.R. No. 160354, August 25, 2005, 468 SCRA 166, 185.
[43] Section 5. Amendment to conform to or authorize presentation of evidence. - When
issues not raised by the pleadings are tried with the express or implied consent of the
parties, they shall be treated in all respects as if they had been raised in the pleadings.
Such amendment of the pleadings as may be necessary to cause them to conform to the
evidence and to raise these issues may be made upon motion of any party at any time,
even after judgment; but failure to amend does not affect the result of the trial of these
issues. If evidence is objected to at the trial on the ground that it is not within the issues
made by the pleadings, the court may allow the pleadings to be amended and shall do
so with liberality if the presentation of the merits of the action and the ends of
substantial justice will be subserved thereby. The court may grant a continuance to
enable the amendment to be made.
[44] Sy v. Court of Appeals, G.R. No. 124581, December 27, 2007, 541 SCRA 371, 386387.
[45] Id., p. 387
[46] G.R. No. L-43814, April 16, 1982, 113 SCRA 556 cited in Sy v. Court of Appeals,
supra note 45.
[47] G.R. No. 97412, July 12, 1994, 234 SCRA 78, 95-97.
[48] Article 2209 read in relation with Article 1169, which provisions state:
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary,

shall be the payment of the interest agreed upon, and in the absence of stipulation, the
legal interest, which is six percent per annum. (1108)
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
xxx.
Republic of the Philippines
Supreme Court
Manila

FIRST DIVISION

REYNALDO VILLANUEVA,

G.R. NO. 154493

Petitioner,
Present:

PANGANIBAN, C.J.
(Chairperson)
YNARES-SANTIAGO,
- versus -

AUSTRIA-MARTINEZ,
CALLEJO, SR., and
CHICO-NAZARIO, JJ.

PHILIPPINE NATIONAL BANK

(PNB),
Respondent.

Promulgated:

December 6, 2006
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION

AUSTRIA-MARTINEZ, J.:

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

As culled from the records, the facts are as follows:

The Special Assets Management Department (SAMD) of the Philippine National

Bank (PNB) issued an advertisement for the sale thru bidding of certain PNB properties
in Calumpang, General Santos City, including Lot No. 17, covered by TCT No. T-15042,
consisting of 22,780 square meters, with an advertised floor price of P1,409,000.00, and
Lot No. 19, covered by TCT No. T-15036, consisting of 41,190 square meters, with an
advertised floor price of P2,268,000.00.[5] Bidding was subject to the following
conditions: 1) that cash bids be submitted not later than April 27, 1989; 2) that said bids
be accompanied by a 10% deposit in managers or cashiers check; and 3) that all
acceptable bids be subject to approval by PNB authorities.

In a June 28, 1990 letter[6] to the Manager, PNB-General Santos Branch, Reynaldo
Villanueva (Villanueva) offered to purchase Lot Nos. 17 and 19 for P3,677,000.00. He
also manifested that he was depositing P400,000.00 to show his good faith but with the
understanding that said amount may be treated as part of the payment of the purchase
price only when his offer is accepted by PNB. At the bottom of said letter there appears
an unsigned marginal note stating that P400,000.00 was deposited into Villanuevas
account (Savings Account No. 43612) with PNB-General Santos Branch. [7]

PNB-General Santos Branch forwarded the June 28, 1990 letter of Villanueva to
Ramon Guevara (Guevara), Vice President, SAMD.[8] On July 6, 1990, Guevara informed
Villanueva that only Lot No. 19 is available and that the asking price therefor is
P2,883,300.00.[9] Guevara further wrote:

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

Instead of submitting a revised offer, Villanueva merely inserted at the bottom of

Guevaras letter a July 11, 1990 marginal note, which reads:

C O N F O R M E:

PRICE OF P2,883,300.00 (downpayment of P600,000.00 and the balance payable

in two (2) years at quarterly amortizations.) [11]

Villanueva paid P200,000.00 to PNB which issued O.R. No. 16997 to acknowledge
receipt of the partial payment deposit on offer to purchase.[12] On the dorsal portion
of Official Receipt No. 16997, Villanueva signed a typewritten note, stating:

This is a deposit made to show the sincerity of my purchase offer with the
understanding that it shall be returned without interest if my offer is not favorably
considered or be forfeited if my offer is approved but I fail/refuse to push through the
purchase.[13]

Also, on July 24, 1990, P380,000.00 was debited from Villanuevas Savings Account No.
43612 and credited to SAMD.[14]

On October 11, 1990, however, Guevara wrote Villanueva that, upon orders of the PNB
Board of Directors to conduct another appraisal and public bidding of Lot No. 19, SAMD
is deferring negotiations with him over said property and returning his deposit of
P580,000.00.[15] Undaunted, Villanueva attempted to deliver postdated checks covering
the balance of the purchase price but PNB refused the same.

Hence, Villanueva filed with the RTC a Complaint[16] for specific performance and
damages against PNB. In its September 14, 1995 Decision, the RTC granted the
Complaint, thus:

WHEREFORE, judgment is rendered in favor of the plaintiff and against the

defendant directing it to do the following:

1.
To execute a deed of sale in favor of the plaintiff over Lot 19 comprising
41,190 square meters situated at Calumpang, General Santos City covered by TCT No. T15036 after payment of the balance in cash in the amount of P2,303,300.00;

2.
To pay the plaintiff P1,000,000.00 as moral damages; P500,000.00 as attorneys
fees, plus litigation expenses and costs of the suit.

SO ORDERED.[17]

The RTC anchored its judgment on the finding that there existed a perfected
contract of sale between PNB and Villanueva. It found:

The following facts are either admitted or undisputed:

xxx

The defendant through Vice-President Guevara negotiated with the plaintiff in

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

The RTC also pointed out that Villanuevas P580,000.00 downpayment was
actually in the nature of earnest money acceptance of which by PNB signified that there
was already a sale.[19] The RTC further cited contemporaneous acts of PNB purportedly
indicating that, as early as July 25, 1990, it considered Lot 19 already sold, as shown by
Guevaras July 25, 1990 letter (Exh. H)[20] to another interested buyer.

PNB appealed to the CA which reversed and set aside the September 14, 1995 RTC
Decision, thus:

WHEREFORE, the appealed decision is REVERSED and SET ASIDE and another
rendered DISMISSING the complaint.

SO ORDERED.[21]

According to the CA, there was no perfected contract of sale because the July 6, 1990
letter of Guevara constituted a qualified acceptance of the June 28, 1990 offer of
Villanueva, and to which Villanueva replied on July 11, 1990 with a modified offer. The CA
held:

In the case at bench, consent, in respect to the price and manner of its payment,
is lacking. The record shows that appellant, thru Guevaras July 6, 1990 letter, made a
qualified acceptance of appellees letter-offer dated June 28, 1990 by imposing an asking

price of P2,883,300.00 in cash for Lot 19. The letter dated July 6, 1990 constituted a
counter-offer (Art. 1319, Civil Code), to which appellee made a new proposal, i.e., to pay
the amount of P2,883,300.00 in staggered amounts, that is, P600,000.00 as
downpayment and the balance within two years in quarterly amortizations.

A qualified acceptance, or one that involves a new proposal, constitutes a

counter-offer and a rejection of the original offer (Art. 1319, id.). Consequently, when
something is desired which is not exactly what is proposed in the offer, such acceptance
is not sufficient to generate consent because any modification or variation from the
terms of the offer annuls the offer (Tolentino, Commentaries and Jurisprudence on the
Civil Code of the Philippines, 6th ed., 1996, p. 450, cited in ABS-CBN Broadcasting
Corporation v. Court of Appeals, et al., 301 SCRA 572).

Appellees new proposal, which constitutes a counter-offer, was not accepted by

appellant, its board having decided to have Lot 19 reappraised and sold thru public
bidding.

Moreover, it was clearly stated in Guevaras July 6, 1990 letter that the sale shall
be subject to our Board of Directors approval and to other terms and conditions imposed
by the Bank on sale of acquired assets.[22]

Villanuevas Motion for Reconsideration[23] was denied by the CA in its Resolution

of June 27, 2002.

Petitioner Villanueva now assails before this Court the January 29, 2002 Decision
and June 27, 2002 Resolution of the CA. He assigns five issues which may be condensed
into two: first, whether a perfected contract of sale exists between petitioner and
respondent PNB; and second, whether the conduct and actuation of respondent
constitutes bad faith as to entitle petitioner to moral and exemplary damages and
attorneys fees.

The Court sustains the CA on both issues.

Contracts of sale are perfected by mutual consent whereby the seller obligates
himself, for a price certain, to deliver and transfer ownership of a specified thing or right
to the buyer over which the latter agrees.[24] Mutual consent being a state of mind, its
existence may only be inferred from the confluence of two acts of the parties: an offer
certain as to the object of the contract and its consideration, and an acceptance of the
offer which is absolute in that it refers to the exact object and consideration embodied in
said offer.[25] While it is impossible to expect the acceptance to echo every nuance of
the offer, it is imperative that it assents to those points in the offer which, under the
operative facts of each contract, are not only material but motivating as well. Anything
short of that level of mutuality produces not a contract but a mere counter-offer awaiting
acceptance.[26] More particularly on the matter of the consideration of the contract, the
offer and its acceptance must be unanimous both on the rate of the payment and on its
term. An acceptance of an offer which agrees to the rate but varies the term is
ineffective. [27]
To determine whether there was mutual consent between the parties herein, it is
necessary to retrace each offer and acceptance they made.

Respondent began with an invitation to bid issued in April 1989 covering several of its
acquired assets in Calumpang, General Santos City, including Lot No. 19 for which the
floor price was P2,268,000.00. The offer was subject to the condition that sealed bids,
accompanied by a 10% deposit in managers or cashiers check, be submitted not later
than 10 oclock in the morning of April 27, 1989.

On June 28, 1990, petitioner made an offer to buy Lot No. 17 and Lot No. 19 for an
aggregate price of P3,677,000.00. It is noted that this offer exactly corresponded to the
April 1989 invitation to bid issued by respondent in that the proposed aggregate
purchase price for Lot Nos. 17 and 19 matched the advertised floor prices for the same
properties. However, it cannot be said that the June 28, 1990 letter of petitioner was an
effective acceptance of the April 1989 invitation to bid for, by its express terms, said
invitation lapsed on April 27, 1989.[28] More than that, the April 1989 invitation was
subject to the condition that all sealed bids submitted and accepted be approved by
respondents higher authorities.

Thus, the June 28, 1990 letter of petitioner was an offer to buy independent of the April
1989 invitation to bid. It was a definite offer as it identified with certainty the
properties sought to be purchased and fixed the contract price.

However, respondent replied to the June 28, 1990 offer with a July 6, 1990 letter that
only Lot No. 19 is available and that the price therefor is now P2,883,300.00. As the CA
pointed out, this reply was certainly not an acceptance of the June 28, 1990 offer but a
mere counter-offer. It deviated from the original offer on three material points: first, the
object of the proposed sale is now only Lot No. 19 rather than Lot Nos. 17 and 19;

second, the area of the property to be sold is still 41,190 sq. m but an 8,797-sq. m
portion is now part of a public road; and third, the consideration is P2,883,300 for one lot
rather than P3,677,000.00 for two lots. More important, this July 6, 1990 counter-offer
imposed two conditions: one, that petitioner submit a revised offer to purchase based on
the quoted price; and two, that the sale of the property be approved by the Board of
Directors and subjected to other terms and conditions imposed by the Bank on the sale
of acquired assets.

In reply to the July 6, 1990 counter-offer, petitioner signed his July 11, 1990
conformity to the quoted price of P2,883,300.00 but inserted the term downpayment of
P600,000.00 and the balance payable in two years at quarterly amortization. The CA
viewed this July 11, 1990 conformity not as an acceptance of the July 6, 1990 counteroffer but a further counter-offer for, while petitioner accepted the P2,883,300.00 price for
Lot No. 19, he qualified his acceptance by proposing a two-year payment term.

Petitioner does not directly impugn such reasoning of the CA. He merely questions it for
taking up the issue of whether his July 11, 1990 conformity modified the July 6, 1990
counter-offer as this was allegedly never raised during the trial nor on appeal.[29]

Such argument is not well taken. From beginning to end, respondent denied that a
contract of sale with petitioner was ever perfected.[30] Its defense was broad enough
to encompass every issue relating to the concurrence of the elements of contract,
specifically on whether it consented to the object of the sale and its consideration. There
was nothing to prevent the CA from inquiring into the offers and counter-offers of the
parties to determine whether there was indeed a perfected contract between them.

Moreover, there is merit in the ruling of the CA that the July 11, 1990 marginal note was
a further counter-offer which did not lead to the perfection of a contract of sale between
the parties. Petitioners own June 28, 1990 offer quoted the price of P3,677,000.00 for
two lots but was silent on the term of payment. Respondents July 6, 1990 counter-offer
quoted the price of P2,833,300.00 and was also silent on the term of payment. Up to that
point, the term or schedule of payment was not on the negotiation table. Thus, when
petitioner suddenly introduced a term of payment in his July 11, 1990 counter-offer, he
interjected into the negotiations a new substantial matter on which the parties had no
prior discussion and over which they must yet agree.[31] Petitioners July 11, 1990
counter-offer, therefore, did not usher the parties beyond the negotiation stage of
contract making towards its perfection. He made a counter-offer that required
acceptance by respondent.

As it were, respondent, through its Board of Directors, did not accept this last counteroffer. As stated in its October 11, 1990 letter to petitioner, respondent ordered the

reappraisal of the property, in clear repudiation not only of the proposed price but also
the term of payment thereof.

Petitioner insists, however, that the October 11, 1990 repudiation was belated as
respondent had already agreed to his July 11, 1990 counter-offer when it accepted his
downpayment or earnest money of P580,000.00.[32] He cites Article 1482 of the
Civil Code where it says that acceptance of downpayment or earnest money
presupposes the perfection of a contract.

Not so. Acceptance of petitioners payments did not amount to an implied acceptance of
his last counter-offer.

To begin with, PNB-General Santos Branch, which accepted petitioners P380,000.00

payment, and PNB-SAMD, which accepted his P200,000.00 payment, had no authority to
bind respondent to a contract of sale with petitioner.[33] Petitioner is well aware of this.
To recall, petitioner sent his June 28, 1990 offer to PNB-General Santos Branch. Said
branch did not act on his offer except to endorse it to Guevarra. Thereafter, petitioner
transacted directly with Guevarra. Petitioner then cannot pretend that PNB-General
Santos Branch had authority to accept his July 11, 1990 counter-offer by merely
accepting his P380,000.00 payment.

Neither did SAMD have authority to bind PNB. In its April 1989 invitation to bid, as well as
its July 6, 1990 counter-offer, SAMD was always careful to emphasize that whatever offer
is made and entertained will be subject to the approval of respondents higher
authorities. This is a reasonable disclaimer considering the corporate nature of
respondent. [34]

Moreover, petitioners payment of P200,000.00 was with the clear understanding

that his July 11, 1990 counter-offer was still subject to approval by respondent. This is
borne out by respondents Exhibits 2-a and 2-b, which petitioner never controverted,
where it appears on the dorsal portion of O.R. No. 16997 that petitioner acceded that the
amount he paid was a mere x x x deposit made to show the sincerity of [his] purchase
offer with the understanding that it shall be returned without interest if [his] offer is not
favorably considered x x x.[35] This was a clear acknowledgment on his part that there
was yet no perfected contract with respondent and that even with the payments he had
advanced, his July 11, 1990 counter-offer was still subject to consideration by
respondent.

Not only that, in the same Exh. 2-a as well as in his June 28, 1990 offer,
petitioner referred to his payments as mere deposits. Even O.R. No. 16997 refers to
petitioners payment as mere deposit. It is only in the debit notice issued by PNB-General
Santos Branch where petitioners payment is referred to as downpayment. But then, as
we said, PNB-General Santos Branch has no authority to bind respondent by its
interpretation of the nature of the payment made by petitioner.

In sum, the amounts paid by petitioner were not in the nature of downpayment or
earnest money but were mere deposits or proof of his interest in the purchase of Lot No.
19. Acceptance of said amounts by respondent does not presuppose perfection of any
contract.[36]

It must be noted that petitioner has expressly admitted that he had withdrawn the
entire amount of P580,000.00 deposit from PNB-General Santos Branch.[37]

With the foregoing disquisition, the Court foregoes resolution of the second issue
as it is evident that respondent acted well within its rights when it rejected the last
counter-offer of petitioner.

In fine, petitioners petition lacks merit.

WHEREFORE, the petition is DENIED. The Decision dated January 29, 2002 and
Resolution dated June 27, 2002 of the Court of Appeals are AFFIRMED.

No costs.

SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

WE CONCUR:

ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson

CONSUELO YNARES-SANTIAGO
Associate Justice

ROMEO J. CALLEJO, SR.

Associate Justice

MINITA V. CHICO-NAZARIO
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the
conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

ARTEMIO V. PANGANIBAN

Chief Justice

-------------------------------------------------------------------------------[1]
Penned by Associate Justice Edgardo P. Cruz and concurred in by Associate
Justices Hilarion L. Aquino and Amelita G. Tolentino.
[2]

CA rollo, p. 132.

[3]
Entitled Reynaldo Villanueva, Plaintiff-Appellee v. Philippine National Bank,
Defendant-Appellant.
[4]

Records, p. 151.

[5]

Exhibit B, Plaintiffs Folder of Exhibits, p. 2.

[6]

Exhibit C, id. at 3.

[7]

Exhibit C-1, id.

[8]

Exhibit D, id. at 5.

[9]

Exhibit F, id. at 7.

[10]

Id.

[11]

Exhibit F-1, id.

[12]

Exhibit E, id. at 6.

[13]

Exhibit 2-a and 2-b, id. (dorsal portion).

[14]

Exhibit G, id. at 8.

[15]

Exhibit J, id. at 12.

[16]

Records, p. 1.

[17]

Id. at 157-158.

[18]

Id. at 155.

[19]

Id. at 156.

[20]

Plaintiffs Folder of Exhibits, p. 9.

[21]

CA rollo, p. 105.

[22]

Id. at 102-103.

[23]

Id. at 112.

[24]
273, 292.

Blas v. Angeles-Hutalla, G.R. No. 155594. September 27, 2004, 439 SCRA

[25]
Banco Filipino Savings and Mortgage Bank v. Court of Appeals, G.R. No.
143896, July 8, 2005, 463 SCRA 64, 77; San Lorenzo Development Corporation v. Court
of Appeals , G.R. No. 124242, January 21, 2005, 449 SCRA 99, 111.
[26]
Swedish Match, et al. v. Court of Appeals, G.R. No. 128120, October 20,
2004, 441 SCRA 1, 19.
[27]
Marnelego v. Banco Filipino Savings and Mortgage Bank, G.R. No. 161524,
January 27, 2006, 480 SCRA 399, 408.
[28]

Villegas v. Court of Appeals, G.R. No. 111495, August 18, 2006.

[29]

Rollo, pp. 27-28.

[30]

Records, pp. 23 and 38.

[31]

Marnelego v. Banco Filipino Savings and Mortgage Bank, supra note 27.

[32]

Rollo, pp. 28-30.

[33]
Firme v. Bukal Enterprises and Development Corporation, G.R. No. 146608,
October 23, 2003, 414 SCRA 190, 207.
[34]
Development Bank of the Philippines v. Ong, G.R. Nos. 144661 and 144797,
June 15, 2005, 460 SCRA 170, 183; Spouses Firme v. Bukal, supra note 33.
[35]

See note 13.

[36]
San Miguel Properties Philippines, Inc. v. Spouses Huang, 391 Phil. 636, 646,
(2000), citing Navarro v. Sugar Producers Cooperative Marketing Association, Inc., 111
Phil. 820 (1961); Toyota Shaw, Inc. v. Court of Appeals, 314 Phil. 201, 214 (1995);
Velasco v. Court of Appeals, 151-A Phil. 868 (1973).

[37]

TSN, October 18, 1997, p. 27.

FIRST DIVISION

MANILA METAL CONTAINER

G.R. No. 166862

CORPORATION,
Petitioner,
Present:
REYNALDO C. TOLENTINO,
Intervenor,

PANGANIBAN, C.J., Chairperson,*

YNARES-SANTIAGO,**
AUSTRIA-MARTINEZ,
- versus -

CALLEJO, SR., and

CHICO-NAZARIO, JJ.

PHILIPPINE NATIONAL BANK,

Respondent,

DMCI-PROJECT DEVELOPERS,

Promulgated:

INC.,
Intervenor.

December 20, 2006

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision[1] of the Court of Appeals
(CA) in CA-G.R. No. 46153 which affirmed the decision[2] of the Regional Trial Court
(RTC), Branch 71, Pasig City, in Civil Case No. 58551, and its Resolution[3] denying the

motion for reconsideration filed by petitioner Manila Metal Container Corporation

(MMCC).

The Antecedents

Petitioner was the owner of a 8,015 square meter parcel of land located in Mandaluyong
(now a City), Metro Manila. The property was covered by Transfer Certificate of Title
(TCT) No. 332098 of the Registry of Deeds of Rizal. To secure a P900,000.00 loan it had
obtained from respondent Philippine National Bank (PNB), petitioner executed a real
estate mortgage over the lot. Respondent PNB later granted petitioner a new credit
accommodation of P1,000,000.00; and, on November 16, 1973, petitioner executed an
Amendment[4] of Real Estate Mortgage over its property. On March 31, 1981, petitioner
secured another loan of P653,000.00 from respondent PNB, payable in quarterly
installments of P32,650.00, plus interests and other charges.[5]

On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure of the
real estate mortgage and sought to have the property sold at public auction for
P911,532.21, petitioners outstanding obligation to respondent PNB as of June 30, 1982,
[6] plus interests and attorneys fees.

After due notice and publication, the property was sold at public auction on September
28, 1982 where respondent PNB was declared the winning bidder for P1,000,000.00. The
Certificate of Sale[7] issued in its favor was registered with the Office of the Register of
Deeds of Rizal, and was annotated at the dorsal portion of the title on February 17, 1983.
Thus, the period to redeem the property was to expire on February 17, 1984.

Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that
it be granted an extension of time to redeem/repurchase the property.[8]
In its reply
dated August 30, 1983, respondent PNB informed petitioner that the request had been
referred to its Pasay City Branch for appropriate action and recommendation.[9]

In a letter[10] dated February 10, 1984, petitioner reiterated its request for a one
year extension from February 17, 1984 within which to redeem/repurchase the property
on installment basis. It reiterated its request to repurchase the property on installment.
[11] Meanwhile, some PNB Pasay City Branch personnel informed petitioner that as a
matter of policy, the bank does not accept partial redemption.[12]

Since petitioner failed to redeem the property, the Register of Deeds cancelled TCT No.
32098 on June 1, 1984, and issued a new title in favor of respondent PNB.[13]
Petitioners offers had not yet been acted upon by respondent PNB.

Meanwhile, the Special Assets Management Department (SAMD) had prepared a

statement of account, and as of June 25, 1984 petitioners obligation amounted to
P1,574,560.47. This included the bid price of P1,056,924.50, interest, advances of
insurance premiums, advances on realty taxes, registration expenses, miscellaneous
expenses and publication cost.[14] When apprised of the statement of account,
petitioner remitted P725,000.00 to respondent PNB as deposit to repurchase, and
Official Receipt No. 978191 was issued to it.[15]

In the meantime, the SAMD recommended to the management of respondent PNB

that petitioner be allowed to repurchase the property for
P1,574,560.00. In a letter
dated November 14, 1984, the PNB management informed petitioner that it was
rejecting the offer and the recommendation of
the SAMD. It was suggested that petitioner purchase the property for P2,660,000.00, its
minimum market value. Respondent PNB gave petitioner until December 15, 1984 to act
on the proposal; otherwise, its
P725,000.00 deposit would be returned and
the property would be sold to other interested buyers.[16]

Petitioner, however, did not agree to respondent PNBs proposal. Instead, it wrote
another letter dated December 12, 1984 requesting for a reconsideration. Respondent
PNB replied in a letter dated December 28, 1984, wherein it reiterated its proposal that
petitioner purchase the property for P2,660,000.00. PNB again informed petitioner that
it would return the deposit should petitioner desire to withdraw its offer to purchase the
property.[17] On February 25, 1985, petitioner, through counsel, requested that PNB
reconsider its letter dated December 28, 1984. Petitioner declared that it had already
agreed to the SAMDs offer to purchase the property for P1,574,560.47, and that was
why it had paid P725,000.00. Petitioner warned respondent PNB that it would seek
judicial recourse should PNB insist on the position.[18]

On June 4, 1985, respondent PNB informed petitioner that the PNB Board of Directors had
accepted petitioners offer to purchase the property, but for P1,931,389.53 in cash less
the P725,000.00 already deposited with it.[19] On page two of the letter was a space
above the typewritten name of petitioners President, Pablo Gabriel, where he was to
affix his signature. However, Pablo Gabriel did not conform to the letter but merely
indicated therein that he had received it.[20] Petitioner did not respond, so PNB
requested petitioner in a letter dated June 30, 1988 to submit an amended offer to
repurchase.

Petitioner rejected respondents proposal in a letter dated July 14, 1988. It maintained
that respondent PNB had agreed to sell the property for P1,574,560.47, and that since its
P725,000.00 downpayment had been accepted, respondent PNB was proscribed from
increasing the purchase price of the property.[21] Petitioner averred that it had a net
balance payable in the amount of P643,452.34. Respondent PNB, however, rejected
petitioners offer to pay the balance of P643,452.34 in a letter dated August 1, 1989.[22]

On August 28, 1989, petitioner filed a complaint against respondent PNB for Annulment
of Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific Performance with
Damages. To support its cause of action for specific performance, it alleged the
following:

34. As early as June 25, 1984, PNB had accepted the down payment from Manila Metal
in the substantial amount of P725,000.00 for the redemption/repurchase price of
P1,574,560.47 as approved by its SMAD and considering the reliance made by Manila
Metal and the long time that has elapsed, the approval of the higher management of the
Bank to confirm the agreement of its SMAD is clearly a potestative condition which
cannot legally prejudice Manila Metal which has acted and relied on the approval of
SMAD. The Bank cannot take advantage of a condition which is entirely dependent upon
its own will after accepting and benefiting from the substantial payment made by Manila
Metal.

35. PNB approved the repurchase price of P1,574,560.47 for which it accepted
P725,000.00 from Manila Metal. PNB cannot take advantage of its own delay and long
inaction in demanding a higher amount based on unilateral computation of interest rate
without the consent of Manila Metal.

Petitioner later filed an amended complaint and supported its claim for damages with the
following arguments:

36. That in order to protect itself against the wrongful and malicious acts of the
defendant Bank, plaintiff is constrained to engage the services of counsel at an agreed
fee of P50,000.00 and to incur litigation expenses of at least P30,000.00, which the
defendant PNB should be condemned to pay the plaintiff Manila Metal.

37. That by reason of the wrongful and malicious actuations of defendant PNB, plaintiff
Manila Metal suffered besmirched reputation for which defendant PNB is liable for moral
damages of at least P50,000.00.

38. That for the wrongful and malicious act of defendant PNB which are highly
reprehensible, exemplary damages should be awarded in favor of the plaintiff by way of
example or correction for the public good of at least P30,000.00.[23]

Petitioner prayed that, after due proceedings, judgment be rendered in its favor, thus:

a) Declaring the Amended Real Estate Mortgage (Annex A) null and void and without
any legal force and effect.

b)
Declaring defendants acts of extra-judicially foreclosing the mortgage over
plaintiffs property and setting it for auction sale null and void.

c)
Ordering the defendant Register of Deeds to cancel the new title issued in the
name of PNB (TCT NO. 43792) covering the property described in paragraph 4 of the
Complaint, to reinstate TCT No. 37025 in the name of Manila Metal and to cancel the
annotation of the mortgage in question at the back of the TCT No. 37025 described in
paragraph 4 of this Complaint.

d)
Ordering the defendant PNB to return and/or deliver physical possession of the TCT
No. 37025 described in paragraph 4 of this Complaint to the plaintiff Manila Metal.

e)
Ordering the defendant PNB to pay the plaintiff Manila Metals actual damages,
moral and exemplary damages in the aggregate amount of not less than
P80,000.00
as may be warranted by the evidence and fixed by this Honorable Court in the exercise
of its sound discretion, and attorneys fees of P50,000.00 and litigation expenses of at
least P30,000.00 as may be proved during the trial, and costs of suit.

Plaintiff likewise prays for such further reliefs which may be deemed just and equitable in
the premises.[24]

In its Answer to the complaint, respondent PNB averred, as a special and affirmative
defense, that it had acquired ownership over the property after the period to redeem had

elapsed. It claimed that no contract of sale was perfected between it and petitioner after
the period to redeem the property had expired.

During pre-trial, the parties agreed to submit the case for decision, based on their
stipulation of facts.[25] The parties agreed to limit the issues to the following:

1. Whether or not the June 4, 1985 letter of the defendant approving/accepting

plaintiffs offer to purchase the property is still valid and legally enforceable.

2. Whether or not the plaintiff has waived its right to purchase the property when it
failed to conform with the conditions set forth by the defendant in its letter dated June 4,
1985.

3. Whether or not there is a perfected contract of sale between the parties.[26]

While the case was pending, respondent PNB demanded, on September 20, 1989, that
petitioner vacate the property within 15 days from notice,[27] but petitioners refused to
do so.

On March 18, 1993, petitioner offered to repurchase the property for P3,500,000.00.[28]
The offer was however rejected by respondent PNB, in a letter dated April 13, 1993.
According to it, the prevailing market value of the property was approximately
P30,000,000.00, and as a matter of policy, it could not sell the property for less than its
market value.[29] On June 21, 1993, petitioner offered to purchase the property for
P4,250,000.00 in cash.[30] The offer was again rejected by respondent PNB on
September 13, 1993.[31]

On May 31, 1994, the trial court rendered judgment dismissing the amended complaint
and respondent PNBs counterclaim. It ordered respondent PNB to refund the
P725,000.00 deposit petitioner had made.[32] The trial court ruled that there was no
perfected contract of sale between the parties; hence, petitioner had no cause of action
for specific performance against respondent. The trial court declared that respondent
had rejected petitioners offer to repurchase the property. Petitioner, in turn, rejected the
terms and conditions contained in the June 4, 1985 letter of the SAMD. While petitioner
had offered to repurchase the property per its letter of

July 14, 1988, the amount of P643,422.34 was way below the P1,206,389.53 which
respondent PNB had demanded. It further declared that the P725,000.00 remitted by
petitioner to respondent PNB on June 4, 1985 was a deposit, and not a downpayment
or earnest money.

On appeal to the CA, petitioner made the following allegations:

I
THE LOWER COURT ERRED IN RULING THAT DEFENDANT-APPELLEES LETTER DATED 4
JUNE 1985 APPROVING/ACCEPTING PLAINTIFF-APPELLANTS OFFER TO PURCHASE THE
SUBJECT PROPERTY IS NOT VALID AND ENFORCEABLE.

II
THE LOWER COURT ERRED IN RULING THAT THERE WAS NO PERFECTED CONTRACT OF
SALE BETWEEN PLAINTIFF-APPELLANT AND DEFENDANT-APPELLEE.

III
THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLLANT WAIVED ITS RIGHT
TO PURCHASE THE SUBJECT PROPERTY WHEN IT FAILED TO CONFORM WITH CONDITIONS
SET FORTH BY DEFENDANT-APPELLEE IN ITS LETTER DATED 4 JUNE 1985.

IV
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT IT WAS THE DEFENDANTAPPELLEE WHICH RENDERED IT DIFFICULT IF NOT IMPOSSIBLE FOR PLAINTIFF-APPELLANT
TO COMPLETE THE BALANCE OF THEIR PURCHASE PRICE.

V
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT THERE WAS NO VALID
RESCISSION OR CANCELLATION OF SUBJECT CONTRACT OF REPURCHASE.

VI

THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED AND REFUSED TO
SUBMIT THE AMENDED REPURCHASE OFFER.

VII
THE LOWER COURT ERRED IN DISMISSING THE AMENDED COMPLAINT OF PLAINTIFFAPPELLANT.

VIII
THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-APPELLANT ACTUAL, MORAL
AND EXEMPLARY DAMAGES, ATTOTRNEYS FEES AND LITIGATION EXPENSES.[33]
Meanwhile, on June 17, 1993, petitioners Board of Directors approved Resolution No. 3004, where it waived, assigned and transferred its rights over the property covered by
TCT No. 33099 and TCT No. 37025 in favor of Bayani Gabriel, one of its Directors.[34]
Thereafter, Bayani Gabriel executed a Deed of Assignment over 51% of the ownership
and management of the property in favor of Reynaldo Tolentino, who later moved for
leave to intervene as plaintiff-appellant. On July 14, 1993, the CA issued a resolution
granting the motion,[35] and likewise granted the motion of Reynaldo Tolentino
substituting petitioner MMCC, as plaintiff-appellant, and his motion to withdraw as
intervenor.[36]

The CA rendered judgment on May 11, 2000 affirming the decision of the RTC.[37] It
declared that petitioner obviously never agreed to the selling price proposed by
respondent PNB (P1,931,389.53) since petitioner had kept on insisting that the selling
price should be lowered to P1,574,560.47. Clearly therefore, there was no meeting of
the minds between the parties as to the price or consideration of the sale.

The CA ratiocinated that petitioners original offer to purchase the subject property had
not been accepted by respondent PNB. In fact, it made a counter-offer through its June
4, 1985 letter specifically on the selling price; petitioner did not agree to the counteroffer; and the negotiations did not prosper. Moreover, petitioner did not pay the balance
of the purchase price within the sixty-day period set in the June 4, 1985 letter of
respondent PNB. Consequently, there was no perfected contract of sale, and as such,
there was no contract to rescind.

According to the appellate court, the claim for damages and the counterclaim were
correctly dismissed by the court a quo for no evidence was presented to support it.
Respondent PNBs letter dated June 30, 1988 cannot revive the failed negotiations
between the parties. Respondent PNB merely asked petitioner to submit an amended

offer to repurchase. While petitioner reiterated its request for a lower selling price and
that the balance of the repurchase be reduced, however, respondent rejected the
proposal in a letter dated August 1, 1989.

Petitioner filed a motion for reconsideration, which the CA likewise denied.

Thus, petitioner filed the instant petition for review on certiorari, alleging that:

I.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT
THERE IS NO PERFECTED CONTRACT OF SALE BETWEEN THE PETITIONER AND
RESPONDENT.

II.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT
THE AMOUNT OF PHP725,000.00 PAID BY THE PETITIONER IS NOT AN EARNEST MONEY.

III.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT
THE FAILURE OF THE PETITIONER-APPELLANT TO SIGNIFY ITS CONFORMITY TO THE
TERMS CONTAINED IN PNBS JUNE 4, 1985 LETTER MEANS THAT THERE WAS NO VALID
AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES.

IV.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT NON-PAYMENT OF
THE PETITIONER-APPELLANT OF THE BALANCE OF THE OFFERED PRICE IN THE LETTER OF
PNB DATED JUNE 4, 1985, WITHIN SIXTY (60) DAYS FROM NOTICE OF APPROVAL
CONSTITUTES NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE
PARTIES.

V.
THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE LETTERS OF
PETITIONER-APPELLANT DATED MARCH 18, 1993 AND JUNE 21, 1993, OFFERING TO BUY
THE SUBJECT PROPERTY AT DIFFERENT AMOUNT WERE PROOF THAT THERE IS NO
PERFECTED CONTRACT OF SALE.[38]

The threshold issue is whether or not petitioner and respondent PNB had entered
into a perfected contract for petitioner to repurchase the property from respondent.

Petitioner maintains that it had accepted respondents offer made through the SAMD, to
sell the property for P1,574,560.00. When the acceptance was made in its letter dated
June 25, 1984; it then deposited P725,000.00 with the SAMD as partial payment,
evidenced by Receipt
No. 978194 which respondent had issued. Petitioner avers that
the SAMDs acceptance of the deposit amounted to an acceptance of its offer to
repurchase. Moreover, as gleaned from the letter of SAMD dated June 4, 1985, the PNB
Board of Directors had approved petitioners offer to purchase the property. It claims
that this was the suspensive condition, the fulfillment of which gave rise to the contract.
Respondent could no longer unilaterally withdraw its offer to sell the property for
P1,574,560.47, since the acceptance of the offer resulted in a perfected contract of sale;
it was obliged to remit to respondent the balance of the original purchase price of
P1,574,560.47, while respondent was obliged to transfer ownership and deliver the
property to petitioner, conformably with Article 1159 of the New Civil Code.

Petitioner posits that respondent was proscribed from increasing the interest rate after it
had accepted respondents offer to sell the property for P1,574,560.00. Consequently,
respondent could no longer validly make a counter-offer of P1,931,789.88 for the
purchase of the property. It likewise maintains that, although the P725,000.00 was
considered as deposit for the repurchase of the property in the receipt issued by the
SAMD, the amount constitutes earnest money as contemplated in Article 1482 of the
New Civil Code. Petitioner cites the rulings of this Court in Villonco v. Bormaheco[39] and
Topacio v. Court of Appeals.[40]

Petitioner avers that its failure to append its conformity to the June 4, 1984 letter
of respondent and its failure to pay the balance of the price as fixed by respondent within
the 60-day period from notice was to protest respondents breach of its obligation to
petitioner. It did not amount to a rejection of respondents offer to sell the property since
respondent was merely seeking to enforce its right to pay the balance of P1,570,564.47.
In any event, respondent had the option either to accept the balance of the offered price
or to cause the rescission of the contract.

Petitioners letters dated March 18, 1993 and June 21, 1993 to respondent during
the pendency of the case in the RTC were merely to compromise the pending lawsuit,
they did not constitute separate offers to repurchase the property. Such offer to
compromise should not be taken against it, in accordance with Section 27, Rule 130 of
the Revised Rules of Court.

For its part, respondent contends that the parties never graduated from the negotiation
stage as they could not agree on the amount of the
repurchase price of the
property. All that transpired was an exchange of proposals and counter-proposals,
nothing more. It insists that a definite agreement on the amount and manner of

payment of the price are essential elements in the formation of a binding and
enforceable contract of sale. There was no such agreement in this case. Primarily, the
concept of suspensive condition signifies a future and uncertain event upon the
fulfillment of which the obligation becomes effective. It clearly presupposes the
existence of a valid and binding agreement, the effectivity of which is subordinated to its
fulfillment. Since there is no perfected contract in the first place, there is no basis for the
application of the principles governing suspensive conditions.

According to respondent, the Statement of Account prepared by SAMD as of June

25, 1984 cannot be classified as a counter-offer; it is simply a recital of its total monetary
claims against petitioner. Moreover, the amount stated therein could not likewise be
considered as the counter-offer since as admitted by petitioner, it was only
recommendation which was subject to approval of the PNB Board of Directors.

Neither can the receipt by the SAMD of P725,000.00 be regarded as evidence of a

perfected sale contract. As gleaned from the parties Stipulation of Facts during the
proceedings in the court a quo, the amount is merely an acknowledgment of the receipt
of P725,000.00 as deposit to repurchase the property. The deposit of P725,000.00 was
accepted by respondent on the condition that the purchase price would still be approved
by its Board of Directors. Respondent maintains that its acceptance of the amount was
qualified by that condition, thus not absolute. Pending such approval, it cannot be
legally claimed that respondent is already bound by any contract of sale with petitioner.

According to respondent, petitioner knew that the SAMD has no capacity to bind
respondent and that its authority is limited to administering, managing and preserving
the properties and other special assets of PNB. The SAMD does not have the power to
sell, encumber, dispose of, or otherwise alienate the assets, since the power to do so
must emanate from its Board of Directors. The SAMD was not authorized by respondents
Board to enter into contracts of sale with third persons involving corporate assets. There
is absolutely nothing on record that respondent authorized the SAMD, or made it appear
to petitioner that it represented itself as having such authority.

Respondent reiterates that SAMD had informed petitioner that its offer to
repurchase had been approved by the Board subject to the condition, among others,
that the selling price shall be the total banks claim as of documentation date x x x
payable in cash (P725,000.00 already deposited)

within 60 days from notice of approval. A new Statement of Account was attached
therein indicating the total banks claim to be P1,931,389.53 less deposit of P725,000.00,
or P1,206,389.00. Furthermore, while respondents Board of Directors accepted
petitioners offer to repurchase the property, the acceptance was qualified, in that it

required a higher sale price and subject to specified terms and conditions enumerated
therein. This qualified acceptance was in effect a counter-offer, necessitating petitioners
acceptance in return.

The Ruling of the Court

The ruling of the appellate court that there was no perfected contract of sale
between the parties on June 4, 1985 is correct.

A contract is a meeting of minds between two persons whereby one binds himself,
with respect to the other, to give something or to render some service.[41] Under Article
1318 of the New Civil Code, there is no contract unless the following requisites concur:

(1)

Consent of the contracting parties;

(2)

Object certain which is the subject matter of the contract;

(3)

Cause of the obligation which is established.

Contracts are perfected by mere consent which is manifested by the meeting of

the offer and the acceptance upon the thing and the cause which are to constitute the
contract.[42] Once perfected, they bind other contracting parties and the obligations
arising therefrom have the form of law between the parties and should be complied with
in good faith. The parties are bound not only to the fulfillment of what has been
expressly stipulated but also to the consequences which, according to their nature, may
be in keeping with good faith, usage and law.[43]

By the contract of sale, one of the contracting parties obligates 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.[44] The absence of any of the essential elements will
negate the existence of a perfected contract of sale. As the Court ruled in Boston Bank
of the Philippines v. Manalo:[45]

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.[46]

A contract of sale is consensual in nature and is perfected upon mere meeting of

the minds. When there is merely an offer by one party without acceptance of the other,
there is no contract.[47] When the contract of sale is not perfected, it cannot, as an
independent source of obligation, serve as a binding juridical relation between the
parties.[48]

In San Miguel Properties Philippines, Inc. v. Huang,[49] the Court ruled that the
stages of a contract of sale are as follows: (1) negotiation, covering the period from the
time the prospective contracting parties indicate interest in the contract to the time the
contract is perfected; (2) perfection, which takes place upon the concurrence of the
essential elements of the sale which are the meeting of the minds of the parties as to the
object of the contract and upon the price; and (3) consummation, which begins when the
parties perform their respective undertakings under the contract of sale, culminating in
the extinguishment thereof.

A negotiation is formally initiated by an offer, which, however, must be certain.[50]

At any time prior to the perfection of the contract, either negotiating party may stop the
negotiation. At this stage, the offer may be withdrawn; the withdrawal is effective
immediately after its manifestation. To convert the offer into a contract, the acceptance
must be absolute and must not qualify the terms of the offer; it must be plain,
unequivocal, unconditional and without variance of any sort from the proposal. In Adelfa
Properties, Inc. v. Court of Appeals,[51] the Court ruled that:

x x x 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 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.[52]

A qualified acceptance or one that involves a new proposal constitutes a counteroffer and a rejection of the original offer. A counter-offer is considered in law, a rejection
of the original offer and an attempt to end the negotiation between the parties on a

different basis.[53] Consequently, when something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to guarantee consent because
any modification or variation from the terms of the offer annuls the offer.[54] The
acceptance must be identical in all respects with that of the offer so as to produce
consent or meeting of the minds.

In this case, petitioner had until February 17, 1984 within which to redeem the property.
However, since it lacked the resources, it requested for more time to redeem/repurchase
the property under such terms and conditions agreed upon by the parties.[55] The
request, which was made through a letter dated August 25, 1983, was referred to the
respondents main branch for appropriate action.[56] Before respondent could act on
the request, petitioner again wrote respondent as follows:

1. Upon approval of our request, we will pay your goodselves ONE HUNDRED & FIFTY
THOUSAND PESOS (P150,000.00);

2. Within six months from date of approval of our request, we will pay another FOUR
HUNDRED FIFTY THOUSAND PESOS (P450,000.00); and

3. The remaining balance together with the interest and other expenses that will be
incurred will be paid within the last six months of the one year grave period requested
for.[57]

When the petitioner was told that respondent did not allow partial redemption,[58] it
sent a letter to respondents President reiterating its offer to purchase the property.[59]
There was no response to petitioners letters dated February 10 and 15, 1984.

The statement of account prepared by the SAMD stating that the net claim of respondent
as of June 25, 1984 was P1,574,560.47 cannot be considered an unqualified acceptance
to petitioners offer to purchase the property. The statement is but a computation of the
amount which petitioner was obliged to pay in case respondent would later agree to sell
the property, including interests, advances on insurance premium, advances on realty
taxes, publication cost, registration expenses and miscellaneous expenses.

There is no evidence that the SAMD was authorized by respondents Board of Directors
to accept petitioners offer and sell the property for P1,574,560.47. Any acceptance by

the SAMD of petitioners offer would not bind respondent. As this Court ruled in AF
Realty Development, Inc. vs. Diesehuan Freight Services, Inc.:[60]

Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just as a natural person may
authorize another to do certain acts in his behalf, so may the board of directors of a
corporation validly delegate some of its functions to individual officers or agents
appointed by it. Thus, contracts or acts of a corporation must be made either by the
board of directors or by a corporate agent duly authorized by the board. Absent such
valid delegation/authorization, the rule is that the declarations of an individual director
relating to the affairs of the corporation, but not in the course of, or connected with the
performance of authorized duties of such director, are held not binding on the
corporation.

Thus, a corporation can only execute its powers and transact its business through its
Board of Directors and through its officers and agents when authorized by a board
resolution or its by-laws.[61]

It appears that the SAMD had prepared a recommendation for respondent to accept
petitioners offer to repurchase the property even beyond the one-year period; it
recommended that petitioner be allowed to redeem the property and pay P1,574,560.00
as the purchase price. Respondent later approved the recommendation that the
property be sold to petitioner. But instead of the P1,574,560.47 recommended by the
SAMD and to which petitioner had previously conformed, respondent set the purchase
price at P2,660,000.00. In fine, respondents acceptance of petitioners offer was
qualified, hence can be at most considered as a counter-offer. If petitioner had accepted
this counter-offer, a perfected contract of sale would have arisen; as it turns out,
however, petitioner merely sought to have the counter-offer reconsidered. This request
for reconsideration would later be rejected by respondent.

We do not agree with petitioners contention that the P725,000.00 it had remitted to
respondent was earnest money which could be considered as proof of the perfection of
a contract of sale under Article 1482 of the New Civil Code. The provision reads:

ART. 1482. 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.

This contention is likewise negated by the stipulation of facts which the parties entered
into in the trial court:

8. On June 8, 1984, the Special Assets Management Department (SAMD) of PNB

prepared an updated Statement of Account showing MMCCs total liability to PNB as of
June 25, 1984 to be P1,574,560.47 and recommended this amount as the repurchase
price of the subject property.

9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to repurchase the
property. The deposit of P725,000 was accepted by PNB on the condition that the
purchase price is still subject to the approval of the PNB Board.[62]

Thus, the P725,000.00 was merely a deposit to be applied as part of the purchase price
of the property, in the event that respondent would approve the recommendation of
SAMD for respondent to accept petitioners offer to purchase the property for
P1,574,560.47. Unless and until the respondent accepted the offer on these terms, no
perfected contract of sale would arise. Absent proof of the concurrence of all the
essential elements of a contract of sale, the giving of earnest money cannot establish
the existence of a perfected contract of sale.[63]

It appears that, per its letter to petitioner dated June 4, 1985, the respondent had
decided to accept the offer to purchase the property for
P1,931,389.53. However,
this amounted to an amendment of respondents qualified acceptance, or an amended
counter-offer, because while the respondent lowered the purchase price, it still declared
that its acceptance was subject to the following terms and conditions:

1.
That the selling price shall be the total Banks claim as of documentation date
(pls. see attached statement of account as of 5-31-85), payable in cash (P725,000.00
already deposited) within sixty (60) days from notice of approval;

2.
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 waive your right to warranty against eviction.

3.
All taxes and other government imposts due or to become due on the property,
as well as expenses including costs of documents and science stamps, transfer fees, etc.,
to be incurred in connection with the execution and registration of all covering
documents shall be borne by you;

4.
That you shall undertake at your own expense and account the ejectment of the
occupants of the property subject of the sale, if there are any;

5.
That upon your failure to pay the balance of the purchase price within sixty (60)
days from receipt of advice accepting your offer, your deposit shall be forfeited and the
Bank is thenceforth authorized to sell the property to other interested parties.

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.[64]

It appears that although respondent requested petitioner to conform to its amended

counter-offer, petitioner refused and instead requested respondent to reconsider its
amended counter-offer. Petitioners request was ultimately rejected and respondent
offered to refund its P725,000.00 deposit.

In sum, then, there was no perfected contract of sale between petitioner and respondent
over the subject property.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED.

The assailed decision is AFFIRMED. Costs against petitioner Manila Metal Container
Corporation.

SO ORDERED.

ROMEO J. CALLEJO, SR.

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

MINITA V. CHICO-NAZARIO
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Working Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the
conclusions in the above decision were reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

-------------------------------------------------------------------------------* Retired as of December 7, 2006.

** Working Chairperson.
[1] Penned by Associate Justice Corona Ibay-Somera (retired) with Associate Justices
Portia Alio-Hormachuelos and Elvi-John S. Asuncion, concurring; rollo, pp. 47-60.
[2] Penned by Judge Celso D. Lavia; id. at 89-103.
[3] Penned by Associate Justice Portia Alio-Hormachuelos with Associate Justices
Rebecca De Guia-Salvador and Aurora Santiago-Lagman, concurring; id. at 62-64.
[4] Exhibit A, rollo, p. 65.
[5] Exhibit B, id. at 66.
[6] Statement of Account, Exhibit D, records, pp. 20-23.

[7] Exhibit E, id. at 24.

[8] Exhibits F and 17, rollo, p. 69.
[9] Exhibit F-1, id. at 68.
[10] Exhibits F-2 and 18, id. at 70.
[11] Exhibit F-3 and 20, id. at 71.
[12] Exhibit F-4, id. at 72.
[13] Exhibit B, records, pp. 264-265.
[14] Exhibit G, rollo, p. 73.
[15] Exhibit G-1, id. at 75.
[16] Exhibit H and 22, id. at 76.
[17] Exhibit H and 24, id. at 74.
[18] Exhibit I and 25, records, pp. 34-36.
[19] Exhibit J and 26, rollo, pp. 80-81, Exhibit J-2 and 26-B, rollo, p. 82.
[20] Exhibit J-1 and 26-A, id. at p. 81.
[21] Exhibit K to K-4, id. at 84-88.
[22] Exhibit M and 30, records, p. 46.
[23] Records, pp. 63-67.
[24] Id. at 67-68.
[25]
1. The subject property is an eight thousand fifteen (8,015) square meter
land located at Dansalan St., Barrio Barranca, Mandaluyong, Metro Manila, originally
registered in the name of Manila Metal Container Corporation (MMCC) under Transfer
Certificate of Title No. 332098 of the Registry of Deeds for the Province of Rizal.
2. On August 5, 1982, the Philippine National Bank (PNB) filed with the
Provincial Sheriff of Rizal a petition for extrajudicial foreclosure and sale of the subject
property under Act No. 3135, as amended, and Presidential Decree No. 385 to satisfy the
mortgage indebtedness of MMCC in the amount of P911,532.21 plus interest at the rate
of 21% per annum on the amount of P679,768.29 and 3% penalty charge as well as 10%
attorneys fees on the total amount due and the Sheriffs fees.
3. At the public auction sale held on September 28, 1982, the Provincial Sheriff
of Rizal sold the subject property to PNB as the sole and highest bidder for
P1,056,924.40.

4. The period of redemption of the property was until February 17, 1984.
5. On August 25, 1983, MMCC requested PNB by its latter of even date for the
opportunity to redeem/repurchase the property by giving them more time to do so under
terms and conditions which may be agreed upon.
6. On August 30, 1983, MMCCs said letter was referred by PNB to its Pasay
City Branch for appropriate action.
7. On March 1, 1984, TCT No. 332078 in the name of MMCC was cancelled. In
its steed, the Register of Deeds of Mandaluyong issued TCT No. 43792 in the name of
PNB.
8. On June 8, 1984, the Special Assets Management Department (SAMD) of
PNB prepared an updated Statement of Account showing MMCCs total liability to PNB as
of June 25, 1984 to be P1,574,560.47 and recommended this amount as the repurchase
price of the subject property.
9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to repurchase
the property. The deposit of P725,000 was accepted by PNB on the condition that the
purchase price is still subject to the approval of the PNB Board.
10. In its letters dated November 14, 1984 and December 28, 1984, Special
Assets Management Department formally informed MMCC President Pablo Gabriel that
MMCCs offer to repurchase the bank acquired Mandaluyong property was returned by
top management as the offered price was too low. PNB then proposed that the offered
repurchase price be increased to at least the then minimum market value of the property
that it is P2,660,000.00.
11. On June 4, 1985, PNBs SAMD informed MMCC by letter that its offer to
purchase the subject property has been approved by the PNB Board, subject to the
condition among others, that the selling price shall be the total banks claim as of
documentation date payable within sixty (60) days from notice of approval.
12. MMCC did not signify its conformity to the terms contained in PNBs June 4,
1985 letter.
13. By letter dated June 30, 1988, PNBs SAMD gave MMCC fifteen (15) days
from receipt thereof to submit its amended repurchase offer. Otherwise, PNB will be
constrained to cancel the approved sale in favor of MMCC and advertise the property for
sale.
14. On July 14, 1988, MMCC reiterated its request to PNB to reduce the balance
of the repurchase price to P643,452.34, which request was denied by PNB in its letter
dated August 1, 1989. PNB then informed MMCC that it is refunding the deposit of
P725,000 at any time during banking hours and that it will advertise the property for sale
thru public bidding.
15. In a letter dated September 20, 1989, PNB demanded MMCC to vacate the
premises.

16. In a letter dated May 3, 1992, Mr. Bayani Gabriel and Magtanggol Gabriel
children of MMCC President Mr. Pablo Gabriel requested once again to buy back the
subject property. In reply, PNB informed the Gabriels in a letter dated June 18, 1992 that
it can recommend the sale of the property for P25 M subject to the approval of the PNB
Board and to other terms and conditions.
17. In a letter dated March 18, 1993, MMCC proposed to repurchase the
property for P3.5 M but PNB informed MMCC in its letter dated April 13, 1993 that, as a
matter of policy, all assets acquired by the bank thru foreclosure sale can only be
disposed of at market value or banks claim whichever is higher and that PNB cannot
accommodate MMCCs request to repurchase the property for P3.5 Million which as of the
banks latest appraisal has a market value of P30 Million.
18. The latest offer of MMCC per letter dated June 21, 1993 is P4,250 Million
which offer was denied by PNB in its letter dated September 13, 1993, reiterating PNBs
policy that sale of foreclosed assets shall be based on the current market value of the
property, and that the offer is too low.
19. The claims for annulment of mortgage and mortgage foreclosure in the
amended complaint are already waived, cancelled and/or withdrawn thereby leaving the
claims for specific performance and damages as the remaining issues to be resolved in
the instant case.
[26] Records, p. 267.
[27] Exhibit L, id. at 281.
[28] Exhibit O, id. at 286-289.
[29] Exhibit P, id. at 290.
[30] Exhibit Q, id. at 291.
[31] Exhibit R, id. at 292.
[32] Records, pp. 371-381.
[33] Rollo, pp. 52-53.
[34] CA rollo, pp. 158-159.
[35] Id. at 263-266.
[36] Id. at 360-364.
[37] Rollo, pp. 47-60.
[38] Id. at 25.
[39] G.R. No. L-26872, July 25, 1975, 65 SCRA 352.

[40] G.R. No. 102606, July 3, 1992, 211 SCRA 291, 295.
[41] New Civil Code, Article 1305.
[42] Gomez v. Court of Appeals, 395 Phil. 115, 125-126 (2000).
[43] New Civil Code, Article 1315.
[44] New Civil Code, Article 1458.
[45] G.R. No. 158149, February 9, 2006, 482 SCRA 108.
[46] Id. at 129.
[47] Palattao v. Court of Appeals, 431 Phil. 438, 450 (2002).
[48] Boston Bank of the Philippines v. Manalo, supra note 48, at 129.
[49] 391 Phil. 636, 645 (2000).
[50] New Civil Code, Article 1319.
[51] 310 Phil. 623 (1995).
[52] Id. at 642.
[53] Logan v. Philippine Acetylene Company, 33 Phil. 177, 183-184 (1916).
[54] ABS-CBN Broadcasting Corporation v. Court of Appeals, G.R. No. 128690, July 21,
1999, 361 SCRA 499, 520.
[55] Exhibit F, rollo, p. 69.
[56] Exhibit F-1, id. at 68.
[57] Exhibit F-2, Records, p. 27.
[58] Exhibit F-4, rollo, p. 72.
[59] Exhibit F-3, id. at 71.
[60] 424 Phil. 446, 454 (2002).
[61] Firme v. Bohol Enterprises and Development Corporation, G.R. No. 146608, October
23, 2003,
414 SCRA 190.
[62] Records, p. 258.
[63] San Miguel Properties Philippines, Inc., v. Huang, supra note 52, at 647.

[64] Records, pp. 37-38.

FIRST DIVISION

MANILA METAL CONTAINER

G.R. No. 166862

CORPORATION,
Petitioner,
Present:
REYNALDO C. TOLENTINO,
Intervenor,

PANGANIBAN, C.J., Chairperson,*

YNARES-SANTIAGO,**
AUSTRIA-MARTINEZ,
- versus -

CALLEJO, SR., and

CHICO-NAZARIO, JJ.

PHILIPPINE NATIONAL BANK,

Respondent,

DMCI-PROJECT DEVELOPERS,

Promulgated:

INC.,
Intervenor.

December 20, 2006

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision[1] of the Court of Appeals
(CA) in CA-G.R. No. 46153 which affirmed the decision[2] of the Regional Trial Court
(RTC), Branch 71, Pasig City, in Civil Case No. 58551, and its Resolution[3] denying the
motion for reconsideration filed by petitioner Manila Metal Container Corporation
(MMCC).

The Antecedents

Petitioner was the owner of a 8,015 square meter parcel of land located in Mandaluyong
(now a City), Metro Manila. The property was covered by Transfer Certificate of Title
(TCT) No. 332098 of the Registry of Deeds of Rizal. To secure a P900,000.00 loan it had
obtained from respondent Philippine National Bank (PNB), petitioner executed a real
estate mortgage over the lot. Respondent PNB later granted petitioner a new credit
accommodation of P1,000,000.00; and, on November 16, 1973, petitioner executed an
Amendment[4] of Real Estate Mortgage over its property. On March 31, 1981, petitioner
secured another loan of P653,000.00 from respondent PNB, payable in quarterly
installments of P32,650.00, plus interests and other charges.[5]

On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure of the
real estate mortgage and sought to have the property sold at public auction for
P911,532.21, petitioners outstanding obligation to respondent PNB as of June 30, 1982,
[6] plus interests and attorneys fees.

After due notice and publication, the property was sold at public auction on September
28, 1982 where respondent PNB was declared the winning bidder for P1,000,000.00. The
Certificate of Sale[7] issued in its favor was registered with the Office of the Register of
Deeds of Rizal, and was annotated at the dorsal portion of the title on February 17, 1983.
Thus, the period to redeem the property was to expire on February 17, 1984.

Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that
it be granted an extension of time to redeem/repurchase the property.[8]
In its reply
dated August 30, 1983, respondent PNB informed petitioner that the request had been
referred to its Pasay City Branch for appropriate action and recommendation.[9]

In a letter[10] dated February 10, 1984, petitioner reiterated its request for a one
year extension from February 17, 1984 within which to redeem/repurchase the property

on installment basis. It reiterated its request to repurchase the property on installment.

[11] Meanwhile, some PNB Pasay City Branch personnel informed petitioner that as a
matter of policy, the bank does not accept partial redemption.[12]

Since petitioner failed to redeem the property, the Register of Deeds cancelled TCT No.
32098 on June 1, 1984, and issued a new title in favor of respondent PNB.[13]
Petitioners offers had not yet been acted upon by respondent PNB.

Meanwhile, the Special Assets Management Department (SAMD) had prepared a

statement of account, and as of June 25, 1984 petitioners obligation amounted to
P1,574,560.47. This included the bid price of P1,056,924.50, interest, advances of
insurance premiums, advances on realty taxes, registration expenses, miscellaneous
expenses and publication cost.[14] When apprised of the statement of account,
petitioner remitted P725,000.00 to respondent PNB as deposit to repurchase, and
Official Receipt No. 978191 was issued to it.[15]

In the meantime, the SAMD recommended to the management of respondent PNB

that petitioner be allowed to repurchase the property for
P1,574,560.00. In a letter
dated November 14, 1984, the PNB management informed petitioner that it was
rejecting the offer and the recommendation of
the SAMD. It was suggested that petitioner purchase the property for P2,660,000.00, its
minimum market value. Respondent PNB gave petitioner until December 15, 1984 to act
on the proposal; otherwise, its
P725,000.00 deposit would be returned and
the property would be sold to other interested buyers.[16]

Petitioner, however, did not agree to respondent PNBs proposal. Instead, it wrote
another letter dated December 12, 1984 requesting for a reconsideration. Respondent
PNB replied in a letter dated December 28, 1984, wherein it reiterated its proposal that
petitioner purchase the property for P2,660,000.00. PNB again informed petitioner that
it would return the deposit should petitioner desire to withdraw its offer to purchase the
property.[17] On February 25, 1985, petitioner, through counsel, requested that PNB
reconsider its letter dated December 28, 1984. Petitioner declared that it had already
agreed to the SAMDs offer to purchase the property for P1,574,560.47, and that was
why it had paid P725,000.00. Petitioner warned respondent PNB that it would seek
judicial recourse should PNB insist on the position.[18]

On June 4, 1985, respondent PNB informed petitioner that the PNB Board of Directors had
accepted petitioners offer to purchase the property, but for P1,931,389.53 in cash less
the P725,000.00 already deposited with it.[19] On page two of the letter was a space
above the typewritten name of petitioners President, Pablo Gabriel, where he was to
affix his signature. However, Pablo Gabriel did not conform to the letter but merely

indicated therein that he had received it.[20] Petitioner did not respond, so PNB
requested petitioner in a letter dated June 30, 1988 to submit an amended offer to
repurchase.

Petitioner rejected respondents proposal in a letter dated July 14, 1988. It maintained
that respondent PNB had agreed to sell the property for P1,574,560.47, and that since its
P725,000.00 downpayment had been accepted, respondent PNB was proscribed from
increasing the purchase price of the property.[21] Petitioner averred that it had a net
balance payable in the amount of P643,452.34. Respondent PNB, however, rejected
petitioners offer to pay the balance of P643,452.34 in a letter dated August 1, 1989.[22]

On August 28, 1989, petitioner filed a complaint against respondent PNB for Annulment
of Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific Performance with
Damages. To support its cause of action for specific performance, it alleged the
following:

34. As early as June 25, 1984, PNB had accepted the down payment from Manila Metal
in the substantial amount of P725,000.00 for the redemption/repurchase price of
P1,574,560.47 as approved by its SMAD and considering the reliance made by Manila
Metal and the long time that has elapsed, the approval of the higher management of the
Bank to confirm the agreement of its SMAD is clearly a potestative condition which
cannot legally prejudice Manila Metal which has acted and relied on the approval of
SMAD. The Bank cannot take advantage of a condition which is entirely dependent upon
its own will after accepting and benefiting from the substantial payment made by Manila
Metal.

35. PNB approved the repurchase price of P1,574,560.47 for which it accepted
P725,000.00 from Manila Metal. PNB cannot take advantage of its own delay and long
inaction in demanding a higher amount based on unilateral computation of interest rate
without the consent of Manila Metal.

Petitioner later filed an amended complaint and supported its claim for damages with the
following arguments:

36. That in order to protect itself against the wrongful and malicious acts of the
defendant Bank, plaintiff is constrained to engage the services of counsel at an agreed
fee of P50,000.00 and to incur litigation expenses of at least P30,000.00, which the
defendant PNB should be condemned to pay the plaintiff Manila Metal.

37. That by reason of the wrongful and malicious actuations of defendant PNB, plaintiff
Manila Metal suffered besmirched reputation for which defendant PNB is liable for moral
damages of at least P50,000.00.

38. That for the wrongful and malicious act of defendant PNB which are highly
reprehensible, exemplary damages should be awarded in favor of the plaintiff by way of
example or correction for the public good of at least P30,000.00.[23]

Petitioner prayed that, after due proceedings, judgment be rendered in its favor, thus:

a) Declaring the Amended Real Estate Mortgage (Annex A) null and void and without
any legal force and effect.

b)
Declaring defendants acts of extra-judicially foreclosing the mortgage over
plaintiffs property and setting it for auction sale null and void.

c)
Ordering the defendant Register of Deeds to cancel the new title issued in the
name of PNB (TCT NO. 43792) covering the property described in paragraph 4 of the
Complaint, to reinstate TCT No. 37025 in the name of Manila Metal and to cancel the
annotation of the mortgage in question at the back of the TCT No. 37025 described in
paragraph 4 of this Complaint.

d)
Ordering the defendant PNB to return and/or deliver physical possession of the TCT
No. 37025 described in paragraph 4 of this Complaint to the plaintiff Manila Metal.

e)
Ordering the defendant PNB to pay the plaintiff Manila Metals actual damages,
moral and exemplary damages in the aggregate amount of not less than
P80,000.00
as may be warranted by the evidence and fixed by this Honorable Court in the exercise
of its sound discretion, and attorneys fees of P50,000.00 and litigation expenses of at
least P30,000.00 as may be proved during the trial, and costs of suit.

Plaintiff likewise prays for such further reliefs which may be deemed just and equitable in
the premises.[24]

In its Answer to the complaint, respondent PNB averred, as a special and affirmative
defense, that it had acquired ownership over the property after the period to redeem had
elapsed. It claimed that no contract of sale was perfected between it and petitioner after
the period to redeem the property had expired.

During pre-trial, the parties agreed to submit the case for decision, based on their
stipulation of facts.[25] The parties agreed to limit the issues to the following:

1. Whether or not the June 4, 1985 letter of the defendant approving/accepting

plaintiffs offer to purchase the property is still valid and legally enforceable.

2. Whether or not the plaintiff has waived its right to purchase the property when it
failed to conform with the conditions set forth by the defendant in its letter dated June 4,
1985.

3. Whether or not there is a perfected contract of sale between the parties.[26]

While the case was pending, respondent PNB demanded, on September 20, 1989, that
petitioner vacate the property within 15 days from notice,[27] but petitioners refused to
do so.

On March 18, 1993, petitioner offered to repurchase the property for P3,500,000.00.[28]
The offer was however rejected by respondent PNB, in a letter dated April 13, 1993.
According to it, the prevailing market value of the property was approximately
P30,000,000.00, and as a matter of policy, it could not sell the property for less than its
market value.[29] On June 21, 1993, petitioner offered to purchase the property for
P4,250,000.00 in cash.[30] The offer was again rejected by respondent PNB on
September 13, 1993.[31]

On May 31, 1994, the trial court rendered judgment dismissing the amended complaint
and respondent PNBs counterclaim. It ordered respondent PNB to refund the

P725,000.00 deposit petitioner had made.[32] The trial court ruled that there was no
perfected contract of sale between the parties; hence, petitioner had no cause of action
for specific performance against respondent. The trial court declared that respondent
had rejected petitioners offer to repurchase the property. Petitioner, in turn, rejected the
terms and conditions contained in the June 4, 1985 letter of the SAMD. While petitioner
had offered to repurchase the property per its letter of
July 14, 1988, the amount of P643,422.34 was way below the P1,206,389.53 which
respondent PNB had demanded. It further declared that the P725,000.00 remitted by
petitioner to respondent PNB on June 4, 1985 was a deposit, and not a downpayment
or earnest money.

On appeal to the CA, petitioner made the following allegations:

I
THE LOWER COURT ERRED IN RULING THAT DEFENDANT-APPELLEES LETTER DATED 4
JUNE 1985 APPROVING/ACCEPTING PLAINTIFF-APPELLANTS OFFER TO PURCHASE THE
SUBJECT PROPERTY IS NOT VALID AND ENFORCEABLE.

II
THE LOWER COURT ERRED IN RULING THAT THERE WAS NO PERFECTED CONTRACT OF
SALE BETWEEN PLAINTIFF-APPELLANT AND DEFENDANT-APPELLEE.

III
THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLLANT WAIVED ITS RIGHT
TO PURCHASE THE SUBJECT PROPERTY WHEN IT FAILED TO CONFORM WITH CONDITIONS
SET FORTH BY DEFENDANT-APPELLEE IN ITS LETTER DATED 4 JUNE 1985.

IV
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT IT WAS THE DEFENDANTAPPELLEE WHICH RENDERED IT DIFFICULT IF NOT IMPOSSIBLE FOR PLAINTIFF-APPELLANT
TO COMPLETE THE BALANCE OF THEIR PURCHASE PRICE.

THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT THERE WAS NO VALID
RESCISSION OR CANCELLATION OF SUBJECT CONTRACT OF REPURCHASE.

VI
THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED AND REFUSED TO
SUBMIT THE AMENDED REPURCHASE OFFER.

VII
THE LOWER COURT ERRED IN DISMISSING THE AMENDED COMPLAINT OF PLAINTIFFAPPELLANT.

VIII
THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-APPELLANT ACTUAL, MORAL
AND EXEMPLARY DAMAGES, ATTOTRNEYS FEES AND LITIGATION EXPENSES.[33]
Meanwhile, on June 17, 1993, petitioners Board of Directors approved Resolution No. 3004, where it waived, assigned and transferred its rights over the property covered by
TCT No. 33099 and TCT No. 37025 in favor of Bayani Gabriel, one of its Directors.[34]
Thereafter, Bayani Gabriel executed a Deed of Assignment over 51% of the ownership
and management of the property in favor of Reynaldo Tolentino, who later moved for
leave to intervene as plaintiff-appellant. On July 14, 1993, the CA issued a resolution
granting the motion,[35] and likewise granted the motion of Reynaldo Tolentino
substituting petitioner MMCC, as plaintiff-appellant, and his motion to withdraw as
intervenor.[36]

The CA rendered judgment on May 11, 2000 affirming the decision of the RTC.[37] It
declared that petitioner obviously never agreed to the selling price proposed by
respondent PNB (P1,931,389.53) since petitioner had kept on insisting that the selling
price should be lowered to P1,574,560.47. Clearly therefore, there was no meeting of
the minds between the parties as to the price or consideration of the sale.

The CA ratiocinated that petitioners original offer to purchase the subject property had
not been accepted by respondent PNB. In fact, it made a counter-offer through its June
4, 1985 letter specifically on the selling price; petitioner did not agree to the counteroffer; and the negotiations did not prosper. Moreover, petitioner did not pay the balance
of the purchase price within the sixty-day period set in the June 4, 1985 letter of
respondent PNB. Consequently, there was no perfected contract of sale, and as such,
there was no contract to rescind.

According to the appellate court, the claim for damages and the counterclaim were
correctly dismissed by the court a quo for no evidence was presented to support it.
Respondent PNBs letter dated June 30, 1988 cannot revive the failed negotiations
between the parties. Respondent PNB merely asked petitioner to submit an amended
offer to repurchase. While petitioner reiterated its request for a lower selling price and
that the balance of the repurchase be reduced, however, respondent rejected the
proposal in a letter dated August 1, 1989.

Petitioner filed a motion for reconsideration, which the CA likewise denied.

Thus, petitioner filed the instant petition for review on certiorari, alleging that:

I.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT
THERE IS NO PERFECTED CONTRACT OF SALE BETWEEN THE PETITIONER AND
RESPONDENT.

II.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT
THE AMOUNT OF PHP725,000.00 PAID BY THE PETITIONER IS NOT AN EARNEST MONEY.

III.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT
THE FAILURE OF THE PETITIONER-APPELLANT TO SIGNIFY ITS CONFORMITY TO THE
TERMS CONTAINED IN PNBS JUNE 4, 1985 LETTER MEANS THAT THERE WAS NO VALID
AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES.

IV.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT NON-PAYMENT OF
THE PETITIONER-APPELLANT OF THE BALANCE OF THE OFFERED PRICE IN THE LETTER OF
PNB DATED JUNE 4, 1985, WITHIN SIXTY (60) DAYS FROM NOTICE OF APPROVAL
CONSTITUTES NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE
PARTIES.

V.
THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE LETTERS OF
PETITIONER-APPELLANT DATED MARCH 18, 1993 AND JUNE 21, 1993, OFFERING TO BUY
THE SUBJECT PROPERTY AT DIFFERENT AMOUNT WERE PROOF THAT THERE IS NO
PERFECTED CONTRACT OF SALE.[38]

The threshold issue is whether or not petitioner and respondent PNB had entered
into a perfected contract for petitioner to repurchase the property from respondent.

Petitioner maintains that it had accepted respondents offer made through the SAMD, to
sell the property for P1,574,560.00. When the acceptance was made in its letter dated
June 25, 1984; it then deposited P725,000.00 with the SAMD as partial payment,
evidenced by Receipt
No. 978194 which respondent had issued. Petitioner avers that
the SAMDs acceptance of the deposit amounted to an acceptance of its offer to
repurchase. Moreover, as gleaned from the letter of SAMD dated June 4, 1985, the PNB
Board of Directors had approved petitioners offer to purchase the property. It claims
that this was the suspensive condition, the fulfillment of which gave rise to the contract.
Respondent could no longer unilaterally withdraw its offer to sell the property for
P1,574,560.47, since the acceptance of the offer resulted in a perfected contract of sale;
it was obliged to remit to respondent the balance of the original purchase price of
P1,574,560.47, while respondent was obliged to transfer ownership and deliver the
property to petitioner, conformably with Article 1159 of the New Civil Code.

Petitioner posits that respondent was proscribed from increasing the interest rate after it
had accepted respondents offer to sell the property for P1,574,560.00. Consequently,
respondent could no longer validly make a counter-offer of P1,931,789.88 for the
purchase of the property. It likewise maintains that, although the P725,000.00 was
considered as deposit for the repurchase of the property in the receipt issued by the
SAMD, the amount constitutes earnest money as contemplated in Article 1482 of the
New Civil Code. Petitioner cites the rulings of this Court in Villonco v. Bormaheco[39] and
Topacio v. Court of Appeals.[40]

Petitioner avers that its failure to append its conformity to the June 4, 1984 letter
of respondent and its failure to pay the balance of the price as fixed by respondent within
the 60-day period from notice was to protest respondents breach of its obligation to
petitioner. It did not amount to a rejection of respondents offer to sell the property since
respondent was merely seeking to enforce its right to pay the balance of P1,570,564.47.
In any event, respondent had the option either to accept the balance of the offered price
or to cause the rescission of the contract.

Petitioners letters dated March 18, 1993 and June 21, 1993 to respondent during
the pendency of the case in the RTC were merely to compromise the pending lawsuit,
they did not constitute separate offers to repurchase the property. Such offer to
compromise should not be taken against it, in accordance with Section 27, Rule 130 of
the Revised Rules of Court.

For its part, respondent contends that the parties never graduated from the negotiation
stage as they could not agree on the amount of the
repurchase price of the
property. All that transpired was an exchange of proposals and counter-proposals,
nothing more. It insists that a definite agreement on the amount and manner of
payment of the price are essential elements in the formation of a binding and
enforceable contract of sale. There was no such agreement in this case. Primarily, the
concept of suspensive condition signifies a future and uncertain event upon the
fulfillment of which the obligation becomes effective. It clearly presupposes the
existence of a valid and binding agreement, the effectivity of which is subordinated to its
fulfillment. Since there is no perfected contract in the first place, there is no basis for the
application of the principles governing suspensive conditions.

According to respondent, the Statement of Account prepared by SAMD as of June

25, 1984 cannot be classified as a counter-offer; it is simply a recital of its total monetary
claims against petitioner. Moreover, the amount stated therein could not likewise be
considered as the counter-offer since as admitted by petitioner, it was only
recommendation which was subject to approval of the PNB Board of Directors.

Neither can the receipt by the SAMD of P725,000.00 be regarded as evidence of a

perfected sale contract. As gleaned from the parties Stipulation of Facts during the
proceedings in the court a quo, the amount is merely an acknowledgment of the receipt
of P725,000.00 as deposit to repurchase the property. The deposit of P725,000.00 was
accepted by respondent on the condition that the purchase price would still be approved
by its Board of Directors. Respondent maintains that its acceptance of the amount was
qualified by that condition, thus not absolute. Pending such approval, it cannot be
legally claimed that respondent is already bound by any contract of sale with petitioner.

According to respondent, petitioner knew that the SAMD has no capacity to bind
respondent and that its authority is limited to administering, managing and preserving
the properties and other special assets of PNB. The SAMD does not have the power to
sell, encumber, dispose of, or otherwise alienate the assets, since the power to do so
must emanate from its Board of Directors. The SAMD was not authorized by respondents
Board to enter into contracts of sale with third persons involving corporate assets. There
is absolutely nothing on record that respondent authorized the SAMD, or made it appear
to petitioner that it represented itself as having such authority.

Respondent reiterates that SAMD had informed petitioner that its offer to
repurchase had been approved by the Board subject to the condition, among others,
that the selling price shall be the total banks claim as of documentation date x x x
payable in cash (P725,000.00 already deposited)

within 60 days from notice of approval. A new Statement of Account was attached
therein indicating the total banks claim to be P1,931,389.53 less deposit of P725,000.00,
or P1,206,389.00. Furthermore, while respondents Board of Directors accepted
petitioners offer to repurchase the property, the acceptance was qualified, in that it
required a higher sale price and subject to specified terms and conditions enumerated
therein. This qualified acceptance was in effect a counter-offer, necessitating petitioners
acceptance in return.

The Ruling of the Court

The ruling of the appellate court that there was no perfected contract of sale
between the parties on June 4, 1985 is correct.

A contract is a meeting of minds between two persons whereby one binds himself,
with respect to the other, to give something or to render some service.[41] Under Article
1318 of the New Civil Code, there is no contract unless the following requisites concur:

(1)

Consent of the contracting parties;

(2)

Object certain which is the subject matter of the contract;

(3)

Cause of the obligation which is established.

Contracts are perfected by mere consent which is manifested by the meeting of

the offer and the acceptance upon the thing and the cause which are to constitute the
contract.[42] Once perfected, they bind other contracting parties and the obligations
arising therefrom have the form of law between the parties and should be complied with
in good faith. The parties are bound not only to the fulfillment of what has been
expressly stipulated but also to the consequences which, according to their nature, may
be in keeping with good faith, usage and law.[43]

By the contract of sale, one of the contracting parties obligates 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.[44] The absence of any of the essential elements will
negate the existence of a perfected contract of sale. As the Court ruled in Boston Bank
of the Philippines v. Manalo:[45]

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.[46]

A contract of sale is consensual in nature and is perfected upon mere meeting of

the minds. When there is merely an offer by one party without acceptance of the other,
there is no contract.[47] When the contract of sale is not perfected, it cannot, as an
independent source of obligation, serve as a binding juridical relation between the
parties.[48]

In San Miguel Properties Philippines, Inc. v. Huang,[49] the Court ruled that the
stages of a contract of sale are as follows: (1) negotiation, covering the period from the
time the prospective contracting parties indicate interest in the contract to the time the
contract is perfected; (2) perfection, which takes place upon the concurrence of the
essential elements of the sale which are the meeting of the minds of the parties as to the
object of the contract and upon the price; and (3) consummation, which begins when the
parties perform their respective undertakings under the contract of sale, culminating in
the extinguishment thereof.

A negotiation is formally initiated by an offer, which, however, must be certain.[50]

At any time prior to the perfection of the contract, either negotiating party may stop the
negotiation. At this stage, the offer may be withdrawn; the withdrawal is effective
immediately after its manifestation. To convert the offer into a contract, the acceptance
must be absolute and must not qualify the terms of the offer; it must be plain,
unequivocal, unconditional and without variance of any sort from the proposal. In Adelfa
Properties, Inc. v. Court of Appeals,[51] the Court ruled that:

x x x 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 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.[52]

A qualified acceptance or one that involves a new proposal constitutes a counteroffer and a rejection of the original offer. A counter-offer is considered in law, a rejection
of the original offer and an attempt to end the negotiation between the parties on a
different basis.[53] Consequently, when something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to guarantee consent because
any modification or variation from the terms of the offer annuls the offer.[54] The
acceptance must be identical in all respects with that of the offer so as to produce
consent or meeting of the minds.

In this case, petitioner had until February 17, 1984 within which to redeem the property.
However, since it lacked the resources, it requested for more time to redeem/repurchase
the property under such terms and conditions agreed upon by the parties.[55] The
request, which was made through a letter dated August 25, 1983, was referred to the
respondents main branch for appropriate action.[56] Before respondent could act on
the request, petitioner again wrote respondent as follows:

1. Upon approval of our request, we will pay your goodselves ONE HUNDRED & FIFTY
THOUSAND PESOS (P150,000.00);

2. Within six months from date of approval of our request, we will pay another FOUR
HUNDRED FIFTY THOUSAND PESOS (P450,000.00); and

3. The remaining balance together with the interest and other expenses that will be
incurred will be paid within the last six months of the one year grave period requested
for.[57]

When the petitioner was told that respondent did not allow partial redemption,[58] it
sent a letter to respondents President reiterating its offer to purchase the property.[59]
There was no response to petitioners letters dated February 10 and 15, 1984.

The statement of account prepared by the SAMD stating that the net claim of respondent
as of June 25, 1984 was P1,574,560.47 cannot be considered an unqualified acceptance
to petitioners offer to purchase the property. The statement is but a computation of the

amount which petitioner was obliged to pay in case respondent would later agree to sell
the property, including interests, advances on insurance premium, advances on realty
taxes, publication cost, registration expenses and miscellaneous expenses.

There is no evidence that the SAMD was authorized by respondents Board of Directors
to accept petitioners offer and sell the property for P1,574,560.47. Any acceptance by
the SAMD of petitioners offer would not bind respondent. As this Court ruled in AF
Realty Development, Inc. vs. Diesehuan Freight Services, Inc.:[60]

Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just as a natural person may
authorize another to do certain acts in his behalf, so may the board of directors of a
corporation validly delegate some of its functions to individual officers or agents
appointed by it. Thus, contracts or acts of a corporation must be made either by the
board of directors or by a corporate agent duly authorized by the board. Absent such
valid delegation/authorization, the rule is that the declarations of an individual director
relating to the affairs of the corporation, but not in the course of, or connected with the
performance of authorized duties of such director, are held not binding on the
corporation.

Thus, a corporation can only execute its powers and transact its business through its
Board of Directors and through its officers and agents when authorized by a board
resolution or its by-laws.[61]

It appears that the SAMD had prepared a recommendation for respondent to accept
petitioners offer to repurchase the property even beyond the one-year period; it
recommended that petitioner be allowed to redeem the property and pay P1,574,560.00
as the purchase price. Respondent later approved the recommendation that the
property be sold to petitioner. But instead of the P1,574,560.47 recommended by the
SAMD and to which petitioner had previously conformed, respondent set the purchase
price at P2,660,000.00. In fine, respondents acceptance of petitioners offer was
qualified, hence can be at most considered as a counter-offer. If petitioner had accepted
this counter-offer, a perfected contract of sale would have arisen; as it turns out,
however, petitioner merely sought to have the counter-offer reconsidered. This request
for reconsideration would later be rejected by respondent.

We do not agree with petitioners contention that the P725,000.00 it had remitted to
respondent was earnest money which could be considered as proof of the perfection of
a contract of sale under Article 1482 of the New Civil Code. The provision reads:

ART. 1482. 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.

This contention is likewise negated by the stipulation of facts which the parties entered
into in the trial court:

8. On June 8, 1984, the Special Assets Management Department (SAMD) of PNB

prepared an updated Statement of Account showing MMCCs total liability to PNB as of
June 25, 1984 to be P1,574,560.47 and recommended this amount as the repurchase
price of the subject property.

9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to repurchase the
property. The deposit of P725,000 was accepted by PNB on the condition that the
purchase price is still subject to the approval of the PNB Board.[62]

Thus, the P725,000.00 was merely a deposit to be applied as part of the purchase price
of the property, in the event that respondent would approve the recommendation of
SAMD for respondent to accept petitioners offer to purchase the property for
P1,574,560.47. Unless and until the respondent accepted the offer on these terms, no
perfected contract of sale would arise. Absent proof of the concurrence of all the
essential elements of a contract of sale, the giving of earnest money cannot establish
the existence of a perfected contract of sale.[63]

It appears that, per its letter to petitioner dated June 4, 1985, the respondent had
decided to accept the offer to purchase the property for
P1,931,389.53. However,
this amounted to an amendment of respondents qualified acceptance, or an amended
counter-offer, because while the respondent lowered the purchase price, it still declared
that its acceptance was subject to the following terms and conditions:

1.
That the selling price shall be the total Banks claim as of documentation date
(pls. see attached statement of account as of 5-31-85), payable in cash (P725,000.00
already deposited) within sixty (60) days from notice of approval;

2.
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 waive your right to warranty against eviction.

3.
All taxes and other government imposts due or to become due on the property,
as well as expenses including costs of documents and science stamps, transfer fees, etc.,
to be incurred in connection with the execution and registration of all covering
documents shall be borne by you;

4.
That you shall undertake at your own expense and account the ejectment of the
occupants of the property subject of the sale, if there are any;

5.
That upon your failure to pay the balance of the purchase price within sixty (60)
days from receipt of advice accepting your offer, your deposit shall be forfeited and the
Bank is thenceforth authorized to sell the property to other interested parties.

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.[64]

It appears that although respondent requested petitioner to conform to its amended

counter-offer, petitioner refused and instead requested respondent to reconsider its
amended counter-offer. Petitioners request was ultimately rejected and respondent
offered to refund its P725,000.00 deposit.

In sum, then, there was no perfected contract of sale between petitioner and respondent
over the subject property.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED.

The assailed decision is AFFIRMED. Costs against petitioner Manila Metal Container
Corporation.

SO ORDERED.

ROMEO J. CALLEJO, SR.

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

MINITA V. CHICO-NAZARIO
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Working Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the
conclusions in the above decision were reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

-------------------------------------------------------------------------------* Retired as of December 7, 2006.

** Working Chairperson.
[1] Penned by Associate Justice Corona Ibay-Somera (retired) with Associate Justices
Portia Alio-Hormachuelos and Elvi-John S. Asuncion, concurring; rollo, pp. 47-60.
[2] Penned by Judge Celso D. Lavia; id. at 89-103.

[3] Penned by Associate Justice Portia Alio-Hormachuelos with Associate Justices

Rebecca De Guia-Salvador and Aurora Santiago-Lagman, concurring; id. at 62-64.
[4] Exhibit A, rollo, p. 65.
[5] Exhibit B, id. at 66.
[6] Statement of Account, Exhibit D, records, pp. 20-23.
[7] Exhibit E, id. at 24.
[8] Exhibits F and 17, rollo, p. 69.
[9] Exhibit F-1, id. at 68.
[10] Exhibits F-2 and 18, id. at 70.
[11] Exhibit F-3 and 20, id. at 71.
[12] Exhibit F-4, id. at 72.
[13] Exhibit B, records, pp. 264-265.
[14] Exhibit G, rollo, p. 73.
[15] Exhibit G-1, id. at 75.
[16] Exhibit H and 22, id. at 76.
[17] Exhibit H and 24, id. at 74.
[18] Exhibit I and 25, records, pp. 34-36.
[19] Exhibit J and 26, rollo, pp. 80-81, Exhibit J-2 and 26-B, rollo, p. 82.
[20] Exhibit J-1 and 26-A, id. at p. 81.
[21] Exhibit K to K-4, id. at 84-88.
[22] Exhibit M and 30, records, p. 46.
[23] Records, pp. 63-67.
[24] Id. at 67-68.
[25]
1. The subject property is an eight thousand fifteen (8,015) square meter
land located at Dansalan St., Barrio Barranca, Mandaluyong, Metro Manila, originally
registered in the name of Manila Metal Container Corporation (MMCC) under Transfer
Certificate of Title No. 332098 of the Registry of Deeds for the Province of Rizal.

2. On August 5, 1982, the Philippine National Bank (PNB) filed with the
Provincial Sheriff of Rizal a petition for extrajudicial foreclosure and sale of the subject
property under Act No. 3135, as amended, and Presidential Decree No. 385 to satisfy the
mortgage indebtedness of MMCC in the amount of P911,532.21 plus interest at the rate
of 21% per annum on the amount of P679,768.29 and 3% penalty charge as well as 10%
attorneys fees on the total amount due and the Sheriffs fees.
3. At the public auction sale held on September 28, 1982, the Provincial Sheriff
of Rizal sold the subject property to PNB as the sole and highest bidder for
P1,056,924.40.
4. The period of redemption of the property was until February 17, 1984.
5. On August 25, 1983, MMCC requested PNB by its latter of even date for the
opportunity to redeem/repurchase the property by giving them more time to do so under
terms and conditions which may be agreed upon.
6. On August 30, 1983, MMCCs said letter was referred by PNB to its Pasay
City Branch for appropriate action.
7. On March 1, 1984, TCT No. 332078 in the name of MMCC was cancelled. In
its steed, the Register of Deeds of Mandaluyong issued TCT No. 43792 in the name of
PNB.
8. On June 8, 1984, the Special Assets Management Department (SAMD) of
PNB prepared an updated Statement of Account showing MMCCs total liability to PNB as
of June 25, 1984 to be P1,574,560.47 and recommended this amount as the repurchase
price of the subject property.
9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to repurchase
the property. The deposit of P725,000 was accepted by PNB on the condition that the
purchase price is still subject to the approval of the PNB Board.
10. In its letters dated November 14, 1984 and December 28, 1984, Special
Assets Management Department formally informed MMCC President Pablo Gabriel that
MMCCs offer to repurchase the bank acquired Mandaluyong property was returned by
top management as the offered price was too low. PNB then proposed that the offered
repurchase price be increased to at least the then minimum market value of the property
that it is P2,660,000.00.
11. On June 4, 1985, PNBs SAMD informed MMCC by letter that its offer to
purchase the subject property has been approved by the PNB Board, subject to the
condition among others, that the selling price shall be the total banks claim as of
documentation date payable within sixty (60) days from notice of approval.
12. MMCC did not signify its conformity to the terms contained in PNBs June 4,
1985 letter.
13. By letter dated June 30, 1988, PNBs SAMD gave MMCC fifteen (15) days
from receipt thereof to submit its amended repurchase offer. Otherwise, PNB will be

constrained to cancel the approved sale in favor of MMCC and advertise the property for
sale.
14. On July 14, 1988, MMCC reiterated its request to PNB to reduce the balance
of the repurchase price to P643,452.34, which request was denied by PNB in its letter
dated August 1, 1989. PNB then informed MMCC that it is refunding the deposit of
P725,000 at any time during banking hours and that it will advertise the property for sale
thru public bidding.
15. In a letter dated September 20, 1989, PNB demanded MMCC to vacate the
premises.
16. In a letter dated May 3, 1992, Mr. Bayani Gabriel and Magtanggol Gabriel
children of MMCC President Mr. Pablo Gabriel requested once again to buy back the
subject property. In reply, PNB informed the Gabriels in a letter dated June 18, 1992 that
it can recommend the sale of the property for P25 M subject to the approval of the PNB
Board and to other terms and conditions.
17. In a letter dated March 18, 1993, MMCC proposed to repurchase the
property for P3.5 M but PNB informed MMCC in its letter dated April 13, 1993 that, as a
matter of policy, all assets acquired by the bank thru foreclosure sale can only be
disposed of at market value or banks claim whichever is higher and that PNB cannot
accommodate MMCCs request to repurchase the property for P3.5 Million which as of the
banks latest appraisal has a market value of P30 Million.
18. The latest offer of MMCC per letter dated June 21, 1993 is P4,250 Million
which offer was denied by PNB in its letter dated September 13, 1993, reiterating PNBs
policy that sale of foreclosed assets shall be based on the current market value of the
property, and that the offer is too low.
19. The claims for annulment of mortgage and mortgage foreclosure in the
amended complaint are already waived, cancelled and/or withdrawn thereby leaving the
claims for specific performance and damages as the remaining issues to be resolved in
the instant case.
[26] Records, p. 267.
[27] Exhibit L, id. at 281.
[28] Exhibit O, id. at 286-289.
[29] Exhibit P, id. at 290.
[30] Exhibit Q, id. at 291.
[31] Exhibit R, id. at 292.
[32] Records, pp. 371-381.
[33] Rollo, pp. 52-53.

[34] CA rollo, pp. 158-159.

[35] Id. at 263-266.
[36] Id. at 360-364.
[37] Rollo, pp. 47-60.
[38] Id. at 25.
[39] G.R. No. L-26872, July 25, 1975, 65 SCRA 352.
[40] G.R. No. 102606, July 3, 1992, 211 SCRA 291, 295.
[41] New Civil Code, Article 1305.
[42] Gomez v. Court of Appeals, 395 Phil. 115, 125-126 (2000).
[43] New Civil Code, Article 1315.
[44] New Civil Code, Article 1458.
[45] G.R. No. 158149, February 9, 2006, 482 SCRA 108.
[46] Id. at 129.
[47] Palattao v. Court of Appeals, 431 Phil. 438, 450 (2002).
[48] Boston Bank of the Philippines v. Manalo, supra note 48, at 129.
[49] 391 Phil. 636, 645 (2000).
[50] New Civil Code, Article 1319.
[51] 310 Phil. 623 (1995).
[52] Id. at 642.
[53] Logan v. Philippine Acetylene Company, 33 Phil. 177, 183-184 (1916).
[54] ABS-CBN Broadcasting Corporation v. Court of Appeals, G.R. No. 128690, July 21,
1999, 361 SCRA 499, 520.
[55] Exhibit F, rollo, p. 69.
[56] Exhibit F-1, id. at 68.
[57] Exhibit F-2, Records, p. 27.
[58] Exhibit F-4, rollo, p. 72.

[59] Exhibit F-3, id. at 71.

[60] 424 Phil. 446, 454 (2002).
[61] Firme v. Bohol Enterprises and Development Corporation, G.R. No. 146608, October
23, 2003,
414 SCRA 190.
[62] Records, p. 258.
[63] San Miguel Properties Philippines, Inc., v. Huang, supra note 52, at 647.
[64] Records, pp. 37-38.
FIRST DIVISION
[G.R. No. 131726. May 7, 2002]
YOLANDA PALATTAO, petitioner, vs. THE COURT OF APPEALS, HON. ANTONIO J. FINEZA, as
Presiding Judge of the Regional Trial Court of Caloocan City, Branch 131 and MARCELO
CO, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review under Rule 45 of the Rules of Court seeking to set aside the
August 29, 1997 decision[1] and the November 28, 1997 resolution[2] of the Court of
Appeals[3] in CA-G.R. SP No. 40031, affirming the decision[4] of the Regional Trial Court
of Caloocan City, Branch 131, in Civil Case No. C-17033 which reversed the Decision[5]
of the Metropolitan Trial Court of Caloocan, Branch 53, in an ejectment suit docketed as
Civil Case No. 21755.
The antecedent facts are as follows: Petitioner Yolanda Palattao entered into a lease
contract whereby she leased to private respondent a house and a 490-square-meter lot
located in 101 Caimito Road, Caloocan City, covered by Transfer Certificate of Title No.
247536 and registered in the name of petitioner. The duration of the lease contract was
for three years, commencing from January 1, 1991, to December 31, 1993, renewable at
the option of the parties. The agreed monthly rental was P7,500.00 for the first year;
P8,000.00 for the second year; and P8,500.00 for the third year. The contract gave
respondent lessee the first option to purchase the leased property.[6]
During the last year of the contract, the parties began negotiations for the sale of the
leased premises to private respondent. In a letter dated April 2, 1993, petitioner offered
to sell to private respondent 413.28 square meters of the leased lot at P7,800.00 per
square meter, or for the total amount of P3,223,548.00.[7] Private respondent replied on
April 15, 1993 wherein he informed petitioner that he shall definitely exercise [his]
option [to buy] the leased property.[8] Private respondent, however, manifested his
desire to buy the whole 490-square-meter leased premises and inquired from petitioner
the reason why only 413.28 square meters of the leased lot were being offered for sale.
In a letter dated November 6, 1993, petitioner made a final offer to sell the lot at
P7,500.00 per square meter with a downpayment of 50% upon the signing of the

contract of conditional sale, the balance payable in one year with a monthly
lease/interest payment of P14,000.00 which must be paid on or before the fifth day of
every month that the balance is still outstanding.[9] On November 7, 1993, private
respondent accepted petitioners offer and reiterated his request for clarification as to
the size of the lot for sale.[10] Petitioner acknowledged private respondents acceptance
of the offer in his letter dated November 10, 1993.
Petitioner gave private respondent on or before November 24, 1993, within which to pay
the 50% downpayment in cash or managers check. Petitioner stressed that failure to
pay the downpayment on the stipulated period will enable petitioner to freely sell her
property to others. Petitioner likewise notified private respondent that she is no longer
renewing the lease agreement upon its expiration on December 31, 1993.[11]
Private respondent did not accept the terms proposed by petitioner. Neither was there
any documents of sale nor payment by private respondent of the required
downpayment. Private respondent wrote a letter to petitioner on November 29, 1993
manifesting his intention to exercise his option to renew their lease contract for another
three years, starting January 1, 1994 to December 31, 1996.[12] This was rejected by
petitioner, reiterating that she was no longer renewing the lease. Petitioner demanded
that private respondent vacate the premises, but the latter refused.
Hence, private respondent filed with the Regional Trial Court of Caloocan, Branch 127, a
case for specific performance, docketed as Civil Case No. 16287,[13] seeking to compel
petitioner to sell to him the leased property. Private respondent further prayed for the
issuance of a writ of preliminary injunction to prevent petitioner from filing an ejectment
case upon the expiration of the lease contract on December 31, 1993.
During the proceedings in the specific performance case, the parties agreed to maintain
the status quo. After they failed to reach an amicable settlement, petitioner filed the
instant ejectment case before the Metropolitan Trial Court of Caloocan City, Branch 53.
[14] In his answer,[15] private respondent alleged that he refused to vacate the leased
premises because there was a perfected contract of sale of the leased property between
him and petitioner. Private respondent argued that he did not abandon his option to buy
the leased property and that his proposal to renew the lease was but an alternative
proposal to the sale. He further contended that the filing of the ejectment case violated
their agreement to maintain the status quo.
On July 28, 1995, the Metropolitan Trial Court rendered a decision in favor of petitioner.
The dispositive portion thereof states:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant, ordering the defendant and all persons claiming right under him to pay the
plaintiff as follows:
1.
P12,000.00 per month representing reasonable monthly rental from January 1,
1994 and months thereafter until defendants shall vacate the subject premises;
2.

P10,000.00 representing attorneys fee;

3.

To pay the cost of suit.

SO ORDERED.[16]
On appeal, the Regional Trial Court reversed the assailed decision, disposing as follows:
WHEREFORE, in view of all the foregoing, the assailed decision of the Metropolitan Trial
Court, Branch 53, this City, rendered on July 28, 1995, is hereby REVERSED and SET
ASIDE, with costs de officio.
SO ORDERED.[17]
Aggrieved, petitioner filed a petition for review with the Court of Appeals, which
dismissed the petition. Likewise, the motion for reconsideration was denied on August
29, 1997. Hence, the instant petition anchored upon the following grounds:
I
THE COURT OF APPEALS AND RTC, CALOOCAN CITY, BRANCH 131, ERRED IN DECLARING
THAT PETITIONER IS GUILTY OF ESTOPPEL IN FILING AN EJECTMENT CASE AGAINST
RESPONDENT CO.
II
THE COURT OF APPEALS AND RTC, CALOOCAN CITY, BRANCH 131, ERRED IN FINDING
THAT AN INJUNCTIVE SUIT WILL BAR THE FILING OF EJECTMENT CASE AGAINST
RESPONDENT CO.
III
THE RTC, CALOOCAN CITY, BRANCH 131, ERRED IN DECLARING THAT THERE WAS A
PERFECTED CONTRACT OF SALE BETWEEN THE PARTIES OVER THE LEASED PROPERTY.
[18]
The petition is impressed with merit.
The Court of Appeals ruled that petitioner was estopped from filing the instant ejectment
suit against private respondent by the alleged status quo agreement reached in the
specific performance case filed by private respondent against petitioner. A reading,
however, of the transcript of stenographic notes taken during the January 21, 1994
hearing discloses that the agreement to maintain the status quo pertained only to the
duration of the negotiation for an amicable settlement and was not intended to be
operative until the final disposition of the specific performance case. Thus:
xxx

xxx

xxx

Court
Before we go into the prayer for preliminary injunction and of the merit of the case I want
to see if I can make the parties settle their differences.
Atty. Siapan

We will in the meantime maintain the status quo on the matter pending further
negotiation.
Court
As a matter of injunction, are you willing to maintain a status quo muna [?]
Atty. Mendez
Yes, your Honor.
Court
How about Atty. Uy are you willing?
Atty. Uy
Yes, your Honor.
Court
I will not issue any injunction but there will be a status quo and we will concentrate our
efforts on letting the parties to (sic) negotiate and enter into an agreement.[19]
xxx

xxx

xxx

I will give you the same facts of the case. I want to settle this and not go into trial
because in due time I will not finish the case, my stay here is only Acting Presiding Judge
and there are other judges nominated for this sala and once the judge will be (sic)
appointed then I go, let us get advantage of settling the matter. I will have your
gentlemans agreement that there will be no adversarial attitude among you will (sic)
never arrive at any agreement.
Atty. Siapan
In the meantime, we will move for a resetting of this case your Honor.
Court
Anyway, this is a gentlemans agreement that there will be no new movement but the
status quo will be maintained.
Atty. Siapan, Atty. Mendez & Atty. Uy.
Yes, your Honor. (simultaneously (sic) in saying)[20]
The foregoing agreement to maintain the status quo pending negotiations was noted by
the trial court in its January 21, 1994 Order postponing the hearing to enable the parties
to arrive at an amicable settlement, to wit:

Upon agreement of the parties herein for postponement of todays schedule as there
might be some possibility of settling the claims herein, let the hearing today be
cancelled.
In the meantime this case is set for hearing on February 28, 1994 at 8:30 a.m., should
the parties not arrive at any amicable settlement.[21]
It is beyond cavil therefore that the preservation of the status quo agreed upon by the
parties applied only during the period of negotiations for an amicable settlement and
cannot be construed to be effective for the duration of the pendency of the specific
performance case. It is a settled rule that injunction suits and specific performance
cases, inter alia, will not preclude the filing of, or abate, an ejectment case. Unlawful
detainer and forcible entry suits under Rule 70 are designed to summarily restore
physical possession of a piece of land or building to one who has been illegally or forcibly
deprived thereof, without prejudice to the settlement of the parties' opposing claims of
juridical possession in appropriate proceedings. It has been held that these actions are
intended to avoid disruption of public order by those who would take the law in their
hands purportedly to enforce their claimed right of possession. In these cases, the issue
is pure physical or de facto possession, and pronouncements made on questions of
ownership are provisional in nature.[22]
In Wilmon Auto Supply Corporation, et al., v. Court of Appeals, et al.,[23] the issue of
whether or not an ejectment case based on expiration of lease contract should be abated
by an action to enforce the right of preemption or prior purchase of the leased premises
was resolved in the negative. The Court outlined the following precedents:
1. Injunction suits instituted in the RTC by defendants in ejectment actions in the
municipal trial courts or other courts of the first level (Nacorda v. Yatco, 17 SCRA 920
[1966]) do not abate the latter; and neither do proceedings on consignation of rentals
(Lim Si v. Lim, 98 Phil. 868 [1956], citing Pue, et al. v. Gonzales, 87 Phil. 81 [1950]).
2. An "accion publiciana" does not suspend an ejectment suit against the plaintiff in the
former (Ramirez v. Bleza, 106 SCRA 187 [1981]).
3. A "writ of possession case" where ownership is concededly the principal issue before
the Regional Trial Court does not preclude nor bar the execution of the judgment in an
unlawful detainer suit where the only issue involved is the material possession or
possession de facto of the premises (Heirs of F. Guballa, Sr. v. C.A., et al.; etc., 168 SCRA
518 [1988]).
4. An action for quieting of title to property is not a bar to an ejectment suit involving
the same property (Quimpo v. de la Victoria, 46 SCRA 139 [1972]).
5. Suits for specific performance with damages do not affect ejectment actions (e.g., to
compel renewal of a lease contract) (Desamito v. Cuyegkeng, 18 SCRA 1184 [1966];
Rosales v. CFI, 154 SCRA 153 [1987]; Commander Realty, Inc. v. C.A., 161 SCRA 264
[1988]).
6. An action for reformation of instrument (e.g., from deed of absolute sale to one of
sale with pacto de retro) does not suspend an ejectment suit between the same parties
(Judith v. Abragan, 66 SCRA 600 [1975]).

7. An action for reconveyance of property or "accion reivindicatoria" also has no effect

on ejectment suits regarding the same property (Del Rosario v. Jimenez, 8 SCRA 549
[1963]; Salinas v. Navarro, 126 SCRA 167; De la Cruz v. C.A., 133 SCRA 520 [1984]);
Drilon v. Gaurana, 149 SCRA 352 [1987]; Ching v. Malaya, 153 SCRA 412 [1987];
Philippine Feeds Milling Co., Inc. v. C.A., 174 SCRA 108; Dante v. Sison, 174 SCRA 517
[1989]; Guzman v. C.A. [annulment of sale and reconveyance], 177 SCRA 604 [1989];
Demamay v. C.A., 186 SCRA 608 [1990]; Leopoldo Sy v. C.A., et al., [annulment of sale
and reconveyance], G.R. No. 95818, Aug. 2, 1991).
8. Neither do suits for annulment of sale, or title, or document affecting property
operate to abate ejectment actions respecting the same property (Salinas v. Navarro
[annulment of deed of sale with assumption of mortgage and/or to declare the same an
equitable mortgage], 126 SCRA 167 [1983]; Ang Ping v. RTC [annulment of sale and
title], 154 SCRA 153 [1987]; Caparros v. C.A. [annulment of title], 170 SCRA 758 [1989];
Dante v. Sison [annulment of sale with damages], 174 SCRA 517; Galgala v. Benguet
Consolidated, Inc. [annulment of document], 177 SCRA 288 [1989]).
The underlying reasons for the above ruling were that the actions in the Regional Trial
Court did not involve physical or de facto possession, and, on not a few occasions, that
the case in the Regional Trial Court was merely a ploy to delay disposition of the
ejectment proceeding, or that the issues presented in the former could quite as easily be
set up as defenses in the ejectment action and there resolved.
Only in rare instances is suspension allowed to await the outcome of the pending civil
action. In Wilmon, the Court recognized that Vda. De Legaspi v. Avendao[24] was an
exception to the general rule against suspension of an ejectment proceeding.[25] Thus:
x x x [A]s regards the seemingly contrary ruling in Vda. de Legaspi v. Avendano, 89 SCRA
135 (1977), this Court observed in Salinas v. Navarro, 126 SCRA 167, 172-173 (1983),
that the exception to the rule in this case of Vda. de Legaspi is based on strong reasons
of equity not found in the present petition. The right of the petitioner is not so seriously
placed in issue in the annulment case as to warrant a deviation, on equitable grounds,
from the imperative nature of the rule. In the Vda. de Legaspi case, execution of the
decision in the ejectment case would also have meant demolition of the premises, a
factor not present in this petition.
In the case at bar, the continued occupation by private respondent of the leased
premises is conditioned upon his right to acquire ownership over said property. The
factual milieu obtaining here, however, hardly falls within the aforecited exception as the
resolution of the ejectment suit will not result in the demolition of the leased premises,
as in the case of Vda. De Legaspi v. Avendao. Verily, private respondent failed to show
strong reasons of equity to sustain the suspension or dismissal of the ejectment case.
Argumentum a simili valet in lege. Precedents are helpful in deciding cases when they
are on all fours or at least substantially identical with previous litigations.[26] Faced with
the same scenario on which the general rule is founded, and finding no reason to deviate
therefrom, the Court adheres to the settled jurisprudence that suits involving ownership
may not be successfully pleaded in abatement of an action for ejectment.
Contracts that are consensual in nature, like a contract of sale, are perfected upon mere
meeting of the minds. Once there is concurrence between the offer and the acceptance

upon the subject matter, consideration, and terms of payment, a contract is produced.
The offer must be certain. To convert the offer into a contract, the acceptance must be
absolute and must not qualify the terms of the offer; it must be plain, unequivocal,
unconditional, and without variance of any sort from the proposal. A qualified
acceptance, or one that involves a new proposal, constitutes a counter-offer and is a
rejection of the original offer. Consequently, when something is desired which is not
exactly what is proposed in the offer, such acceptance is not sufficient to generate
consent because any modification or variation from the terms of the offer annuls the
offer.[27]
In the case at bar, while it is true that private respondent informed petitioner that he is
accepting the latters offer to sell the leased property, it appears that they did not reach
an agreement as to the extent of the lot subject of the proposed sale. This is evident
from the April 15, 1993 reply-letter of private respondent to petitioner, to wit:
I would like to inform you that I shall definitely exercise my option as embodied in
Provision F (First Option) of our Contract of Lease dated December 21, 1990. As per
agreement, my first option covers the 490 square meters site which I am currently
leasing from you at 101 Caimito Road, Caloocan City. Specifically, your Transfer
Certificate of Title #247536 delineates the property sizes as 492 square meters.
Your offer, however, states only 413.28 square meters are for sale to me. I trust that this
is merely an oversight on your part. Notwithstanding the rumors to the effect that part
of the property have already been sold to other parties, I would like to believe that you
still retain absolute ownership over the entire property covered by my Contract of Lease.
Kindly enlighten me on this matter so that we can proceed with the negotiations for the
sale of your property to me.[28]
Likewise, in his November 7, 1993 reply-letter, private respondent stated that:
While it is true that you first offered your property for sale to me last April 14, 1993, it is
also equally true that you only correspond with me on this matter again on October 27,
1993. I answered your April 14 offer with a registered mail on April 15, 1993. In it, I
stated that I am definitely exercising my first option to purchase your property in
accordance with Provisions F of our Contract of Lease dated December 21, 1990.
Likewise, I requested you to explain the discrepancy between the size of the property
being offered for sale (413.28 square meters) as against the size stated in my option
which is 492 square meters. However, I did not get any reply from you on this matter.
Hence the negotiations got stalled. If anybody should be blamed for the prolonged
negotiation, then surely it is not all mine alone.[29]
The foregoing letters reveal that private respondent did not give his consent to buy only
413.28 square meters of the leased lot, as he desired to purchase the whole 490 squaremeter-leased premises which, however, was not what was exactly proposed in
petitioners offer. Clearly, therefore, private respondents acceptance of petitioners offer
was not absolute, and will consequently not generate consent that would perfect a
contract.
Even assuming that the parties reached an agreement as to the size of the lot subject of
the sale, the records show that there was subsequently a mutual withdrawal from the
contract.[30] This is so because in the November 10, 1993 letter of petitioner, she gave

private respondent until November 24, 1993 to pay 50% of the purchase price, with the
caveat that failure to do so would authorize her to sell to others the leased premises.
The period within which to pay the downpayment is a new term or a counter-offer in the
contract which needs acceptance by private respondent. The latter, however, failed to
pay said downpayment, or to at least manifest his conformity to the period given by
petitioner. Neither did private respondent ask for an extension nor insist on the sale of
the subject lot. What appears in the record is private respondents November 29, 1993
letter informing petitioner that he shall exercise or avail of the option to renew their
lease contract for another three years, starting January 1, 1994 to December 31, 1996.
Evidently, there was a subsequent mutual backing out from the contract of sale. Hence,
private respondent cannot compel petitioner to sell the leased property to him.
Considering that the lease contract was not renewed after its expiration on December
31, 1991, private respondent has no more right to continue occupying the leased
premises. Consequently, his ejectment therefrom must be sustained.
As to the monthly rental to be paid by private respondent from the expiration of their
contract of lease until the premises is vacated, we find that the P12,000.00 awarded by
the Metropolitan Trial Court must be reduced to P8,500.00, it being the highest amount
of monthly rental stated in the lease contract.
WHEREFORE, the petition is GRANTED. The August 29, 1997 decision and the November
28, 1997 resolution of the Court of Appeals in CA-G.R. SP No. 40031 are SET ASIDE. The
Decision of the Metropolitan Trial Court of Caloocan, Branch 53, in Civil Case No. 21755 is
REINSTATED subject to the modification that the monthly rental to be paid by private
respondent from the date of the termination of the lease contract until the leased
premises is vacated is reduced to P8,500.00.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Austria-Martinez, JJ., concur.

-------------------------------------------------------------------------------[1] Rollo, p. 51.

[2] Rollo, p. 64.
[3] Fifteenth Division, composed of Associate Justices Ruben T. Reyes (Ponente), Artemio
G. Tuquero (Member) and Fermin A. Martin, Jr., (Chairman).
[4] Penned by Judge Antonio J. Fineza (Rollo, p. 68).
[5] Penned by Judge Romanito A. Amatong (Rollo, p. 145).
[6] (F) FIRST OPTION. The Lessor warrants that the Lessee shall have first option in
purchasing the said property if circumstances should necessitate the sale of the said
property by the Lessor. Provided, however, that the price should not exceed the fair
market value at the time of the proposed sale.

[7] Rollo, p. 78.

[8] Ibid., p. 79.
[9] Id., p. 80.
[10] Id., p. 81.
[11] Id., p. 82.
[12] Id., p. 83.
[13] Rollo, p. 85.
[14] Rollo, p. 116.
[15] Rollo, p. 121.
[16] Rollo, p. 147.
[17] Rollo, p. 71.
[18] Rollo, p. 28.
[19] Rollo, pp. 111-112.
[20] Rollo, p. 114.
[21] Rollo, p. 321.
[22] Amagan, et al. v. Marayag, 326 SCRA 581, 589 [2000], citing Vda. de Legaspi v.
Avendao, 79 SCRA 135 [1977].
[23] 208 SCRA 108, 115-116 [1992].
[24] Supra.
[25] Go, et al. v. Court of Appeals, et al., 297 SCRA 574, 585 [1998].
[26] Rosales, et al. v. Court of First Instance of Lanao Del Norte, Branch III, et al., 154
SCRA 153, 159 [1987].
[27] ABS-CBN Broadcasting Corporation v. Court of Appeals, et al., 301 SCRA 572, 592593 [1999], citing IV Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil
Code of the Philippines 450 (6th ed., 1996).
[28] Rollo, p. 79.
[29] Rollo, p. 81.

[30] Pagco, et al. v. Court of Appeals, et al., 231 SCRA 354, 360 [1994], citing Paras, Civil
Code, Vol. IV, p. 569, 1989 Ed.
Today is Friday, August 01, 2014

-------------------------------------------------------------------------------Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 126444 December 4, 1998

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

MARTINEZ, J.:
Petitioners, as heirs of the late Trinidad Quijada, filed a complaint against private
respondents for quieting of title, recovery of possession and ownership of parcels of land
with claim for attorney's fees and damages. The suit was premised on the following facts
found by the court of Appeals which is materially the same as that found by the trial
court:
Plaintiffs-appellees (petitioners) are the children of the late Trinidad Corvera Vda, de
Quijada. Trinidad was one of the heirs of the late Pedro Corvera and inherited from the
latter the two-hectare parcel of land subject of the case, situated in the barrio of San
Agustin, Talacogon, Agusan del Sur. On April 5, 1956, Trinidad Quijada together with her
sisters Leonila Corvera Vda. de Sequea and Paz Corvera Cabiltes and brother Epapiadito
Corvera executed a conditional deed of donation (Exh. C) of the two-hectare parcel of
land subject of the case in favor of the Municipality of Talacogon, the condition being that
the parcel of land shall be used solely and exclusively as part of the campus of the
proposed provincial high school in Talacogon. Apparently, Trinidad remained in
possession of the parcel of land despite the donation. On July 29, 1962, Trinidad sold one
(1) hectare of the subject parcel of land to defendant-appellant Regalado Mondejar (Exh.
1). Subsequently, Trinidad verbally sold the remaining one (1) hectare to defendantappellant (respondent) Regalado Mondejar without the benefit of a written deed of sale
and evidenced solely by receipts of payment. In 1980, the heirs of Trinidad, who at that
time was already dead, filed a complaint for forcible entry (Exh. E) against defendant-

appellant (respondent) Regalado Mondejar, which complaint was, however, dismissed for
failure to prosecute (Exh. F). In 1987, the proposed provincial high school having failed to
materialize, the Sangguniang Bayan of the municipality of Talacogon enacted a
resolution reverting the two (2) hectares of land donated back to the donors (Exh. D). In
the meantime, defendant-appellant (respondent) Regalado Mondejar sold portions of the
land to defendants-appellants (respondents) Fernando Bautista (Exh. 5), Rodolfo Goloran
(Exh. 6), Efren Guden (Exh. 7) and Ernesto Goloran (Exh. 8).
On July 5, 1988, plaintiffs-appellees (petitioners) filed this action against defendantsappellants (respondents). In the complaint, plaintiffs-appellees (petitioners) alleged that
their deceased mother never sold, conveyed, transferred or disposed of the property in
question to any person or entity much less to Regalado Mondejar save the donation
made to the Municipality of Talacogon in 1956; that at the time of the alleged sale to
Regalado Mondejar by Trinidad Quijada, the land still belongs to the Municipality of
Talacogon, hence, the supposed sale is null and void.
Defendants-appellants (respondents), on the other hand, in their answer claimed that
the land in dispute was sold to Regalado Mondejar, the one (1) hectare on July 29, 1962,
and the remaining one (1) hectare on installment basis until fully paid. As affirmative
and/or special defense, defendants-appellants (respondents) alleged that plaintiffs action
is barred by laches or has prescribed.
The court a quo rendered judgment in favor of plaintiffs-appellees (petitioners): firstly
because "Trinidad Quijada had no legal title or right to sell the land to defendant
Mondejar in 1962, 1966, 1967 and 1968, the same not being hers to dispose of because
ownership belongs to the Municipality of Talacogon (Decision, p. 4; Rollo, p. 39) and,
secondly, that the deed of sale executed by Trinidad Quijada in favor of Mondejar did not
carry with it the conformity and acquiescence of her children, more so that she was
already 63 years old at the time, and a widow (Decision, p. 6; Rollo, p. 41)." 1
The dispositive portion of the trial court's decision reads:
WHEREFORE, viewed from the above perceptions, the scale of justice having tilted in
favor of the plaintiffs, judgment is, as it is hereby rendered:
1) ordering the Defendants to return and vacate the two (2) hectares of land to Plaintiffs
as described in Tax Declaration No. 1209 in the name of Trinidad Quijada;
2) ordering any person acting in Defendants' behalf to vacate and restore the peaceful
possession of the land in question to Plaintiffs;
3) ordering the cancellation of the Deed of Sale executed by the late Trinidad Quijada in
favor of Defendant Regalado Mondejar as well as the Deeds of Sale/Relinquishments
executed by Mondejar in favor of the other Defendants;
4) ordering Defendants to remove their improvements constructed on the questioned lot;
5) ordering the Defendants to pay Plaintiffs, jointly and severally, the amount of
P10,000.00 representing attorney's fees;
6) ordering Defendants to pays the amount of P8,000.00 as expenses of litigation; and

7) ordering Defendants to pay the sum of P30,000.00 representing moral damages.

SO ORDERED. 2
On appeal, the Court of Appeals reversed and set aside the judgment a quo 3 ruling that
the sale made by Trinidad Quijada to respondent Mondejar was valid as the former
retained an inchoate interest on the lots by virtue of the automatic reversion clause in
the deed of donation. 4 Thereafter, petitioners filed a motion for reconsideration. When
the CA denied their motion, 5 petitioners instituted a petition for review to this Court
arguing principally that the sale of the subject property made by Trinidad Quijada to
respondent Mondejar is void, considering that at that time, ownership was already
transferred to the Municipality of Talacogon. On the contrary, private respondents
contend that the sale was valid, that they are buyers in good faith, and that petitioners'
case is barred by laches. 6
We affirm the decision of the respondent court.
The donation made on April 5, 1956 by Trinidad Quijada and her brother and sisters 7
was subject to the condition that the donated property shall be "used solely and
exclusively as a part of the campus of the proposed Provincial High School in Talacogon."
8 The donation further provides that should "the proposed Provincial High School be
discontinued or if the same shall be opened but for some reason or another, the same
may in the future be closed" the donated property shall automatically revert to the
donor. 9 Such condition, not being contrary to law, morals, good customs, public order or
public policy was validly imposed in the donation. 10
When the Municipality's acceptance of the donation was made known to the donor, the
former became the new owner of the donated property donation being a mode of
acquiring and transmitting ownership 11 notwithstanding the condition imposed by
the donee. The donation is perfected once the acceptance by the donee is made known
to the donor. 12 According, ownership is immediately transferred to the latter and that
ownership will only revert to the donor if the resolutory condition is not fulfilled.
In this case, that resolutory condition is the construction of the school. It has been ruled
that when a person donates land to another on the condition that the latter would build
upon the land a school, the condition imposed is not a condition precedent or a
suspensive condition but a resolutory one. 13 Thus, at the time of the sales made in
1962 towards 1968, the alleged seller (Trinidad) could not have sold the lots since she
had earlier transferred ownership thereof by virtue of the deed of donation. So long as
the resolutory condition subsists and is capable of fulfillment, the donation remains
effective and the donee continues to be the owner subject only to the rights of the donor
or his successors-in-interest under the deed of donation. Since no period was imposed by
the donor on when must the donee comply with the condition, the latter remains the
owner so long as he has tried to comply with the condition within a reasonable period.
Such period, however, became irrelevant herein when the donee-Municipality manifested
through a resolution that it cannot comply with the condition of building a school and the
same was made known to the donor. Only then when the non-fulfillment of the
resolutory condition was brought to the donor's knowledge that ownership of the
donated property reverted to the donor as provided in the automatic reversion clause of
the deed of donation.

The donor may have an inchoate interest in the donated property during the time that
ownership of the land has not reverted to her. Such inchoate interest may be the subject
of contracts including a contract of sale. In this case, however, what the donor sold was
the land itself which she no longer owns. It would have been different if the donor-seller
sold her interests over the property under the deed of donation which is subject to the
possibility of reversion of ownership arising from the non-fulfillment of the resolutory
condition.
As to laches, petitioners' action is not yet barred thereby. Laches presupposes failure or
neglect for an unreasonable and unexplained length of time, to do that which, by
exercising due diligence, could or should have been done earlier; 14 "it is negligence or
omission to assert a right within a reasonable time, thus, giving rise to a presumption
that the party entitled to assert it either has abandoned or declined to assert it." 15 Its
essential elements of:
a) Conduct on the part of the defendant, or of one under whom he claims, giving rise to
the situation complained of;
b) Delay in asserting complainant's right after he had knowledge of the defendant's
conduct and after he has an opportunity to sue;
c) Lack of knowledge or notice on the part of the defendant that the complainant would
assert the right on which he bases his suit; and,
d) Injury or prejudice to the defendant in the event relief is accorded to the complainant.
16
are absent in this case. Petioners' cause of action to quiet title commenced only when
the property reverted to the donor and/or his successors-in-interest in 1987. Certainly,
when the suit was initiated the following year, it cannot be said that petioners had slept
on their rights for a long time. The 1960's sales made by Trinidad Quijada cannot be the
reckoning point as to when petitioners' cause of action arose. They had no interest over
the property at that time except under the deed of donation to which private
respondents were not privy. Moreover, petitioners had previously filed an ejectment suit
against private respondents only that it did not prosper on a technicality.
Be that at it may, there is one thing which militates against the claim of petitioners. Sale,
being a consensual contract, is perfected by mere consent, which is manifested the
moment there is a meeting of the minds 17 as to the offer and acceptance thereof on
three (3) elements: subject matter, price and terms of payment of the price. 18
Ownership by the seller on the thing sold at the time of the perfection of the contract of
sale is not an element for its perfection. What the law requires is that the seller has the
right to transfer ownership at the time the thing sold is delivered. 19 Perfection per se
does not transfer ownership which occurs upon the actual or constructive delivery of the
thing sold. 20 A perfected contract of sale cannot be challenged on the ground of nonownership on the part of the seller at the time of its perfection; hence, the sale is still
valid.
The consummation, however, of the perfected contract is another matter. It occurs upon
the constructive or actual delivery of the subject matter to the buyer when the seller or

her successors-in-interest subsequently acquires ownership thereof. Such circumstance

happened in this case when petitioners who are Trinidad Quijada's heirs and
successors-in-interest became the owners of the subject property upon the reversion
of the ownership of the land to them. Consequently, ownership is transferred to
respondent Mondejar and those who claim their right from him. Article 1434 of the New
Civil Code supports the ruling that the seller's "title passes by operation of law to the
buyer." 21 This rule applies not only when the subject matter of the contract of sale is
goods, 22 but also to other kinds of property, including real property. 23
There is also no merit in petitioners' contention that since the lots were owned by the
municipality at the time of the sale, they were outside the commerce of men under
Article 1409 (4) of the NCC; 24 thus, the contract involving the same is inexistent and
void from the beginning. However, nowhere in Article 1409 (4) is it provided that the
properties of a municipality, whether it be those for public use or its patrimonial property
25 are outside the commerce of men. Besides, the lots in this case were conditionally
owned by the municipality. To rule that the donated properties are outside the commerce
of men would render nugatory the unchallenged reasonableness and justness of the
condition which the donor has the right to impose as owner thereof. Moreover, the
objects referred to as outsides the commerce of man are those which cannot be
appropriated, such as the open seas and the heavenly bodies.
With respect to the trial court's award of attorney's fees, litigation expenses and moral
damages, there is neither factual nor legal basis thereof. Attorney's fees and expenses of
litigation cannot, following the general rule in Article 2208 of the New Civil Code, be
recovered in this case, there being no stipulation to that effect and the case does not fall
under any of the
exceptions. 26 It cannot be said that private respondents had compelled petitioners to
litigate with third persons. Neither can it be ruled that the former acted in "gross and
evident bad faith" in refusing to satisfy the latter's claims considering that private
respondents were under an honest belief that they have a legal right over the property
by virtue of the deed of sale. Moral damages cannot likewise be justified as none of the
circumstances enumerated under Articles 2219. 27 and 2220 28 of the New Civil Code
concur in this case
WHEREFORE, by virtue of the foregoing, the assailed decision of the Court of Appeals is
AFFIRMED.
SO ORDERED.
Melo, Puno and Mendoza, JJ., concur.
Footnotes
1 Decision of Court of Appeals in CA-G.R. CV No. 44016 promulgated on May 31, 1996.
pp. 2-5; Rollo, pp. 41-44.
2 Regional Trial Court (Bayugan, Agusan del Sur) Decision dated July 16, 1993 penned by
Judge Zenaida Placer, p. 6; Annex "A" of Petition; Rollo, p. 21.
3 The decretal portion of the CA's decision states: "WHEREFORE, premises considered,
the decision appealed from is hereby REVERSE and SET ASIDE, and judgment rendered

declaring the defendants-appellants as the rightful and lawful owners and possessors of
the subject land. There is no pronouncement as to costs."
4 CA Decision, pp. 6-7; Rollo, pp. 45-16.
5 CA Resolution promulgated August 26, 1996; Rollo, p. 55.
6 Comment of Private Respondents, pp. 7-8: Rollo, pp. 67-68.
7 Her sisters were Leonila Corvera Vda. de Sequea and Paz Corvera Cabiltes and the
brother was Epapiadito Corvera.
8 RTC Decision, p. 1; Rollo, p. 16.
9 CA Decision. pp. 5-6; Rollo, pp. 44-45.
10 City of Angeles v. CA, 261 SCRA 90.
11 Art. 712, New Civil Code provides: "Ownership is acquired by occupation and by
intellectual creation.
"Ownership and other real rights over property are acquired and transmitted by law, by
donation, by testate and instate succession, and in consequence of certain contracts, by
tradition.
"They may also be acquired by means of prescription." (Emphasis supplied).
12 Art. 734, New Civil Code (NCC) reads: "The donation is perfected from the moment
the donor knows of the acceptance by the donee."
13 Central Philippine University v. CA, 246 SCRA 511.
14 Reyes v. CA, 264 SCRA 35; Republic v. Sandiganbayan, 255 SCRA 438; PAL Employees
Savings & Loan Association, Inc. v. NLRC, 260 SCRA 758.
15 Catholic Bishop of Balanga v. CA, 264 SCRA 181; Chavez v. Bonto-Perez, 242 SCRA 73;
Rivera v. CA, 244 SCRA 218; Cormero v. CA, 317 Phil. 348.
16 Santiago v. CA, 278 SCRA 98 (1997); Catholic Bishop of Balanga v. CA, 264 SCRA 181;
Claveria v. Quinco, 207 SCRA 66 (1992); Perez v. Ong Cho, 116 SCRA 732 (1982);
Yusingco v. Ong Hing Lian, 42 SCRA 589 (1971); LE Lotho, Inc. v. Ice and cold Storage
Industries, Inc., 3 SCRA 744; Go Chi Gun, et. al. v. Co Cho, et. al., 96 Phil. 622.
17 Art. 1475, New Civil Code (NCC). "The contact of sale is perfected at the moment
there is a meeting of the minds upon the thing which is the object of the contract and
upon the price. . . ."
18 Leabres v. CA, 146 SCRA 158 (1986); See also Navarro v. Sugar Producer's
Corporation, 1. SCRA 1180.

19 Art. 1459, NCC "The thing must be licit and the vendor must have a right to
transfer the ownership thereof at the time it is delivered."
20 Art. 712, NCC. ". . . . Ownership and other real rights over property are acquired and
transmitted . . . in consequence of certain contracts, by tradition."
21 Art. 1431, NCC provides: "When a person who is not the owner of a thing sells or
alienates and delivers it, and later the seller or grantor acquires title thereto, such title
passes by operation of law to the buyer or grantee".
22 Art. 1505 of the NCC provides: "Subject to the provisions of this Title, where goods are
sold by a person who is not the owner thereof, and who does not sell them under
authority or with the consent of the owner, the buyer acquires no better title to the
goods than the seller had, unless the owner of the goods is by his conduct precluded
from denying the seller's authority to sell.
xxx xxx xxx (Emphasis supplied)
Other exceptions to the foregoing includes: (a) when the contrary is provided in
recording laws, (b) sales made under statutory power of sale or pursuant to a valid order
from a court of competent jurisdiction, and (c) sales made in a merchant's store in
accordance with the Code of commerce and special laws.
23 See Articles 1434, NCC, supra.; Estoque v. Pajimula, 133 Phil. 55; 24 SCRA 59 (1968);
Bucton v. Gabar, 55 SCRA 499.
24 Art. 1409 (4), NCC: "The following contracts are inexistent and void from the
beginning:
xxx xxx xxx
(4) Those whose object is outside the commerce of men;
xxx xxx xxx
25 Art. 423, NCC: "The properties of provinces, cities and municipalities, is divided into
properties for public use and patrimonial properties."
Art. 424 provides: "Property for public use, in the provinces, cities and municipalities,
consist of the provincial roads, city streets, municipal streets, the squares, fountains,
public waters, promenades, and public works for public service paid for by said
provinces, cities, or municipalities.
"All other property possessed by any of them is patrimonial and shall be governed by
this Code, without prejudice to the provisions of special laws."
26 In the absence of stipulation, attorney's fees and expenses of litigation, other than
judicial costs, cannot be recovered except:
xxx xxx xxx

(2) when the defendant's act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest.
xxx xxx xxx
(5) where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff's plainly valid, just and demandable claim.
xxx xxx xxx
27 Moral damages may be recovered in the following and analogous cases:
(1) a criminal offense resulting in physical injuries;
(2) quasi-delicts causing physical injuries;
(3) seduction, abduction, rape or other lascivious acts;
(4) adultery or concubinage;
(5) illegal or arbitrary detention or arrests;
(6) illegal search;
(7) libel, slander or any other form or defamation;
(8) malicious prosecution;
(9) acts mentioned in Article 309;
(10) acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35.
The parents of the female seduced, abducted, raped or abused referred to in no. 3 of this
Article, may also recover moral damages.
The spouse, ascendants, descendants and brothers and sisters may bring the action
mentioned in no. 9 of this Article, in the order named.
29 Art. 2220. Willful injury to property may be a legal ground for awarding moral
damages if the court should find that, under the circumstances, such damages are justly
due. The same rule applies to breaches of contracts where the defendant acted
fraudulently or in bad faith.
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SUPREME COURT
Manila
EN BANC

G.R. No. 130722 December 9, 1999

SPS. REYNALDO K. LITONJUA and ERLINDA P. LITONJUA and PHIL. WHITE HOUSE AUTO
SUPPLY, INC., petitioners,
vs.
L & R CORPORATION, VICENTE M. COLOYAN in his capacity as Acting Registrar of the
Register of Deeds of Quezon City thru Deputy Sheriff ROBERTO R. GARCIA, respondents.

YNARES-SANTIAGO, J.:
May a mortgage contract provide: (a) that the mortgagor cannot sell the mortgaged
property without first obtaining the consent of the mortgagee and that, otherwise, the
sale made without the mortgagee's consent shall be invalid; and (b) for a right of first
refusal in favor of the mortgagee?
The controversy stems from loans obtained by the spouses Litonjua from L & R
Corporation in the aggregate sum of P400,000.00; P200,000.00 of which was obtained on
August 6, 1974 and the remaining P200,000.00 obtained on March 27, 1978. The loans
were secured by a mortgage 1 constituted by the spouses upon their two parcels of land
and the improvements thereon located in Cubao, Quezon City covered by Transfer
Certificates of Title No. 197232 and 197233, with an area of 599 and 1,436 square
meters, respectively. The mortgage was duly registered with the Register of Deeds of
Quezon City.
On July 14, 1979, the spouses Litonjua sold to Philippine White House Auto Supply, Inc.
(PWHAS) the parcels of land they had previously mortgaged to L & R Corporation for the
sum of P430,000.00. 2 The sale was annotated at the back of the respective certificates
of title of the properties. 3

Meanwhile, with the spouses Litonjua having defaulted in the payment of their loans, L &
R Corporation initiated extrajudicial foreclosure proceedings with the Ex-Oficio Sheriff of
Quezon City. On July 23, 1980, the mortgaged properties were sold at public auction to L
& R Corporation as the only bidder for the amount of P221,624.58. 4 When L & R
Corporation presented its corresponding Certificate of Sale issued by Deputy Sheriff
Roberto B. Garcia, to the Quezon City Register of Deeds for registration on August 15,
1980, it learned for the first time of the prior sale of the properties made by the spouses
Litonjua to PWHAS upon seeing the inscription at the back of the certificates of title.
Thus, on August 20, 1980, it wrote a letter 5 to the Register of Deeds of Quezon City
requesting for the cancellation of the annotation regarding the sale to PWHAS. L & R
Corporation invoked a provision in its mortgage contract with the spouses Litonjua
stating that the mortgagee's prior written consent was necessary in case of subsequent
encumbrance or alienation of the subject properties. Thus, it argued that since the sale
to PWHAS was made without its prior written consent, the same should not have been
registered and/or annotated.
On March 10, 1981, or seven months after the foreclosure sale, PWHAS, for the account
of the spouses Litonjua, tendered payment of the full redemption price to L & R
Corporation in the form of China Bank Manager's Check No. HOF-M O12623 in the
amount of P238,468.04. 6 L & R Corporation, however, refused to accept the payment,
hence, PWHAS was compelled to redeem the mortgaged properties through the Ex-Oficio
Sheriff of Quezon City. On March 31, 1981, it tendered payment of the redemption price
to the Deputy Sheriff through China Bank Manager's Check No. HOF-O14750 in the
amount of P240,798.94. 7 The check was deposited with the Branch Clerk of Court who
issued Receipt No. 7522484 8 for the full redemption price of the mortgaged properties.
Accordingly, the Deputy Sheriff issued a Certificate of Redemption in favor of the spouses
Litonjua dated March 31, 1981. 9
In a letter of the same date, the Deputy Sheriff informed L & R Corporation of the
payment by PWHAS of the full redemption price and advised it that it can claim the
payment upon surrender of its owner's duplicate certificates of title. 10
On April 2, 1981, the spouses Litonjua presented for registration the Certificate of
Redemption issued in their favor to the Register of Deeds of Quezon City. The Certificate
also informed L & R Corporation of the fact of redemption and directed the latter to
surrender the owner's duplicate certificates of title within five days. 11
On April 22, 1981, L & R Corporation wrote a letter to the Sheriff, copy furnished to the
Register of Deeds, stating: (1) that the sale of the mortgaged properties to PWHAS was
without its consent, in contravention of paragraphs 8 and 9 of their Deed of Real Estate
Mortgage; and (2) that it was not the spouses Litonjua, but PWHAS, who was seeking to
redeem the foreclosed properties, when under Articles 1236 and 1237 of the New Civil
Code, the latter had no legal personality or capacity to redeem the same. 12
On the other hand, on May 8 and June 8, 1981, the spouses Litonjua asked the Register
of Deeds to annotate their Certificate of Redemption as an adverse claim on the titles of
the subject properties on account of the refusal of L & R Corporation to surrender the
owner's duplicate copies of the titles to the subject properties. With the refusal of the
Register of Deeds to annotate their Certificate of Redemption, the Litonjua spouses filed
a Petition 13 on July 17, 1981 against L & R Corporation for the surrender of the owner's

duplicate of Transfer Certificates of Title No. 197232 and 197233 before the then Court of
First Instance of Quezon City, Branch IV, docketed as Civil Case No. 32905.
On August 15, 1981, while the said case was pending, L & R Corporation executed an
Affidavit of Consolidation of Ownership. 14 Thereafter, on August 20, 1981, the Register
of Deeds cancelled Transfer Certificates of Title No. 197232 and 197233 and in lieu
thereof, issued Transfer Certificates of Title No. 280054 15 and 28055 16 in favor of L & R
Corporation, free of any lien or encumbrance.
With titles issued in its name, L & R Corporation advised the tenants of the apartments
situated in the subject parcels of land that being the new owner, the rental payments
should be made to them, and that new lease contracts will be executed with interested
tenants before the end of August, 1981. 17 Upon learning of this incident from their
tenants, the spouses Litonjua filed an adverse claim 18 and a notice of lis pendens 19
with the Register of Deeds. In the process, they learned that the prior sale of the
properties in favor of PWHAS was not annotated on the titles issued to L & R.
A complaint for Quieting of Title, Annulment of Title and Damages with preliminary
injunction was filed by the spouses Litonjua and PWHAS against herein respondents
before the then Court of First Instance of Quezon City, Branch 9, docketed as Civil Case
No. Q-33362. 20 On February 10, 1987, the lower court rendered its Decision 21
dismissing the Complaint upon its finding that the sale between the spouses Litonjua and
PWHAS was null and void and unenforceable against L & R Corporation and that the
redemption made was also null and void.
On appeal, the decision of the trial court was set aside by the Court of Appeals in its
Decision dated June 22, 1994, 22 on the ground that the sale made to PWHAS as well as
the redemption effected by the spouses Litonjua were valid. However, the same was
subsequently reconsidered and set aside in an Amended Decision dated September 11,
1997. 23
Hence, the instant Petition on the following issues:
(1) whether or not paragraphs 8 and 9 of the Real Estate Mortgage are valid and
enforceable;
(2) whether or not the sale of the mortgaged properties by the spouses Litonjua to
PWHAS, without the knowledge and consent of L & R Corporation, is valid and
enforceable;
(3) whether or not PWHAS had the right to redeem the foreclosed properties on the
account of the spouses Litonjua; and
(4) whether or not there was a valid redemption.
Paragraphs 8 and 9 of the subject Deed of Real Estate Mortgage read as follows
8. That the MORTGAGORS shall not sell, dispose of, mortgage, nor in any other manner
encumber the real property/properties subject of this mortgage without the prior written
consent of the MORTGAGEE;

9. That should the MORTGAGORS decide to sell the real property/properties subject of
this mortgage, the MORTGAGEE shall be duly notified thereof by the MORTGAGORS, and
should the MORTGAGEE be interested to purchase the same, the latter shall be given
priority over all the other prospective buyers; 24
There is no question that the spouses Litonjua violated both the aforesaid provisions,
selling the mortgaged properties to PWHAS without the prior written consent of L & R
Corporation and without giving the latter notice of such sale nor priority over PWHAS.
Re: Validity of prohibition against subsequent sale of mortgaged property without prior
written consent of mortgagee and validity of subsequent sale to PWHAS
Petitioners defend the validity of the sale between them by arguing that paragraph 8
violates Article 2130 of the New Civil Code which provides that "(A) stipulation forbidding
the owner from alienating the immovable mortgaged shall be void."
In the case of Philippine Industrial Co. v. El Hogar Filipino and
Vallejo, 25 a stipulation prohibiting the mortgagor from entering into second or
subsequent mortgages was held valid. This is clearly not the same as that contained in
paragraph 8 of the subject Deed of Real Estate Mortgage which also forbids any
subsequent sale without the written consent of the mortgagee. Yet, in Arancillo v.
Rehabilitation Finance Corporation, 26 the case of Philippine Industrial Co., supra, was
erroneously cited to have held a mortgage contract against the encumbrance, sale or
disposal of the property mortgaged without the consent of the mortgagee is valid. No
similar prohibition forbidding the owner of mortgaged property from (subsequently)
mortgaging the immovable mortgaged is found in our laws, making the ruling in
Philippine Industrial Co., supra, perfectly valid. On the other hand, to extend such a
ruling to include subsequent sales or alienation runs counter not only to Philippine
Industrial Co., itself, but also to Article 2130 of the New Civil Code.
Meanwhile in De la Paz v. Macondray &; Co., Inc., 27 it was held that while an agreement
of such nature does not nullify the subsequent sale made by the mortgagor, the
mortgagee is authorized to bring the foreclosure suit against the mortgagor without the
necessity of either notifying the purchaser or including him as a defendant. At the same
time, the purchaser of the mortgaged property was deemed not to have lost his
equitable right of redemption.
In Bonnevie v. Court of Appeals, 28 where a similar provision appeared in the subject
contract of mortgage, the petitioners therein, to whom the mortgaged property were
sold without the written consent of the mortgagee, were held as without the right to
redeem the said property. No consent having been secured from the mortgagee to the
sale with assumption of mortgage by petitioners therein, the latter were not validly
substituted as debtors. It was further held that since their rights were never recorded,
the mortgagee was charged with the obligation to recognize the right of redemption only
of the original mortgagors-vendors. Without discussing the validity of the stipulation in
question, the same was, in effect, upheld.
Again, in Cruz v. Court of Appeals, 29 while a similar provision was recognized and
applied, no discussion as to its validity was made since the same was not raised as an
issue.

On the other hand, in Tambunting v. Rehabilitation Finance

Corporation, 30 the validity of a similar provision was specifically raised and discussed
and found as invalid. It was there ratiocinated that
To be sure, the deed of second mortgage executed by the Escuetas in favor of Aurora
Tambunting, married to Antonio L. Tambunting, does contain a provision that "the
property mortgaged shall not be . . . the subject of any new or subsequent contracts of
agreements, saving and excepting those having connection with the first mortgage with
the RFC, without first securing the written permission and consent of MORTGAGEE". But
the provision can only be construed as directed against subsequent mortgages or
encumbrance, not to an alienation of the immovable itself. For while covenants
prohibiting the owner from constituting a later mortgage over property registered under
the Torrens Act have been held to be legally permissible (Phil. Industrial Co. v. El Hogar
Filipino, et al., 45 Phil. 336, 341-342; Bank of the Philippines v. Ty Camco Sobrino, 57 Phil.
801), stipulations "forbidding the owner from alienating the immovable mortgaged" are
expressly declared void by law (Art. 2130, Civil Code). It is clear that the stipulation
against "subsequent agreements" above mentioned had not been breached by the
assignment by the Escuetas (to the Hernandezes) of their right of redemption in
connection with the mortgage constituted if favor of the R.F.C. The assignment was not
subsequent mortgage or encumbrance, licitly comprehended by the prohibitory
stipulation, but was actually a sale or conveyance of all their rights in the encumbered
real property in truth, an alienation of the immovable which could not lawfully be
forbidden. Moreover, since the subject of the assignment to the Hernandezes had
"connection with the first assignment with the R.F.C.", it did not fall within, but was
explicitly excepted from, the prohibitory stipulation in question. Finally, it should not be
forgotten that since the Tambuntings, in their own deed of conditional sale with the
R.F.C., had accepted without demur the provision that said contract could be revoked
within one (1) year from September 16, 1955 at the option of the RFC, as vendor, should
the former owner (Escueta) exercise his right to redeem the property; and that the
redemption of the property within said period by "the former owner or his successor-ininterest" would render their instrument of conditional sale "automatically null and void
and without effect", they cannot now assume a position inconsistent with said provision.
(Emphasis, Ours).
Earlier, in PNB v. Mallorca, 31 it was reiterated that a real mortgage is merely an
encumbrance; it does not extinguish the title of the debtor, whose right to dispose a
principal attribute of ownership is not thereby lost. Thus, a mortgagor had every right
to sell his mortgaged property, which right the mortgagee cannot oppose.
In upholding the validity of the stipulation in question, the amended Decision relied on
the cases of Cruz v. Court of Appeals, supra, and Medida v. Court of Appeals. 32
According to the Court of Appeals, said cases, are not only more recent that of
Tambunting, supra, but are also more applicable to the issue at bar.
We are not convinced.
As we have mentioned, although a similar provision was recognized and applied in Cruz
v. Court of Appeals, supra, no discussion as to its validity was made since the same was
not raised as an issue. Thus, it cannot be said that the specific pronouncement in the
Tambunting case that such a stipulation can only be construed as against subsequent

mortgages or encumbrances but not to an alienation of the immovable itself, which is

prohibited under Article 2130, was abandoned thereby. On the other hand, the facts in
the case of Medida v. Court of Appeals, are different from those in the present case for
what was in issue in the said case was a second mortgage over a foreclosed property
during the period of redemption. Thus, the ruling in Medida quoted in the Amended
Decision that "what is delimited is not the mortgagor's jus dispodendi, as an attribute of
ownership, but merely the rights conferred by such act of disposal which may
correspondingly be restricted," actually refers to the fact that the only rights which a
mortgagor can legally transfer, cede and convey after the foreclosure of his properties
are the right to redeem the land, and the possession use and enjoyment of the same
during the period of redemption. It has no connection or reference to the right of a
mortgagor to sell his mortgaged property without the required consent of the
mortgagee. To be sure, there is absolutely nothing in Medida that upholds the validity of
the stipulation in controversy.
Insofar as the validity of the questioned stipulation prohibiting the mortgagor from
selling his mortgaged property without the consent of the mortgagee is concerned,
therefore, the ruling in the Tambunting case is still the controlling law. Indeed, we are
fully in accord with the pronouncement therein that such a stipulation violates Article
2130 of the New Civil Code. Both the lower court and the Court of Appeals in its
Amended Decision rationalize that since paragraph 8 of the subject Deed of Real Estate
Mortgage contains no absolute prohibition against the sale of the property mortgaged
but only requires the mortgagor to obtain the prior written consent of the mortgagee
before any such sale, Article 2130 is not violated thereby. This observation takes a
narrow and technical view of the stipulation in question without taking into consideration
the end result of requiring such prior written consent. True, the provision does not
absolutely prohibit the mortgagor from selling his mortgaged property; but what it does
not outrightly prohibit, it nevertheless achieves. For all intents and purposes, the
stipulation practically gives the mortgagee the sole prerogative to prevent any sale of
the mortgaged property to a third party. The mortgagee can simply withhold its consent
and thereby, prevent the mortgagor from selling the property. This creates an
unconscionable advantage for the mortgagee and amounts to a virtual prohibition on the
owner to sell his mortgaged property. In other words, stipulations like those covered by
paragraph 8 of the subject Deed of Real Estate Mortgage circumvent the law,
specifically, Article 2130 of the New Civil Code.
Being contrary to law, paragraph 8 of the subject Deed of Real Estate Mortgage is not
binding upon the parties. Accordingly, the sale made by the spouses Litonjua to PWHAS,
notwithstanding the lack of prior written consent of L & R Corporation, is valid.
Re: Validity of redemption effected by PWHAS on the account of the spouses Litonjua
Coming now to the issue of whether the redemption offered by PWHAS on account of the
spouses Litonjua is valid, we rule in the affirmative. The sale by the spouses Litonjua of
the mortgaged properties to PWHAS is valid. Therefore, PWHAS stepped into the shoes of
the spouses Litonjua on account of such sale and was in effect, their successor-ininterest. As such, it had the right to redeem the property foreclosed by L & R
Corporation. Again, Tambunting, supra, clarifies that
. . .. The acquisition by the Hernandezes of the Escuetas' rights over the property carried
with it the assumption of the obligations burdening the property, as recorded in the

Registry of Property, i.e., the mortgage debts in favor of the RFC (DBP) and the
Tambuntings. The Hernandezes, by stepping into the Escuetas' shoes as assignees, had
the obligation to pay the mortgage debts, otherwise, these debts would and could be
enforced against the property subject of the assignment. Stated otherwise, the
Hernandezes, by the assignment, obtained the right to remove the burdens on the
property subject thereof by paying the obligations thereby secured; that is to say, they
had the right of redemption as regards the first mortgage, to be exercised within the
time and in the manner prescribed by law and the mortgage deed; and as regards the
second mortgage, sought to be judicially foreclosed but yet unforeclosed, they had the
so-called equity of redemption.
The right of PWHAS to redeem the subject properties finds support in Section 6 of Act
3135 itself which gives not only the mortgagor-debtor the right to redeem, but also his
successors-in-interest. As vendee of the subject properties, PWHAS qualifies as such a
successor-in-interest of the spouses Litonjua.
Re: Validity of redemption made
It is clear from the records that PWHAS offered to redeem the subject properties seven
(7) months after the date of registration of the foreclosure sale, well within the one year
period of redemption.
Re: Validity and enforceability of stipulation granting the mortgagee the right of first
refusal
While petitioners question the validity of paragraph 8 of their mortgage contract, they
appear to be silent insofar as paragraph 9 thereof is concerned. Said paragraph 9 grants
upon L & R Corporation the right of first refusal over the mortgaged property in the event
the mortgagor decides to sell the same. We see nothing wrong in this provision. The right
of first refusal has long been recognized as valid in our jurisdiction. The consideration for
the loan-mortgage includes the consideration for the right of first refusal. L & R
Corporation is in effect stating that it consents to lend out money to the spouses Litonjua
provided that in case they decide to sell the property mortgaged to it, then L & R
Corporation shall be given the right to match the offered purchase price and to buy the
property at that price. Thus, while the spouses Litonjua had every right to sell their
mortgaged property to PWHAS without securing the prior written consent of L & R
Corporation, they had the obligation under paragraph 9, which is a perfectly valid
provision, to notify the latter of their intention to sell the property and give it priority
over other buyers. It is only upon failure of L & R Corporation to exercise its right of first
refusal could the spouses Litonjua validly sell the subject properties to others, under the
same terms and conditions offered to L & R Corporation.
What then is the status of the sale made to PWHAS in violation of L & R Corporation's
contractual right of first refusal? On this score, we agree with the Amended Decision of
the Court of Appeals that the sale made to PWHAS is rescissible. The case of Guzman,
Bocaling & Co. v. Bonnevie 33 is instructive on this point
The respondent court correctly held that the Contract of Sale was not voidable but
rescissible. Under Article 1380 to 1381(3) of the Civil Code, a contract otherwise valid
may nonetheless be subsequently rescinded by reason of injury to third persons, like
creditors. The status of creditors could be validly accorded by the Bonnevies for they had

substantial interest that were prejudiced by the sale of the subject property to the
Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the contracting parties
and even to third persons, to secure reparation for damages caused to them by a
contract, even if this should be valid, by means of the restoration of things to their
condition at the moment prior to the celebration of said contract. It is a relief allowed for
one of the contracting parties and even third persons from all injury and damage the
contract may cause, or to protect some incompatible and preferential right created by
the contract. Rescission implies a contract which, even if initially valid, produces a lesion
or pecuniary damage to someone that justifies its invalidation for reasons of equity.
(emphasis, Ours)
It was then held that the Contract of Sale there, which violated the right of first refusal,
was rescissible.
In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to L
& R Corporation over the subject properties since the Deed of Real Estate Mortgage
containing such a provision was duly registered with the Register of Deeds. As such,
PWHAS is presumed to have been notified thereof by registration, which equates to
notice to the whole world.
We note that L & R Corporation had always expressed its willingness to buy the
mortgaged properties on equal terms as PWHAS. Indeed, in its Answer to the Complaint
filed, L & R Corporation expressed that it was ready, willing and able to purchase the
subject properties at the same purchase price of P430,000.00, and was agreeable to pay
the difference between such purchase price and the redemption price of P249,918.77,
computed as of August 13, 1981, the expiration of the one-year period to redeem. That it
did not duly exercise its right of first refusal at the opportune time cannot be taken
against it, precisely because it was not notified by the spouses Litonjua of their intention
to sell the subject property and thereby, to give it priority over other buyers.
All things considered, what then are the relative rights and obligations of the parties? To
recapitulate:, the sale between the spouses Litonjua and PWHAS is valid,
notwithstanding the absence of L & R Corporation's prior written consent thereto.
Inasmuch as the sale to PWHAS was valid, its offer to redeem and its tender of the
redemption price, as successor-in-interest of the spouses Litonjua, within the one-year
period should have been accepted as valid by the L & R Corporation. However, while the
sale is, indeed, valid, the same is rescissible because it ignored L & R Corporation's right
of first refusal.
Foreseeing a possible rescission of the sale, the spouses Litonjua contend that with the
restoration of the original status quo, with no sale having been made, they should now
be allowed to redeem the subject properties, the period of redemption having been
suspended during the period of litigation. In effect, the spouses Litonjua want to retain
ownership of the same. We cannot, however, sanction this belated reversal of the
spouses Litonjua's decision to sell. To do so would afford them undue advantage on
account of the appreciation of the value of the subject properties in the intervening years
when they precisely were the ones who violated and ignored the right of first refusal of L
& R Corporation over the same. Moreover, it must be stressed that in rescinding the sale

made to PWHAS, the purpose is to uphold and enforce the right of first refusal of L &R
Corporation.
WHEREFORE, the Decision appealed from is hereby AFFIRMED with the following
MODIFICATIONS:
(a) Ordering the rescission of the sale of the mortgaged properties between petitioners
spouses Reynaldo and Erlinda Litonjua and Philippine White House Auto Supply, Inc. and
ordering said spouses to return to Philippine White House Auto Supply, Inc. the purchase
price of P430,000.00;
(c) Disallowing, due to the rescission of the sale made in its favor, the redemption made
by Philippine White House Auto Supply, Inc. and ordering Quezon City Sheriff Roberto
Garcia to return to it the "redemption" check of P240,798.94;
(d) Allowing respondent L & R Corporation to retain its consolidated titles to the
foreclosed properties but ordering it to pay to the Litonjua spouses the additional sum of
P189,201.96 representing the difference from the purchase price of P430,000.00 in the
rescinded sale;
(e) Deleting the awards for moral and exemplary damages and attorney's fees to the
respondents.
No pronouncement as to costs.
SO ORDERED.
Bellosillo, Melo, Puno, Kapunan, Panganiban, Quisumbing, Purisima, Pardo, Buena,
Gonzaga-Reyes and De Leon, Jr., JJ., concur.
Davide Jr., C.J., I join Mr. Justice Vitug in his concurring and dissenting opinion.
Vitug, J., pls. see concurring & dissenting opinion.
Mendoza, J., I join Justice Vitug's separate opinion.
Separate Opinions
VITUG, J., concurring and dissenting opinion;
At the pith of the controversy are two stipulations in a real estate mortgage contract, to
wit: (a) that the mortgagor cannot sell the mortgaged property without the written
consent of the mortgagee, and (b) that the latter has a "right of first refusal" in any
projected sale of the hypothecated property.
Outlined below is a factual backdrop of the case.
The spouses Reynaldo and Erlinda Litonjua (Litonjua spouses) contracted a loan from L &
R Corporation in the sum of P400,000.00 drawn in two tranches P 200,000.00 on 06
August 1974 and the other P 200,000.00 on 27 March 1978. The loan was secured by a
real estate mortgage constituted by the spouses on their two parcels of land located in

Cubao, Quezon City, covered by Transfer Certificates of Title ("TCT") No. 197232 and
197233, measuring 599 and 1,436 sq. m., respectively. The contract provided, inter alia,
that the mortgagors were enjoined from conveying the mortgaged property without the
written consent of the mortgagee and that the mortgagee had a right of first refusal in
the event the mortgagors decided to sell the property. 1 The mortgage was duly
registered with the Register of Deeds of Quezon City.
While the mortgage obligation was still outstanding, the Litonjua spouses sold the two
parcels of land to Philippine White House Auto Supply, Inc. (PWHAS), for the amount of
P430,000.00. The sale was annotated at the back of the certificate of title.
When the Litonjuas defaulted in the payment of the loan, L & R Corporation initiated
extrajudicial foreclosure of the mortgage. The mortgaged parcels were sold at public
auction to L & R Corporation, it being the sole bidder, on 23 July 1980. On 15 August
1980, when L & R presented its certificate of sale to the Register of Deeds of Quezon
City, it was informed of the previous sale made by the Litonjua spouses to PWHAS. L & R
Corporation thereupon sought from the Register of Deeds the cancellation of the
annotation of sale to PWHAS calling attention to the proviso in the mortgage agreement
enjoining the Litonjua spouses from selling the property.
Later, PWHAS, for the account of the Litonjua spouses, tendered payment of the full
redemption price to L & R Corporation. Upon the latter's refusal to honor the redemption,
PWHAS tendered the amount with the Branch Clerk of Court; correspondingly, the
Deputy Sheriff issued a certificate of redemption in favor of the Litonjua spouses. The
Certificate of Redemption, however, could not be registered because L & R Corporation
would not surrender the owner's duplicate certificates of title. When the Register of
Deeds likewise refused to annotate the certificate of redemption as an adverse claim on
the titles covering the two parcels of land, the Litonjuas filed a petition with the then
Court of First Instance of Quezon City to compel L & R Corporation to surrender the
duplicate certificates of title.
During the pendency of the case, L & R Corporation executed an "Affidavit of
Consolidation of Ownership," on the basis of which the Register of Deeds cancelled TCT
No. 197232 and 197233 and, in lieu thereof, issued TCT No. 280054 and 280055 in favor
of L & R Corporation free from any lien or encumbrance. L & R Corporation thereupon
advised the tenants of the apartment units on the subject lots to tender rental payments
to the corporation as being the new owner.
Apprised of the foregoing, the Litonjua spouses filed a complaint for "Quieting of Title,
Annulment of Title and Damages." The trial court dismissed the complaint on the thesis
that the sale between the spouses Litonjua and PWHAS, as well as the redemption
subsequently made, was null and void and unenforceable against L & R Corporation.
On appeal, the judgment of the trial court was set aside by the Court of Appeals in its
decision of 22 June 1994; however, on 11 September 1997, the appellate court
reconsidered and reversed its previous stand.
There appears to be some merit in the instant petition.
The stipulation in the real estate mortgage which prohibits the mortgagor from selling
the mortgaged property without the written consent of the mortgagee contravenes the

law. Article 2130 of the New Civil Code holds that a stipulation forbidding the owner from
alienating the immovable mortgaged shall be void. The phrase "without (the) written
consent of the mortgagee," added by the parties in their contract is of no real comfort to
the mortgagee and did nothing but to stress, indeed, the restriction against what should
otherwise be an unimpeded right of the mortgagor to alienate the property. The clear
intention of the law is to outlaw a stipulation that would effectively prevent the
mortgagor from freely conveying the property during the life of the mortgage. Needless
to state, the injunction of the law may not be circumvented, whether directly or
indirectly, by the parties.
I am, therefore, in complete accord with the majority in concluding that "the sale made
by the spouses Litonjua to PWHAS, notwithstanding the lack of prior written consent of L
& R Corporation, is valid," and that as such successor-in-interest of the Litonjuas, PWHAS
has a "right to redeem the property foreclosed by L & R Corporation."
What I find quite difficult to accept, with all due respect, is the
pre-emptive and peremptory pronouncement in the ponencia that the sale between the
Litonjuas and PWHAS is rescissible because it ignored the "right of first refusal" of L & R
Corporation. I must stress that a right of first refusal is not a perfected contract. 2
Neither does it qualify as an option under the second paragraph of Article 1479, 3 which
itself must be supported by a consideration separate and distinct from the price itself, 4
nor an offer which Article 1319 5 of the Code requires to be definitive and certain both as
to object and cause of the contemplated agreement. Even while the object in a "right of
first refusal" might be determinate, the exercise of the right, nevertheless, would still be
dependent not only on the grantor's eventual intention to enter into a binding juridical
relation but also on terms, including the price, that obviously are yet to be fixed. It would
be absurd to suggest that a right of first refusal can be the proper subject of an action for
specific performance but, of course, neither would it be correct to say that a breach of
such right would be totally inconsequential. A grantor who unjustly discards his own
affirmation violates the basic dogma in human relations so well expressed as in Article
19 of the Civil Code to the effect that every person is expected to act with justice, give
another is due and observe honesty and good faith. When ignored, the legal feasibility of
an action for damages is a matter now long settled.
Most importantly, a rescissory action in consonance with Article 1380, in relation to
Article 1381, paragraph (3), of the New Civil Code 6 so invoked (by citing Guzman,
Bocaling & Co. vs. Bonnevie 7) as the authority for the rescission of the sale between the
Litonjua spouses and PWHAS is here off the mark unfortunately. An action for rescission
under said provisions of the Code is merely subsidiary and relates to the specific
instance when a debtor, in an attempt to defraud his creditor, enters into a contract with
another that deprives the creditor to recover his just claim and leaves him with no other
legal means, than by rescission, to obtain reparation. 8 Hence, the rescission is only to
the extent necessary to cover the damages caused pursuant to Article 1384 of the Civil
Code. Verily, the case and factual settings in the instant controversy (for "Quieting of
Title, Annulment of Title and Damages with Preliminary Injunction") initiated by the
Litonjua spouses and PWHAS against herein respondents is neither the occasion nor the
proper forum for such an issue to be considered. 9
To sum up, the only matter called for to be said, in my view, is that part of the ponencia
which concludes that the sale between the Litonjua spouses and PWHAS is a valid and

subsisting contract which has accorded to PWHAS, by stepping into the shoes of the
sellers, a corresponding entitlement to redeem the foreclosed property.
WHEREFORE, I vote to REVERSE and SET ASIDE the appealed amended judgment and to
REINSTATE the original decision, dated 22 June 1994, of the appellate court.
Footnotes
1 See Exhibits "14" & "15", Deed and Amendment of Real Estate Mortgage, respectively,
Folder of Exhibits.
2 See Exhibit "U", Deed of Absolute Sale, id.
3 See Exhibits "3-A" & "4-A", Annotations on Transfer Certificates of Title Nos. 197232
and 197233, respectively, id.
4 See Exhibits "C" & "5", Certificate of Sale, id.
5 Exhibit "18", id.
6 See Exhibits "G" & "2", Letter of PWHAS to L & R Corporation, id.
7 See Exhibit "D", Letter of PWHAS to Sheriff Roberto Garcia, id.
8 See Exhibit "X", id.
9 Exhibit"F", id.
10 See Exhibit "E", Letter of Sheriff Roberto Garcia to L & R Corporation, id.
11 See Exhibit "I", Letter of the Register of Deeds of Quezon City to L & R Corporation, id.
12 See Exhibits "Y" and "13", Letter of L & R Corporation to Sheriff Roberto Garcia, id.
13 Exhibit "J", id.
14 Exhibit "O" and "8", id.
15 Exhibit "P" and "9", id.
16 Exhibit "Q" and "10", id.
17 See Annex "O" of Complaint; Records, p. 38.
18 Exhibit "V", id.
19 Exhibit "W", id.
20 Records, pp. 1-39.
21 Id., pp. 437-447.

22 Petition, Annex "B"; Rollo, pp. 69-81.

23 Petition, Annex "A"; Rollo, pp. 46-68.
24 Exhibit "14-A", Folder of Exhibits.
25 G.R. No. 20482, 45 Phil. 336 [1923].
26 G.R. No. 4602, 89 Phil. 801 [1951].
27 G.R. No. 44072, 66 Phil. 402 [1938].
28 G.R. No. 49101, 125 SCRA 122, 135 [1983].
29 G.R. No. 90369, 191 SCRA 170, 173 [1990].
30 G.R. Nos. 54224-25, 176 SCRA 493, 502-503 [1989].
31 G.R. No. 22538, 128 SCRA 747 [1967].
32 G.R. No. 98334, 208 SCRA 887 [1992].
33 G.R. No. 86150, 206 SCRA 668, 675 [1992].
VITUG, J., concurring and dissenting opinion;
1 8. That the MORTGAGORS shall not sell, dispose of, mortgage, nor in any other manner
encumber the real property/properties subject of this mortgage without the prior consent
of the MORTGAGEE (Deed and Amendment of Real Estate Mortgage).
9. That should the MORTGAGORS decide to sell the real property/properties subject of
this mortgage, the MORTGAGEE shall be duly notified thereof by the MORTGAGORS, and
should the MORTGAGEE be interested to purchase the same, the latter shall be given
priority over all the other prospective buyers (Deed and Amendment of Real Estate
Mortgage).
2 Ang Yu Asuncion vs. Court of Appeals, 238 SCRA 602.
3 Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promissory if the promise is supported by a consideration distinct from
the price. (New Civil Code)
4 Cronico vs. J. M. Tuason and Co., 78 SCRA 331; Serra vs. Court of Appeals, 229 SCRA
60; Nool vs. Court of Appeals, 276 SCRA 149.

5 Consent 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. A qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except from the time it
came to his knowledge. The contract, in such a case, is presumed to have been entered
into in the place where the offer was made.
6 Art. 1380. Contracts validly agreed upon may be rescinded in the cases established by
law.
Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they represent
suffer lesion by more than one-fourth of the value of the things which are the object
thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner
collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into by the
defendants without the knowledge and approval of the litigants or of competent judicial
authority;
(5) All other contracts specially declared by law to be subject to rescission.
7 206 SCRA 668.
8 The existence of an intention to prejudice creditors is evinced either by the
presumption established in Article 1387 or by proof presented in the trial of the case. (Air
France vs. Court of Appeals, 245 SCRA 485).
9 See Gatchalian vs. Manalo, 68 Phil. 708.
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