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Republic SUPREME Manila EN BANC G.R. No. L-33079 December 11, 1978 PHILIPPINE VIRGINIA TOBACCO ADMINISTRATION, petitioner, vs. HON. WALFRIDO DE LOS ANGELES, as Judge of the Court of First Instance of Rizal, Branch IV, Quezon City, and EASTERN VIGAN VTPA, INC, SAN NICOLAS FACOMA, INC., ILOCOS SUR TOBACCO INDUSTRIES CORP., TAGUDIN FACOMA, INC., SAN JUAN TOBACCO PLANTERS, INC., STA. MONICA TOBACCO PLANTERS ASSN., NORFEX-VILLAVICIOSA, BOUNDARY VTPA, BADOC TOBACCO PLANTERS, INC., LUZON PRODUCERS CORP. BALAOAN FACOMA, INC., BANGUED NORFEX BANGUED TOBACCO PROD. ASSN., ARINGAY FACOMA, INC., SOUTHWESTERN SAN QUINTIN TOBACCO PLANTERS, INC., BANGUED FACOMA, INC., CENTRAL RELIANCE TOBACCO FARMERS CORP., LIDLIDDA VTPA, INC., FILIPINO AGRICULTURAL PRODUCERS, INC., LA UNION AGRICULTURAL DEVELOPMENT CORP., UNITED SAN ILDEFONSO VTG ASSOCIATION, INC., ASINGAN FACOMA, INC., and ALLIED TOBACCO PLANTERS, INC., respondents. of the Philippines COURT control all functions and operations with respect, among other things, to the trading of Virginia tobacco and to buy locally grown Virginia tobacco, the PVTA entered into a management contract with its co-defendant Central Cooperative Exchange, Inc. (CCE); that under this contract, the CCE obligated itself to procure, redry and service Virginia tobacco for the PVTA and to advance the payment of tobacco to the trading entities at the government price support plus transportation, overhead and other specified expenses; that on various dates in 1963, the plaintiffs delivered to the PVTA through the CCE in the latter's redrying plant at Agoo, La Union, certain quantities of tobacco under particular BIR Guias; that the shipments are those enumerated in Annex 'B' of the second amended complaint (some of which however were later dropped upon proper motion); that the payment of these tobacco shipments was refused by defendants without reason; hence this suit. The plaintiffs pray for the value of their respective shipment plus legal interests computed 48 hours from date of acceptance 3 thereof, and damages, attorney's fees, and the costs." After noting that the defendants, now petitioners, filed their answer containing specific denials and special defenses, it went on thus: "In its answer the defendant PVTA alleged that the shipments were not accepted by it and the CCE; that if they were accepted, they were not properly accounted for by the CCE and 'were in fact reported burned in the fire that razed down the plant on or about July 24, 1963, brought about by the carelessness and negligence of the said defendant CCE.' It alleged a counterclaim against plaintiffs Allied Tobacco Planters, Inc. and San Juan Planters, Inc. for the balances in the respective amounts of P14,162.47 and P 2,683.38 of their merchandizing loans from the PVTA. It also filed a cross-claim against the CCE to the effect that the latter should be held liable to pay whatever amount the PVTA may pay to the plaintiffs. On its part, defendant CCE alleged the special defense that it only acted as agent of the PVTA in the transactions 4 subject matter of the case." The matter in issue was further clarified in the decision in this manner: "The juridical personality of the plaintiffs are admitted in the answers of the defendants, and in their answers to plaintiffs' request for admission, they admitted that the plaintiffs were recognized in 1963 as trading entities of the PVTA. They also admitted their management contract in 1963 for procuring, redrying and servicing, they also admitted that the 1963 tobacco trading started in April 1963, and that on July 24, 1963, a fire occurred in the redrying plant of the CCE, destroying tobacco shipments therein of various trading entities and that this fact was reported to the PVTA. Under the aforesaid management contract, the CCE was given by the PVTA an allocation of a million kilos of Virginia tobacco to procure, redry, store and service for the PVTA. The CCE was supposed to advance payment of the shipments 48 hours from acceptance, but from the evidence in this case it appears that actually the payments were made by the PVTA itself evidently in order to control disbursements more effectively. The PVTA had rules and regulations, among them Circulars 2 and 4, to govern the tobacco trading operations. It assigned men to the provinces to supervise these operations and enforce 5 observance of these rules and regulations." Plaintiffs in the lower court, now respondents, through their officers, "testified that after the fire and even in the next following years, they made demands for the payment of their shipments but these demands were ignored. Mention should be made of the testimony of Constante Somera who in 1963, besides being the manager of plaintiff Tagudin Facoma, was President of the National Federation of Facoma's, Vice-President of the Ilocos Sur Federation of Facoma's, and a member of the Board of Directors of defendant CCE. He testified that in about five occasions, officers of all the plaintiffs went to him for assistance in the

FERNANDO, J: The controversy that gave rise to this petition for review by certiorari from a decision of the then respondent Judge Walfrido de los Angeles of the Court of First Instance of Rizal Branch IV, Quezon City, arose from a fire that destroyed the redrying plant of petitioner Philippine Virginia Tobacco Administration, hereinafter referred to as the 1 PVTA, at Agoo, La Union, as a result of which private respondents suffered losses arising from the sale and delivery of tobacco to Central Cooperative Exchange, Inc., to be subsequently referred to as the CCE, the authorized agent of petitioner. It was named defendant in the lower court but is not a party to this appeal. The decisive point at issue is thus the liability of petitioner for the damage incurred by private respondents. The lower court, according to the facts as found by respondent Judge, entitled to 2 respect by this Tribunal only a question of law being properly before it, decided the case in favor of private respondents. The affirmance of the decision, as will be explained more in detail, is indicated. The decision now sought to be reviewed stated the nature of the case thus: "In their second amended complaint the plaintiffs allege that they are private corporations; that they were recognized by the defendants as trading entities of the defendant Philippine Virginia Tobacco Administration (PVTA) in connection with the trading and buying of locally grown Virginia tobacco in 1963; that pursuant to Section 4 of Republic Act No. 2265, under which the defendant PVTA has the power and duty to direct, supervise and

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collection of their claims, and he headed delegations to the defendants and notably to PVTA Chairman Balmaceda and PVTA General Manager Bananal but that the latter gave all sorts of excuses such as the need of further study of the matter and the lack of money. So after many attempts proved futile, Somera advised his colleagues that they go to court. As already stated, the PVTA had men in the field to implement its rules and regulations, who were headed by the PVTA provincial tobacco agents. During the trading in 1963, these agents were Jose Singson, Antonio Florendo, Angel Torrijos, Jorge Peneras, Manuel Festejo and Alfredo Cajigal. The plaintiffs presented Bernardo Navarrette, the head of the Field Services Department of the PVTA, and he Identified the signatures and initials of the said PVTA provincial tobacco agents in the shipping 6 documents exhibited in this case." As for the facts found by the lower court, the following was set forth in such decision: "This Court is convinced that there is satisfactory proof that the plaintiffs delivered the tobacco shipments in question to the defendants at the CCE redrying plant in 1963, and that the same were unloaded and awaiting inspection and grading when they were burned on July 24, 1963. As a matter of fact, these facts were testified to by no less than the CCE Trading Officer at the plant, Benjamin Bello, whose duty it was to exercise general supervision over the receiving and storage of Virginia tobacco in the CCE redrying plant in accordance with the PVTA regulations and procedures. Among other things, he declared that he prepared periodic lists of shipments scheduled or unloaded for inspection in order for the CCE plant to know the expected volume of tobacco to be redried and serviced, and he Identified the last lists, those dated July, 17 and 22, 1963, which indeed include the shipments in question Romeo Ballesil, PVTA Tobacco Plant Manager in the CCE who testified for the PVTA, in effect confirmed this when he said that there were several inventories made after he assumed the position on July 12, 1963. He also confirmed the fact, as testified to by Bello, that there were many shipments in the CCE receiving ramps and bays which were authorized to be unloaded and awaiting inspection when the plant was destroyed by fire on July 24, 1963; there were in fact piles of tobacco up almost to the ceiling in some places, and 7 there were piles even in the corridors of the receiving ramps." There were "separate certifications [from Bello] to the effect that according to the records of the redrying plant, the plaintiffs had specified quantities of tobacco under specified Guias ready for inspection and grading at the receiving ramps before July 24, 1963. These certifications 8 are exhibits in this case." Then came a detailed appraisal of the evidence by the lower court: "From the evidence, it appears that, pursuant to its powers and duties under Republic Act No. 2265, the PVTA issued rules and regulations,in respect to its tobacco trading operations, and assigned men to its recognized trading entities among them the plaintiffs, to see that these rules and regulations were observed. The entities even had to apply with the PVTA and were screened before PVTA accepted them as its trading entities. As admitted by the witnesses of the PVTA, notably Ballesil and Millan these PVTA men supervised the grading, weighing, baling of tobacco, and other activities in the buying station of the trading entities to which they were assigned. These PVTA men, Identified by Ballesil as PVTA Field Inspectors, signed the documents covering tobacco, such as the pre-sales invoices showing names of the farmer sellers, the quantity and grade of tobacco received from these farmers; the abstracts of tobacco purchased; the progressive stock and shipment control form showing the status of stocks after each shipment to the PVTA; the commercial waybill and other documents pertaining to shipments. They saw to it that the tobacco was properly graded and in fact, the PVTA tobacco inspector saw to it that the tobacco was classified according to the standards provided by the PVTA. They also saw to it that the tobacco was properly weighed and baled, and loaded on trucks for transhipment duly sealed. They saw to it also that the shipping documents were complete and in order. These obviously are not the usual acts of an ordinary buyer of a commodity. Among the shipping documents may be mentioned PVTA Form 30, entitled Request for Tobacco Clearance, addressed to the PVTA Provincial Tobacco Agent. According to the defendant's answers to plaintiffs' request for admission, it was the function of this PVTA agent to process the said request and the supporting documents before giving him clearances to the shipment and recommending its acceptance. It was he alone who could decide to what redrying plant the shipment should be sent. An this indicates the extensive intervention of the PVTA in the buying and shipping activities at the level of the trading entities. Once made, the clearance given by the PVTA provincial tobacco agent was an indication that the required shipping documents were complete and in order and that the shipment; was strictly in accordance with the PVTA regulations. Upon arrival of the shipment at the redrying plant designated by the PVTA, the shipping documents were delivered to the PVTA traffic officer thereat and were processed. The shipment was then given by the PVTA a gate pass, ' an unloading permit, and a priority slip stating the time it would be unloaded and graded in the plant. The presence of the shipment is actually verified by the PVTA Plant Manager. A shipment could not be brought inside the plant and unloaded at the receiving ramps without prior authority of the PVTA, and once inside the plant, it could no longer be withdrawn without proper application by the entity concerned addressed to the PVTA general manager. It is thus clear that the PVTA had virtual control over the shipments after they had left the hands of the trading entities. It is also clear that the PVTA, in the implementation of its contract with the CCE, did not delegate to the latter any of its powers and duties under the law to buy Virginia tobacco. In fact Bello testified that PVTA controlled, directed and supervised the CCE in the performance by the latter of all activities in the tobacco trading operations in 9 1963." Further on this point: "As above stated, the plaintiffs' shipments had long been in the CCE ramps waiting to be inspected when they were burned. According to Ballesil, PVTA Tobacco Plant Manager assigned to the CCE, there was only redrying of tobacco from July 13 until the fire occurred; there was no inspection or acceptance of tobacco shipments. Inspection of shipments was suspended; and he claimed as the reason the alleged lack of space in the transit area where inspected tobacco would be stored to await redrying. Obviously, as a result of delays and suspensions of operations, there arose a backlog of shipments waiting to be inspected at the CCE ramps. But there is no explanation why, considering these suspensions, the PVTA kept on authorizing the unloading of shipments which were not being inspected fast enough. It is also significant that the PVTA states in its answer that the CCE redrying plant and facilities 'caught fire and burned down due and owing to its (CCE) carelessness or negligence or its officials and employees;' and the PVTA accuses these officials and employees with being 'grossly and inexcusably careless and negligent in not preventing 10 and arresting the spread of the fire.'" From the above recital, it is easy to understand why, as decided by the lower court, plaintiffs, now private respondents, should prevail: "In the light of the foregoing, the denial of liability on the part of the defendant PVTA cannot be sustained. It has virtual control of the shipments even at the plaintiffs' stations and specially after they had been

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cleared and sent to the CCE plant and unloaded for inspection at the CCE ramps. It is reasonable to say that these shipments, pursuant to the scheduling and priorities established by the defendants themselves, should have been inspected before July 24, 1963 since they were shipped to the CCE as early as May and June 23, 1963, as shown in the shipping documents. But they were not inspected early enough, and this evidently because of delays and suspension of operations in the CCE plant. This Court wonders whether the causes of the delays and suspensions could have been avoided Or ed by the defendants considering that the trading operations started as early as April 1963, indicating that they had had enough experience and know- how to enable them to cope with the situation. Moreover, there is the allegation of the PVTA, which may be considered as an admission against interest vis-a-vis the claims of the plaintiffs, to the effect that its own agent and contractor, the CCE, was careless and negligent in causing the fire and in not Preventing and arresting the spread of the fire. When an the fault clearly lies with the defendants, it would be the height of injustice to deny the plaintiffs' claims. Their shipments which had long been in the ramps for inspection were not inspected in due time and the delay is traceable to the fault of the defendants, whereas the plaintiffs themselves had done everything that was required of them by the PVTA regulations in order to have their tobacco inspected and paid for. The value of the tobacco is, incidentally, stated in the shipping documents. This Court believes that the PVTA already had the legal control and custody of said shipments and that it should be considered as having accepted them as of the fire and therefore should bear the 11 loss." Judgment was, therefore, rendered by the lower court ordering PVTA to pay to the plaintiffs the amount of their respective claims, as follows: ... Eastern Vigan VTPA Inc., Guia No. 38-P26,936.68; San Nicolas Facoma, Inc., Guia No. 76-P21,622.73; Ilocos Sur Tobacco Industries Corp., Guia No. 109-P15,922.08; Tagudin Facoma, Inc., Guia No. 445-P27,743.56; Tagudin Facoma, Inc., Guia No. 450-P27,284.84; Tagudin Facoma, Inc., Guia No. 439-P23.669.44; Tagudin Facoma, Inc., Guia No. 438P43,725.64; San Juan Tobacco Planters. Inc., Guia No. 30-P28,351.19; Sta. Monica Tobacco Planters Assn., Inc., Guia No. 17-P29,677.59; Sta. Monica Tobacco Planters Assn. Inc., Guia No. 18-P30,980.31; Norfex- Villaviciosa, Guia No. 653-P22,174.22; Norfex-Villaviciosa, Guia No. 661-P19,074.79; Boundary VTPA Guia No. 20P28,494.10; Boundary VTPA Guia No. 24-P28,494. 10; Boundary VTPA Guia No. 25P33,998.74; Luzon Producers Corporation, Guia No. 2-P18,978.51; Central Reliance Tobacco Farmers Corp., Guia No. 12-P12,150.00; Lidlidda VTPA Inc., Guia No. 42P21,444.17; Lidlidda VTPA Inc., Guia No. 18-P22,590.00; Filipino Agricultural Producers Inc., Guia No. 21-P23,851.00; Allied Tobacco Planters, Inc., Guia No. 36P30,300.00; Allied Tobacco Planters, Inc., Guia No. 38-P30,165.00; Allied Tobacco Planters, Inc., Guia No. 40-P33,966.00; La Union Agri. Development Corp., Guia No. 13- P27,475.00; Asingan Facoma, Inc., Guia No. 183-P36.000.00 United San Ildefonso VTG Assn., Inc., Guia No. 8-P31,750.00 with legal interest thereon from August 1, 1963 until fully paid; plus the sum equivalent to 10% of the total amount based on the principal obligation as and by way of attorneys fees, and the costs of suit. The crossclaim of the PVTA against the CCE is hereby dismissed. The plaintiff Allied Tobacco Planters, Inc. is ordered to pay to the PVTA the sum of P14,162.47 with legal interest 12 thereon from August 1, 1963." As noted at the outset, the appealed decision is entitled to affirmance. 1. It bears repeating that the trial court was satisfied as to the fact of delivery of the tobacco in question at the redrying plant of petitioner agent, the CCE. It was also found by it that the PVTA directed supervised and controlled the CCE in receiving shipments of tobacco and in the performance of its activities, and that the tobacco, once received from the trading entities, were under its control, not subject to withdrawal without its authority. The procedure was so carefully designed that the supervision by it could be rendered most effective. Thus any attempt to exculpate itself thereafter on alleged deficiencies could succeed only if the evidence offered by petitioner were of such a nature as to justify evasion of what is required by law no less than by morality. Clearly Proof of such character was lacking in this case. Hence the way the decision turned. It had to be- adverse to its pretension. As a matter of fact, in the brief of petitioner, the Solicitor General made the following admission: "It may be conceded, for purposes of this appeal, that plaintiffs brought the tobacco shipments in question to the CCE redrying plant at Agoo, La Union, in 1963, to be sold to the PVTA, thru CCE, and that the same were unloaded and awaiting inspection, grading and weighing, when they 13 were burned on July 24, 1963." 2. It is likewise worth mentioning That for sometime after the conflagration there was no question raised as to its liability. At the most, as with some debtors, the delay in payment was sought to be justified for the need for further study or the lack of money. As put by the trial court, "the aforesaid officers also testified that after the fire and even in the next following years, they made demands for the payment of their shipments but these demands were ignored. Mention should be made of the testimony of Constants Somera who in 1963, besides being the manager of plantiff Tagudin Facoma, was President of the National Federation of Facoma's, Vice-President of the Ilocos Federation of Facoma's, and a member of the Board of Directors of defendant CCE. He testified that in about five occasions, officers of all the plaintiffs went to him for assistance in the collection of their claims, and he headed delegations to the defendants and notably to PVTA Chairman Balmaceda and PVTA General Manager Bananal, but that the latter gave all sorts of excuses such as the need of further study of the matter and the lack of money. So after many attempts proved futile, Somera 14 advised his colleagues that they go to court." 3. It would thus appear that the merit of the case for private respondents is impressed with merit. So the lower court decided. In this petition for review, the PVTA would assail the judgment reached on the allegation that the contract of sale was not perfected. Such an assertion, on the face of the facts as found, would appear to be clearly untenable. Nonetheless, it was sought to lend it plausibility in the eight-page brief of petitioner by the argument that the shipments of the tobacco in question "were still to 15 be inspected, graded and weighed." Such a contention certainly cannot suffice to overturn the decision. For one thing, it raised an issue of fact, the ruling on which, as could be expected, was adverse to petitioners. For its own fieldmen had the responsibility of such tobacco being graded, weighed, baled and loaded on trucks duly sealed for transportation to its redrying plant. That responsibility was fulfilled as found by the trial court. The grading was done according to the standards on samples provided by petitioner. The shipping documents were in order. The weight and grades of such tobacco were certified by such fieldmen and thereafter processed by its provincial tobacco agent. It was only then that clearance was given, the PVTA requirements having been met. The futility of the effort to deny the perfection of the

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contract of sale is thus rather apparent. So it has been from Irureta v. Tambunting, a 1902 decision. All that was required was that there be an agreement on the thing which is the subject of the contract and upon the price. So it was provided by Article 1450 of the Civil Code of Spain of 1889 then in force. There is difference in phraseology but not in meaning under the present-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 17 and upon the price." It remains to be noted that the Tambunting doctrine was 18 followed in subsequent cases. 4. It suffices to recall the relevant facts as found by the trial court to render unmistakable how lacking in persuasiveness is the contention that the contract was not perfected because of an alleged technical defect. Smith Bell and Company v. 19 Jimenez, decided in 1963, comes to mind. In that case, there was a delivery by petitioner of a typewriter upon requisition of the Municipality of Paniqui, Tarlac, but ten days thereafter, the municipal building was totally razed by a fire. Notwithstanding the fact that the Municipal Treasurer, as well as the Provincial Treasurer of Tarlac recommended payment, respondent Auditor disapproved the claim on the ground that the article in question was never presented for inspection and verification, Justice Barrera, speaking for the Court, after noting that there was indeed such delivery, stated that even on the assumption then that not all the terms of the contract as to inspection were fully complied with, "yet upon the facts obtaining in this case, we believe that injustice would be done the petitioner if we apply said principle to the present claim ." 20 He stressed both "the law and equity of the case [in holding that] the municipality of Paniqui is legally bound to pay for the price of the typewriter involved herein and, 21 therefore, the decision of the Auditor General is hereby reversed ." In La Fuerza, Inc. 22 v. Court of Appeals, this Court, through the then Chief Justice Concepcion, stressed the doctrine that the decisive factor is the delivery of the thing sold. So that it is placed in the control and possession of the vendee. This was what happened in this case. The liberality with which this Court views the stage of perfection in a contract of sale is 23 likewise manifest in Republic v. Lichauco, where this Court, with Justice Zaldivar as ponente, held that there could be a valid and binding agreement providing for sale of property yet to be adjudicated by the court. Only thus may the law be infused with the highest concept of equity and fair dealing. As it was in those cases, so it should be now. 5. It is understandable for petitioner as custodian of public lands to see to it that only valid and legitimate claims should be honored. In that light, the appeal from the lower court decision cannot be viewed unfavorably. Nonetheless, when it is remembered that the adverse effects of the failure to pay for the tobacco would be a number of small planters, there is warrant for the view that no failure in the performance of public duty could be imputed to any official if on the tacts as found, there being the required delivery and there being no question yet as to the fire having been the cause of loss, the payments could have been made after its investigation. Only thus, to follow the Smith Bell decision, would there be an avoidance of injustice and conformity with "the law and equity of the case." WHEREFORE, the decision of the lower court of December 28, 1970 is affirmed. No costs.
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Castro, C.J., Concepcion, Jr., Santos, Fernandez and Guerrero, JJ., concur. Teehankee, J., concurs in the dissenting opinion of Mr. Justice Aquino. Barredo, J., concurs. I believe private respondents had already done what was incumbent upon then when the loss by fire occured. Makasiar, J., concurs in the dissent of Justice Aquino. Republic SUPREME Manila THIRD DIVISION [G.R. No. 111743. October 8, 1999] VISITACION GABELO, ERLINDA ABELLA, PETRA PEREZ, ERLINDA TRAQUENA, BEN CARDINAL, EDUARDO TRAQUENA, LEOPOLDO TRAQUENA, MARIFE TUBALAS, ULYSIS MATEO, JOCELYN FERNANDEZ, ALFONSO PLACIDO, LEONARDO TRAQUENA, SUSAN RENDON AND MATEO TRINIDAD, petitioners, vs. COURT OF APPEALS, URSULA MAGLENTE, CONSOLACION BERJA, MERCEDITA FERRER, THELMA ABELLA, ANTONIO NGO, and PHILIPPINE REALTY CORPORATION, Respondents. DECISION PURISIMA, J.: This is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, of the decision of the Court of Appeals, dated April 29, 1993, in CA-G.R. CV No. 33178, affirming the decision of the Regional Trial Court of Manila, Branch 38, in Civil Case No. 89-48057, entitled Philippine Realty Corporation vs. Ursula Maglente, et al., declaring the defendants (herein respondents) as the rightful party to purchase the land under controversy, and ordering the plaintiff, Philippine Realty Corporation (PRC, for brevity), to execute the corresponding Contract of Sale/Contract to Sell in favor of the defendants aforenamed. The antecedent facts culminating in the filing of the present petition are as follows: On January 15, 1986, Philippine Realty Corporation, owner of a parcel of land at 400 Solana Street, Intramuros, Manila, with an area of 675.80 square meters, and covered by Transfer Certificate of Title No. 43989, entered into a Contract of Lease thereover with the herein private respondent, Ursula Maglente. The lease was for a period of three (3) years at a monthly rental of P3,000.00 during the first year, P3,189.78 per of the Philippines COURT

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month in the second year and P3,374.00 monthly for the third year. The lease contract stipulated: 12. That the LESSOR shall have the right to sell any part of the entire leased land for any amount or consideration it deems convenient, subject to the condition, however, that the LESSEE shall be notified about it sixty (60) days in advance; that the LESSEE shall be given the first priority to buy it; and in the event that the LESSEE cannot afford to buy, the final buyer shall respect this lease for the duration of the same, except in cases of exproriation. It also prohibited the lessee to cede, transfer, mortgage, sublease or in any manner encumber the whole or part of the leased land and its improvements or its rights as LESSEE of the leased land, without the previous consent in writing of the LESSOR contained in a public instrument. However, after the execution of the lease agreement, respondent Maglente started leasing portions of the leased area to the herein petitioners, Visitacion Gabelo, Erlinda Abella, Petra Perez, Erlinda Traquena, Ben Cardinal, Eduardo Traquena, Leopoldo Traquena, Marife Tubalas, Ulysis Mateo, Jocelyn Fernandez, Alfonso Placido, Leonardo Traquena, Susan Rendon and Mateo Trinidad, who erected their respective houses thereon. On March 9, 1987, when the lease contract was about to expire, the Philippine Realty Corporation, through its Junior Trust and Property Officers, Mr. Leandro Buguis and Mr. Florentino B. Rosario, sent a written offer to sell subject properties to respondent Ursula Maglente. The said letter stated: We wish to inform you that the Archdiocese of Manila has now decided to open for sale the properties it own (sic) in the District of Intramuros, Manila. However, before we acccept offers from other parties we are of course giving the first priority to our tenants or lessees of Intramuros lots. Responding to such written offer, Maglente wrote a letter, dated February 2, 1988, to the Roman Catholic Archbishop of Manila manifesting an intention to exercise her right of first priority to purchase the property as stipulated in the lease contract. On February 15, 1988, a Memorandum on the offer of Maglente to purchase the property was prepared and presented to Msgr. Domingo Cirilos, president of Philippine Realty Corporation, at the offered price ofP1,800.00 per square meter or for a total amount of P1,216,440.00, with a downpayment of P100,000.00; the balance of the purchase price payable within ten (10) years with interest at the rate of eighteen (18%) percent per annum. Msgr. Cirilos found the offer acceptable and approved the same. On May 11, 1988, Maglente gave a partial downpayment of P25,000.00 and additional P25,000.00 on May 20, 1988. In a letter, dated January 28, 1989, Maglente informed the said corporation that there were other persons who were her co-buyers, actually occupying the premises, namely: Consolacion Berja, Mercedita Ferrer, Thelma Abella and Antonio Ngo within their respective areas of 100, 50, 60 and 400 square meters. On January 30, 1989 Maglente paid her back rentals of P60,642.16 and P50,000.00 more, to complete her downpayment of P100,000.00. On February 1989, Philippine Realty Corporation (PRC) received copy of a letter sent by the herein petitioners to the Archbishop of Manila, Jaime Cardinal Sin, expressing their desire to purchase the portions of subject property on which they have been staying for a long time. And so, PRC met with the petitioners who apprised the corporation of their being actual occupants of the leased premises and of the impending demolition of their houses which Maglente threatened to cause. Petitioners then asked PRC to prevent the demolition of their houses which might result in trouble and violence. On February 23, 1989, in order to resolve which group has the right to purchase subject property as between the petitioners/sublessees of Maglente, and respondent Maglente, and her co-buyers, PRC brought a Complaint in Interpleader against the herein petitioners and private respondents, docketed as Civil Case No. 89-48057 before Branch 38 of the Regional Trial Court of Manila. On March 11, 1991, after trial on the merits, the lower court of origin rendered judgment in favor of respondent Maglente and her group, disposing thus: WHEREFORE, premises considered, judgment is hereby rendered as follows: 1. Declaring the defendants Ursula Maglente, Consolacion Berja, Mercedita Ferrer, Thelma Abella and Antonio Ngo as the rightful party to purchase the land in controversy; and 2. Ordering plaintiff Philippine Realty Corporation to execute the corresponding contract of sale/contract to sell in favor of the defendants aforementioned in accordance with this Decision within thirty (30) days from notice thereof. Dissatisfied with the aforesaid decision below, the Gabelo group (petitioners here) appealed to the Court of Appeals, which affirmed the disposition of the trial court appealed from. Undaunted, petitioners found their way to this Court via the present petition, assigning as sole error the ruling of the Court of Appeals upholding the right of the private respondents, Consolacion Berja and Antonio Ngo, to purchase subject property. Petitioners theorize that they are tenants of Ursula Maglente on the land in dispute, which they are occupying, and as such actual occupants they have the preferential right to purchase the portions of land respectively occupied by them; that the private respondents, Thelma Abella and Antonio Ngo, have never been occupants of the

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contested lot, and that, as defined in the Pre-trial Order issued below, the issue for resolution should have been limited to whether or not Berja and Ngo actually occupied the premises in question because occupation thereon is the basis of the right to purchase subject area. Petitioners contention is untenable. There is no legal basis for the assertion by petitioners that as actual occupants of the said property, they have the right of first priority to purchase the same. As regards the freedom of contract, it signifies or implies the right to choose with whom to contract. PRC is thus free to offer its subject property for sale to any interested person. It is not duty bound to sell the same to the petitioners simply because the latter were in actual occupation of the property absent any prior agreement vesting in them as occupants the right of first priority to buy, as in the case of respondent Maglente. As a matter of fact, because it (PRC) contracted only with respondent Maglente, it could even evict the petitioners from the premises occupied by them considering that the sublease contract between petitioners and Maglente was inked without the prior consent in writing of PRC, as required under the lease contract. Thus, although the other private respondents were not parties to the lease contract between PRC and Maglente, the former could freely enter into a contract with them. So also, the contract of sale having been perfected, the parties thereto are already bound thereby and petitioners can no longer assert their right to buy. 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 2 price. From the time a party accepts the other partys offer to sell within the stipulated 3 period without qualification, a contract of sale is deemed perfected. crlwvirtualibrry In the case under consideration, the contract of sale was already perfected - PRC offered the subject lot for sale to respondent Maglente and her group through its Junior Trust and Property Officers. Respondent Maglente and her group accepted such offer through a letter addressed to the Roman Catholic Archbishop of Manila, dated February 2, 1988, manifesting their intention to purchase the property as provided for under the lease contract. Thus, there was already an offer and acceptance giving rise to a valid contract. As a matter of fact, respondents have already completed payment of their downpayment of P100,000.00. Therefore, as borne by evidence on record, the 4 requisites under Article 1318 of the Civil Code for a perfected contract have been met. Anent petitioners submission that the sale has not been perfected because the parties have not affixed their signatures thereto, suffice it to state that under the law, the meeting of the minds between the parties gives rise to a binding contract although they 5 have not affixed their signatures to its written form. crlwvirtualibrry WHEREFORE, the petition is hereby DENIEDfor lack of merit and the decision of the Court of Appeals in CA-G.R. CV No. 33178 AFFIRMED. No pronouncement as to costs.
1

SO ORDERED. Melo, Acting C.J., (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur. SECOND DIVISION

HEIRS OF CAYETANO * CONSUELO PANGAN,

PANGAN Petitioners,

and

G.R. No. 157374 Present: QUISUMBING, J., Chairperson, CARPIO-MORALES, BRION, DEL CASTILLO, and ABAD, JJ.

versus

SPOUSES ROGELIO PERRERAS PRISCILLA PERRERAS, Respondents.

and

Promulgated:

August 27, 2009 x ------------------------------------------------------------------------------------------x

DECISION

BRION, J.:

The heirs

[1]

of spouses Cayetano and Consuelo Pangan (petitioners-heirs) seek

[2]

the reversal of the Court of Appeals (CA) decision resolution of February 20, 2003, in CA-G.R. CV Case petition for review on certiorari. (RTC) ruling
[4] [3]

of June 26, 2002, as well its No. 56590 through the present

The CA decision affirmed the Regional Trial Courts

which granted the complaint for specific performance filed by spouses

Rogelio and Priscilla Perreras (respondents) against the petitioners-heirs, and dismissed the complaint for consignation instituted by Consuelo Pangan ( Consuelo) against the respondents. THE FACTUAL ANTECEDENTS

7
expressed her willingness to return the P20,000.00 earnest money she received from The spouses Pangan were the owners of the lot and two-door apartment (subject properties) located at 1142 Casaas St., Sampaloc, Manila.
[5]

the respondents. The RTC ruled in the respondents favor; it upheld the existence of a perfected contract of sale, at least insofar as the sale involved Consuelos conjugal and hereditary shares in the subject properties. The trial court found that Consuelos receipt of the P20,000.00 earnest money was an eloquent manifestation of the perfection of the contract. Moreover, nothing in the June 2, 1989 receipt showed that the agreement was conditioned on the consent of the petitioners-heirs. Even so, the RTC declared that the sale is valid and can be enforced against Consuelo; as a co-owner, she had fullownership of the part pertaining to her share which she can alienate, assign, or

On June 2,

1989, Consuelo agreed to sell to the respondents the subject properties for the price of P540,000.00. On the same day, Consuelo received P20,000.00 from
[6]

the that

respondents as earnest money, evidenced by a receipt (June 2, 1989 receipt) also included the terms of the parties agreement.

Three days later, or on June 5, 1989, the parties agreed to increase the purchase price from P540,000.00 to P580,000.00. In compliance with the agreement, the respondents issued two Far East Bank and Trust Company checks payable to Consuelo in the amounts of P200,000.00 andP250,000.00 on June 15, 1989. Consuelo, however, refused to accept the checks. She justified her refusal by saying that her children (the petitioners-heirs) coowners of the subject properties did not want to sell the subject properties. For the same reason, Consuelo offered to return the P20,000.00 earnest money she received from the respondents, but the latter rejected it. Thus, Consuelo filed a complaint for consignation against the respondents on September 5, 1989, docketed as Civil Case No. 89-50258, before the RTC of Manila, Branch 28. The respondents, who insisted on enforcing the agreement, in turn instituted an action for specific performance against Consuelo before the same court on September 26, 1989. This case was docketed as Civil Case No. 89-50259. They sought to compel Consuelo and the petitioners-heirs (who were subsequently impleaded as codefendants) to execute a Deed of Absolute Sale over the subject properties. In her Answer, Consuelo claimed that she was justified in backing out from the agreement on the ground that the sale was subject to the consent of the petitionersheirs who became co-owners of the property upon the death of her husband, Cayetano. Since the petitioners-heirs disapproved of the sale, Consuelo claimed that the contract became ineffective for lack of the requisite consent. She nevertheless

mortgage. The petitioners-heirs, however, could not be compelled to transfer and deliver their shares in the subject properties, as they were not parties to the agreement between Consuelo and the respondents. Thus, the trial court ordered Consuelo to convey one-half (representing Consuelos conjugal share) plus one -sixth (representing Consuelos hereditary share) of the subject properties, and to pay P10,000.00 as attorneys fees to the respondents. Corollarily, it dismissed Consuelos consignation complaint. Consuelo and the petitioners-heirs appealed the RTC decision to the CA claiming that the trial court erred in not finding that the agreement was subject to a suspensive condition the consent of the petitioners-heirs to the agreement. The CA, however, resolved to dismiss the appeal and, therefore, affirmed the RTC decision. As the RTC did, the CA found that the payment and receipt of earnest money was the operative act that gave rise to a perfected contract, and that there was nothing in the parties agreement that would indicate that it was subject to a suspensive condition. It declared: Nowhere in the agreement of the parties, as contained in the June 2, 1989 receipt issued by [Consuelo] xxx, indicates that [Consuelo] reserved titled on [sic] the property, nor does it contain any provision subjecting the sale to a positive suspensive condition.

8
Unconvinced by the correctness of both the RTC and the CA rulings, the petitioners-heirs filed the present appeal by certiorari alleging reversible errors committed by the appellate court. 1. THE PETITION 2. 3. The petitioners-heirs primarily contest the finding that there was a perfected contract executed by the parties. They allege that other than the finding that Consuelo receivedP20,000.00 from the respondents as earnest money, no other evidence supported the conclusion that there was a perfected contract between the parties; they insist that Consuelo specifically informed the respondents that the sale still required the petitioners-heirs consent as co-owners. The refusal of the petitioners-heirs to sell the subject properties purportedly amounted to the absence of the requisite element of consent. Even assuming that the agreement amounted to a perfected contract, the petitioners-heirs posed the question of the agreements proper characterization whether it is acontract of sale or a contract to sell. The petitioners-heirs posit that the agreement involves a contract to sell, and the respondents belated payment of part of the purchase price,i.e., one day after the June 14, 1989 due date, amounted to the nonfulfillment of a positive suspensive condition that prevented the contract from acquiring obligatory force. In support of this contention, the petitioners-heirs cite the Courts ruling in the case of Adelfa Rivera, et al. v. Fidela del Rosario, et al.:
[7]

From these contentions, we simplify the basic issues for resolution to three questions: Was there a perfected contract between the parties? What is the nature of the contract between them? and What is the effect of the respondents belated payment on their contract?

THE COURTS RULING

There was a perfected contract between the parties since all the essential requisites of a contract were present

Article 1318 of the Civil Code declares that no contract exists unless the following requisites concur: (1) consent of the contracting parties; (2) object certain which is

the subject matter of the contract; and (3) cause of the obligation established. Since the object of the parties agreement involves properties co -owned by Consuelo and her children, the petitioners-heirs insist that their approval of the sale initiated by their mother, Consuelo, was essential to its perfection. Accordingly, their refusal amounted to the absence of the required element of consent. 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 Code
[8]

recognizes the absolute right

In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; while 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. In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. [Rivera], however, failed to complete payment of the second installment. The non-fulfillment of the condition rendered the contract to sell ineffective and without force and effect. [Emphasis in the original.]

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. Thus, when Consuelo agreed to sell to the respondents the subject properties, what she in fact sold was her undivided interest that, as quantified by the RTC, consisted of one-half interest, representing her conjugal share, and one-sixth interest, representing her hereditary share. The petitioners-heirs nevertheless argue that Consuelos consent was predicated on their consent to the sale, and that their disapproval resulted in the withdrawal of Consuelos consent. Yet, we find nothing in the parties agreement or even conduct

9
save Consuelos self-serving testimony that would indicate or from which we can infer that Consuelos consent depended on her childrens approval of the sale. The explicit terms of the June 8, 1989 receipt
[9]

Law, and the petitioners-heirs payment

provide no occasion for any reading that the

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

agreement is subject to the petitioners-heirs favorable consent to the sale.

The presence of Consuelos consent and, corollarily, the existence of a perfected contract between the parties are further evidenced by the payment and receipt ofP20,000.00, 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. In cases where the Court reached a conclusion contrary to the presumption declared in Article 1482, we found that the money initially paid was given to guarantee that the buyer would not back out from the sale, considering that the parties to the sale have yet to arrive at a definite agreement as to its terms that is, a situation where the contract has not yet been perfected.
[10]

of part of the purchase price) and the remedies to which they, as the non-defaulting party, are entitled. The question of characterization of the contract involved here would necessarily call for a thorough analysis of the parties agreement as embodied in the June 2, 1989receipt, their contemporaneous acts, and the circumstances surrounding the contracts perfection and execution. Unfortunately, the lower courts factual findings provide insufficient detail for the purpose. 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 consi dered 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.

These situations do not obtain in the present case, as neither of the

parties claimed that the P20,000.00 was given merely as guarantee by the respondents, as vendees, that they would not back out from the sale. As we have pointed out, the terms of the parties agreement are clear and explicit; indeed, all the essential elements of a perfected contract are present in this case. While the respondents required that the occupants vacate the subject properties prior to the payment of the second installment, the stipulation does not affect the perfection of the contract, but only its execution.

Admittedly, the given facts, as found by the lower courts, and in the absence of additional details, can be interpreted to support two conflicting conclusions. The

In sum, the case contains no element, factual or legal, that negates the existence of a perfected contract between the parties. The characterization of the contract can be considered irrelevant in this case in light of Article 1592 and the Maceda

failure of the lower courts to pry into these matters may understandably be explained by the issues raised before them, which did not require the additional details. Thus, they found the question of the contracts characterization immaterial in their discussion of the facts and the law of the case. Besides, the petitioners-heirs raised the question

10
of the contracts characterization and the effect of the breach for the first time through the present Rule 45 petition. Points of law, theories, issues and arguments not brought to the attention of the lower court need not be, and ordinarily will not be, considered by the reviewing court, as they cannot be raised for the first time at the appellate review stage. Basic considerations of fairness and due process require this rule.
[12]

fulfillment of the condition of full payment rendered the contract to sell ineffective and without force and effect. [Emphasis supplied.]

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

At any rate, we do not find the question of characterization significant to fully pass upon the question of default due to the respondents b reach; ultimately, the breach was cured and the contract revived by the respondents payment a day after the due date. 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: Article 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may 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 a notarial act. After the demand, the court may not grant him a new term. [Emphasis supplied.]

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: xxxx 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 Thirtyeight hundred forty-four 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.]

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. We stated in Ong v. CA
[13]

that: In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring obligatory force. The nonSignificantly, 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.

11
The contract entered into by the parties herein can very well fall under the Maceda Law. Based on the above discussion, we conclude that the respondents payment on June 15, 1989 of the installment due on June 14, 1989 effectively defeated the petitioners-heirs right to have the contract rescinded or cancelled. Whether the parties agreement is characterized as one of sale or to sell is not relevant in light of the respondents payment within the grace period provided under Article 1592 of the Civil Code and Section 4 of the Maceda Law. The petitioners-heirs obligation to accept the payment of the price and to convey Consuelos conj ugal and hereditary shares in the subject properties subsists. WHEREFORE, we DENY the petitioners-heirs petition for review on certiorari, and AFFIRM the decision of the Court of Appeals dated June 24, 2002 and its resolution dated February 20, 2003 in CA-G.R. CV Case No. 56590. Costs against the petitioners-heirs. SO ORDERED. ARTURO D. BRION Associate Justice Cabigas; and (2) its Resolution dated December 16, 1981, denying defendantappellant's (Petitioner's) motion for reconsideration, for lack of merit.chanroblesvirtualawlibrary chanrobles virtual law library The undisputed facts as found by the Court of Appeals are as follows: The Dignos spouses were owners of a parcel of land, known as Lot No. 3453, of the cadastral survey of Opon, Lapu-Lapu City. On June 7, 1965, appellants (petitioners) Dignos spouses sold the said parcel of land to plaintiff-appellant (respondent Atilano J. Jabil) for the sum of P28,000.00, payable in two installments, with an assumption of indebtedness with the First Insular Bank of Cebu in the sum of P12,000.00, which was paid and acknowledged by the vendors in the deed of sale (Exh. C) executed in favor of plaintiff-appellant, and the next installment in the sum of P4,000.00 to be paid on or before September 15, 1965.chanroblesvirtualawlibrary chanrobles virtual law library On November 25, 1965, the Dignos spouses sold the same land in favor of defendants spouses, Luciano Cabigas and Jovita L. De Cabigas, who were then U.S. citizens, for the price of P35,000.00. A deed of absolute sale (Exh. J, also marked Exh. 3) was executed by the Dignos spouses in favor of the Cabigas spouses, and which was registered in the Office of the Register of Deeds pursuant to the provisions of Act No. 3344.chanroblesvirtualawlibrary chanrobles virtual law library As the Dignos spouses refused to accept from plaintiff-appellant the balance of the purchase price of the land, and as plaintiff- appellant discovered the second sale made by defendants-appellants to the Cabigas spouses, plaintiff-appellant brought the present suit. (Rollo, pp. 27-28) After due trial, the Court of first Instance of Cebu rendered its Decision on August 25,1972, the decretal portion of which reads: WHEREFORE, the Court hereby declares the deed of sale executed on November 25, 1965 by defendant Isabela L. de Dignos in favor of defendant Luciano Cabigas, a citizen of the United States of America, null and void ab initio, and the deed of sale executed by defendants Silvestre T. Dignos and Isabela Lumungsod de Dignos not rescinded. Consequently, the plaintiff Atilano G. Jabil is hereby ordered to pay the sum, of Sixteen Thousand Pesos (P16,000.00) to the defendants-spouses upon the execution of the Deed of absolute Sale of Lot No. 3453, Opon Cadastre and when the decision of this case becomes final and executory.chanroblesvirtualawlibrary chanrobles virtual law library The plaintiff Atilano G. Jabil is ordered to reimburse the defendants Luciano Cabigas and Jovita L. de Cabigas, through their attorney-in-fact, Panfilo Jabalde, reasonable amount corresponding to the expenses or costs of the hollow block fence, so far constructed.chanroblesvirtualawlibrary chanrobles virtual law library It is further ordered that defendants-spouses Silvestre T. Dignos and Isabela Lumungsod de Dignos should return to defendants-spouses Luciano Cabigas and

THIRD DIVISION G.R. No. L-59266 February 29, 1988 SILVESTRE DIGNOS and ISABEL LUMUNGSOD, Petitioners, vs. HON. COURT OF APPEALS and ATILANO G. JABIL, Respondents.

BIDIN, J.: This is a petition for review on certiorari seeking the reversal of the: (1) Decision * of the 9th Division, Court of Appeals dated July 31,1981, affirming with modification the Decision, dated August 25, 1972 of the Court of First Instance ** of Cebu in civil Case No. 23-L entitled Atilano G. Jabil vs. Silvestre T. Dignos and Isabela Lumungsod de Dignos and Panfilo Jabalde, as Attorney-in-Fact of Luciano Cabigas and Jovita L. de

12
Jovita L. de Cabigas the sum of P35,000.00, as equity demands that nobody shall enrich himself at the expense of another.chanroblesvirtualawlibrary chanrobles virtual law library The writ of preliminary injunction issued on September 23, 1966, automatically becomes permanent in virtue of this decision.chanroblesvirtualawlibrary chanrobles virtual law library With costs against the defendants. From the foregoing, the plaintiff (respondent herein) and defendants-spouss (petitioners herein) appealed to the Court of Appeals, which appeal was docketed therein as CAG.R. No. 54393-R, "Atilano G. Jabil v. Silvestre T. Dignos, et al." chanrobles virtual law library On July 31, 1981, the Court of Appeals affirmed the decision of the lower court except as to the portion ordering Jabil to pay for the expenses incurred by the Cabigas spouses for the building of a fence upon the land in question. The disposive portion of said decision of the Court of Appeals reads: IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to the modification of the judgment as pertains to plaintiff-appellant above indicated, the judgment appealed from is hereby AFFIRMED in all other respects.chanroblesvirtualawlibrary chanrobles virtual law library With costs against defendants-appellants.chanroblesvirtualawlibrary chanrobles virtual law library SO ORDERED.chanroblesvirtualawlibrary chanrobles virtual law library Judgment MODIFIED. A motion for reconsideration of said decision was filed by the defendants- appellants (petitioners) Dignos spouses, but on December 16, 1981, a resolution was issued by the Court of Appeals denying the motion for lack of merit.chanroblesvirtualawlibrarychanrobles virtual law library Hence, this petition.chanroblesvirtualawlibrary chanrobles virtual law library In the resolution of February 10, 1982, the Second Division of this Court denied the petition for lack of merit. A motion for reconsideration of said resolution was filed on March 16, 1982. In the resolution dated April 26,1982, respondents were required to comment thereon, which comment was filed on May 11, 1982 and a reply thereto was filed on July 26, 1982 in compliance with the resolution of June 16,1 982. On August 9,1982, acting on the motion for reconsideration and on all subsequent pleadings filed, this Court resolved to reconsider its resolution of February 10, 1982 and to give due THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REJECTING THE APPLICABILITY OF ARTICLES 2208,2217 and 2219 OF THE NEW CIVIL CODE AND ESTABLISHED JURISPRUDENCE AS TO WARRANT THE AWARD OF DAMAGES AND ATTORNEY'S FEES TO PETITIONERS.chanroblesvirtualawlibrary chanrobles virtual law library IV chanrobles virtual law library PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE SHOULD HAVE BEEN DISMISSED, HE HAVING COME TO COURT WITH UNCLEAN HANDS.chanroblesvirtualawlibrary chanrobles virtual law library V chanrobles virtual law library BY AND LARGE, THE COURT OF APPEALS COMMITTED AN ERROR IN AFFIRMING WITH MODIFICATION THE DECISION OF THE TRIAL COURT DUE TO GRAVE MISINTERPRETATION, MISAPPLICATION AND MISAPPREHENSION OF course to the instant petition. On September 6, 1982, respondents filed a rejoinder to reply of petitioners which was noted on the resolution of September 20, 1982.chanroblesvirtualawlibrary chanrobles virtual law library Petitioners raised the following assignment of errors: chanrobles virtual law library I chanrobles virtual law library THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN GROSSLY, INCORRECTLY INTERPRETING THE TERMS OF THE CONTRACT, EXHIBIT C, HOLDING IT AS AN ABSOLUTE SALE, EFFECTIVE TO TRANSFER OWNERSHIP OVER THE PROPERTY IN QUESTION TO THE RESPONDENT AND NOT MERELY A CONTRACT TO SELL OR PROMISE TO SELL; THE COURT ALSO ERRED IN MISAPPLYING ARTICLE 1371 AS WARRANTING READING OF THE AGREEMENT, EXHIBIT C, AS ONE OF ABSOLUTE SALE, DESPITE THE CLARITY OF THE TERMS THEREOF SHOWING IT IS A CONTRACT OF PROMISE TO SELL.chanroblesvirtualawlibrary chanrobles virtual law library II chanrobles virtual law library THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN INCORRECTLY APPLYING AND OR IN MISAPPLYING ARTICLE 1592 OF THE NEW CIVIL CODE AS WARRANTING THE ERRONEOUS CONCLUSION THAT THE NOTICE OF RESCISSION, EXHIBIT G, IS INEFFECTIVE SINCE IT HAS NOT BEEN JUDICIALLY DEMANDED NOR IS IT A NOTARIAL ACT.chanroblesvirtualawlibrary chanrobles virtual law library III chanrobles virtual law library

13
THE TERMS OF THE QUESTIONED CONTRACT AND THE LAW APPLICABLE THERETO.chanroblesvirtualawlibrary chanrobles virtual law library The foregoing assignment of errors may be synthesized into two main issues, to wit: I. Whether or not subject contract is a deed of absolute sale or a contract Lot sell.chanroblesvirtualawlibrary chanrobles virtual law library II. Whether or not there was a valid rescission thereof. There is no merit in this petition.chanroblesvirtualawlibrary chanrobles virtual law library It is significant to note that this petition was denied by the Second Division of this Court in its Resolution dated February 1 0, 1 982 for lack of merit, but on motion for reconsideration and on the basis of all subsequent pleadings filed, the petition was given due course.chanroblesvirtualawlibrary chanrobles virtual law library I.chanroblesvirtualawlibrary chanrobles virtual law library The contract in question (Exhibit C) is a Deed of Sale, with the following conditions: 1. That Atilano G..Jabilis to pay the amount of Twelve Thousand Pesos P12,000.00) Phil. Philippine Currency as advance payment; chanrobles virtual law library 2. That Atilano G. Jabil is to assume the balance of Twelve Thousand Pesos (P12,000.00) Loan from the First Insular Bank of Cebu; chanrobles virtual law library 3. That Atilano G. Jabil is to pay the said spouses the balance of Four. Thousand Pesos (P4,000.00) on or before September 15,1965; chanrobles virtual law library 4. That the said spouses agrees to defend the said Atilano G. Jabil from other claims on the said property; chanrobles virtual law library 5. That the spouses agrees to sign a final deed of absolute sale in favor of Atilano G. Jabil over the above-mentioned property upon the payment of the balance of Four Thousand Pesos. (Original Record, pp. 10-11) In their motion for reconsideration, petitioners reiterated their contention that the Deed of Sale (Exhibit "C") is a mere contract to sell and not an absolute sale; that the same is subject to two (2) positive suspensive conditions, namely: the payment of the balance of P4,000.00 on or before September 15,1965 and the immediate assumption of the mortgage of P12,000.00 with the First Insular Bank of Cebu. It is further contended that in said contract, title or ownership over the property was expressly reserved in the vendor, the Dignos spouses until the suspensive condition of full and punctual payment of the balance of the purchase price shall have been met. So that there is no actual Thus, it has been held that a deed of sale is absolute in nature although denominated as a "Deed of Conditional Sale" where nowhere in the contract in question is a proviso or stipulation to the effect that title to the property sold is reserved in the vendor until full payment of the purchase price, nor is there a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period Taguba v. Vda. de Leon, 132 SCRA 722; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA 305).chanroblesvirtualawlibrary chanrobles virtual law library A careful examination of the contract shows that there is no such stipulation reserving the title of the property on the vendors nor does it give them the right to unilaterally rescind the contract upon non-payment of the balance thereof within a fixed period.chanroblesvirtualawlibrary chanrobles virtual law library On the contrary, all the elements of a valid contract of sale under Article 1458 of the Civil Code, are present, such as: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its equivalent. In addition, Article 1477 of the same Code provides that "The ownership of the thing sold shall be transferred to the vendee upon actual or constructive delivery thereof." As applied in the case of Froilan v. Pan Oriental Shipping Co., et al. (12 SCRA 276), this Court held that in the absence of stipulation to the contrary, the ownership of the thing sold passes to the vendee upon actual or constructive delivery thereof.chanroblesvirtualawlibrary chanrobles virtual law library While it may be conceded that there was no constructive delivery of the land sold in the case at bar, as subject Deed of Sale is a private instrument, it is beyond question that sale until full payment is made (Rollo, pp. 51-52).chanroblesvirtualawlibrary chanrobles virtual law library In bolstering their contention that Exhibit "C" is merely a contract to sell, petitioners aver that there is absolutely nothing in Exhibit "C" that indicates that the vendors thereby sell, convey or transfer their ownership to the alleged vendee. Petitioners insist that Exhibit "C" (or 6) is a private instrument and the absence of a formal deed of conveyance is a very strong indication that the parties did not intend "transfer of ownership and title but only a transfer after full payment" (Rollo, p. 52). Moreover, petitioners anchored their contention on the very terms and conditions of the contract, more particularly paragraph four which reads, "that said spouses has agreed to sell the herein mentioned property to Atilano G. Jabil ..." and condition number five which reads, "that the spouses agrees to sign a final deed of absolute sale over the mentioned property upon the payment of the balance of four thousand pesos." chanrobles virtual law library Such contention is untenable.chanroblesvirtualawlibrary chanrobles virtual law library By and large, the issues in this case have already been settled by this Court in analogous cases.chanroblesvirtualawlibrary chanrobles virtual law library

14
there was actual delivery thereof. As found by the trial court, the Dignos spouses delivered the possession of the land in question to Jabil as early as March 27,1965 so that the latter constructed thereon Sally's Beach Resort also known as Jabil's Beach Resort in March, 1965; Mactan White Beach Resort on January 15,1966 and Bevirlyn's Beach Resort on September 1, 1965. Such facts were admitted by petitioner spouses (Decision, Civil Case No. 23-L; Record on Appeal, p. 108).chanroblesvirtualawlibrary chanrobles virtual law library Moreover, the Court of Appeals in its resolution dated December 16,1981 found that the acts of petitioners, contemporaneous with the contract, clearly show that an absolute deed of sale was intended by the parties and not a contract to sell.chanroblesvirtualawlibrary chanrobles virtual law library Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they were no longer owners of the same and the sale is null and void.chanroblesvirtualawlibrary chanrobles virtual law library II.chanroblesvirtualawlibrary chanrobles virtual law library Petitioners claim that when they sold the land to the Cabigas spouses, the contract of sale was already rescinded.chanroblesvirtualawlibrary chanrobles virtual law library Applying the rationale of the case of Taguba v. Vda. de Leon ( supra) which is on all fours with the case at bar, the contract of sale being absolute in nature is governed by Article 1592 of the Civil Code. It is undisputed that petitioners never notified private respondents Jabil by notarial act that they were rescinding the contract, and neither did they file a suit in court to rescind the sale. The most that they were able to show is a letter of Cipriano Amistad who, claiming to be an emissary of Jabil, informed the Dignos spouses not to go to the house of Jabil because the latter had no money and further advised petitioners to sell the land in litigation to another party (Record on Appeal, p. 23). As correctly found by the Court of Appeals, there is no showing that Amistad was properly authorized by Jabil to make such extra-judicial rescission for the latter who, on the contrary, vigorously denied having sent Amistad to tell petitioners that he was already waiving his rights to the land in question. Under Article 1358 of the Civil Code, it is required that acts and contracts which have for their object the extinguishment of real rights over immovable property must appear in a public document.chanroblesvirtualawlibrary chanrobles virtual law library Petitioners laid considerable emphasis on the fact that private respondent Jabil had no money on the stipulated date of payment on September 15,1965 and was able to raise the necessary amount only by mid-October 1965.chanroblesvirtualawlibrarychanrobles virtual law library It has been ruled, however, that "where time is not of the essence of the agreement, a slight delay on the part of one party in the performance of his obligation is not a sufficient ground for the rescission of the agreement" (Taguba v. Vda. de Leon, supra). Considering that private respondent has only a balance of P4,000.00 and was delayed in payment only for one month, equity and justice mandate as in the aforecited case that Jabil be given an additional period within which to complete payment of the purchase price.chanroblesvirtualawlibrary chanrobles virtual law library WHEREFORE, the petition filed is hereby Dismissed for lack of merit and the assailed decision of the Court of Appeals is Affirmed in toto.chanroblesvirtualawlibrary chanrobles virtual law library SO ORDERED. Fernan (Chairman), Gutierrez, Jr., Feliciano and Cortes, JJ., concur. FIRST DIVISION G.R. No. 126812. November 24, 1998 GOLDENROD, INC., petitioner vs. COURT OF APPEALS, PIO BARRETTO & SONS, INC., PIO BARRETTO REALTY DEVELOPMENT, INC., and ANTHONY QUE, Respondents. DECISION BELLOSILLO, J.: In the absence of a specific stipulation, may the seller of real estate keep the earnest money to answer for damages in the event the sale fails due to the fault of the prospective buyer? Pio Barretto and Sons, Inc. (BARRETTO & SONS) owned forty-three (43) parcels of registered land with a total area of 18,500 square meters located at Carlos Palanca St., Quiapo, Manila, which were mortgaged with the United Coconut Planters Bank (UCPB). In 1988, the obligation of the corporation with UCPB remained unpaid making foreclosure of the mortgage imminent. Goldenrod, Inc. (GOLDENROD), offered to buy the property from BARRETTO & SONS. On 25 May 1988, through its president Sonya G. Mathay, petitioner wrote respondent Anthony Que, President of respondent BARRETTO & SONS, as follows: Thank you for your reply to our letter offering to buy your property in Echague (C. Palanca) Quiapo. We are happy that you have accepted our offer except the two amendments concerning the payment of interest which should be monthly instead of semi-annually and the period to remove the trusses, steel frames etc. which shall be 180 days instead of 90 days only. Please be advised that we agree to your amendments.

15
As to your other query, we prefer that the lots be reconsolidated back to its (sic) mother titles. Enclosed is the earnest money of P1 million which shall form part of the purchase price. Payment of the agreed total consideration shall be effected in accordance with our offer as you have accepted and upon execution of the necessary documents of sale to be implemented after the said reconsolidation of the lots. Kindly acknowledge receipt of the earnest money. When the term of existence of BARRETTO & SONS expired, all its assets and liabilities including the property located in Quiapo were transferred to respondent Pio Barretto Realty Development, Inc. (BARRETTO REALTY). Petitioners offer to buy the property resulted in its agreement with respondent BARRETTO REALTY that petitioner would pay the following amounts: (a) P24.5 million representing the outstanding obligations of BARRETTO REALTY with UCPB on 30 June 1988, the deadline set by the bank for payment; and, (b) P20 million which was the balance of the purchase price of the property to be paid in installments within a 3-year period with interest at 18% per annum. Petitioner did not pay UCPB the P24.5 million loan obligation of BARRETTO REALTY on the deadline set for payment; instead, it asked for an extension of one (1) month or up to 31 July 1988 to settle the obligation, which the bank granted. On 31 July 1988, petitioner requested another extension of sixty (60) days to pay the loan. This time the bank demurred. In the meantime BARRETTO REALTY was able to cause the reconsolidation of the forty-three (43) titles covering the property subject of the purchase into two (2) titles covering Lots 1 and 2, which were issued on 4 August 1988. The reconsolidation of the titles was made pursuant to the request of petitioner in its letter to private respondents on 25 May 1988. Respondent BARRETTO REALTY allegedly incurred expenses for the reconsolidation amounting toP250,000.00. On 25 August 1988 petitioner sought reconsideration of the denial by the bank of its request for extension of sixty (60) days by asking for a shorter period of thirty (30) days. This was again denied by UCPB. On 30 August 1988 Alicia P. Logarta, President of Logarta Realty and Development Corporation (LOGARTA REALTY), which acted as agent and broker of petitioner, wrote private respondent Anthony Que informing him on behalf of petitioner that it could not go through with the purchase of the property due to circumstances beyond its fault, i.e., the denial by UCPB of its request for extension of time to pay the obligation. In the same letter, Logarta also demanded the refund of the earnest money of P1 million which petitioner gave to respondent BARRETTO REALTY. On 31 August 1988 respondent BARRETTO REALTY sold to Asiaworld Trade Center Phils., Inc. (ASIAWORLD), Lot 2, one of the two (2) consolidated lots, for the price of P23 million. On 13 October 1988 respondent BARRETTO REALTY executed a deed transferring by way of dacion the property reconsolidated as Lot 1 in favor of UCPB, which in turn sold the property to ASIAWORLD for P24 million. On 12 December 1988 Logarta again wrote respondent Que demanding the return of the earnest money to GOLDENROD. On 7 February 1989 petitioner through its lawyer reiterated its demand, but the same remained unheeded by private respondents. This prompted petitioner to file a complaint with the Regional Trial Court of Manila against private respondents for the return of the amount of P1 million and the payment of damages including lost interests or profits. In their answer, private respondents contended that it was the agreement of the parties that the earnest money of P1 million would be forfeited to answer for losses and damages that might be suffered by private respondents in case of failure by petitioner to comply with the terms of their purchase agreement. On 15 March 1991 the trial court rendered a decision ordering private respondents jointly and severally to pay petitioner P1,000,000.00 with legal interest from 9 February 1989 until fully paid, P50,000.00 representing unrealized profits and P10,000.00 as attorneys fees. The trial court found that there was no written agreement between the parties concerning forfeiture of the earnest money if the sale did not push through. It further declared that the earnest money given by petitioner to respondent BARRETTO REALTY was intended to form part of the purchase price; thus, the refusal of the latter to return the money when the sale was not consummated violated Arts. 22 and 23 of the Civil Code against unjust enrichment. Obviously dissatisfied with the decision of the trial court, private respondents appealed to the Court of Appeals which reversed the trial court and ordered the dismissal of the complaint; hence, this petition. Petitioner alleges that the Court of Appeals erred in disregarding the finding of the trial court that the earnest money given by petitioner to respondent BARRETTO REALTY should be returned to the former. The absence of an express stipulation that the same shall be forfeited in favor of the seller in case the buyer fails to comply with his obligation is compelling. It argues that the forfeiture of the money in favor of respondent BARRETTO REALTY would amount to unjust enrichment at the expense of petitioner. We sustain petitioner. Under Art. 1482 of the Civil Code, whenever earnest money is given in a contract of sale, it shall be considered as part of the purchase price and as proof of the perfection of the contract. Petitioner clearly stated without any objection from private respondents that the earnest money was intended to form part of the purchase price. It was an advance payment which must be deducted from the total price. Hence, the parties could not have intended that the earnest money or advance payment would be forfeited when the buyer should fail to pay the balance of the price, especially in the absence of a clear and express agreement thereon. By reason of its failure to make payment petitioner, through its agent, informed private respondents that
1

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it would no longer push through with the sale. In other words, petitioner resorted to extrajudicial rescission of its agreement with private Respondents. In University of the Philippines v. de los Angeles, the right to rescind contracts is not absolute and is subject to scrutiny and review by the proper court. We held further, in 3 the more recent case of Adelfa Properties, Inc. v. Court of Appeals, that rescission of reciprocal contracts may be extrajudicially rescinded unless successfully impugned in court. If the party does not oppose the declaration of rescission of the other party, specifying the grounds therefor, and it fails to reply or protest against it, its silence thereon suggests an admission of the veracity and validity of the rescinding party's claim. Private respondents did not interpose any objection to the rescission by petitioner of the agreement. As found by the Court of Appeals, private respondent BARRETTO REALTY even sold Lot 2 of the subject consolidated lots to another buyer, ASIAWORLD, one day after its President Anthony Que received the broker's letter rescinding the sale. Subsequently, on 13 October 1988 respondent BARRETTO REALTY also conveyed ownership over Lot 1 to UCPB which, in turn, sold the same to ASIAWORLD. Article 1385 of the Civil Code provides that rescission creates the obligation to return the things which were the object of the contract together with their fruits and interest. The vendor is therefore obliged to return the purchase price paid to him by the buyer if 4 the latter rescinds the sale, or when the transaction was called off and the subject property had already been sold to a third person, as what obtained in this 5 case. Therefore, by virtue of the extrajudicial rescission of the contract to sell by petitioner without opposition from private respondents who, in turn, sold the property to other persons, private respondent BARRETTO REALTY, as the vendor, had the obligation to return the earnest money of P1,000,000.00 plus legal interest from the date it received notice of rescission from petitioner, i.e., 30 August 1988, up to the date of the return or payment. It would be most inequitable if respondent BARRETTO REALTY would be allowed to retain petitioners payment of P1,000,000.00 and at the same time appropriate the proceeds of the second sale made to 6 another. crlwvirtualibrry WHEREFORE, the Petition is GRANTED. The decision of the Court of Appeals is REVERSED and SET ASIDE. Private respondent Pio Barretto Realty Development, Inc. (BARRETTO REALTY), its successors and assigns are ordered to return to petitioner Goldenrod, Inc. (GOLDENROD), the amount of P1,000,000.00 with legal interest thereon from 30 August 1988, the date of notice of extrajudicial rescission, until the amount is fully paid, with costs against private Respondents. SO ORDERED. Davide Jr. (Chairman), Vitug, Panganiban, and Quisumbing JJ., concur G.R. No. L-25494 June 14, 1972 ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
2

NICOLAS vs. SEVERINA RIGOS, defendant-appellant. Santiago F. Bautista for plaintiff-appellee. Jesus G. Villamar for defendant-appellant.

SANCHEZ, plaintiff-appellee,

CONCEPCION, C.J.:p Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals, which certified the case to Us, upon the ground that it involves a question purely of law. The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos executed an instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of land situated in the barrios of Abar and Sibot, municipality of San Jose, province of Nueva Ecija, and more particularly described in Transfer Certificate of Title No. NT-12528 of said province, within two (2) years from said date with the understanding that said option shall be deemed "terminated and elapsed," if "Sanchez shall fail to exercise his right to buy the property" within the stipulated period. Inasmuch as several tenders of payment of the sum of Pl,510.00, made by Sanchez within said period, were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said amount with the Court of First Instance of Nueva Ecija and commenced against the latter the present action, for specific performance and damages. After the filing of defendant's answer admitting some allegations of the complaint, denying other allegations thereof, and alleging, as special defense, that the contract between the parties "is a unilateral promise to sell, and the same being unsupported by any valuable consideration, by force of the New Civil Code, is null and void" on February 11, 1964, both parties, assisted by their respective counsel, jointly moved for a judgment on the pleadings. Accordingly, on February 28, 1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos to accept the sum judicially consigned by him and to execute, in his favor, the requisite deed of conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as attorney's fees, and other costs. Hence, this appeal by Mrs. Rigos. This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which provides:

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An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant agreed and committed to sell" and "the plaintiff agreed and committed to buy" the land described in the option, copy of which was annexed to said pleading as 1 Annex A thereof and is quoted on the margin. Hence, plaintiff maintains that the promise contained in the contract is "reciprocally demandable," pursuant to the first paragraph of said Article 1479. Although defendant had really "agreed, promised and committed" herself to sell the land to the plaintiff, it is not true that the latter had, in turn, "agreed and committed himself " to buy said property. Said Annex A does not bear out plaintiff's allegation to this effect. What is more, since Annex A has been made "an integral part" of his complaint, the provisions of said instrument form part "and 2 parcel" of said pleading. The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so understood it, as indicated by the caption, "Option to Purchase," given by them to said instrument. Under the provisions thereof, the defendant "agreed, promised and committed" herself to sell the land therein described to the plaintiff for P1,510.00, but there is nothing in the contract to indicate that her aforementioned agreement, promise and undertaking is supported by a consideration "distinct from the price" stipulated for the sale of the land. Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said consideration, and this would seem to be the main factor that influenced its decision in plaintiff's favor. It should be noted, however, that: (1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to "sales" in particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." In other words, Article 1479 is controlling in the case at bar. (2) In order that said unilateral promise may be "binding upon the promisor, Article 1479 requires the concurrence of a condition, namely, that the promise be "supported by a consideration distinct from the price." Accordingly, the promisee can not compel the promisor to comply with the promise, unless the former establishes the existence of said distinct consideration. In other words, the promisee has the burden of proving such consideration. Plaintiff herein has not even alleged the existence thereof in his complaint. (3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special defense, the absence of said consideration for her promise to sell and, by joining in the petition for a judgment on the pleadings, plaintiff has impliedly admitted the truth of said averment in defendant's answer. Indeed as early as March 14, 1908, it 3 had been held, in Bauermann v. Casas, that: One who prays for judgment on the pleadings without offering proof as to the truth of his own allegations, and without giving the opposing party an opportunity to introduce evidence, must be understood to admit the truth of all the material and relevant allegations of the opposing party, and to rest his motion for judgment on those allegations taken together with such of his own as are admitted in the pleadings. (La Yebana Company vs. Sevilla, 9 Phil. 210). (Emphasis supplied.) This view was reiterated in Evangelista v. De la Rosa and Mercy's Incorporated v. 5 Herminia Verde. Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific 6 Co., from which We quote: The main contention of appellant is that the option granted to appellee to sell to it barge No. 10 for the sum of P30,000 under the terms stated above has no legal effect because it is not supported by any consideration and in support thereof it invokes article 1479 of the new Civil Code. The article provides: "ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or 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." On the other hand, Appellee contends that, even granting that the "offer of option" is not supported by any consideration, that option became binding on appellant when the appellee gave notice to it of its acceptance, and that having accepted it within the period of option, the offer can no longer be withdrawn and in any event such withdrawal is ineffective. In support this contention, appellee invokes article 1324 of the Civil Code which provides: "ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn any time before acceptance by communicating such withdrawal, except when the option is founded upon consideration as something paid or promised." 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
4

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article, to be valid must be "supported by a consideration distinct from the price." This is clearly inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by consideration. In other words, "an accepted unilateral promise can only have a binding effect if supported by a consideration which means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration. It is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the acceptance of it by appellee. It is true that under article 1324 of the new Civil Code, the general rule regarding offer and acceptance is that, when the offerer gives to the offeree a certain period to accept, "the offer may be withdrawn at any time before acceptance" except when the option is founded upon consideration, but this general rule must be interpreted as modified by the provision of article 1479 above referred to, which applies to "a promise to buy and sell" specifically. As already stated, this rule requires that a promise to sell to be valid must be supported by a consideration distinct from the price. We are not oblivious of the existence of American authorities which hold that an offer, once accepted, cannot be withdrawn, regardless of whether it is supported or not by a consideration (12 Am. Jur. 528). These authorities, we note, uphold the general rule applicable to offer and acceptance as contained in our new Civil Code. But we are prevented from applying them in view of the specific provision embodied in article 1479. While under the "offer of option" in question appellant has assumed a clear obligation to sell its barge to appellee and the option has been exercised in accordance with its terms, and there appears to be no valid or justifiable reason for appellant to withdraw its offer, this Court cannot adopt a different attitude because the law on the matter is clear. Our imperative duty is to apply it unless modified by Congress. However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian 8 Tek, decided later thatSouthwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific 9 Co., saw no distinction between Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar to the one sued upon here was involved, treating such promise as an option which, although not binding as a contract in itself for lack of a separate consideration, nevertheless generated a bilateral contract of purchase and sale upon acceptance. Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this Court said: Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree should decide to exercise his option within the specified time. After accepting the promise and before he exercises his option, the holder of the option is not bound to buy. He is free either to buy or not to buy later. In this case, however, upon accepting herein petitioner's offer a bilateral promise to sell and to buy ensued, and the respondent ipso facto assumed the obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It was not a mere option then; it was a bilateral contract of sale. Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the authorities hold that: "If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even though the option was not supported by a sufficient consideration. ... . (77 Corpus Juris Secundum, p. 652. See also 27 Ruling Case Law 339 and cases cited.) "It can be taken for granted, as contended by the defendant, that the option contract was not valid for lack of consideration. But it was, at least, an offer to sell, which was accepted by letter, and of the acceptance the offerer had knowledge before said offer was withdrawn. The concurrence of both acts the offer and the acceptance could at all events have generated a contract, if none there was before (arts. 1254 and 1262 of the Civil Code)." (Zayco vs. Serra, 44 Phil. 331.) In other words, since there may be no valid contract without a cause or consideration, the promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale. This view has the advantage of avoiding a conflict between Articles 1324 on the general principles on contracts and 1479 on sales of the Civil Code, in line with the cardinal rule of statutory construction that, in construing different provisions of one and the same law or code, such interpretation should be favored as will reconcile or harmonize said provisions and avoid a conflict between the same. Indeed, the presumption is that, in the process of drafting the Code, its author has maintained a consistent philosophy or position. Moreover, the decision in Southwestern Sugar & 10 Molasses Co. v. Atlantic Gulf & Pacific Co., holding that Art. 1324 is modifiedby Art. 1479 of the Civil Code, in effect, considers the latter as an exception to the former, and exceptions are not favored, unless the intention to the contrary is clear, and it is not so, insofar as said two (2) articles are concerned. What is more, the reference, in both the second paragraph of Art. 1479 and Art. 1324, to an option or promise supported by or founded upon a consideration, strongly suggests that the two (2) provisions intended to enforce or implement the same principle.

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Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby reiterates the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar as inconsistent therewith, the view adhered to in the Southwestern Sugar & Molasses Co. case should be deemed abandoned or modified. WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendant-appellant Severina Rigos. It is so ordered. Reyes, J.B.L., Makalintal, Zaldivar, Teehankee, Barredo and Makasiar, JJ., concur. G.R. No. 103338 January 4, 1994 FEDERICO vs. THE HON. COURT OF APPEALS CORPORATION, respondents. Andres R. Amante, Jr. for petitioner. R.C. Domingo, Jr. & Associates for private respondent. SERRA, petitioner, AND RIZAL COMMERCIAL BANKING The LESSEE is hereby appointed attorney-in-fact for the LESSOR to register said parcel of land under the TORRENS SYSTEM in case the LESSOR, for any reason, fails to comply with his obligation to effect said registration within reasonable time after the signing of this Agreement, and all expenses appurtenant to such registration shall be charged by the LESSEE against the rentals due to the LESSOR. 2. During the period of the lease, the LESSEE covenants to pay the LESSOR, at the latter's residence, a monthly rental of SEVEN HUNDRED PESOS (P700.00), Philippine Currency, payable in advance on or before the fifth (5th) day of every calendar month, provided that the rentals for the first four (4) months shall be paid by the LESSEE in advance upon the signing of this Contract. 3. The LESSEE is hereby authorized to construct as its sole expense a building and such other improvements on said parcel of land, which it may need in pursuance of its business and/or operations; provided, that if for any reason the LESSEE shall fail to exercise its option mentioned in paragraph (1) above in case the parcel of land is registered under the TORRENS SYSTEM within the ten-year period mentioned therein, said building and/or improvements, shall become the property of the LESSOR after the expiration of the 25-year lease period without the right of reimbursement on the part of the LESSEE. The authority herein granted does not, however, extend to the making or allowing any unlawful, improper or offensive used of the leased premises, or any use thereof, other than banking and office purposes. The maintenance and upkeep of such building, structure and improvements shall likewise be for the sole account of the 1 LESSEE. The foregoing agreement was subscribed before Notary Public Romeo F. Natividad. clause, to have and to hold the same for a period of twenty-five (25) years commencing from June 1, 1975 to June 1, 2000. The LESSEE, however, shall have the option to purchase said parcel of land within a period of ten (10) years from the date of the signing of this Contract at a price not greater than TWO HUNDRED TEN PESOS (P210.00) per square meter. For this purpose, the LESSOR undertakes, within such ten-year period, to register said parcel of land under the TORRENS SYSTEM and all expenses appurtenant thereto shall be for his sole account. If, for any reason, said parcel of land is not registered under the TORRENS SYSTEM within the aforementioned ten-year period, the LESSEE shall have the right, upon termination of the lease to be paid by the LESSOR the market value of the building and improvements constructed on said parcel of land.

NOCON, J.: A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy and 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. (Article 1479, New Civil Code) The first is the mutual promise and each has the right to demand from the other the fulfillment of the obligation. While the second is merely an offer of one to another, which if accepted, would create an obligation to the offeror to make good his promise, provided the acceptance is supported by a consideration distinct from the price. Disputed in the present case is the efficacy of a "Contract of Lease with Option to Buy", entered into between petitioner Federico Serra and private respondent Rizal Commercial Banking Corporation. (RCBC). Petitioner is the owner of a 374 square meter parcel of land located at Quezon St., Masbate, Masbate. Sometime in 1975, respondent bank, in its desire to put up a branch in Masbate, Masbate, negotiated with petitioner for the purchase of the then unregistered property. On May 20, 1975, a contract of LEASE WITH OPTION TO BUY was instead forged by the parties, the pertinent portion of which reads: 1. The LESSOR leases unto the LESSEE, an the LESSEE hereby accepts in lease, the parcel of land described in the first WHEREAS

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Pursuant to said contract, a building and other improvements were constructed on the land which housed the branch office of RCBC in Masbate, Masbate. Within three years from the signing of the contract, petitioner complied with his part of the agreement by having the property registered and placed under the TORRENS SYSTEM, for which Original Certificate of Title No. 0-232 was issued by the Register of Deeds of the Province of Masbate. Petitioner alleges that as soon as he had the property registered, he kept on pursuing the manager of the branch to effect the sale of the lot as per their agreement. It was not until September 4, 1984, however, when the respondent bank decided to exercise its 2 option and informed petitioner, through a letter, of its intention to buy the property at the agreed price of not greater than P210.00 per square meter or a total of P78,430.00. But much to the surprise of the respondent, petitioner replied that he is no longer selling 3 the property. Hence, on March 14, 1985, a complaint for specific performance and damages were filed by respondent against petitioner. In the complaint, respondent alleged that during the negotiations it made clear to petitioner that it intends to stay permanently on property once its branch office is opened unless the exigencies of the business requires otherwise. Aside from its prayer for specific performance, it likewise asked for an award of P50,000.00 for attorney's fees P100,000.00 as exemplary damages and the cost of 4 the suit. A special and affirmative defenses, petitioner contended: 1. That the contract having been prepared and drawn by RCBC, it took undue advantage on him when it set in lopsided terms. 2. That the option was not supported by any consideration distinct from the price and hence not binding upon him. 3. That as a condition for the validity and/or efficacy of the option, it should have been exercised within the reasonable time after the registration of the land under the Torrens System; that its delayed action on the option have forfeited whatever its claim to the same. 4. That extraordinary inflation supervened resulting in the unusual decrease in the purchasing power of the currency that could not reasonably be forseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation, thus, rendering the terms of the contract unenforceable, inequitable and to 5 the undue enrichment of RCBC. and as counterclaim petitioner alleged that: 1. The rental of P700.00 has become unrealistic and unreasonable, that justice and equity will require its adjustment. 2. By the institution of the complaint he suffered moral damages which may be assessed at P100,000.00 and award of attorney's fee 6 of P25,000.00 and exemplary damages at P100,000.00. Initially, after trial on the merits, the court dismissed the complaint. Although it found the contract to be valid, the court nonetheless ruled that the option to buy in unenforceable because it lacked a consideration distinct from the price and RCBC did not exercise its option within reasonable time. The prayer for readjustment of rental was denied, as well 7 as that for moral and exemplary damages. Nevertheless, upon motion for reconsideration of respondent, the court in the order of January 9, 1989, reversed itself, the dispositive portion reads: WHEREFORE, the Court reconsiders its decision dated June 6, 1988, and hereby renders judgment as follows: 1. The defendant is hereby ordered to execute and deliver the proper deed of sale in favor of plaintiff selling, transferring and conveying the property covered by and described in the Original Certificate of Title 0-232 of the Registry of Deeds of Masbate for the sum of Seventy Eight Thousand Five Hundred Forty Pesos (P78,540,00), Philippine Currency; 2. Defendant is ordered to pay plaintiff the sum of Five Thousand (P5,000.00) Pesos as attorney's fees; 3. The counter claim of defendant is hereby dismissed; and 4. Defendants shall pay the costs of suit.
9 8

In a decision promulgated on September 19, 1991, the Court of Appeals affirmed the findings of the trial court that: 1. The contract is valid and that the parties perfectly understood the contents thereof; 2. The option is supported by a distinct and separate consideration as embodied in the agreement; 3. There is no basis in granting an adjustment in rental. Assailing the judgment of the appellate court, petitioner would like us to consider mainly the following: 1. The disputed contract is a contract of adhesion.

21
2. There was no consideration to support the option, distinct from the price, hence the option cannot be exercised. 3. Respondent court gravely abused its discretion in not granting currency adjustment on the already eroded value of the stipulated rentals for twenty-five years. The petition is devoid of merit. There is no dispute that the contract is valid and existing between the parties, as found by both the trial court and the appellate court. Neither do we find the terms of the contract unfairly lopsided to have it ignored. A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the contract, while the other party merely affixes his signature or his "adhesion" thereto. These types of contracts are as binding as ordinary contracts. Because in reality, the party who adheres to the contract is free to reject it entirely. Although, this Court will not hesitate to rule out blind adherence to terms where facts 10 and circumstances will show that it is basically one-sided. We do not find the situation in the present case to be inequitable. Petitioner is a highly educated man, who, at the time of the trial was already a CPA-Lawyer, and when he entered into the contract, was already a CPA, holding a respectable position with the Metropolitan Manila Commission. It is evident that a man of his stature should have been more cautious in transactions he enters into, particularly where it concerns valuable properties. He is amply equipped to drive a hard bargain if he would be so minded to. Petitioner contends that the doctrines laid down in the cases of 11 12 Atkins Kroll v. Cua Hian Tek, Sanchez v. Rigos, and Vda. de Quirino 13 v. Palarca were misapplied in the present case, because 1) the option given to the respondent bank was not supported by a consideration distinct from the price; and 2) that the stipulated price of "not greater than P210.00 per square meter" is not certain or definite. Article 1324 of the Civil Code provides that when an offeror has allowed the offeree a certain period to accept, the offer maybe withdrawn at anytime before acceptance by communicating such withdrawal, except when the option is founded upon consideration, as something paid or promised. On the other hand, Article 1479 of the Code provides that an accepted unilateral promise to buy and 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. In a unilateral promise to sell, where the debtor fails to withdraw the promise before the acceptance by the creditor, the transaction becomes a bilateral contract to sell and to buy, because upon acceptance by the creditor of the offer to sell by the debtor, there is already a meeting of the minds of the parties as to the thing which is determinate and xxx xxx xxx the price which is certain. performance.
14

In which case, the parties may then reciprocally demand

Jurisprudence has taught us that an optional contract is a privilege existing only in one party the buyer. For a separate consideration paid, he is given the right to decide to purchase or not, a certain merchandise or property, at any time within the agreed period, at a fixed price. This being his prerogative, he may not be compelled to exercise the option to buy before the time 15 expires. On the other hand, what may be regarded as a consideration separate from the price is 16 discussed in the case ofVda. de Quirino v. Palarca wherein the facts are almost on all fours with the case at bar. The said case also involved a lease contract with option to buy where we had occasion to say that "the consideration for the lessor's obligation to sell the leased premises to the lessee, should he choose to exercise his option to purchase the same, is the obligation of the lessee to sell to the lessor the building and/or improvements constructed and/or made by the former, if he fails to exercise his 17 option to buy leased premises." In the present case, the consideration is even more onerous on the part of the lessee since it entails transferring of the building and/or improvements on the property to petitioner, should respondent bank fail to exercise its option within the period 18 stipulated. The bugging question then is whether the price "not greater than TWO HUNDRED PESOS" is certain or definite. A price is considered certain if it is so with reference to another thing certain or when the determination thereof is left to the judgment of a 19 specified person or persons. And generally, gross inadequacy of price does not 20 affect a contract of sale. Contracts are to be construed according to the sense and meaning of the terms which the parties themselves have used. In the present dispute, there is evidence to show that the intention of the parties is to peg the price at P210 per square meter. This was confirmed by petitioner himself in his testimony, as follows: Q. Will you please tell this Court what was the offer? A. It was an offer to buy the property that I have in Quezon City (sic). Q. And did they give you a specific amount?

22
A. Well, there was an offer to buy the property at P210 per square meters (sic). Q. And that was in what year? A . 1975, sir. Q. And did you accept the offer? A. Yes, sir.
21

EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC., Petitioners, v. MAYFAIR THEATER, INC., Respondent. DECISION HERMOSISIMA, JR., J.: Before us is a petition for review of the decision of the Court of Appeals involving questions in the resolution of which the respondent appellate court analyzed and interpreted particular provisions of our laws on contracts and sales. In its assailed 3 decision, the respondent court reversed the trial court which, in dismissing the 4 complaint for specific performance with damages and annulment of contract, found the option clause in the lease contracts entered into by private respondent Mayfair Theater, Inc. (hereafter, Mayfair) and petitioner Carmelo & Bauermann, Inc. (hereafter, Carmelo) to be impossible of performance and unsupported by a consideration and the subsequent sale of the subject property to petitioner Equatorial Realty Development, Inc. (hereafter, Equatorial) to have been made without any breach of or prejudice to, 5 the said lease contracts. crlwvirtualibrry We reproduce below the facts as narrated by the respondent court, which narration, we note, is almost verbatim the basis of the statement of facts as rendered by the petitioners in their pleadings: "Carmelo owned a parcel of land, together with two 2-storey buildings constructed thereon located at Claro M. Recto Avenue , Manila , and covered by TCT No. 18529 issued in its name by the Register of Deeds ofManila . On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the latters lease of a portion of Carmelos property particularly described, to wit: A PORTION OF THE SECOND FLOOR of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 1,610 square meters. THE SECOND FLOOR AND MEZZANINE of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 150 square meters, for use by Mayfair as a motion picture theater and for a term of twenty (20) years. Mayfair thereafter constructed on the leased property a movie house known as Maxim Theatre . Two years later, on March 31, 1969 , Mayfair entered into a second contract of lease with Carmelo for the lease of another portion of Carmelos property, to wit: A PORTION OF THE SECOND FLOOR of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 1,064 square meters.
1 2

Moreover, by his subsequent acts of having the land titled under the Torrens System, and in pursuing the bank manager to effect the sale immediately, means that he understood perfectly the terms of the contract. He even had the same property mortgaged to the respondent bank sometime in 1979, without the slightest hint of wanting to abandon his offer to sell the property at the agreed price of P210 per square 22 meter. Finally, we agree with the courts a quo that there is no basis, legal or factual, in adjusting the amount of the rent. The contract is the law between the parties and if there is indeed reason to adjust the rent, the parties could by themselves negotiate for the amendment of the contract. Neither could we consider the decline of the purchasing power of the Philippine peso from 1983 to the time of the commencement of the present case in 1985, to be so great as to result in an extraordinary inflation. Extraordinary inflation exists when there in an unimaginable increase or decrease of the purchasing power of the Philippine currency, or fluctuation in the value of pesos manifestly beyond the contemplation of the parties at the time of the establishment of 23 the obligation. Premises considered, we find that the contract of "LEASE WITH OPTION TO BUY" between petitioner and respondent bank is valid, effective and enforceable, the price being certain and that there was consideration distinct from the price to support the option given to the lessee. WHEREFORE, this petition is hereby DISMISSED, and the decision of the appellate court is hereby AFFIRMED. SO ORDERED. Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur. EN BANC [ G.R. No. 106063. November 21, 1996

23
THE TWO (2) STORE SPACES AT THE GROUND FLOOR and MEZZANINE of the two-storey building situated at C.M. Recto Avenue, Manila, with a floor area of 300 square meters and bearing street numbers 1871 and 1875, for similar use as a movie theater and for a similar term of twenty (20) years. Mayfair put up another movie house known as Miramar Theatre on this leased property. Both contracts of lease provides (sic) 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. Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President of Mayfair , through a telephone conversation that Carmelo was desirous of selling the entire Claro M. Recto property. Mr. Pascal told Mr. Yang that a certain Jose Araneta was offering to buy the whole property for US Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing to buy the property for Six to Seven Million Pesos. Mr. Yang replied that he would let Mr. Pascal know of his decision. On August 23, 1974 , Mayfair replied through a letter stating as follows: It appears that on August 19, 1974 your Mr. Henry Pascal informed our clients Mr. Henry Yang through the telephone that your company desires to sell your abovementioned C.M. Recto Avenue property. Under your companys two lease contracts with our client, it is uniformly provided: 8. 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 is (sic) herebinds (sic) 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 hereof (sic). Carmelo did not reply to this letter. On September 18, 1974 , Mayfair sent another letter to Carmelo purporting to express interest in acquiring not only the leased premises but the entire building and other improvements if the price is reasonable. However, both Carmelo and Equatorial questioned the authenticity of the second letter. Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land and building, which included the leased premises housing the Maxim and Miramar theatres, to Equatorial by virtue of a Deed of Absolute Sale, for the total sum of P11,300,000.00. In September 1978, Mayfair instituted the action a quo for specific performance and annulment of the sale of the leased premises to Equatorial. In its Answer, Carmelo alleged as special and affirmative defense (a) that it had informed Mayfair of its desire to sell the entire C.M. Recto Avenue property and offered the same to Mayfair, but the latter answered that it was interested only in buying the areas under lease, which was impossible since the property was not a condominium; and (b) that the option to purchase invoked by Mayfair is null and void for lack of consideration. Equatorial, in its Answer, pleaded as special and affirmative defense that the option is void for lack of considertion (sic) and is unenforceable by reason of its impossibility of performance because the leased premises could not be sold separately from the other portions of the land and building. It counterclaimed for cancellation of the contracts of lease, and for increase of rentals in view of alleged supervening extraordinary devaluation of the currency. Equatorial likewise cross-claimed against co-defendant Carmelo for indemnification in respect of Mayfair s claims. During the pre-trial conference held on January 23, 1979 , the parties stipulated on the following: 1. That there was a deed of sale of the contested premises by the defendant Carmelo x x x in favor of defendant Equatorial x x x; 2. That in both contracts of lease there appear (sic) the stipulation granting the plaintiff exclusive option to purchase the leased premises should the lessor desire to sell the same (admitted subject to the contention that the stipulation is null and void); 3. That the two buildings erected on this land are not of the condominium plan; 4. That the amounts stipulated and mentioned in paragraphs 3 (a) and (b) of the contracts of lease constitute the consideration for the plaintiffs occupancy of the leased premises, subject of the same contracts of lease, Exhibits A and B; xxx xxx xxx 6. That there was no consideration specified in the option to buy embodied in the contract; 7. That Carmelo & Bauermann owned the land and the two buildings erected thereon;

24
8. That the leased premises constitute only the portions actually occupied by the theaters; and 9. That what was sold by Carmelo & Bauermann to defendant Equatorial Realty is the land and the two buildings erected thereon. xxx xxx xxx After assessing the evidence, the court a quo rendered the appealed decision, the decretal portion of which reads as follows: WHEREFORE, judgment is hereby rendered: (1) Dismissing the complaint with costs against the plaintiff; (2) Ordering plaintiff to pay defendant Carmelo & Bauermann P40,000.00 by way of attorneys fees on its counterclaim; (3) Ordering plaintiff to pay defendant Equatorial Realty P35,000.00 per month as reasonable compensation for the use of areas not covered by the contract (sic) of lease from July 31, 1979 until plaintiff vacates said area (sic) plus legal interest from July 31, 1978; P70,000.00 per month as reasonable compensation for the use of the premises covered by the contracts (sic) of lease dated (June 1, 1967 from June 1, 1987 until plaintiff vacates the premises plus legal interest from June 1, 1987; P55,000.00 per month as reasonable compensation for the use of the premises covered by the contract of lease dated March 31, 1969 from March 30, 1989 until plaintiff vacates the premises plus legal interest from March 30, 1989; and P40,000.00 as attorneys fees; (4) Dismissing defendant Equatorials crossclaim against defendant Carmelo & Bauermann. The contracts of lease dated June 1, 1967 and March 31, 1969 are declared expired and all persons claiming rights under these contracts are directed to vacate the 6 premises." crlwvirtualibrry The trial court adjudged the identically worded paragraph 8 found in both aforecited lease contracts to be an option clause which however cannot be deemed to be binding on Carmelo because of lack of distinct consideration therefor. The court a quo ratiocinated: "Significantly, during the pre-trial, it was admitted by the parties that the option in the contract of lease is not supported by a separate consideration. Without a consideration, (2) In order that said unilateral promise may be binding upon the promissor, Article 1479 requires the concurrence of a condition, namely, that the promise be supported by a consideration distinct from the price. the option is therefore not binding on defendant Carmelo & Bauermann to sell the C.M. Recto property to the former. The option invoked by the plaintiff appears in the contracts of lease x x x in effect there is no option, on the ground that there is no consideration. Article 1352 of the Civil Code, provides: Contracts without cause or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good custom, public order or public policy. Contracts therefore without consideration produce no effect whatsoever. Article 1324 provides: When the offeror has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon consideration, as something paid or promised. in relation with Article 1479 of the same Code: A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. The plaintiff cannot compel defendant Carmelo to comply with the promise unless the former establishes the existence of a distinct consideration. In other words, the promisee has the burden of proving the consideration. The consideration cannot be presumed as in Article 1354: Although the cause is not stated in the contract, it is presumed that it exists and is lawful unless the debtor proves the contrary. where consideration is legally presumed to exists. Article 1354 applies to contracts in general, whereas when it comes to an option it is governed particularly and more specifically by Article 1479 whereby the promisee has the burden of proving the existence of consideration distinct from the price. Thus, in the case of Sanchez vs. Rigor, 45 SCRA 368, 372-373, the Court said: (1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to sales in particular, and, more specifically, to an accepted unilateral promise to buy or to sell. In other words, Article 1479 is controlling in the case at bar.

25
Accordingly, the promisee cannot compel the promissor to comply with the promise, unless the former establishes the existence of said distinct consideration. In other words, the promisee has the burden of proving such consideration. Plaintiff herein has not even alleged the existence thereof in his complaint. [7crlwvirtualibrry It follows that plaintiff cannot compel defendant Carmelo & Bauermann to sell the C.M. Recto property to the former." Mayfair taking exception to the decision of the trial court, the battleground shifted to the respondent Court of Appeals. Respondent appellate court reversed the court a quo and rendered judgment: "1. Reversing and setting aside the appealed Decision; 2. Directing the plaintiff-appellant Mayfair Theater, Inc. to pay and return to Equatorial the amount ofP11,300,000.00 within fifteen (15) days from notice of this Decision, and ordering Equatorial Realty Development, Inc. to accept such payment; 3. Upon payment of the sum of P11,300,000, directing Equatorial Realty Development, Inc. to execute the deeds and documents necessary for the issuance and transfer of ownership to Mayfair of the lot registered under TCT Nos. 17350, 118612, 60936, and 52571; and 4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to pay the amount as adjudged, declaring the Deed of Absolute Sale between the defendantsappellants Carmelo & Bauermann, Inc. and Equatorial Realty Development, Inc. as valid and binding upon all the parties." [8crlwvirtualibrry Rereading the law on the matter of sales and option contracts, respondent Court of Appeals differentiated between Article 1324 and Article 1479 of the Civil Code, analyzed their application to the facts of this case, and concluded that since paragraph 8 of the two lease contracts does not state a fixed price for the purchase of the leased premises, which is an essential element for a contract of sale to be perfected, what paragraph 8 is, must be a right of first refusal and not an option contract. It explicated: "Firstly, the court a quo misapplied the provisions of Articles 1324 and 1479, second paragraph, of the Civil Code. Article 1324 speaks of an offer made by an offeror which the offeree may or may not accept within a certain period. Under this article, the offer may be withdrawn by the offeror before the expiration of the period and while the offeree has not yet accepted the offer. However, the offer cannot be withdrawn by the offeror within the period if a consideration has been promised or given by the offeree in exchange for the privilege of being given that period within which to accept the offer. The consideration is distinct from the price which is part of the offer. The contract that arises is known as option. In the case of Beaumont vs. Prieto, 41 Phil. 670, the Supreme Court, citing Bouvier, defined an option as follows: 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. (pp. 686-7). Article 1479, second paragraph, on the other hand, contemplates of an accepted unilateral promise to buy or to sell a determinate thing for a price within (which) is binding upon the promisee if the promise is supported by a consideration distinct from the price. That unilateral promise to buy or to sell a determinate thing for a price certain is called an offer. An offer, in law, is a proposal to enter into a contract (Rosenstock vs. Burke, 46 Phil. 217). To constitute a legal offer, the proposal must be certain as to the object, the price and other essential terms of the contract (Art. 1319, Civil Code). Based on the foregoing discussion, it is evident that the provision granting Mayfair 30days exclusive option to purchase the leased premises is NOT AN OPTION in the context of Arts. 1324 and 1479, second paragraph, of the Civil Code. Although the provision is certain as to the object (the sale of the leased premises) the price for which the object is to be sold is not stated in the provision. Otherwise stated, the questioned stipulation is not, by itself, an option or the offer to sell because the clause does not specify the price for the subject property. Although the provision giving Mayfair 30-days exclusive option to purchase cannot be legally categorized as an option, it is, nevertheless, a valid and binding stipulation. What the trial court failed to appreciate was the intention of the parties behind the questioned proviso. xxx xxx xxx The provision in question is not of the pro-forma type customarily found in a contract of lease. Even appellees have recognized that the stipulation was incorporated in the two Contracts of Lease at the initiative and behest of Mayfair . Evidently, the stipulation was intended to benefit and protect Mayfair in its rights as lessee in case Carmelo should decide, during the term of the lease, to sell the leased property. This intention of the parties is achieved in two ways in accordance with the stipulation. The first is by giving Mayfair 30-days exclusive option to purchase the leased property. The second is, in case Mayfair would opt not to purchase the leased property, that the purchaser (the new owner of the leased property) shall recognize the lease and be bound by all the terms and conditions thereof. In other words, paragraph 8 of the two Contracts of Lease, particularly the stipulation giving Mayfair 30-days exclusive option to purchase the (leased premises), was meant to provide Mayfair the opportunity to purchase and acquire the leased property in the event that Carmelo should decide to dispose of the property. In order to realize this intention, the implicit obligation of Carmelo once it had decided to sell the leased property, was not only to notify Mayfair of such decision to sell the property, but, more importantly, to make an offer to sell the leased premises to Mayfair, giving the latter a fair and reasonable opportunity to accept or reject the offer, before offering to sell or selling the leased property to third parties. The right vested in Mayfair is analogous to the right of first refusal, which means that Carmelo should have offered the sale of the

26
leased premises to Mayfair before offering it to other parties, or, if Carmelo should receive any offer from third parties to purchase the leased premises, then Carmelo must first give Mayfair the opportunity to match that offer. In fact, Mr. Pascal understood the provision as giving Mayfair a right of first refusal when he made the telephone call to Mr. Yang in 1974. Mr. Pascal thus testified: Q. Can you tell this Honorable Court how you made the offer to Mr. Henry Yang by telephone? A. I have an offer from another party to buy the property and having the offer we decided to make an offer to Henry Yang on a first-refusal basis. (TSN, November 8, 1983, p. 12.). and on cross-examination: Q. When you called Mr. Yang on August 1974 can you remember exactly what you have told him in connection with that matter, Mr. Pascal? A. More or less, I told him that I received an offer from another party to buy the property and I was offering him first choice of the entire property. (TSN, November 29, 1983, p. 18). We rule, therefore, that the foregoing interpretation best renders effectual the intention of the parties." [9crlwvirtualibrry Besides the ruling that paragraph 8 vests in Mayfair the right of first refusal as to which the requirement of distinct consideration indispensable in an option contract, has no application, respondent appellate court also addressed the claim of Carmelo and Equatorial that assuming arguendo that the option is valid and effective, it is impossible of performance because it covered only the leased premises and not the entire Claro M. Recto property, while Carmelos offer to sell pertained to the entire property in question. The Court of Appeals ruled as to this issue in this wise: "We are not persuaded by the contentions of the defendants-appellees. It is to be noted that the Deed of Absolute Sale between Carmelo and Equatorial covering the whole Claro M. Recto property, made reference to four titles: TCT Nos. 17350, 118612, 60936 and 52571. Based on the information submitted by Mayfair in its appellants Brief (pp. 5 and 46) which has not been controverted by the appellees, and which We, therefore, take judicial notice of the two theaters stand on the parcels of land covered by TCT No. 17350 with an area of 622.10 sq. m. and TCT No. 118612 with an area of 2,100.10 sq. m. The existence of four separate parcels of land covering the whole Recto property demonstrates the legal and physical possibility that each parcel of land, together with the buildings and improvements thereon, could have been sold independently of the other parcels. At the time both parties executed the contracts, they were aware of the physical and structural conditions of the buildings on which the theaters were to be constructed in relation to the remainder of the whole Recto property. The peculiar language of the stipulation would tend to limit Mayfairs right under paragraph 8 of the Contract of Lease to the acquisition of the leased areas only. Indeed, what is being contemplated by the questioned stipulation is a departure from the customary situation wherein the buildings and improvements are included in and form part of the sale of the subjacent land. Although this situation is not common, especially considering the non-condominium nature of the buildings, the sale would be valid and capable of being performed. A sale limited to the leased premises only, if hypothetically assumed, would have brought into operation the provisions of co-ownership under which Mayfair would have become the exclusive owner of the leased premises and at the same time a co-owner with Carmelo of the subjacent land in proportion to Mayfairs interest over the premises sold to it." [10crlwvirtualibrry Carmelo and Equatorial now comes before us questioning the correctness and legal basis for the decision of respondent Court of Appeals on the basis of the following assigned errors: "I THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT THE OPTION CLAUSE IN THE CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO. IN DOING SO THE COURT OF APPEALS DISREGARDED THE CONTRACTS OF LEASE WHICH CLEARLY AND UNEQUIVOCALLY PROVIDE FOR AN OPTION, AND THE ADMISSION OF THE PARTIES OF SUCH OPTION IN THEIR STIPULATION OF FACTS. II WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE COURT OF APPEALS ERRED IN DIRECTING EQUATORIAL TO EXECUTE A DEED OF SALE EIGHTEEN (18) YEARS AFTER MAYFAIR FAILED TO EXERCISE ITS OPTION (OR, EVEN ITS RIGHT OF FIRST REFUSAL ASSUMING IT WAS ONE) WHEN THE CONTRACTS LIMITED THE EXERCISE OF SUCH OPTION TO 30 DAYS FROM NOTICE. III THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DIRECTED IMPLEMENTATION OF ITS DECISION EVEN BEFORE ITS FINALITY, AND WHEN IT GRANTED MAYFAIR A RELIEF THAT WAS NOT EVEN PRAYED FOR IN THE COMPLAINT. IV

27
THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES IN THE ASSIGNMENT OF APPEALED CASES WHEN IT ALLOWED THE SAME DIVISION XII, PARTICULARLY JUSTICE MANUEL HERRERA, TO RESOLVE ALL THE MOTIONS IN THE COMPLETION PROCESS AND TO STILL RESOLVE THE MERITS OF THE CASE IN THE DECISION STAGE." [11crlwvirtualibrry We shall first dispose of the fourth assigned error respecting alleged irregularities in the raffle of this case in the Court of Appeals. Suffice it to say that in our 12 Resolution, dated December 9, 1992, we already took note of this matter and set out the proper applicable procedure to be the following: "On September 20, 1992, counsel for petitioner Equatorial Realty Development, Inc. wrote a letter-complaint to this Court alleging certain irregularities and infractions committed by certain lawyers, and Justices of the Court of Appeals and of this Court in connection with case CA-G.R. CV No. 32918 (now G.R. No. 106063). This partakes of the nature of an administrative complaint for misconduct against members of the judiciary. While the letter-complaint arose as an incident in case CA-G.R. CV No. 32918 (now G.R. No. 106063), the disposition thereof should be separate and independent from Case G.R. No. 106063. However, for purposes of receiving the requisite pleadings necessary in disposing of the administrative complaint, this Division shall continue to have control of the case. Upon completion thereof, the same shall be referred to the Court En Banc for proper disposition." [13crlwvirtualibrry This court having ruled the procedural irregularities raised in the fourth assigned error of Carmelo and Equatorial, to be an independent and separate subject for an administrative complaint based on misconduct by the lawyers and justices implicated therein, it is the correct, prudent and consistent course of action not to pre-empt the administrative proceedings to be undertaken respecting the said irregularities. Certainly, a discussion thereupon by us in this case would entail a finding on the merits as to the real nature of the questioned procedures and the true intentions and motives of the players therein. In essence, our task is two-fold: (1) to define the true nature, scope and efficacy paragraph 8 stipulated in the two contracts of lease between Carmelo and Mayfair the face of conflicting findings by the trial court and the Court of Appeals; and (2) determine the rights and obligations of Carmelo and Mayfair, as well as Equatorial, the aftermath of the sale by Carmelo of the entire Claro M. Recto property Equatorial. of in to in to 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." [14crlwvirtualibrry 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. As early as 1916, in the case of Beaumont vs. Prieto, unequivocal was our characterization of an option contract as one necessarily involving the choice granted to another for a distinct and separate consideration as to whether or not to purchase a determinate thing at a predetermined fixed price. "It is unquestionable that, by means of the document Exhibit E, to wit, the letter of December 4, 1911, quoted at the beginning of this decision, the defendant Valdes granted to the plaintiff Borck the right to purchase the Nagtajan Hacienda belonging to Benito Legarda, during the period of three months and for its assessed valuation, a grant which necessarily implied the offer or obligation on the part of the defendant Valdes to sell to Borck the said hacienda during the period and for the price mentioned, x x x. There was, therefore, a meeting of minds on the part of the one and the other, with regard to the stipulations made in the said document. But it is not shown that there was any cause or consideration for that agreement, and this omission is a bar which precludes our holding that the stipulations contained in Exhibit E is a contract of option, for, x x x there can be no contract without the requisite, among others, of the cause for the obligation to be established. In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following language: A contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires the privilege of buying from, or selling to B, certain securities or properties within a limited time at a specified price. (Story vs. Salamon, 71 N.Y., 420.) From vol. 6, page 5001, of the work Words and Phrases, citing the case of Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following quotation has been taken: An agreement in writing to give a person the option to purchase lands within a given time at a named priceis 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
15

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.

28
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." [16 (Underscoring ours.) 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. Notably, in one case we held that the lessee loses his right to buy the leased property for a named price per square meter upon failure to make the purchase within the time 17 specified; in one other case we freed the landowner from her promise to sell her land if the prospective buyer could raise P4,500.00 in three weeks because such option was 18 not supported by a distinct consideration; in the same vein in yet one other case, we also invalidated an instrument entitled, "Option to Purchase" a parcel of land for the 19 sum of P1,510.00 because of lack of consideration; and as an exception to the doctrine enumerated in the two preceding cases, in another case, we ruled that the option to buy the leased premises for P12,000.00 as stipulated in the lease contract, is not without consideration for in reciprocal contracts, like lease, the obligation or promise 20 of each party is the consideration for that of the other. In all these cases, the selling price of the object thereof is always predetermined and specified in the option clause in the contract or in the separate deed of option. We elucidated, thus, in the very recent 21 case of Ang Yu Asuncion vs. Court of Appeals that: "x x x. In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code provides: Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. When the sale is not absolute but conditional, such as in a Contract to Sell where invariably the ownership of the thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of the purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory force. x x x. 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. x x x. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price (1451a). 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 offerors 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 is deemed perfected, and it would be a breach of that contract to withdraw the offer during the agreed period. The option, however, is an independent contract by itself, and it is to be distinguished from the projected main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance (exercise of the option) by the optionee-offeree, the latter may not sue for

29
specific performance on the proposed contract (object of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for damages for breach of the option. x x x." In the light of the foregoing disquisition and in view of the wording of the questioned provision in the two lease contracts involved in the instant case, we so hold that no option to purchase in contemplation of the second paragraph of Article 1479 of the Civil Code, has been granted to Mayfair under the said lease contracts. Respondent Court of Appeals correctly ruled that the said paragraph 8 grants the right of first refusal to Mayfair and is not an option contract. It also correctly reasoned that as such, the requirement of a separate consideration for the option, has no applicability in the instant case. There is nothing in the identical Paragraphs "8" of the June 1, 1967 and March 31, 1969 contracts which would bring them into the ambit of the usual offer or option requiring an independent consideration. 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 22 consideration. 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. To rule that a contractual stipulation such as that found in paragraph 8 of the contracts is governed by Article 1324 on withdrawal of the offer or Article 1479 on promise to buy and sell would render ineffectual or "inutile" the provisions on right of first refusal so commonly inserted in leases of real estate nowadays. The Court of Appeals is correct in stating that Paragraph 8 was incorporated into the contracts of lease for the benefit of Mayfair which wanted to be assured that it shall be given the first crack or the first option to buy the property at the price which Carmelo is willing to accept. It is not also correct to say that there is no consideration in an agreement of right of first refusal. The stipulation is part and parcel of the entire contract of lease. The consideration for the lease includes the consideration for the right of first refusal. Thus, Mayfair is in effect stating that it consents to lease the premises and to pay the price agreed upon provided the lessor also consents that, should it sell the leased property, then, Mayfair shall be given the right to match the offered purchase price and to buy the property at 23 that price. As stated in Vda. De Quirino vs. Palarca, in reciprocal contract, the obligation or promise of each party is the consideration for that of the other. The respondent Court of Appeals was correct in ascertaining the true nature of the aforecited paragraph 8 to be that of a contractual grant of the right of first refusal to Mayfair. We shall now determine the consequential rights, obligations and liabilities of Carmelo, Mayfair and Equatorial. The different facts and circumstances in this case call for an amplification of the 24 precedent in Ang Yu Asuncionvs. Court of Appeals. crlwvirtualibrry First and foremost is that the petitioners acted in bad faith to render Paragraph 8 "inutile." What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will have the right of first refusal in the event Carmelo sells the leased premises. It is undisputed that Carmelo did recognize this right of Mayfair, for it informed the latter of its intention to sell the said property in 1974. There was an exchange of letters evidencing the offer and counter-offers made by both parties. Carmelo, however, did not pursue the exercise to its logical end. While it initially recognized Mayfairs right of first refusal, Carmelo violated such right when without affording its negotiations with Mayfair the full process to ripen to at least an interface of a definite offer and a possible corresponding acceptance within the "30-day exclusive option" time granted Mayfair, Carmelo abandoned negotiations, kept a low profile for some time, and then sold, without prior notice to Mayfair, the entire Claro M. Recto property to Equatorial. Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore, rescission lies. "x x x Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381(3) of the Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to third persons, like creditors. The status of creditors could be validly accorded the Bonnevies for they had substantial interests that were prejudiced by the sale of the subject property to the petitioner without recognizing their right of first priority under the Contract of Lease. According to Tolentino, rescission is a remedy granted by law to the contracting parties and even to third persons, to secure reparation for damages caused to them by a contract, even if this should be valid, by means of the restoration of things to their condition at the moment prior to the celebration of said contract. It is a relief allowed for 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. It is true that the acquisition by a third person of the property subject of the contract is an obstacle to the action for its rescission where it is shown that such third person is in lawful possession of the subject of the contract and that he did not act in bad faith. However, this rule is not applicable in the case before us because the petitioner is not considered a third party in relation to the Contract of Sale nor may its possession of the subject property be regarded as acquired lawfully and in good faith.

30
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the petitioner cannot be deemed a purchaser in good faith for the record shows that it categorically admitted it was aware of the lease in favor of the Bonnevies, who were actually occupying the subject property at the time it was sold to it. Although the Contract of Lease was not annotated on the transfer certificate of title in the name of the late Jose Reynoso and Africa Reynoso, the petitioner cannot deny actual knowledge of such lease which was equivalent to and indeed more binding than presumed notice by registration. 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. The petitioner insists that it was not aware of the right of first priority granted by the Contract of Lease. Assuming this to be true, we nevertheless agree with the observation of the respondent court that: If Guzman-Bocaling failed to inquire about the terms of the Lease Contract, which includes Par. 20 on priority right given to the Bonnevies, it had only itself to blame. Having known that the property it was buying was under lease, it behooved it as a prudent person to have required Reynoso or the broker to show to it the Contract of 25 Lease in which Par. 20 is contained." crlwvirtualibrry Petitioners assert the alleged impossibility of performance because the entire property is indivisible property. It was petitioner Carmelo which fixed the limits of the property it was leasing out. Common sense and fairness dictate that instead of nullifying the agreement on that basis, the stipulation should be given effect by including the indivisible appurtenances in the sale of the dominant portion under the right of first refusal. A valid and legal contract where the ascendant or the more important of the two parties is the landowner should be given effect, if possible, instead of being nullified on a selfish pretext posited by the owner. Following the arguments of petitioners and the participation of the owner in the attempt to strip Mayfair of its rights, the right of first refusal should include not only the property specified in the contracts of lease but also the appurtenant portions sold to Equatorial which are claimed by petitioners to be indivisible. Carmelo acted in bad faith when it sold the entire property to Equatorial without informing Mayfair, a clear violation of Mayfairs rights. While there was a series of exchanges of letters evidencing the offer and counter-offers between the parties, Carmelo abandoned the negotiations without giving Mayfair full opportunity to negotiate within the 30-day period. Accordingly, even as it recognizes the right of first refusal, this Court should also order that Mayfair be authorized to exercise its right of first refusal under the contract to include the entirety of the indivisible property. The boundaries of the property sold should be the boundaries of the offer under the right of first refusal. As to the remedy to enforce Mayfairs right, the Court disagrees to a certain extent with the concluding part of the dissenting opinion of Justice Vitug. The doctrine enunciated in Ang Yu Asuncion vs. Court of Appealsshould be modified, if not amplified under the peculiar facts of this case. As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by bad faith, since it was knowingly entered into in violation of the rights of and to the prejudice of Mayfair. In fact, as correctly observed by the Court of Appeals, Equatorial admitted that its lawyers had studied the contract of lease prior to the sale. Equatorials knowledge of the stipulations therein should have cautioned it to look further into the agreement to determine if it involved stipulations that would prejudice its own interests. Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale is first set aside or rescinded. All of these matters are now before us and so there should be no piecemeal determination of this case and leave festering sores to deteriorate into endless litigation. The facts of the case and considerations of justice and equity require that we order rescission here and now. Rescission 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 preferred 26 right by the contract. The sale of the subject real property by Carmelo to Equatorial should now be rescinded considering that Mayfair, which had substantial interest over the subject property, was prejudiced by the sale of the subject property to Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate within the 30-day 27 stipulated period. crlwvirtualibrry This Court has always been against multiplicity of suits where all remedies according to the facts and the law can be included. Since Carmelo sold the property for P11,300,000.00 to Equatorial, the price at which Mayfair could have purchased the property is, therefore, fixed. It can neither be more nor less. There is no dispute over it. The damages which Mayfair suffered are in terms of actual injury and lost opportunities. The fairest solution would be to allow Mayfair to exercise its right of first refusal at the price which it was entitled to accept or reject which is P11,300,000.00. This is clear from the records. To follow an alternative solution that Carmelo and Mayfair may resume negotiations for the sale to the latter of the disputed property would be unjust and unkind to Mayfair because it is once more compelled to litigate to enforce its right. It is not proper to give it an empty or vacuous victory in this case. From the viewpoint of Carmelo, it is like asking a fish if it would accept the choice of being thrown back into the river. Why should Carmelo be rewarded for and allowed to profit from, its wrongdoing? Prices of real estate have skyrocketed. After having sold the property for P11,300,000.00, why should it be given another chance to sell it at an increased price? Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that there was nothing to execute because a contract over the right of first refusal belongs to a

31
class of preparatory juridical relations governed not by the law on contracts but by the codal provisions on human relations. This may apply here if the contract is limited to the buying and selling of the real property. However, the obligation of Carmelo to first offer the property to Mayfair is embodied in a contract. It is Paragraph 8 on the right of first refusal which created the obligation. It should be enforced according to the law on contracts instead of the panoramic and indefinite rule on human relations. The latter remedy encourages multiplicity of suits. There is something to execute and that is for Carmelo to comply with its obligation to the property under the right of the first refusal according to the terms at which they should have been offered then to Mayfair, at the price when that offer should have been made. Also, Mayfair has to accept the offer. This juridical relation is not amorphous nor is it merely preparatory. Paragraphs 8 of the two leases can be executed according to their terms. On the question of interest payments on the principal amount of P11,300,000.00, it must be borne in mind that both Carmelo and Equatorial acted in bad faith. Carmelo knowingly and deliberately broke a contract entered into with Mayfair. It sold the property to Equatorial with purpose and intend to withhold any notice or knowledge of the sale coming to the attention of Mayfair. All the circumstances point to a calculated and contrived plan of non-compliance with the agreement of first refusal. On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice and full knowledge that Mayfair had a right to or interest in the property superior to its own. Carmelo and Equatorial took unconscientious advantage of Mayfair. Neither may Carmelo and Equatorial avail of considerations based on equity which might warrant the grant of interests. The vendor received as payment from the vendee what, at the time, was a full and fair price for the property. It has used the P11,300,000.00 all these years earning income or interest from the amount. Equatorial, on the other hand, has received rents and otherwise profited from the use of the property turned over to it by Carmelo. In fact, during all the years that this controversy was being litigated, Mayfair paid rentals regularly to the buyer who had an inferior right to purchase the property. Mayfair is under no obligation to pay any interests arising from this judgment to either Carmelo or Equatorial. W HEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed rescinded; petitioner Carmelo & Bauermann is ordered to return to petitioner Equatorial Realty Development the purchase price. The latter is directed to execute the deeds and documents necessary to return ownership to Carmelo & Bauermann of the disputed lots. Carmelo & Bauermann is ordered to allow Mayfair Theater, Inc. to buy the aforesaid lots forP11,300,000.00. SO ORDERED. On December 24, 1964, Vicenta executed a "Deed of Absolute Sale" whereby she sold Regalado, Davide, Jr., Bellosillo, Melo, Puno, Kapunan, Mendoza, and Francisco, JJ., concur. her 1/2 share for P9,000 to private respondents. THIRD [G.R. No. 104373. December 22, DIVISION 1994.]

LUZ ARDENA SALAME AND RAMON A. SALAME, Petitioners, v. COURT OF APPEALS AND SPOUSES ATILA BALGOS AND TEODORICA ASIS, Respondents.

DECISION

ROMERO, J.:

This is a petition for review on certiorari of the Decision, 1 of the Court of Appeals affirming the decision of the Regional Trial Court, Roxas City, Branch 19, which dismissed the amended complaint of plaintiff for reconveyance and damages and the counterclaim of defendants for lack of merit.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph The following are the facts:chanrob1es virtual 1aw library

Petitioners are the heirs and successors-in-interest of their mother, Vicenta Acevedo (Vicenta) who died in 1968. Vicenta and private respondents, the spouses Atila Balgos and Teodorica Asis, were the registered owners pro-indiviso of a parcel of agricultural land located in Barrio Banica, Roxas City. One-half of the said property belonged to Vicenta and the other half to the private respondents.

On November 10, 1962, Vicenta executed a "Contract of Sale of Undivided Share by Installment with Right of Repurchase" in favor of respondent spouses on her one-half share, in consideration of the amount of P5,300.00 with a stipulation on the sellers right to repurchase said property within eight years, and with an automatic grace period of another two years from the expiration of the eight-year period.

32
2. after the expiration of the period to exercise the right of repurchase under Exh. "A", On January 1, 1967, the respondent spouses executed a "Promise to Sell" whereby they promised to sell the 1/2 portion to Vicenta within the years 1973 to 1974, ending on December 31, 1974. 3. Vicenta died on January 20, 1968. In December 1974, petitioners asked to be allowed to repurchase the property for the amount of P9,000.00, but private respondents refused on the ground that they were now the legal and absolute owners if the said property. Petitioners then filed a complaint with the Regional Trial Court of Roxas City for "Reconveyance and Damages" against private respondents. We find petitioners contentions to be unmeritorious. All the three documents presented are separate and independent from each other although they refer to a common property. Having been duly acknowledged before a notary public the same have in their favor the presumption of regularity. To contradict the same, there must be evidence that is clear, convincing and more than merely preponderant. 5 However, the records in this case do not show even a preponderance of evidence in favor of petitioners claim that Exhibits "A", "B", and "C" all constituted a single transaction. We have had In its Decision, 2 the trial court dismissed petitioners complaint and defendants counterclaim for lack of merit. "A notarial document is evidence of the facts in clear unequivocal manner therein Petitioners appealed the case to the Court of Appeals which affirmed th e trial courts decision Hence, in this toto. No evidence is presented by petitioners to prove their contention that it was the parties petition. intention to enter into an equitable mortgage agreement, other than the documents themselves. Petitioners contend that the three transactions between Vicenta and respondent spouses were, in reality, a single transaction starting with the Contract of Sale by Installment with Right to Repurchase [marked Exh. "A" during the trial], continuing with the Deed of Absolute Sale [Exh. "B" ] and ending with the Promise to Sell [Exhibit "C" ]. Since the transactions involved the same property and the same parties, petitioners claim that pursuant to Article 1604 3 in relation to Article 1602 4 of the Civil Code, it may be presumed to be an equitable mortgage because the real intention of the parties is to secure the payment of a debt obtained by Vicenta from private respondents. Furthermore, the said transaction has all the earmarks of an equitable mortgage, namely:chanrob1es 1. the price of virtual the sale 1aw is library inadequate; In Exh. "A", Vicenta sold, for P5,300.00, her one-half share reserving for herself and her successors-in-interest the right to repurchase the same within eight years, extendible for another two. This conditional sale was converted into an absolute sale under the terms of Exh. "B", whereby Vicenta sold, for P9,000.00, her one-half share We find the terms and conditions of all three documents clear, free from any ambiguity, and expressive of the real intent and agreement of the parties. Furthermore, under the Parol Evidence Rule, 7 the three documents in question must be taken as containing all the terms of the agreement between Vicenta and respondent spouses, there appearing to be no ambiguity in the language of the said documents nor any failure to express the true intent and agreement of the said parties. expressed." 6 occasion to state:jgc:chanrobles.com.ph private respondents retained a part of the purchase price. another document, Exh. "C" extending the period of redemption or granting a new period was executed, and

33
"free from any liens or encumbrances" or without any stipulation regarding a right to repurchase on the vendors part. "In order that said unilateral promise may be "binding" upon the promisor, Article 1479 requires the concurrence of a condition, namely, that the promise be "supported by a Under the terms of Exh. "C", private respondents promised to sell the said one-half share to Vicenta and her successors-in-interest within the years 1973-1974, ending on December 31, 1974, after which upon failure to purchase the property, the promise to sell would cease to have any effect. consideration distinct from the price." Accordingly, the promise cannot compel the promisor to comply with the promise unless, the former establishes the existence of said distinct consideration. In other words, the promisee has the burden of proving such consideration."cralaw virtua1aw library

When Exh. "B" was executed, the right of repurchase given to Vicenta was terminated and her successors-in-interest could no longer exercise the same after her death in 1968.

Exh. "C," failing to satisfy the requirements for a valid unilateral promise to sell, petitioners may not now enforce the same.

WHEREFORE, the instant petition is hereby DENIED, and the Decision of the Court of Clearly, the "Promise to Sell" was a separate transaction, distinct from the right of repurchase under Exh. "A" . Appeals is hereby AFFIRMED in toto.

Moreover, we find that it was a unilateral promise to sell governed by Article 1479 8 of the Civil Code which requires that, in order that such a promise may be binding upon the promissor, (1) it be for a price certain and (2) it must be supported by a consideration separate from the price.

The record shows that Exh. "C" was unilaterally executed, signed and delivered by the promissors, herein private respondents, without the participation of Vicenta and her heirs. Exh. "C" does not indicate the selling price of the property; nor does it show that the unilateral promise to sell is supported by a consideration distinct and separate from that In of Falcon v. the Orobia, price.chanrobles 9 we stated virtual lawlibrary

that:jgc:chanrobles.com.ph

"Where, as in this case, defendants offered to buy the land but did not mention in their offer the price therefor, an "Option to Re-Sell" in their favor, requiring that the price must be determined when the resale is made, cannot be enforced, there being failure to agree Also, in on Sanchez v. the Rigos 10 price."cralaw we explained virtua1aw library

that:jgc:chanrobles.com.ph