SOUTHWESTERN SUGAR AND MOLASSES COMPANY vs. ATLANTIC GULF & PACIFIC COMPANY, G.R. No.

L-7382, June 29, 1955 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 sell, even if accepted, is only binding if supported by a 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promise" can only have a binding effect if supported by a consideration, which means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration. 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offer and acceptance is that, when the offerer gives to the offeree a certain period to accept, "the offer may be withdrawn at any time before acceptance" except when the option is founded upon consideration, but this general rule must be interpreted as modified by the provision of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. ENRICO S. EULOGIO vs. SPOUSES CLEMENTE APELES1 and LUZ APELES, G.R. No. 167884, January 20, 2009 Enricos cause of action is founded on paragraph 5 of the Contract of Lease with Option to Purchase vesting him with the right to acquire ownership of the subject property after paying the agreed amount of consideration. Held: 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.22 An option is not of itself a purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. It is simply a contract by which the owner of the 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, i.e., the right or privilege to buy at the election or option of the other party. Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer.23 It is also sometimes called an "unaccepted offer" and is sanctioned by Article 1479 of the Civil Code. The second paragraph of Article 1479 provides for the definition and consequent rights and obligations under an option contract. For an option contract to be valid and enforceable against the promissor, there must be a separate and distinct consideration that supports it.24

In the landmark case of Southwestern Sugar and Molasses Company v. Atlantic Gulf and Pacific Co.,25 we declared that for an option contract to bind the promissor, it must be supported by consideration: 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 a 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. Here it is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the acceptance made of it by appellee. (Emphasis supplied.) The doctrine requiring the payment of consideration in an option contract enunciated in Southwestern Sugar is resonated in subsequent cases and remains controlling to this day. Without consideration that is separate and distinct from the purchase price, an option contract cannot be enforced; that holds true even if the unilateral promise is already accepted by the optionee. The consideration is "the why of the contracts, the essential reason which moves the contracting parties to enter into the contract." This definition illustrates that the consideration contemplated to support an option contract need not be monetary. Actual cash need not be exchanged for the option. However, by the very nature of an option contract, as defined in Article 1479, the same is an onerous contract for which the consideration must be something of value, although its kind may vary.26 We have painstakingly examined the Contract of Lease with Option to Purchase, as well as the pleadings submitted by the parties, and their testimonies in open court, for any direct evidence or evidence aliunde to prove the existence of consideration for the option contract, but we have found none. In Bible Baptist Church v. Court of Appeals,27 we stressed that an option contract needs to be supported by a separate consideration. The consideration need not be monetary but could consist of other things or undertakings. However, if the consideration is not monetary, these must be things or undertakings of value, in view of the onerous nature of the option contract. Furthermore, when a consideration for an option contract is not monetary, said consideration must be clearly specified as such in the option contract or clause. HEIRS OF CAYETANO PANGAN and CONSUELO PANGAN vs. SPOUSES ROGELIO PERRERAS and PRISCILLA PERRERAS, G.R. No. 157374, August 27, 2009 RULING:

That a thing is sold without the consent of all the co-owners does not invalidate the sale or render it void. Article 493 of the Civil Code8 recognizes the absolute right of a co-owner to freely dispose of his pro indiviso share as well as the fruits and other benefits arising from that share, independently of the other co-owners. The presence of Consuelos consent and, corollarily, the existence of a perfected contract between the parties are further evidenced by the payment and receipt of P20,000.00, an earnest money by the contracting parties common usage. The law on sales, specifically Article 1482 of the Civil Code, provides that whenever earnest money is given in a contract of sale, it shall be considered as part of the price and proof of the perfection of the contract. Although the presumption is not conclusive, as the parties may treat the earnest money differently, there is nothing alleged in the present case that would give rise to a contrary presumption. The petitioners-heirs posit that the proper characterization of the contract entered into by the parties is significant in order to determine the effect of the respondents breach of the contract (which purportedly consisted of a one-day delay in the payment of part of the purchase price) and the remedies to which they, as the non-defaulting party, are entitled. A stipulation reserving ownership in the vendor until full payment of the price is, under case law, typical in a contract to sell.11 In this case, the vendor made no reservation on the ownership of the subject properties. From this perspective, the parties agreement may be considered a contract of sale. On the other hand, jurisprudence has similarly established that the need to execute a deed of absolute sale upon completion of payment of the price generally indicates that it is a contract to sell, as it implies the reservation of title in the vendor until the vendee has completed the payment of the price. When the respondents instituted the action for specific performance before the RTC, they prayed that Consuelo be ordered to execute a Deed of Absolute Sale; this act may be taken to conclude that the parties only entered into a contract to sell. In cases of breach due to nonpayment, the vendor may avail of the remedy of rescission in a contract of sale. Nevertheless, the defaulting vendee may defeat the vendors right to rescind the contract of sale if he pays the amount due before he receives a demand for rescission, either judicially or by a notarial act, from the vendor. This right is provided under Article 1592 of the Civil Code Nonpayment of the purchase price in contracts to sell, however, does not constitute a breach; rather, nonpayment is a condition that prevents the obligation from acquiring obligatory force and results in its cancellation. As in the rescission of a contract of sale for nonpayment of the price, the defaulting vendee in a contract to sell may

defeat the vendors right to cancel by invoking the rights granted to him under Republic Act No. 6552 or the Realty Installment Buyer Protection Act (also known as the Maceda Law); this law provides for a 60-day grace period within which the defaulting vendee (who has paid less than two years of installments) may still pay the installments due. Only after the lapse of the grace period with continued nonpayment of the amounts due can the actual cancellation of the contract take place. The pertinent provisions of the Maceda Law provide: Section 2. It is hereby declared a public policy to protect buyers of real estate on installment payments against onerous and oppressive conditions. Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred fortyfour as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments: xxxx Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than 60 days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from the receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by notarial act. [Emphasis supplied.] Significantly, the Court has consistently held that the Maceda Law covers not only sales on installments of real estate, but also financing of such acquisition; its Section 3 is comprehensive enough to include both contracts of sale and contracts to sell, provided that the terms on payment of the price require at least two installments. Nature of Contract of Sale (Art. 1458) PUP vs. CA, GR No. 143513 It is elementary that a party to a contract cannot unilaterally withdraw a right of first refusal that stands upon valuable consideration. A contract of sale, as defined in the Civil Code, is a contract where one of the parties obligates himself to transfer the ownership of and to deliver a determinate thing to the other or others who shall pay therefore a sum certain in money or its equivalent.32 It is therefore a general requisite for the existence of a valid and enforceable contract of sale that it be mutually obligatory, i.e., there should be a concurrence of the promise of the vendor to sell a determinate thing and the promise of the vendee to receive and pay for the property so delivered and transferred. The Civil Code

provision is, in effect, a "catch-all" provision which effectively brings within its grasp a whole gamut of transfers whereby ownership of a thing is ceded for a consideration. For it is axiomatic that every sale imposes upon the vendor the obligation to transfer ownership as an essential element of the contract. Transfer of title or an agreement to transfer title for a price paid, or promised to be paid, is the very essence of sale 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.39 The lessee has a right that the lessor's first offer shall be in his favor. 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. rescission of the sale which was made in violation of the lessee's right of first refusal. Necessary Requisites of a Contract of Sale Strarbright Sales v. Phil. Realty, G.R. No. 177936 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 is0 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. 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. 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. Coronel vs. CA, G.R. No. 103577

Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a contract of sale are the following: a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; b) Determinate subject matter; and c) Price certain in money or its equivalent. Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking. In a contract to sell, the prospective seller explicity reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for present purposes we shall take as the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill is promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer . A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price. A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated (cf. Homesite and housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale.

It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the subject property is sold by the owner not to the party the seller contracted with, but to a third person, as in the case at bench. In a contract to sell, there being no previous sale of the property, a third person buying such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title to the property will transfer to the buyer after registration because there is no defect in the owner-seller's title per se, but the latter, of course, may be used for damages by the intending buyer. In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the seller's title thereto. In fact, if there had been previous delivery of the subject property, the seller's ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have any title to transfer to any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who may have had actual or constructive knowledge of such defect in the seller's title, or at least was charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first buyer's title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale. The governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the first buyer of the second sale cannot defeat the first buyer's rights except when the second buyer first registers in good faith the second sale In a case of double sale, what finds relevance and materiality is not whether or not the second buyer was a buyer in good faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any defect in the title of the property sold. Manila Metal Container vs. PNB, G.R. No. 166862 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) parties; Consent of the contracting

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

(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

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 [51] Appeals, 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 counter-offer 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. 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. Sanchez vs. Mapalad Realty Corp., G.R. No. 148516 A contract is defined as a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor of another, or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do. There can be no contract unless the following concur: (a) consent of the contracting parties; (b) objectcertain which is the subject matter of the contract; (c) cause of the obligation which is established.[25] Specifically, by the contract of sale, one of the contracting parties obligates himself to transfer ownership of and to deliver a determinate thing and the other party to paytherefor a price certain in money or its equivalent.[26] are: The essential requisites of a valid contract of sale

vendee obligates himself to pay therefor a price certain in money or its equivalent. (2) Object certain which is the subject matter of the contract. The object must be licit and at the same time determinate or, at least, capable of being made determinate without the necessity of a new or further agreement between the parties. (3) Cause of the obligation which is established. The cause as far as the vendor is concerned is the acquisition of the price certain in money or its equivalent, which the cause as far as the vendee is concerned is the acquisition of the thing which is the object of the contract.[27] Contracts of sale 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.[28] Consent may be given only by a person with the legal capacity to give consent. In the case of juridical persons such as corporations like Mapalad, consent may only be granted through its officers who have been duly authorized by its board of directors. Lack of consideration makes a contract of sale fictitious. A fictitious sale is void ab initio. Republic vs. Florendo, 549 SCRA 527 A compromise agreement is a contract whereby the parties make reciprocal concessions in order to resolve their differences and thus avoid litigation or to put an end to one already commenced.[28] When it complies with the requisites and principles of contracts, it becomes a valid agreement which has the force of law between the parties.[29] It has the effect and authority of res judicata once entered into,[30] even without judicial approval.[31] A compromise agreement is a simple contract which is perfected by mere consent.[32] From that moment of the meeting of the minds of the parties, it becomes binding on them. To be valid, judicial approval is not required.[33] When a compromise agreement is given judicial approval, it becomes more than a contract binding upon the parties. Having been sanctioned by the court, it is a determination of the controversy and has the force and effect of a judgment. It is immediately executory and not appealable, except for vices of consent, forgery, fraud, misrepresentation and coercion.[34] Thus, although a compromise agreement has the effect and authority of res judicata upon the parties even without judicial approval, no execution may issue until it has received the approval of the court where the litigation is pending and compliance with the terms of the agreement is thereupon decreed. The compromise agreement the parties executed was in the form of a contract of sale. The elements of a valid contract of sale are: (a) consent or meeting of the minds; (b) determinate subject matter and (c) price certain in money

(1) Consent of the contracting parties by virtue of which the vendor obligates himself to transfer ownership of and to deliver a determinate thing, and the

or its equivalent.[36] All the elements are present here. The parties agreed on the sale of a determinate object (the seven lots) and the price certain (P26,951,250). Features of a Contract of Sale Nominate and Principal Santos vs. CA, 337 SCRA 67 As we earlier pointed, in a contract to sell, title remains with the vendor and does not pass on to the vendee until the purchase price is paid in full, Thus, in contract to sell, the payment of the purchase price is a positive suspensive condition. Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force.20 This is entirely different from the situation in a contract of sale, where non-payment of the price is a negative resolutory condition. The effects in law are not identical. In a contract of sale, the vendor has lost ownership of the thing sold and cannot recover it, unless the contract of sale is rescinded and set aside.21 In a contract to sell, however, the vendor remains the owner for as long as the vendee has not complied fully with the condition of paying the purchase. If the vendor should eject the vendee for failure to meet the condition precedent, he is enforcing the contract and not rescinding it. Article 1592 speaks of non-payment of the purchase price as a resolutory condition. It does not apply to a contract to sell.22 As to Article 1191, it is subordinated to the provisions of Article 1592 when applied to sales of immovable property.23 Neither provision is applicable in the present case. Consensual Del Prado vs. Caballero, 614 SCRA 102 In sales involving real estate, the parties may choose between two types of pricing agreement: a unit price contract wherein the purchase price is determined by way of reference to a stated rate per unit area (e.g., P1,000 per square meter), or a lump sum contract which states a full purchase price for an immovable the area of which may be declared based on the estimate or where both the area and boundaries are stated (e.g., P1 million for 1,000 square meters, etc.). In a unit price contract, the statement of area of immovable is not conclusive and the price may be reduced or increased depending on the area actually delivered. If the vendor delivers less than the area agreed upon, the vendee may oblige the vendor to deliver all that may be stated in the contract or demand for the proportionate reduction of the purchase price if delivery is not possible. If the vendor delivers more than the area stated in the contract, the vendee has the option to accept only the amount agreed upon or to accept the whole area, provided he pays for the additional area at the contract rate. xxxx

In the case where the area of an immovable is stated in the contract based on an estimate, the actual area delivered may not measure up exactly with the area stated in the contract. According to Article 1542 of the Civil Code, in the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or number, there shall be no increase or decrease of the price, although there be a greater or less areas or number than that stated in the contract. . . . xxxx Where both the area and the boundaries of the immovable are declared, the area covered within the boundaries of the immovable prevails over the stated area. In cases of conflict between areas and boundaries, it is the latter which should prevail. What really defines a piece of ground is not the area, calculated with more or less certainty, mentioned in its description, but the boundaries therein laid down, as enclosing the land and indicating its limits. In a contract of sale of land in a mass, it is well established that the specific boundaries stated in the contract must control over any statement with respect to the area contained within its boundaries. It is not of vital consequence that a deed or contract of sale of land should disclose the area with mathematical accuracy. It is sufficient if its extent is objectively indicated with sufficient precision to enable one to identify it. An error as to the superficial area is immaterial. Thus, the obligation of the vendor is to deliver everything within the boundaries, inasmuch as it is the entirety thereof that distinguishes the determinate object. Contracts are the law between the contracting parties. Sale, by its very nature, is a consensual contract, because it is perfected by mere consent. The essential elements of a contract of sale are the following: (a) consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; (b) determinate subject matter; and (c) price certain in money or its equivalent. (Heirs of Venancio Bejenting vs. Baez) Gabelo vs. CA, 316 SCRA 386 It is well-settled that a contract of sale is perfected the moment there is a meeting of the minds of the contracting parties upon the thing which is the object of the contract and upon the price. 2 From the time a party accepts the other party's offer to sell within the stipulated period without qualification, a contract of sale is deemed perfected. NHA vs. Grace Baptist Church, 424 SCRA 147 It is a fundamental rule that contracts, once perfected, bind both contracting parties, and obligations arising therefrom have the force of law between the parties and should be complied with in good faith.19 However, it must be understood that contracts are not the only source of law that govern the rights and obligations between the parties. More specifically, no contractual stipulation may contradict

law, morals, good customs, public order or public policy.20 Verily, the mere inexistence of a contract, which would ordinarily serve as the law between the parties, does not automatically authorize disposing of a controversy based on equitable principles alone. Notwithstanding the absence of a perfected contract between the parties, their relationship may be governed byother existing laws which provide for their reciprocal rights and obligations. It must be remembered that contracts in which the Government is a party are subject to the same rules of contract law which govern the validity and sufficiency of contract between individuals. All the essential elements and characteristics of a contract in general must be present in order to create a binding and enforceable Government contract. In Vda. de Urbano v. Government Service Insurance System,22 it was ruled that a qualified acceptance constitutes a counter-offer as expressly stated by Article 1319 of the Civil Code. Thus, the alleged contract involved in this case should be more accurately denominated as inexistent. There being no concurrence of the offer and acceptance, it did not pass the stage of generation to the point of perfection.25 As such, it is without force and effect from the very beginning or from its incipiency, as if it had never been entered into, and hence, cannot be validated either by lapse of time or ratification.26 Equity can not give validity to a void contract,27 and this rule should apply with equal force to inexistent contracts. Cabotaje v. Pudunan, 436 SCRA 423 One of the essential requirements of a valid contract, including a contract of sale, is the consent of the owner of the property.[31] Absent such consent, the contract is null and void ab initio.[32] A void contract is absolutely wanting in civil effects; it is equivalent to nothing.[33] It produces no effects whatsoever either against or in favor of anyone; hence, it does not create, modify, or extinguish the judicial relation to which it refers. Special disqualifications (Arts. 1491-1492) Absolute incapacity (Arts. 1327, 1397, 1399) Capacity of parties (Arts. 1489-1492) Subject Matter A. Requisites of a valid subject matter (Arts. 14591465) B. Particular kinds Pineda v. CA, 409 SCRA 438 The title refers to the ownership of the Property covered by the transfer certificate of title while the transfer certificate of title merely evidences that ownership. A certificate of title is not equivalent to title as the Court explained in Lee Tek Sheng v. Court of Appeals:21

xxx The certificate referred to is that document issued by the Register of Deeds known as the Transfer Certificate of Title (TCT). By title, the law refers to ownership which is represented by that document.Petitioner apparently confuses certificate with title. Placing a parcel of land under the mantle of the Torrens system does not mean that ownership thereof can no longer be disputed. Ownership is different from a certificate of title. The TCT is only the best proof of ownership of a piece of land. Besides, the certificate cannot always be considered as conclusive evidence of ownership. Mere issuance of the certificate of title in the name of any person does not foreclose the possibility that the real property may be under co-ownership with persons not named in the certificate or that the registrant may only be a trustee or that other parties may have acquired interest subsequent to the issuance of the certificate of title. To repeat, registration is not the equivalent of title, but is only the best evidence thereof. Title as a concept of ownership should not be confused with the certificate of title as evidence of such ownership although both are interchangeable A mortgage is merely an encumbrance on the property and does not extinguish the title of the debtor who does not lose his principal attribute as owner to dispose of the property.22 The law even considers void a stipulation forbidding the owner of the property from alienating the mortgaged immovable The rule is that a mortgage annotated on a void title is valid if the mortgagee registered the mortgage in good faith. To bind third parties to an unregistered encumbrance, the law requires actual notice. The settled rule is that the auction sale retroacts to the date of the registration of the mortgage,28 putting the auction sale beyond the reach of any intervening lis pendens, sale or attachment. () Heirs of San Andres v. Rodriguez, 332 SCRA 769 Concomitantly, the object of the sale is certain and determinate. Under Article 1460 of the New Civil Code, a thing sold is determinate if at the time the contract is entered into, the thing is capable of being determinate without necessity of a new or further agreement between the parties. Here, this definition finds realization. In Dignos v. Court of Appeals (158 SCRA 375), we have said that, although denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale. A deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property

sold is reserved in the seller until full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. Johannes Schuback v. CA, 227 SCRA 719 Although the quantity to be ordered was made determinate only on December 29, 1981, quantity is immaterial in the perfection of a sales contract. What is of importance is the meeting of the minds as to the object and cause, which from the facts disclosed, show that as of December 24, 1981, these essential elements had already occurred. () National Grains Authority v. IAC, 171 SCRA 131

mortgagee relying on the certificate of title acquire rights over the property, their rights cannot be disregarded doctrine of indefeasibility of title under the Torrens System, because it is an established principle that a petition for review of the decree of registration will not prosper even if filed within one year from the entry of the decree if the title has passed into the hands of an innocent purchaser for value. The setting aside of the decree of registration issued in land registration proceedings is operative only between the parties to the fraud and the parties defrauded and their privies, but not against acquirers in good faith and for value and the successors in interest of the latter; as to them the decree shall remain in full force and effect forever. Obligations of the Seller to Transfer Ownership

It is axiomatic, that while the registration of the conditional sale with right of repurchase may be binding on third persons, it is by provision of law "understood to be without prejudice to third party who has better right" Time and time again, this Court has ruled that the proceedings for the registration of title to land under the Torrens System is an action in rem not in personam, hence, personal notice to all claimants of the res is not necessary in order that the court may have jurisdiction to deal with and dispose of the res. Neither may lack of such personal notice vitiate or invalidate the decree or title issued in a registration proceeding, for the State, as sovereign over the land situated within it, may provide for the adjudication of title in a proceeding in rem or one in the nature of or akin a to proceeding in rem which shall be binding upon all persons, known or unknown that "The real purpose of the Torrens System is to quiet title to land and to stop forever any question as to its legality. "Once a title is registered, the owner may rest secure, without the necessity of waiting in the portals of the court, or sitting on the "mirador su casato," avoid the possibility of losing his land." "An indirect or collateral attack on a Torrens Title is not allowed The only exception to this rule is where a person obtains a certificate of title to a land belonging to another and he has full knowledge of the rights of the true owner. He is then considered as guilty of fraud and he may be compelled to transfer the land to the defrauded owner so long as the property has not passed to the hands of an innocent purchaser for value Well settled is the rule that all persons dealing with property covered by a torrens certificate of title are not required to go beyond what appears on the face of the title. When there is nothing on the certificate of title to indicate any cloud or vice in the ownership of the property, or any encumbrance thereon, the purchaser is not required to explore further than what the torrens title upon its face indicates in quest for any hidden defect or inchoate right that may subsequently defeat his right thereto More specifically, the Court has ruled that a bank is not required before accepting a mortgage to make an investigation of the title of the property being given as security ]), and where innocent third persons like

Sale by a person not the owner at time of delivery (Arts. 1462, 1505, 1459) Exceptions EDILBERTO NOEL vs. COURT OF APPEALS G.R. No. 59550 January 11, 1995 RULING: In a contract of sale, it is essential that the seller is the owner of the property he is selling. The principal obligation of a seller is "to transfer the ownership of" the property sold (Civil Code of the Philippines, Art. 1458). This law stems from the principle that nobody can dispose of that which does not belong to him (Azcona v. Reyes, 59 Phil. 446 [1934]; Coronel v. Ona, 33 Phil. 456 [1916). NEMO DAT QUAD NON HABET . While it cannot be said that fraud attended the sale to private respondent, clearly there was a mistake on the part of Hilaria and Virgilio in selling an undivided interest in the property which belonged to the collateral heirs of Gregorio. The sale, having been made in 1954, was governed by the Civil Code of the Philippines. Under Article 1456 of said Code, an implied trust was created on the one-half undivided interest over the 34.7-hectare land in favor of the real owners. Said Article provides: If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. In Diaz v. Gorricho, 103 Phil. 261 (1958), the Court said that Article 1456 merely expresses a rule recognized inGayondato v. Insular Treasurer, 49 Phil. 244 (1926). Applying said rule, the Gayondato court held that the buyer of a parcel of land at a public auction to satisfy a judgment against a widow acquired only one-half interest the land corresponding to the share of the window and the other half

belonging to the heirs of her husband became impressed with a constructive trust in behalf of said heirs. The action to recover the undivided half-interest of the collateral heirs of Gregorio prescribes in ten years. The cause of action is based on Article 1456 of the Civil Code of the Philippines, which made private respondent a trustee of an implied trust in favor of the said heirs. Under Article 1144 of the Civil Code of the Philippines, actions based upon an obligation created by law, can be brought within ten years from the time the right of action accrues (Rosario v. Auditor General, 103 Phil. 1132 [1958]). The ten-year prescriptive period within which the collateral heirs of Gregorio could file an action to recover their share in the property sold to private respondent ( prescripcion extintiva) accrued only on march 2, 1954, when the deed of sale was registered with the Register of Deeds (Cf. Arradaza v. Court of Appeals, 170 SCRA 12 [1987]). From march 2, 1954 to April 30, 1963, when the complaint for the recovery of the property was filed, less than ten years had elapsed. Therefore, the action had not been barred by prescription. ARRA REALTY CORPORATION vs. GUARANTEE DEVELOPMENT CORPORATION AND INSURANCE AGENCY G.R. No. 142310 September 20, 2004 The parties had agreed on the three elements of subject matter, price, and terms of payment. Hence, the contract of sale was perfected, it being consensual in nature, perfected by mere consent, which, in turn, was manifested the moment there was a meeting of the minds as to the offer and the acceptance thereof.35 The perfection of the sale is not negated by the fact that the property subject of the sale was not yet in existence. This is so because the ownership by the seller of the thing sold at the time of the perfection of the contract of sale is not an element of its perfection. A perfected contract of sale cannot be challenged on the ground of non-ownership on the part of the seller at the time of its perfection. What the law requires is that the seller has the right to transfer ownership at the time the thing is delivered. Perfection per se does not transfer ownership which occurs upon the actual or constructive delivery of the thing sold. In May 1983, respondent Pealoza took possession of a portion of the second floor of the building sold to her with an area of 552 square meters. She put up her office and operated the St. Michael International Institute of Technology. Thenceforth, respondent Pealoza became the owner of the property, conformably to Article 1477 of the New Civil Code which reads: Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. In a contract of sale, until and unless the contract is resolved or rescinded in accordance with law, the vendor cannot recover the thing sold even if the vendee failed to

pay in full the initial payment for the property. The failure of the buyer to pay the purchase price within the stipulated period does not by itself bar the transfer of ownership or possession of the property sold, nor ipso facto rescind the contract.37 Such failure will merely give the vendor the option to rescind the contract of sale judicially or by notarial demand as provided for by Article 1592 of the New Civil Code. Admittedly, respondent Pealoza failed to pay the downpayment on time. But then, the petitioner ARC accepted, without any objections, the delayed payments of the respondent; hence, as provided in Article 1235 of the New Civil Code, the obligation of the respondent is deemed complied with. Under Article 1590 of the New Civil Code, a vendee may suspend the payment of the price of the property sold: Art. 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend the payment of the price until the vendor has caused the disturbance or danger to cease, unless the latter gives security for the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of the payment of the price. In view of the failure of the petitioner ARC to transfer the title of the property to her name because of the mortgage thereof to China Banking Corporation and the subsequent sale thereof to the GDCIA, respondent Pealoza is entitled to the refund of the amount she paid to the petitioner ARC, conformably to Article 1398 of the New Civil Code. Meaning of price (Arts. 1469-1474) INCHAUSTI AND CO. vs. ELLIS CROMWELL G.R. No. L-6584, October 16, 1911 The word "price" signifies the sum stipulated as the equivalent of the thing sold and also every incident taken into consideration for the fixing of the price, put to the debit of the vendee and agreed to by him. When a person stipulates for the future sale of articles which he is habitually making, and which at the time are not made or finished, it is essentially a contract of sale and not a contract for labor. It is otherwise when the article is made pursuant to agreement. If the article ordered by the purchaser is exactly such as the plaintiff makes and keeps on hand for sale to anyone, and no change or modification of it is made at the defendant's request, it is a contract of sale, even though it may be

entirely made after, and in consequence of, the defendant's order for it. .) It has been held in Massachusetts that a contract to make is a contract of sale if the article ordered is already substantially in existence at the time of the order and merely requires some alteration, modification, or adoption to the buyer's wishes or purposes. It is also held in that state that a contract for the sale of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract for the sale of goods to which the statute of frauds applies. But if the goods are to be manufactured especially for the purchaser and upon his special order, and not for the general market, the case is not within the statute. Requisites for a valid price IMELDA ONG vs. ALFREDO ONG G.R. No. L-67888 October 8, 1985 .. although the cause is not stated in the contract it is presumed that it is existing unless the debtor proves the contrary (Article 1354 of the Civil Code). One of the disputable presumptions is that there is a sufficient cause of the contract (Section 5, (r), Rule 131, Rules of Court). It is a legal presumption of sufficient cause or consideration supporting a contract even if such cause is not stated therein (Article 1354, New Civil Code of the Philippines.) This presumption cannot be overcome by a simple assertion of lack of consideration especially when the contract itself states that consideration was given, and the same has been reduced into a public instrument with all due formalities and solemnities. To overcome the presumption of consideration the alleged lack of consideration must be shown by preponderance of evidence in a proper action. (Samanilla vs, Cajucom, et al., 107 Phil. 432). The execution of a deed purporting to convey ownership of a realty is in itself prima facie evidence of the existence of a valuable consideration, the party alleging lack of consideration has the burden of proving such allegation. (Caballero, et al. vs. Caballero, et al., (CA), 45 O.G. 2536). Indeed, bad faith and inadequacy of the monetary consideration do not render a conveyance inexistent, for the assignor's liberality may be sufficient cause for a valid contract (Article 1350, Civil Code), whereas fraud or bad faith may render either rescissible or voidable, although valid until annulled, a contract concerning an object certain entered into with a cause and with the consent of the contracting parties, as in the case at bar." LUCIA CARLOS ALIO vs. HEIRS OF ANGELICA A. LORENZO G.R. No. 159550 June 27, 2008 It is a cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial consideration.29 Such intention is determined from the express terms of their agreement,30 as well as their contemporaneous and subsequent acts.31 When the parties

do not intend to be bound at all, the contract is absolutely simulated; if the parties conceal their true agreement, then the contract is relatively simulated.32Characteristic of simulation is that the apparent contract is not really desired or intended to produce legal effects or in any way alter the juridical situation of the parties. In Suntay v. Court of Appeals,34 the Court held that the most protuberant index of simulation is the complete absence of an attempt in any manner on the part of the vendee to assert his rights of ownership over the disputed property. It is well-settled that actual possession of land consists in the manifestation of acts of dominion over it of such a nature as those a party would naturally exercise over his own property.44 It is not necessary that the owner of a parcel of land should himself occupy the property as someone in his name may perform the act. In other words, the owner of real estate has possession, either when he himself is physically in occupation of the property, or when another person who recognizes his rights as owner is in such occupancy. Furthermore, Lucia religiously paid the realty taxes on the subject lot from 1980 to 1987.46 While tax receipts and declarations of ownership for taxation purposes are not, in themselves, incontrovertible evidence of ownership, they constitute at least proof that the holder has a claim of title over the property,47 particularly when accompanied by proof of actual possession.48 They are good indicia of the possession in the concept of owner, for no one in his right mind would be paying taxes for a property that is not in his actual or at least constructive possession.49 The voluntary declaration of a piece of property for taxation purposes manifests not only one's sincere and honest desire to obtain title to the property and announces his adverse claim against the State and all other interested parties, but also the intention to contribute needed revenues to the Government.50 Such an act strengthens one's bona fide claim of acquisition of ownership. It is well-settled that an action for reconveyance prescribes in 10 years, the reckoning point of which is the date of registration of the deed or the date of issuance of the certificate of title over the property. In an action for reconveyance, the decree of registration is highly regarded as incontrovertible. What is sought instead is the transfer of the property or its title, which has been erroneously or wrongfully registered in another person's name, to its rightful or legal owner or to one who has a better right. However, in a number of cases in the past, the Court has consistently ruled that if the person claiming to be the owner of the property is in actual possession thereof, the right to seek reconveyance, which in effect seeks to quiet title to the property, does not prescribe.55 The reason for this is that 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.56 The reason being, that his undisturbed possession gives him the continuing right to seek the aid of a court of equity to ascertain the nature of the adverse claim of a third party and its effect on his title, which right can be claimed only by one who is in

possession.57 Thus, considering that Lucia continuously possessed the subject lot, her right to institute a suit to clear the cloud over her title cannot be barred by the statute of limitations. Suffice it to state that the concept of inadequacy or nonpayment of price is irreconcilable with the concept of simulation. If there exists an actual consideration for transfer evidenced by the alleged act of sale, no matter how inadequate it be, the transaction could not be a "simulated sale." How price is determined AMPARO GONZALEZ TRINIDAD G.R. No. L-45965 vs. PRIMITIVO April 29, 1939

motives with which it is often confused. It is differentiated from them, however, in that the former is the essential reason for the contract, while the latter are the particular reasons of a contracting party which do not affect the other party and which do not preclude the existence of a different consideration. To clarify by an example: A thing purchased constitutes the consideration for the purchaser and not the motives which have influenced his mind, like its usefulness, its perfection, it relation to another, the use thereof which he may have in mind, etc., a very important distinction, which precludes the annulment of the contract by the sole influence of the motives, unless the efficacy of the former had been subordinated to compliance with the latter as conditions. The jurisprudence shows some cases wherein this important distinction is established. The consideration of contracts, states the decision of February 24, 1904, is distinct from the motive which may prompt the parties in executing them. The inaccuracies committed in expressing its accidental or secondary details do not imply lack of consideration or false consideration, wherefore, they do not affect the essence and validity of the contract. In a loan the consideration in its essence is, for the borrower the acquisition of the amount, and for the lender the power to demand its return, whether the money be for the the former or for another person and whether it be invested as stated or otherwise. MARIQUITA MACAPAGAL REMORIN G.R. No. 158380 vs. CATALINA May 16, 2005 O.

Articles 1305 and 1306 of the Civil Code are not applicable to the contract entered into by the parties because they refer to contracts with an illegal consideration or subject matter, whether the facts constitute an offense or misdemeanor or whether the consideration is only rendered illegal. The contract of sale, being onerous, has for its cause or consideration the price of P10,000 (article 1274 of the Civil Code); and both this consideration as well as the subject matter of the contract, namely, the property, are lawful and not penalized by law. However, as the contract was in itself fictitious and simulated price, the consideration being thus lacking, said contract is null and void per se or nonexistent (article 1261 of the Civil Code). As has been held by the Court of Appeals, the object of the contracting parties or the motives which the vendors had in entering into the simulated contract should not be confused with the consideration which was not be confused with the consideration which was not present in the transaction. The former, although illegal, neither determine nor take the place of the consideration. The author, Manresa, in his Commentaries on the Civil Code, volume 8, pages 618, 619, commenting on the distinction between the consideration and the motives, uses the following language: But when the notion of consideration is applied to contracts, it represents, as it already meant in Rome, the why of the contacts, the essential reason which moves the contracting parties to enter into the contract. In this sense, expressed in the provisions of the Code, the consideration is related to the personal element of the contract, because it represents the demand of reasonable and legal motives for the determination of the wills which concur in consent. But while this is true, not less true is the relation of the consideration with the subject matter of the contract, which is so close that at times it distinction offers a real problem. In fact, in a contract like that of a sale, the thing and the price are the subject matter of the contract; but in consideration thereof, the consideration for the purchaser and the vendor is determined as indicated by the first of the definitions contained in article 1274. Considering the concept of the consideration as the explanation and motive of the contract, it is related to the latter's object and even more to its

The fact that the deed of sale between respondents Corazon and Laurelia did not accurately reflect the true consideration thereof is not cause for declaration of its nullity. When the parties intended to be bound by the contract except that it did not reflect the actual purchase price of the property, there is only a relative simulation of the contract which remains valid and enforceable.25 It cannot be declared null and void since it does not fall under the category of an absolutely simulated or fictitious contract.26 The contract of sale is valid but subject to reformation. Inadequacy of price (Arts. 1355, 1470) GAMALIEL C. VILLANUEVA and IRENE C. VILLANUEVA vs. COURT OF APPEALS G.R. No. 107624 January 28, 1997 As has been said in an old case, the price of the leased land not having been fixed, the essential elements which give life to the contract were lacking. It follows that the lessee cannot compel the lessor to sell the leased land to him. 21 The price must be certain, it must be real, not fictitious. 22 It is not necessary that the certainty of the price be actual or determined at the time of executing the contract. The fact that the exact amount to be paid therefor is not precisely fixed, is no bar to an action to recover such compensation, provided the contract, by its terms,

furnishes a basis or measure for ascertaining the amount agreed upon. 23 The price could be made certain by the application of known factors; where, in a sale of coal, a basic price was fixed, but subject to modification "in proportion to variations in calories and ash content, and not otherwise," the price was held certain. 24 A contract of sale is not void for uncertainty when the price, though not directly stated in terms of pesos and centavos, can be made certain by reference to existing invoices identified in the agreement. In this respect, the contract of sale is perfected. 25 The price must be certain, otherwise there is no true consent between the parties. 26 There can be no sale without a price. True, the statute of frauds applies only to executory contracts and not to partially or completely executed ones. 32 However, there is no perfected contract in this case, therefore there is no basis for the application of the statute of frauds. The application of such statute presupposes the existence of a perfected contract and requires only that a note or memorandum be executed in order to compel judicial enforcement thereof. Also, the civil law rule on double sale finds no application because there was no sale at all to begin with. At bottom, what took place was only a prolonged negotiation to buy and to sell, and at most, an offer and a counter-offer but no definite agreement was reached by the parties. Hence, the rules on perfected contract of sale, statute of frauds and double sale find no relevance nor application. Manner of payment must be agreed upon SPS. ALFREDO R. EDRADA and ROSELLA L. EDRADA vs. CARMENCITA RAMOS G.R. No. 154413 August 31, 2005 A contract of sale is defined as an agreement whereby 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.17 It must evince the consent on the part of the seller to transfer and deliver and on the part of the buyer to pay.18 An examination of the document reveals that there is no perfected contract of sale. The agreement may confirm the receipt by respondents of the two vessels and their purchase price. However, there is no equivocal agreement to transfer ownership of the vessel, but a mere commitment that "documents pertaining to the sale and agreement of payments[are] to follow." Evidently, the document or documents which would formalize the transfer of ownership and contain the terms of payment of the purchase price, or the period when such would become due and demandable, have yet to be executed. But no such document was executed and no such terms were stipulated upon. The fact that there is a stated total purchase price should not lead to the conclusion that a contract of sale had been perfected. In numerous cases,19 the most recent of which is Swedish Match, AB v. Court of Appeals,20 we held that before a valid and binding contract of sale can exist, the

manner of payment of the purchase price must first be established, as such stands as essential to the validity of the sale. After all, such agreement on the terms of payment is integral to the element of a price certain, such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Assuming arguendo that the document evinces a perfected contract of sale, the absence of definite terms of payment therein would preclude its enforcement by the respondents through the instant Complaint. A requisite for the judicial enforcement of an obligation is that the same is due and demandable. The absence of a stipulated period by which the purchase price should be paid indicates that at the time of the filing of the complaint, the obligation to pay was not yet due and demandable. In order that respondents could have a valid cause of action, it is essential that there must have been a stipulated period within which the payment would have become due and demandable. If the parties themselves could not come into agreement, the courts may be asked to fix the period of the obligation, under Article 1197 of the Civil Code.22 The respondents did not avail of such relief prior to the filing of the instant Complaint; thus, the action should fail owing to its obvious prematurity. A contract is perfected when there is concurrence of the wills of the contracting parties with respect to the object and the cause of the contract. In this case, the agreement merely acknowledges that a purchase price had been agreed on by the parties. There was no mutual promise to buy on the part of petitioners and to sell on the part of respondents. Again, the aforestated proviso in the agreement that documents pertaining to the sale and agreement of payments between the parties will follow clearly manifests lack of agreement between the parties as to the terms of the contract to sell, particularly the object and cause of the contract. The agreement in question does not create any obligatory force either for the transfer of title of the vessels, or the rendition of payments as part of the purchase price. At most, this agreement bares only their intention to enter into either a contract to sell or a contract of sale. SPS. JORGE NAVARRA vs. PLANTERS DEVELOPMENT BANK G.R. No. 172674 July 12, 2007 In general, contracts undergo three distinct stages, to wit: negotiation, perfection or birth, and consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of their agreement. Perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract, i.e., consent, object and price. Consummation occurs when the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof. A negotiation is formally initiated by an offer which should be certain with respect to both the object and the cause or consideration of the envisioned contract. In order to produce a contract, there must be acceptance, which may

be express or implied, but it must not qualify the terms of the offer. The acceptance of an offer must be unqualified and absolute to perfect the contract. In other words, it must be identical in all respects with that of the offer so as to produce consent or meeting of the minds. While the foregoing letters 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. 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.7 Here, what is dramatically clear is that there was no meeting of minds vis-a-vis the price, expressly or impliedly, directly or indirectly. Evidently, what transpired between the parties was only a prolonged negotiation to buy and to sell, and, at the most, an offer and a counter-offer with no definite agreement having been reached by them. VI. Formation of Contract of Sale Gabelo v. CA, 316 SCRA 386 A. Preparatory (Art. 1479) 1. Offer (Art. 1475) 2. Option contract (Arts. 1479, 1324) Dizon v. CA, 302 SCRA 288 First. Petitioners have established a right to evict private respondent from the subject premises for non-payment of rentals. The term of the Contract of Lease with Option to Buy was for a period of one (1) year (May 16, 1974 to May 15, 1975) during which the private respondent was given an option to purchase said property at P3,000.00 square meter. After the expiration thereof, the lease was for P3,000.00 per month. Admittedly, no definite period beyond the one-year term of lease was agreed upon by petitioners and private respondent. However, since the rent was paid on a monthly basis, the period of lease is considered to be from month to

month in accordance with Article 1687 of the New Civil Code. 18 Where the rentals are paid monthly, the lease, even if verbal may be deemed to be on a monthly basis, expiring at the end of every month pursuant to Article 1687, in relation to Article 1673 of the Civil Code. 19 In such case, a demand to vacate is not even necessary for judicial action after the expiration of every month. 20 When private respondent failed to pay the increased rental of P8,000.00 per month in June 1976, the petitioners had a cause of action to institute an ejectment suit against the former with the then City Court. In this regard, the City Court (now MTC) had exclusive jurisdiction over the ejectment suit. The filing by private respondent of a suit with the Regional Trial Court for specific performance to enforce the option to purchase did not divest the then City Court of its jurisdiction to take cognizance over the ejectment case. Of note is the fact that the decision of the City Court was affirmed by both the Intermediate Appellate Court and this Court. Second. Having failed to exercise the option within the stipulated one-year period, private respondent cannot enforce its option to purchase anymore. Moreover, even assuming arguendo that the right to exercise the option still subsists at the time private respondent tendered the amount on June 20, 1975, the suit for specific performance to enforce the option to purchase was filed only on October 7, 1985 or more than ten (10) years after accrual of the cause of action as provided under Article 1144 of the New Civil Code. In this case, there was a contract of lease for one (1) year with option to purchase. The contract of lease expired without the private respondent, as lessee, purchasing the property but remained in possession thereof. Hence, there was an implicit renewal of the contract of lease on a monthly basis. The other terms of the original contract of lease which are revived in the implied new lease under Article 1670 of the New Civil Code 22 are only those terms which are germane to the lessee's right of continued enjoyment of the property leased. 23 Therefore, an implied new lease does not ipso facto carry with it any implied revival of private respondent's option to purchase (as lessee thereof) the leased premises. The provision entitling the lessee the option to purchase the leased premises is not deemed incorporated in the impliedly renewed contract because it is alien to the possession of the lessee. Private respondent's right to exercise the option to purchase expired with the termination of the original contract of lease for one year. The rationale of this Court is that: This is a reasonable construction of the provision, which is based on the presumption that when the lessor allows the lessee to continue enjoying possession of the property for fifteen days after the expiration of the contract he is willing that such enjoyment shall be for the entire period corresponding to the rent which is customarily paid in this case up to the end of the month because the rent was paid monthly. Necessarily, if the presumed will of the parties refers to the enjoyment of possession the presumption covers the other terms of the contract related to such possession, such as the amount of rental, the date when it must be paid, the care of the property, the responsibility for repairs, etc. But no such presumption may be indulged in with respect to special agreements

which by nature are foreign to the right of occupancy or enjoyment inherent in a contract of lease. Third. There was no perfected contract of sale between petitioners and private respondent. Private respondent argued that it delivered the check of P300,000.00 to Alice A. Dizon who acted as agent of petitioners pursuant to the supposed authority given by petitioner Fidela Dizon, the payee thereof. Private respondent further contended that petitioners' filing of the ejectment case against it based on the contract of lease with option to buy holds petitioners in estoppel to question the authority of petitioner Fidela Dizon. It insisted that the payment of P300,000.00 as partial payment of the purchase price constituted a valid exercise of the option to buy. Under Article 1475 of the New Civil Code, "the contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts." Thus, the elements of a contract of sale are consent, object, and price in money or its equivalent. It bears stressing that the absence of any of these essential elements negates the existence of a perfected contract of sale. Sale is a consensual contract and he who alleges it must show its existence by competent proof. In Bacaltos Coal Mines vs. Court of Appeals, 28 we explained the rule in dealing with an agent: Every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. If he does not make such inquiry, he is chargeable with knowledge of the agent's authority, and his ignorance of that authority will not be any excuse. Persons dealing with an assumed agency, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal, to ascertain not only the fact of the agency but also the nature and extent of the authority, and in case either is controverted, the burden of proof is upon them to establish it. Carcellar v. CA, 302 SCRA 718 An option is a preparatory contract in which one party grants to the other, for a fixed period and under specified conditions, the power to decide, whether or not to enter into a principal contract. 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. 15 It is a separate agreement distinct from the contract which the parties may enter into upon the consummation of the option. In Tuason, Jr., etc. vs. De Asis, 22 this Court opined that "in a contract of lease, if the lessor makes an offer to the lessee to purchase the property on or before the termination of the lease, and the lessee fails to accept or make the purchase on time, the lessee losses the right to buy the property later on the terms and conditions set in the offer."

Right of first refusal Equitorial v. Mayfair, 264 SCRA 483 Both contracts of lease in question provide the identically worded paragraph 8, which reads: That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the same. In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize this lease and be bound by all the terms and conditions thereof. 14 We agree with the respondent Court of Appeals that the aforecited contractual stipulation provides for a right of first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract of a right of first refusal. 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 timeat 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, the subject of the agreement made by the parties; while in the case at bar there was no such cause or consideration. The rule so early established in this jurisdiction is that the deed of option or the option clause in a contract, in order to be valid and enforceable, must, among other things, indicate the definite price at which the person granting the option, is willing to sell. We elucidated, thus, in the very recent case of Ang Yu Asuncion vs. Court of Appeals 21 that: . . . In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code provides: Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of the thing sold in retained until the fulfillment of a positive suspensive condition (normally, the full payment of the purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory force. . . . An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted. An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract of option. This contract is legally binding, and in sales, it conforms with the second

paragraph of Article 1479 of the Civil Code, viz: Art. 1479. . . . An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price. (1451a). Observe, however, that the option is not the contract of sale itself. The optionee has the right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings. Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is merely an offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as proposals. These relations, until a contract is perfected, are not considered binding commitments. Thus, at any time prior to the perfection of the contract, either negotiating party may stop the negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given to the offeree within which to accept the offer, the following rules generally govern: (1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to withdraw the offer before its acceptance, or if an acceptance has been made, before the offeror's coming to know of such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell under Art. 1479, modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Paraaque, Inc. vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw,

however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil Code which ordains that "every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." (2) If the period has a separate consideration, a contract of "option" deemed perfected, and it would be a breach of that contract to withdraw the offer during the agreed period. The option, however, is an independent contract by itself; and it is to be distinguished from the projected main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance (exercise of the option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract ("object" of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for damages for breach of the opinion. . . An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. It is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. It must be supported by consideration. 22 In the instant case, the right of first refusal is an integral part of the contracts of lease. The consideration is built into the reciprocal obligations of the parties. As stated in Vda. De Quirino vs.Palarca, 23 in reciprocal contract, the obligation or promise of each party is the consideration for that of the other. 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 the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause, or to protect some incompatible and preferent 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. A purchaser in good faith and for value is one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim or interest of some other person in the property. Good faith connotes an honest intention to abstain from taking unconscientious advantage of another. Tested by these principles, the petitioner cannot

tenably claim to be a buyer in good faith as it had notice of the lease of the property by the Bonnevies and such knowledge should have cautioned it to look deeper into the agreement to determine if it involved stipulations that would prejudice its own interests. Mutual promise to buy and sell (Art. 1479) Macion v. Guiani, 225 SCRA 102 A mere executory sale, one where the sellers merely promise to transfer the property at some future date, or where some conditions have to be fulfilled before the contract is converted from an executory to an executed one, does not pass ownership over the real estate being sold. 13 In our jurisdiction, it has been that an accepted bilateral promise to buy and sell is in a sense similar to, but not exactly the same, as a perfected contract of sale because there is already a meeting of minds upon the thing which is the object of the contract and upon the price. 14 But a contract of sale is consummated only upon the delivery and payment. It cannot be denied that the compromise agreement, having been signed by both parties, is tantamount to a bilateral promise to buy and sell a certain thing for a price certain. Hence, this gives the contracting parties rights in personam, such that each has the right to demand from the other the fulfillment of their respective undertakings. 15 Demandability may be exercised at any time after the execution of the Deed. The order of respondent judge directing petitioners to issue a contract to sell does not place petitioners in any danger of losing their property without consideration, for, to repeat, in a contract to sell there is no immediate transfer of ownership. In contracts to sell, payment is a positive suspensive condition, failure of which does not constitute a breach but an event that prevents the obligation of the vendor to convey title from materializing, in accordance with Article 1184 of the Civil Code. 17 Petitioners as promisors were never obliged to convey title before the happening of the suspensive condition. In fact, nothing stood in the way of their selling the property to another after a unsuccessful demand for said price upon the expiration of the time agreed upon. Perfection (Arts. 1475, 1319, 1325, 1326) Fule v. CA, 286 SCRA 685 The Civil Code provides that contracts are perfected by mere consent. From this moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. 17 A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. 18 Being consensual, a contract of sale has the force of law between the contracting parties and they are expected to abide in good faith by their respective contractual commitments. Article 1358 of the Civil Code which requires the embodiment of certain contracts in a public instrument, is only for convenience, 19 and registration of the instrument only adversely affects third parties. 20 Formal requirements are,

therefore, for the benefit of third parties. Non-compliance therewith does not adversely affect the validity of the contract nor the contractual rights and obligations of the parties thereunder. Contracts that are voidable or annullable, even though there may have been no damage to the contracting parties are: (1) those where one of the parties is incapable of giving consent to a contract; and (2) those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. 22 Accordingly, petitioner now stresses before this Court that he entered into the contract in the belief that the pair of emerald-cut diamond earrings was genuine. On the pretext that those pieces of jewelry turned out to be counterfeit, however, petitioner subsequently sought the nullification of said contract on the ground that it was, in fact, "tainted with fraud" 23 such that his consent was vitiated. There is fraud when, through the insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. Serrano v. Caguiat, 517 SCRA 57 In San Miguel Properties Philippines, Inc. v. Spouses Huang,13 we held that the stages of a contract of sale are: (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 is 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. It is a canon in the interpretation of contracts that the words used therein should be given their natural and ordinary meaning unless a technical meaning was intended.14 Thus, when petitioners declared in the said "Receipt for Partial Payment" that they RECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF ONE HUNDRED THOUSAND PESOS (P100,000.00) AS PARTIAL PAYMENT OF OUR LOT SITUATED IN LAS PIAS, M.M. COVERED BY TCT NO. T-9905 AND WITH AN AREA OF 439 SQUARE METERS. MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR BEFORE MARCH 23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL DEED OF SALE ON THIS DATE. there can be no other interpretation than that they agreed to a conditional contract of sale, consummation of which is subject only to the full payment of the purchase price. A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the suspensive condition does not take place, the parties would stand as if the

conditional obligation had never existed. The suspensive condition is commonly full payment of the purchase price.15 The differences between a contract to sell and a contract of sale are well-settled in jurisprudence. As early as 1951, in Sing Yee v. Santos,16 we held that: x x x [a] distinction must be made between a contract of sale in which title passes to the buyer upon delivery of the thing sold and a contract to sell x x x where by agreement the ownership is reserved in the seller and is not to pass until the full payment, of the purchase price is made. In the first case, non-payment of the price is a negative resolutory condition; in the second case, full payment is a positive suspensive condition. Being contraries, their effect in law cannot be identical. In the first case, the vendor has lost and cannot recover the ownership of the land sold until and unless the contract of sale is itself resolved and set aside. In the second case, however, the title remains in the vendor if the vendee does not comply with the condition precedent of making payment at the time specified in the contract. In other words, in a contract to sell, ownership is retained by the seller and is not to pass to the buyer until full payment of the price. Formalities of the contract, Art. 1403 (d) (e) Dailon v. CA, 182 SCRA 872 The provision of Art. 1358 on the necessity of a public document is only for convenience, not for validity or enforceability. It is not a requirement for the validity of a contract of sale of a parcel of land that this be embodied in a public instrument. A contract of sale is a consensual contract, which means that the sale is perfected by mere consent. No particular form is required for its validity. Upon perfection of the contract, the parties may reciprocally demand performance (Art. 1475, NCC), i.e., the vendee may compel transfer of ownership of the object of the sale, and the vendor may require the vendee to pay the thing sold (Art. 1458, NCC). Under Art. 1498, NCC, when the sale is made through a public instrument, the execution thereof is equivalent to the delivery of the thing. Delivery may either be actual (real) or constructive. Thus delivery of a parcel of land may be done by placing the vendee in control and possession of the land (real) or by embodying the sale in a public instrument (constructive). Secuya v. Vda De Selma, 326 SCRA 244 Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in another. It is a fiduciary relationship that obliges the trustee to deal with the property for the benefit of the beneficiary.13 Trust relations between parties may either be express or implied. An express trust is created by the intention of the trustor or of the parties. An implied trust comes into being by operation of law.

While no time limit is imposed for the enforcement of rights under express trusts,17 prescription may, however, bar a beneficiary's action for recovery, if a repudiation of the trust is proven by clear and convincing evidence and made known to the beneficiary. While a sale of a piece of land appearing in a private deed is binding between the parties, it cannot be considered binding on third persons, if it is not embodied in a public instrument and recorded in the Registry of Property. Indeed, a party who has actual knowledge of facts and circumstances that would move a reasonably cautious man to make an inquiry will not be protected by the Torrens system. In Sandoval v. Court of Appeals,22 we held: It is settled doctrine that one who deals with property registered under the Torrens system need not go beyond the same, but only has to rely on the title. He is charged with notice only of such burdens and claims as are annotated on the title. The aforesaid principle admits of an unchallenged exception: that a person dealing with registered land has a right to rely on the Torrens certificate of title and to dispense without the need of inquiring further except when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry, or when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of title of the property in litigation. The presence of anything which excites or arouses suspicion should then prompt the vendee to look beyond the certificate and investigate the title of the vendor appearing on the face of the certificate. One who falls within the exception can neither be denominated an innocent purchaser for value purchaser in good faith; and hence does not merit the protection of the law. Xentrex Automotive v. CA, 291 SCRA 66 Undoubtedly, there was a perfected contract of sale between the petitioner and private respondents as confirmed by the trial court when it found that "[b] y accepting a deposit of P50,000.00 and by pulling out a unit of Philippine Nissan 1.6 cc Sentry Automatic (Flamingo red), defendant obliged itself to sell to plaintiffs a determinate thing for a price certain in money which was P494,000.00". Transfer of Ownership A. Manner of transfer (Arts. 1477, 1496-1501) B. When delivery does not transfer title Kinds of delivery TOMAS K. CHUA vs. COURT OF APPEALS G.R. No. 119255 April 9, 2003

The distinction between a contract of sale and contract to sell is well-settled: In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until full payment of the price. In the latter contract, payment of the price is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.25 A perusal of the Receipt shows that the true agreement between the parties was a contract to sell. Ownership over the Property was retained by Valdes-Choy and was not to pass to Chua until full payment of the purchase price. First, the Receipt provides that the earnest money shall be forfeited in case the buyer fails to pay the balance of the purchase price on or before 15 July 1989. In such event, Valdes-Choy can sell the Property to other interested parties. There is in effect a right reserved in favor of ValdesChoy not to push through with the sale upon Chua's failure to remit the balance of the purchase price before the deadline. This is in the nature of a stipulation reserving ownership in the seller until full payment of the purchase price. This is also similar to giving the seller the right to rescind unilaterally the contract the moment the buyer fails to pay within a fixed period.26 Second, the agreement between Chua and Valdes-Choy was embodied in a receipt rather than in a deed of sale, ownership not having passed between them. The signing of the Deeds of Sale came later when Valdes-Choy was under the impression that Chua was about to pay the balance of the purchase price. The absence of a formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership, but only a transfer after full payment of the purchase price.27 Third, Valdes-Choy retained possession of the certificate of title and all other documents relative to the sale. When Chua refused to pay Valdes-Choy the balance of the purchase price, Valdes-Choy also refused to turn-over to Chua these documents.28 These are additional proof that the agreement did not transfer to Chua, either by actual or constructive delivery, ownership of the Property.29 It is true that Article 1482 of the Civil Code provides that "[W]henever earnest money is given in a contract of sale, it shall be considered as part of the price and proof of the perfection of the contract." However, this article speaks of earnest money given in a contract of sale. In this case, the earnest money was given in a contract to sell. The Receipt evidencing the contract to sell stipulates that the earnest money is a forfeitable deposit, to be forfeited if the sale is not consummated should Chua fail to pay the balance of the purchase price. The earnest money forms part of the

consideration only if the sale is consummated upon full payment of the purchase price. If there is a contract of sale, Valdes-Choy should have the right to compel Chua to pay the balance of the purchase price. Chua, however, has the right to walk away from the transaction, with no obligation to pay the balance, although he will forfeit the earnest money. Clearly, there is no contract of sale. The earnest money was given in a contract to sell, and thus Article 1482, which speaks of a contract of sale, is not applicable. Article 1592 of the Civil Code permits the buyer to pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by notarial act. However, Article 1592 does not apply to a contract to sell where the seller reserves the ownership until full payment of the price. Prior to the existence of the contract of sale, the seller is not obligated to transfer ownership to the buyer, even if there is a contract to sell between them. It is also upon the existence of the contract of sale that the buyer is obligated to pay the purchase price to the seller. Since the transfer of ownership is in exchange for the purchase price, these obligations must be simultaneously fulfilled at the time of the execution of the contract of sale, in the absence of a contrary stipulation. The obligation of the seller is to transfer to the buyer ownership of the thing sold. In the sale of real property, the seller is not obligated to transfer in the name of the buyer a new certificate of title, but rather to transfer ownership of the real property. There is a difference between transfer of the certificate of title in the name of the buyer, and transfer of ownership to the buyer. The buyer may become the owner of the real property even if the certificate of title is still registered in the name of the seller. As between the seller and buyer, ownership is transferred not by the issuance of a new certificate of title in the name of the buyer but by the execution of the instrument of sale in a public document. In a contract of sale, ownership is transferred upon delivery of the thing sold. As the noted civil law commentator Arturo M. Tolentino explains it, Delivery is not only a necessary condition for the enjoyment of the thing, but is a mode of acquiring dominion and determines the transmission of ownership, the birth of the real right. The delivery, therefore, made in any of the forms provided in articles 1497 to 1505 signifies that the transmission of ownership from vendor to vendee has taken place. The delivery of the thing constitutes an indispensable requisite for the purpose of acquiring ownership. Our law does not admit the doctrine of transfer of property by mere consent; the ownership, the property right, is derived only from delivery of the thing. x x x.33 (Emphasis supplied) In a contract of sale of real property, delivery is effected when the instrument of sale is executed in a public document. When the deed of absolute sale is signed by the parties and notarized, then delivery of the real property is deemed made by the seller to the buyer.

Similarly, in a contract to sell real property, once the seller is ready, able and willing to sign the deed of absolute sale before a notary public, the seller is in a position to transfer ownership of the real property to the buyer. At this point, the seller complies with his undertaking to sell the real property in accordance with the contract to sell, and to assume all the obligations of a vendor under a contract of sale pursuant to the relevant articles of the Civil Code. In a contract to sell, the seller is not obligated to transfer ownership to the buyer. Neither is the seller obligated to cause the issuance of a new certificate of title in the name of the buyer. However, the seller must put all his papers in proper order to the point that he is in a position to transfer ownership of the real property to the buyer upon the signing of the contract of sale. Customarily, in the absence of a contrary agreement, the submission by an individual seller to the buyer of the following papers would complete a sale of real estate: (1) owner's duplicate copy of the Torrens title;36 (2) signed deed of absolute sale; (3) tax declaration; and (3) latest realty tax receipt. The buyer can retain the amount for the capital gains tax and pay it upon authority of the seller, or the seller can pay the tax, depending on the agreement of the parties. The buyer has more interest in having the capital gains tax paid immediately since this is a pre-requisite to the issuance of a new Torrens title in his name. Nevertheless, as far as the government is concerned, the capital gains tax remains a liability of the seller since it is a tax on the seller's gain from the sale of the real estate.Payment of the capital gains tax, however, is not a pre-requisite to the transfer of ownership to the buyer. The transfer of ownership takes effect upon the signing and notarization of the deed of absolute sale. The recording of the sale with the proper Registry of Deeds37 and the transfer of the certificate of title in the name of the buyer are necessary only to bind third parties to the transfer of ownership.38 As between the seller and the buyer, the transfer of ownership takes effect upon the execution of a public instrument conveying the real estate.39 Registration of the sale with the Registry of Deeds, or the issuance of a new certificate of title, does not confer ownership on the buyer. Such registration or issuance of a new certificate of title is not one of the modes of acquiring ownership. CEBU WINLAND DEVELOPMENT CORPORATION vs. ONG SIAO HUA Under the Civil Code, ownership does not pass by mere stipulation but only by delivery.22 Manresa explains, "the delivery of the thing . . . signifies that title has passed from the seller to the buyer."23 According to Tolentino, the purpose of delivery is not only for the enjoyment of the thing but also a mode of acquiring dominion and determines the transmission of ownership, the birth of the real right. The delivery under any of the forms provided by Articles 1497 to 1505 of the Civil Code signifies that the transmission of ownership from vendor to vendee has taken place.

Article 1497 above contemplates what is known as real or actual delivery, when the thing sold is placed in the control and possession of the vendee. Article 1498, on the one hand, refers to symbolic delivery by the execution of a public instrument. It should be noted, however, that Article 1498 does not say that the execution of the deed provides a conclusive presumption of the delivery of possession. It confines itself to providing that the execution thereof is equivalent to delivery, which means that the presumption therein can be rebutted by means of clear and convincing evidence. Thus, the presumptive delivery by the execution of a public instrument can be negated by the failure of the vendee to take actual possession of the land sold.25 In Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.,26 the concept of "delivery" was explained as follows: Delivery has been described as a composite act, a thing in which both parties must join and the minds of both parties concur. It is an act by which one party parts with the title to and the possession of the property, and the other acquires the right to and the possession of the same. In its natural sense, delivery means something in addition to the delivery of property or title; it means transfer of possession. In the Law on Sales, delivery may be either actual or constructive, but both forms of delivery contemplate "the absolute giving up of the control and custody of the property on the part of the vendor, and the assumption of the same by the vendee." (Emphasis supplied) In light of the foregoing, "delivery" as used in the Law on Sales refers to the concurrent transfer of two things: (1) possession and (2) ownership. This is the rationale behind the jurisprudential doctrine that presumptive delivery via execution of a public instrument is negated by the reality that the vendee actually failed to obtain material possession of the land subject of the sale.27 In the same vein, if the vendee is placed in actual possession of the property, but by agreement of the parties ownership of the same is retained by the vendor until the vendee has fully paid the price, the mere transfer of the possession of the property subject of the sale is not the "delivery" contemplated in the Law on Sales or as used in Article 1543 of the Civil Code. The distinction between Article 1539 and Article 1542 was explained by Manresa29 as follows: . . . If the sale was made for a price per unit of measure or number, the consideration of the contract with respect to the vendee, is the number of such units, or, if you wish, the thing purchased as determined by the stipulated number of units. But if, on the other hand, the sale was made for a lump sum, the consideration of the contract is the object sold, independently of its number or measure, the thing as determined by the stipulated boundaries, which has been called in law a determinate object. This difference in consideration between the two cases implies a distinct regulation of the obligation to deliver the object, because, for an acquittance delivery must be made in accordance with the agreement of the parties, and the performance of the agreement must show the confirmation, in fact, of the consideration which induces each of the parties to enter into the contract.

In Rudolf Lietz, Inc. v. Court of Appeals,30 we held: Article 1539 governs a sale of immovable by the unit, that is, at a stated rate per unit area. In a unit price contract, the statement of area of immovable is not conclusive and the price may be reduced or increased depending on the area actually delivered. If the vendor delivers less than the area agreed upon, the vendee may oblige the vendor to deliver all that may be stated in the contract or demand for the proportionate reduction of the purchase price if delivery is not possible. If the vendor delivers more than the area stated in the contract, the vendee has the option to accept only the amount agreed upon or to accept the whole area, provided he pays for the additional area at the contract rate. In some instances, a sale of an immovable may be made for a lump sum and not at a rate per unit. The parties agree on a stated purchase price for an immovable the area of which may be declared based on an estimate or where both the area and boundaries are stated. In the case where the area of the immovable is stated in the contract based on an estimate, the actual area delivered may not measure up exactly with the area stated in the contract. According to Article 1542 of the Civil Code, in the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or number, there shall be no increase or decrease of the price although there be a greater or lesser area or number than that stated in the contract. However, the discrepancy must not be substantial. A vendee of land, when sold in gross or with the description "more or less" with reference to its area, does not thereby ipso facto take all risk of quantity in the land. The use of "more or less" or similar words in designating quantity covers only a reasonable excess or deficiency. Where both the area and the boundaries of the immovable are declared, the area covered within the boundaries of the immovable prevails over the stated area. In cases of conflict between areas and boundaries, it is the latter which should prevail. What really defines a piece of ground is not the area, calculated with more or less certainty, mentioned in its description, but the boundaries therein laid down, as enclosing the land and indicating its limits. In a contract of sale of land in a mass, it is well established that the specific boundaries stated in the contract must control over any statement with respect to the area contained within its boundaries. It is not of vital consequence that a deed or contract of sale of land should disclose the area with mathematical accuracy. It is sufficient if its extent is objectively indicated with sufficient precision to enable one to identify it. An error as to the superficial area is immaterial. Thus, the obligation of the vendor is to deliver everything within the boundaries, inasmuch as it is the entirety thereof that distinguishes the determinate object. In order that mistake may invalidate consent and constitute a ground for annulment of contract based on Article 1331, the mistake must be material as to go to the essence of the contract; that without such mistake, the agreement would not have been made.31 The effect of error must be determined largely by its influence upon the party. If the party would have entered into the contract even if he had

knowledge of the true fact, then the error does not vitiate consent. Double sales (Art. 1544) Carbonell v. CA, 69 SCRA 99 Article 1544, New Civil Code, which is decisive of this case, recites: 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 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 (emphasis supplied). It is essential that the buyer of realty must act in good faith in registering his deed of sale to merit the protection of the second paragraph of said Article 1544. Unlike the first and third paragraphs of said Article 1544, which accord preference to the one who first takes possession in good faith of personal or real property, the second paragraph directs that ownership of immovable property should be recognized in favor of one "who in good faith first recorded" his right. Under the first and third paragraph, good faith must characterize the act of anterior registration (DBP vs. Mangawang, et al., 11 SCRA 405; Soriano, et al. vs. Magale, et al., 8 SCRA 489). If there is no inscription, what is decisive is prior possession in good faith. If there is inscription, as in the case at bar, prior registration in good faith is a precondition to superior title. EXISTENCE OF THE PRIOR SALE TO CARBONELL DULY ESTABLISHED In his order dated April 26, 1956 dismissing the complaint on the ground that the private document Exhibit "A" executed by Poncio and Carbonell and witnessed by Constancio Meonada captioned "Contract for One-half Lot which I Bought from Jose Poncio," was not such a memorandum in writing within the purview of the Statute of Frauds, the trial judge himself recognized the fact of the prior sale to Carbonell when he stated that "the memorandum in question merely states that Poncio is allowed to stay in the property which he had sold to the plaintiff. There is no mention of the reconsideration, a description of the property and such other essential

elements of the contract of sale. There is nothing in the memorandum which would tend to show even in the slightest manner that it was intended to be an evidence of contract sale. On the contrary, from the terms of the memorandum, it tends to show that the sale of the property in favor of the plaintiff is already an accomplished act.By the very contents of the memorandum itself, it cannot therefore, be considered to be the memorandum which would show that a sale has been made by Poncio in favor of the plaintiff" (p. 33, ROA, emphasis supplied). As found by the trial court, to repeat the said memorandum states "that Poncio is allowed to stay in the property which he had sold to the plaintiff ..., it tends to show that the sale of the property in favor of the plaintiff is already an accomplished act..." In his first decision of December 5, 1962 declaring null and void the sale in favor of the Infantes and ordering Poncio to execute a deed of conveyance in favor of Carbonell, the trial judge found: ... A careful consideration of the contents of Exh. 'A' show to the satisfaction of the court that the sale of the parcel of land in question by the defendant Poncio in favor of the plaintiff was covered therein and that the said Exh. "a' was also executed to allow the defendant to continue staying in the premises for the stated period. It will be noted that Exh. 'A' refers to a lot 'sold by him to me' and having been written originally in a dialect well understood by the defendant Poncio, he signed the said Exh. 'A' with a full knowledge and consciousness of the terms and consequences thereof. This therefore, corroborates the testimony of the plaintiff Carbonell that the sale of the land was made by Poncio. It is further pointed out that there was a partial performance of the verbal sale executed by Poncio in favor of the plaintiff, when the latter paid P247.26 to the Republic Savings Bank on account of Poncio's mortgage indebtedness. Finally, the possession by the plaintiff of the defendant Poncio's passbook of the Republic Savings Bank also adds credibility to her testimony. The defendant contends on the other hand that the testimony of the plaintiff, as well as her witnesses, regarding the sale of the land made by Poncio in favor of the plaintiff is inadmissible under the provision of the Statute of Fraud based on the argument that the note Exh. "A" is not the note or memorandum referred to in the to in the Statute of Fraud. The defendants argue that Exh. "A" fails to comply with the requirements of the Statute of Fraud to qualify it as the note or memorandum referred to therein and open the way for the presentation of parole evidence to prove the fact contained in the note or memorandum. The defendant argues that there is even no description of the lot referred to in the note, especially when the note refers to only one half lot. With respect to the latter argument of the Exhibit 'A', the court has arrived at the conclusion that there is a sufficient description of the lot referred to in Exh. 'A' as none other than the parcel of land occupied by the defendant Poncio and where he has his improvements erected. The Identity of the parcel of land involved herein is sufficiently established by the contents of the note Exh. "A". For a while, this court had that similar impression but after a more and thorough consideration of the context in Exh. 'A' and for the reasons stated above, the Court has arrived at the conclusion stated earlier (pp. 52-54, ROA, emphasis supplied).

In the first decision of November 2, 1967 of the Fifth Division of the Court of Appeals composed of Justices Esguerra (now Associate Justice of the Supreme Court), Gatmaitan and Mojica, penned by Justice Gatmaitan, the Court of Appeals found that: ... the testimony of Rosario Carbonell not having at all been attempted to be disproved by defendants, particularly Jose Poncio, and corroborated as it is by the private document in Batanes dialect, Exhibit A, the testimony being to the effect that between herself and Jose there had been celebrated a sale of the property excluding the house for the price of P9.50 per square meter, so much so that on faith of that, Rosario had advanced the sum of P247.26 and binding herself to pay unto Jose the balance of the purchase price after deducting the indebtedness to the Bank and since the wording of Exhibit A, the private document goes so far as to describe their transaction as one of sale, already consummated between them, note the part tense used in the phrase, "the lot sold by him to me" and going so far even as to state that from that day onwards, vendor would continue to live therein, for one year, 'during which time he will not pay anything' this can only mean that between Rosario and Jose, there had been a true contract of sale, consummated by delivery constitutum possession, Art. 1500, New Civil Code; vendor's possession having become converted from then on, as a mere tenant of vendee, with the special privilege of not paying rental for one year, it is true that the sale by Jose Poncio to Rosario Carbonell corroborated documentarily only by Exhibit A could not have been registered at all, but it was a valid contract nonetheless, since under our law, a contract sale is consensual, perfected by mere consent, Couto v. Cortes, 8 Phil 459, so much so that under the New Civil Code, while a sale of an immovable is ordered to be reduced to a public document, Art. 1358, that mandate does not render an oral sale of realty invalid, but merely incapable of proof, where still executory and action is brought and resisted for its performance, 1403, par. 2, 3; but where already wholly or partly executed or where even if not yet, it is evidenced by a memorandum, in any case where evidence to further demonstrate is presented and admitted as the case was here, then the oral sale becomes perfectly good, and becomes a good cause of action not only to reduce it to the form of a public document, but even to enforce the contract in its entirety, Art. 1357; and thus it is that what we now have is a case wherein on

the one hand Rosario Carbonell has proved that she had an anterior sale, celebrated in her favor on 27 January, 1955, Exhibit A, annotated as an adverse claim on 8 February, 1955, and on other, a sale is due form in favor of Emma L. Infante on 2 February, 1955, Exhibit 3Infante, and registered in due form with title unto her issued on 12 February, 1955; the vital question must now come on which of these two sales should prevail; ... (pp. 74-76, rec., emphasis supplied). ADEQUATE CONSIDERATION OR PRICE FOR THE SALE IN FAVOR OF CARBONELL It should be emphasized that the mortgage on the lot was about to be foreclosed by the bank for failure on the part of Poncio to pay the amortizations thereon. To forestall the foreclosure and at the same time to realize some money from his mortgaged lot, Poncio agreed to sell the same to Carbonell at P9.50 per square meter, on condition that Carbonell [1] should pay (a) the amount of P400.00 to Poncio and 9b) the arrears in the amount of P247.26 to the bank; and [2] should assume his mortgage indebtedness. The bank president agreed to the said sale with assumption of mortgage in favor of Carbonell an Carbonell accordingly paid the arrears of P247.26. On January 27, 1955, she paid the amount of P200.00 to the bank because that was the amount that Poncio told her as his arrearages and Poncio advanced the sum of P47.26, which amount was refunded to him by Carbonell the following day. This conveyance was confirmed that same day, January 27, 1955, by the private document, Exhibit "A", which was prepared in the Batanes dialect by the witness Constancio Meonada, who is also from Batanes like Poncio and Carbonell. The sale did not include Poncio's house on the lot. And Poncio was given the right to continue staying on the land without paying any rental for one year, after which he should pay rent if he could not still find a place to transfer his house. All these terms are part of the consideration of the sale to Carbonell. It is evident therefore that there was ample consideration, and not merely the sum of P200.00, for the sale of Poncio to Carbonell of the lot in question. IDENTIFICATION AND DESCRIPTION OF THE DISPUTED LOT IN THE MEMORANDUM EXHIBIT "A" The explanation is tenable, in (sic) considering the time value of the contents of Exh. 'A', the court has arrived at the conclusion that there is sufficient description of the lot referred to in Exh. As none other than the parcel of lot occupied by the defendant Poncio and where he has his improvements erected. The Identity of the parcel of land involved herein is sufficiently established by the contents of the note Exh. 'A'. For a while, this court had that similar impression but after a more and through consideration of the context in Exh. 'A' and for the reasons stated above, the court has arrived to (sic) the conclusion stated earlier" (pp. 53-54, ROA).

Moreover, it is not shown that Poncio owns another parcel with the same area, adjacent to the lot of his cousin Carbonell and likewise mortgaged by him to the Republic Savings Bank. The transaction therefore between Poncio and Carbonell can only refer and does refer to the lot involved herein. If Poncio had another lot to remove his house, Exhibit A would not have stipulated to allow him to stay in the sold lot without paying any rent for one year and thereafter to pay rental in case he cannot find another place to transfer his house. It appearing that the Infantes are possessors in bad faith, their rights to the improvements they introduced op the disputed lot are governed by Articles 546 and 547 of the New Civil Code. Under the second paragraph of Article 546, the possessor in good faith can retain the useful improvements unless the person who defeated him in his possession refunds him the amount of such useful expenses or pay him the increased value the land may have acquired by reason thereof. Under Article 547, the possessor in good faith has also the right to remove the useful improvements if such removal can be done without damage to the land, unless the person with the superior right elects to pay for the useful improvements or reimburse the expenses therefor under paragraph 2 of Article 546. These provisions seem to imply that the possessor in bad faith has neither the right of retention of useful improvements nor the right to a refund for useful expenses. But, if the lawful possessor can retain the improvements introduced by the possessor in bad faith for pure luxury or mere pleasure only by paying the value thereof at the time he enters into possession (Article 549 NCC), as a matter of equity, the Infantes, although possessors in bad faith, should be allowed to remove the aforesaid improvements, unless petitioner Carbonell chooses to pay for their value at the time the Infantes introduced said useful improvements in 1955 and 1959. The Infantes cannot claim reimbursement for the current value of the said useful improvements; because they have been enjoying such improvements for about two decades without paying any rent on the land and during which period herein petitioner Carbonell was deprived of its possession and use. San Lorenzo v. CA, 449 SCRA 99 Contracts, in general, are perfected by mere consent,19 which is manifested by the meeting of the offer and the acceptance upon the thing which are to constitute the contract. The offer must be certain and the acceptance absolute.20 Moreover, contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present. The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos (P50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot situated in Sta. Rosa, Laguna. While there is no stipulation that the seller reserves the ownership of the property until full payment of the price which is a distinguishing feature of a contract to sell, the subsequent acts of the parties convince us that the Spouses Lu never

intended to transfer ownership to Babasanta except upon full payment of the purchase price. he distinction between a contract to sell and a contract of sale is quite germane. In a contract of sale, title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price.22 In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.23 The perfected contract to sell imposed upon Babasanta the obligation to pay the balance of the purchase price. There being an obligation to pay the price, Babasanta should have made the proper tender of payment and consignation of the price in court as required by law. Mere sending of a letter by the vendee expressing the intention to pay without the accompanying payment is not considered a valid tender of payment.24 Consignation of the amounts due in court is essential in order to extinguish Babasantas obligation to pay the balance of the purchase price. Glaringly absent from the records is any indication that Babasanta even attempted to make the proper consignation of the amounts due, thus, the obligation on the part of the sellers to convey title never acquired obligatory force. On the assumption that the transaction between the parties is a contract of sale and not a contract to sell, Babasantas claim of ownership should nevertheless fail. Sale, being a consensual contract, is perfected by mere consent25 and from that moment, the parties may reciprocally demand performance.26 The essential elements of a contract of sale, to wit: (1) consent or meeting of the minds, that is, to transfer ownership in exchange for the price; (2) object certain which is the subject matter of the contract; (3) cause of the obligation which is established.27 The perfection of a contract of sale should not, however, be confused with its consummation. In relation to the acquisition and transfer of ownership, it should be noted that sale is not a mode, but merely a title. A mode is the legal means by which dominion or ownership is created, transferred or destroyed, but title is only the legal basis by which to affect dominion or ownership.28 Under Article 712 of the Civil Code, "ownership and other real rights over property are acquired and transmitted by law, by donation, by testate and intestate succession, and in consequence of certain contracts, by tradition." Contracts only constitute titles or rights to the transfer or acquisition of ownership, while delivery or tradition is the mode of accomplishing the same.29 Therefore, sale by itself does not transfer or affect ownership; the most that sale does is to create the obligation to transfer ownership. It is tradition or delivery, as a consequence of sale, that actually transfers ownership. Explicitly, the law provides that the ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Article 1497

to 1501.30 The word "delivered" should not be taken restrictively to mean transfer of actual physical possession of the property. The law recognizes two principal modes of delivery, to wit: (1) actual delivery; and (2) legal or constructive delivery. Actual delivery consists in placing the thing sold in the control and possession of the vendee.31 Legal or constructive delivery, on the other hand, may be had through any of the following ways: the execution of a public instrument evidencing the sale;32 symbolical tradition such as the delivery of the keys of the place where the movable sold is being kept;33 traditio longa manu or by mere consent or agreement if the movable sold cannot yet be transferred to the possession of the buyer at the time of the sale;34 traditio brevi manu if the buyer already had possession of the object even before the sale;35 and traditio constitutum possessorium, where the seller remains in possession of the property in a different capacity.36 Following the above disquisition, respondent Babasanta did not acquire ownership by the mere execution of the receipt by Pacita Lu acknowledging receipt of partial payment for the property. For one, the agreement between Babasanta and the Spouses Lu, though valid, was not embodied in a public instrument. Hence, no constructive delivery of the lands could have been effected. For another, Babasanta had not taken possession of the property at any time after the perfection of the sale in his favor or exercised acts of dominion over it despite his assertions that he was the rightful owner of the lands. Simply stated, there was no delivery to Babasanta, whether actual or constructive, which is essential to transfer ownership of the property. Thus, even on the assumption that the perfected contract between the parties was a sale, ownership could not have passed to Babasanta in the absence of delivery, since in a contract of sale ownership is transferred to the vendee only upon the delivery of the thing sold.37 However, it must be stressed that the juridical relationship between the parties in a double sale is primarily governed by Article 1544 which lays down the rules of preference between the two purchasers of the same property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. The principle of primus tempore, potior jure (first in time, stronger in right) gains greater significance in case of double sale of immovable property. When the thing sold twice is an immovable, the one who acquires it and first records it in the Registry of Property, both made in good faith, shall be deemed the owner.38 Verily, the act of registration must be coupled with good faith that is, the registrant must have no knowledge of the defect or lack of title of his vendor or must not have been aware of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor.

A notice of lis pendens, as the Court held in Natao v. Esteban,42serves as a warning to a prospective purchaser or incumbrancer that the particular property is in litigation; and that he should keep his hands off the same, unless he intends to gamble on the results of the litigation." Assuming ex gratia argumenti that SLDCs registration of the sale had been tainted by the prior notice of lis pendens and assuming further for the same nonce that this is a case of double sale, still Babasantas claim could not prevail over that of SLDCs. In Abarquez v. Court of Appeals,46 this Court had the occasion to rule that if a vendee in a double sale registers the sale after he has acquired knowledge of a previous sale, the registration constitutes a registration in bad faith and does not confer upon him any right. If the registration is done in bad faith, it is as if there is no registration at all, and the buyer who has taken possession first of the property in good faith shall be preferred. The law speaks not only of one criterion. The first criterion is priority of entry in the registry of property; there being no priority of such entry, the second is priority of possession; and, in the absence of the two priorities, the third priority is of the date of title, with good faith as the common critical element. Since SLDC acquired possession of the property in good faith in contrast to Babasanta, who neither registered nor possessed the property at any time, SLDCs right is definitely superior to that of Babasantas. In Dichoso v. Roxas,47 we had the occasion to rule that Article 1544 does not apply to a case where there was a sale to one party of the land itself while the other contract was a mere promise to sell the land or at most an actual assignment of the right to repurchase the same land. Gabriel v. Mabanta, GR No. 142403, 3/26/03 Otherwise stated, where it is an immovable property that is the subject of a double sale, ownership shall be transferred (1) to the person acquiring it who in good faith first recorded it in the Registry of Property; (2) in default thereof, to the person who in good faith was first in possession; and (3) in default thereof, to the person who presents the oldest title, provided there is good faith.14 The requirement of the law then is two-fold: acquisition in good faith and registration in good faith.15 The rationale behind this is well-expounded inUraca vs. Court of Appeals,16 where this Court held: "Under the foregoing, the prior registration of the disputed property by the second buyer does not by itself confer ownership or a better right over the property. Article 1544 requires that such registration must be coupled with good faith. Jurisprudence teaches us that "(t)he governing principle is primus tempore, potior jure (first in time, stronger in right). Knowledge gained by the first buyer of the second sale cannot defeat the first buyers right except where the second buyer registers in good faith the second sale ahead of the first, as provided by the Civil Code. Such knowledge of the first buyer does not bar her from availing of her rights under the law, among them, to register first her purchase as against the second buyer.

But in converso, knowledge gained by the second buyer of the first sale defeats his right even if he is first to register the second sale, since such knowledge taints his prior registration with bad faith. This is the price exacted by Article 1544 of the Civil Code for the second buyer being able to displace the first buyer, that before the second buyer can obtain priority over the first, he must show that he acted in good faith throughout (i.e. in ignorance of the first sale and of the first buyers right) from the time of acquisition until the title is transferred to him by registration or failing registration, by delivery of possession." We have consistently held that "in cases of double sale of immovables, what finds relevance and materiality is not whether or not the second buyer was a buyer in good faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any defect in the title of the property sold."20 In Salvoro vs. Tanega,21 we had the occasion to rule that: "If a vendee in a double sale registers the sale after he has acquired knowledge that there was a previous sale of the same property to a third party or that another person claims said property in a previous sale, the registration will constitute a registration in bad faith and will not confer upon him any right." Mere registration of title is not enough, good faith must concur with the registration. To be entitled to priority, the second purchaser must not only establish prior recording of his deed, but must have acted in good faith, without knowledge of the existence of another alienation by the vendor to the other.22 In the old case of Leung Yee vs. F. L. Strong Machinery, Co. and Williamson, this Court ruled: "One who purchases a real estate with knowledge of a defect of title in his vendor cannot claim that he has acquired title thereto in good faith as against the true owner of the land or of an interest therein; and the same rule must be applied to one who has knowledge of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor. A purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor. His mere refusal to believe that such a defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in his vendors title will not make him an innocent purchaser for value, if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defect as would have led to its discovery had he acted with that measure of precaution which may reasonably be required of a prudent man in a like situation. x x x " Property Registration Decree Requisites for registration of deed of sale in good faith

Accompanied by vendors duplicate certificate of title, payment of capital gains tax, and documentary tax registration fees Cruz v.Cabana, 129 SCRA 656 As the Court held in Carbonell vs. Court of Appeals 2 "it is essential that the buyer of realty must act in good faith in registering his deed of sale to merit the protection of the second paragraph of [the above quoted] Article 1544." As the writer stressed in his concurring opinion therein, "(T)he governing principle here is prius tempore, potior jure (first in time, stronger in right). Knowledge gained by the first buyer of the second sale cannot defeat the first buyer's rights except only as provided by the Civil Code and that is where the second buyer first registers in good faith the second sale ahead of the first. Such knowledge of the first buyer does not bar her from availing of her rights under the law, among them, to register first her purchase as against the second buyer. But in conversoknowledge gained by the second buyer of the first sale defeats his rights even if he is first to register the second sale, since such knowledge taints his prior registration with bad faith. This is the price exacted by Article 1544 of the Civil Code for the second buyer being able to displace the first buyer; that before the second buyer can obtain priority over the first, he must show that he acted in good faith throughout (i.e. in ignorance of the first sale and of the first buyer's rights) from the time of acquisition until the title is transferred to him by registration or failing registration, by delivery of possession. The second buyer must show continuing good faith and innocence or lack of knowledge of the first sale until his contract ripens into full ownership through prior registration as provided by law." Taedo v. CA, 252 SCRA 80 However, the documents that are critical to the resolution of this case are: (a) the deed of sale of January 13, 1981 in favor of private respondents covering Lazaro's undivided inheritance of one-twelfth (1/12) share in Lot No. 191, which was subsequently registered on June 7, 1982; and (b) the deed of sale dated December 29, 1980 in favor of petitioners covering the same property. These two documents were executed after the death of Matias (and his spouse) and after a deed of extra-judicial settlement of his (Matias') estate was executed, thus vesting in Lazaro actual title over said property. In other words, these dispositions, though conflicting, were no longer infected with the infirmities of the 1962 sale. Critical in determining which of these two deeds should be given effect is the registration of the sale in favor of private respondents with the register of deeds on June 7, 1982. The property in question is land, an immovable, and following the above-quoted law, ownership shall belong to the buyer who in good faith registers it first in the registry of property. Thus, although the deed of sale in favor of private respondents was later than the one in favor of petitioners, ownership would vest in the former because of the undisputed fact of registration. On the other hand, petitioners have not registered the sale to them at all. Naawan v. CA, 395 SCRA 43

Mere registration of title in case of double sale is not enough; good faith must concur with the registration. It is a well-known rule in this jurisdiction that persons dealing with registered land have the legal right to rely on the face of the Torrens Certificate of Title and to dispense with the need to inquire further, except when the party concerned has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry. Did private respondents exercise the required diligence in ascertaining the legal condition of the title to the subject property so as to be considered as innocent purchasers for value and in good faith? We answer in the affirmative. Before private respondents bought the subject property from Guillermo Comayas, inquiries were made with the Registry of Deeds and the Bureau of Lands regarding the status of the vendor's title. No liens or encumbrances were found to have been annotated on the certificate of title. Neither were private respondents aware of any adverse claim or lien on the property other than the adverse claim of a certain Geneva Galupo to whom Guillermo Comayas had mortgaged the subject property. But, as already mentioned, the claim of Galupo was eventually settled and the adverse claim previously annotated on the title cancelled. Thus, having made the necessary inquiries, private respondents did not have to go beyond the certificate of title. Otherwise, the efficacy and conclusiveness of the Torrens Certificate of Title would be rendered futile and nugatory. Considering therefore that private respondents exercised the diligence required by law in ascertaining the legal status of the Torrens title of Guillermo Comayas over the subject property and found no flaws therein, they should be considered as innocent purchasers for value and in good faith. Radiowealth v. Pa Weo, 197 SCRA 245 There is no doubt that had the property in question been a registered land, this case would have been decided in favor of petitioner since it was petitioner that had its claim first recorded in the Registry of Deeds. For, as already mentioned earlier, it is the act of registration that operates to convey and affect registered land. Therefore, a bona fide purchaser of a registered land at an execution sale acquires a good title as against a prior transferee, if such transfer was unrecorded. Under Act No. 3344, registration of instruments affecting unregistered lands is "without prejudice to a third party with a better right". The aforequoted phrase has been held by this Court to mean that the mere registration of a sale in one's favor does not give him any right over the land if the vendor was not anymore the owner of the land having previously sold the same to somebody else even if the earlier sale was unrecorded. Risk of Loss

General rule (Arts. 1263, 1189) When loss occurred before perfection PEDRO ROMAN vs. ANDRES GRIMALT A sale shall be considered perfected and binding as between vendor and vendee when they have agreed as to the thing which is the object of the contract and as to the price, even though neither has been actually delivered. (Art. 1450 of the Civil Code.) Ownership is not considered transmitted until the property is actually delivered and the purchaser has taken possession of the value and paid the price agreed upon, in which case the sale is considered perfected. When the sale is made by means of a public instrument the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract. If no contract of sale was actually executed by the parties the loss of the vessel must be borne by its owner and not by a party who only intended to purchase it and who was unable to do so on account of failure on the part of the owner to show proper title to the vessel and thus enable them to draw up the contract of sale. When loss occurred after perfection but before delivery ASSET PRIVATIZATION ENTERPRISES TRUST vs. T.J.

The ownership of a thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof.9The thing sold shall be understood as delivered when it is placed in the control and possession of the vendee.10 As a general rule, when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. And with regard to movable property, its delivery may also be made by the delivery of the keys of the place or depository where it is stored or kept. 11 In order for the execution of a public instrument to effect tradition, the purchaser must be placed in control of the thing sold.12 However, the execution of a public instrument only gives rise to a prima facie presumption of delivery. Such presumption is destroyed when the delivery is not effected because of a legal impediment.13 It is necessary that the vendor shall have control over the thing sold that, at the moment of sale, its material delivery could have been made.14 Thus, a person who does not have actual possession of the thing sold cannot transfer constructive possession by the execution and delivery of a public instrument. The phrase as-is where-is basis pertains solely to the physical condition of the thing sold, not to its legal situation.16 It is merely descriptive of the state of the thing

sold. Thus, the as-is where-is basis merely describes the actual state and location of the machinery and equipment sold by petitioner to respondent. The depiction does not alter petitioners responsibility to deliver the property to respondent. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale.17 Ownership of the thing sold is acquired by the vendee from the moment it its delivered to him in any of the ways specified in articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee.18 A perusal of the deed of absolute sale shows that both the vendor and the vendee represented and warranted to each other that each had all the requisite power and authority to enter into the deed of absolute sale and that they shall perform each of their respective obligations under the deed of absolute in accordance with the terms thereof. The matter of fortuitous events is governed by Art. 1174 of the Civil Code which provides that except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires assumption of risk, no person shall be responsible for those events which could not be foreseen, or which though foreseen, were inevitable. The elements of a fortuitous event are: (a) the cause of the unforeseen and unexpected occurrence, must have been independent of human will; (b) the event that constituted the caso fortuito must have been impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have been such as to render it impossible for the debtors to fulfill their obligation in a normal manner, and; (d) the obligor must have been free from any participation in the aggravation of the resulting injury to the creditor.20 A fortuitous event may either be an act of God, or natural occurrences such as floods or typhoons, or an act of man such as riots, strikes or wars.21 However, when the loss is found to be partly the result of a persons participation whether by active intervention, neglect or failure to actthe whole occurrence is humanized and removed from the rules applicable to a fortuitous event. Moreover, Art. 1504 of the Civil Code provides that where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party in fault. The risk of loss or deterioration of the goods sold does not pass to the buyer until there is actual or constructive delivery thereof. As previously discussed, there was no actual or constructive delivery of the machinery and equipment. Thus, the risk of loss or deterioration of property is borne by petitioner. Thus, it should be liable for the damages that may arise from the delay. When ownership is transferred (Art. 1504) Documents of Title Definition (Art. 1636) Purpose of documents of title Negotiable documents of title

Non-negotiable documents of title Warranties of seller of documents of title (Art. 1516) Rules on levy/garnishment of goods (Arts. 1514, 1519, 1520) Remedies of an Unpaid Seller Definition of unpaid seller (Art. 1525) Remedies of unpaid seller Performance of Contract Delivery of thing sold Sale of movables (Arts. 1522, 1537, 1480) Sale of immovables (Arts. 1539, 1543) Inspections and acceptance Payment of price Warranties Express warranties Goodyear v. Sy, 474 SCRA 427 In a contract of sale, the vendor is bound to transfer the ownership of and to deliver the thing that is the object of the sale.21 Moreover, the implied warranties are as follows: first, the vendor has a right to sell the thing at the time that its ownership is to pass to the vendee, as a result of which the latter shall from then on have and enjoy the legal and peaceful possession of the thing;22 and, second, the thing shall be free from any charge or encumbrance not declared or known to the vendee.23 Upon the execution of the Deed of Sale, petitioner did transfer ownership of and deliver the vehicle to Respondent Sy.24 No other owner or possessor of the vehicle had been alleged, and the ownership and possession rights of petitioner over it had never been contested. The Deed of Sale executed on September 12, 1996 showed that petitioner was the absolute owner. Therefore, at the time that ownership passed to Sy, petitioner alone had the right to sell the vehicle. A warranty is an affirmation of fact or any promise made by a vendor in relation to the thing sold. As such, a warranty has a natural tendency to induce the vendee -- relying on that affirmation or promise -- to purchase the thing.28 The vendor impliedly warrants that that which is being sold is free from any charge or encumbrance not declared or known to the vendee. The decisive test is whether the vendor assumes to assert a fact of which the vendee is ignorant. A lien is "a legal right or interest that a creditor has in anothers property, lasting usually until a debt or duty that it secures is satisfied."30 An encumbrance is "a claim or liability that is attached to property or some other right and

that may lessen its value, such as a lien or mortgage."31 A legal impediment is a legal "hindrance or obstruction." More important, an action for damages for a breach of implied warranties must be brought within six months from the delivery of the thing sold. Guinhawa v. People, 468 SCRA 278 Article 1389 of the New Civil Code provides that failure to disclose facts when there is a duty to reveal them constitutes fraud. In a contract of sale, a buyer and seller do not deal from equal bargaining positions when the latter has knowledge, a material fact which, if communicated to the buyer, would render the grounds unacceptable or, at least, substantially less desirable.52 If, in a contract of sale, the vendor knowingly allowed the vendee to be deceived as to the thing sold in a material matter by failing to disclose an intrinsic circumstance that is vital to the contract, knowing that the vendee is acting upon the presumption that no such fact exists, deceit is accomplished by the suppression of the truth. The rule of caveat emptor, like the rule of sweet charity, has often been invoked to cover a multitude of sins; but we think its protecting mantle has never been stretched to this extent. It can only be applied where it is shown or conceded that the parties to the contract stand on equal footing and have equal knowledge or equal means of knowledge and there is no relation of trust or confidence between them. But, where one party undertakes to sell to another property situated at a distance and of which he has or claims to have personal knowledge and of which the buyer knows nothing except as he is informed by the seller, the buyer may rightfully rely on the truth of the sellers representations as to its kind, quality, and value made in the course of negotiation for the purpose of inducing the purchase. If, in such case, the representations prove to be false, neither law nor equity will permit the seller to escape responsibility by the plea that the buyer ought not to have believed him or ought to have applied to other sources to ascertain the facts. Implied warranties (Art. 1547) Effects of warranties Effects of waivers Buyers options in case of breach of warranty (Art. 1599)