ANDRES QUIROGA, plaintiff-appellant, vs. PARSONS HARDWARE CO., defendant-appellee.

ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds in all the towns of the Archipelago where there are no exclusive agents, and shall immediately report such action to Mr. Quiroga for his approval.

Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant. Crossfield & O'Brien for appellee.

ART. 4. This contract is made for an unlimited period, and may be terminated by either of the contracting parties on a previous notice of ninety days to the other party.

AVANCEA, J.:

On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by and between the plaintiff, as party of the first part, and J. Parsons (to whose rights and obligations the present defendant later subrogated itself), as party of the second part:

CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS.

Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute the subject matter of this appeal and both substantially amount to the averment that the defendant violated the following obligations: not to sell the beds at higher prices than those of the invoices; to have an open establishment in Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for the advertisement expenses for the same; and to order the beds by the dozen and in no other manner. As may be seen, with the exception of the obligation on the part of the defendant to order the beds by the dozen and in no other manner, none of the obligations imputed to the defendant in the two causes of action are expressly set forth in the contract. But the plaintiff alleged that the defendant was his agent for the sale of his beds in Iloilo, and that said obligations are implied in a contract of commercial agency. The whole question, therefore, reduced itself to a determination as to whether the defendant, by reason of the contract hereinbefore transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds.

ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J. Parsons under the following conditions:

(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment in Iloilo, and shall invoice them at the same price he has fixed for sales, in Manila, and, in the invoices, shall make and allowance of a discount of 25 per cent of the invoiced prices, as commission on the sale; and Mr. Parsons shall order the beds by the dozen, whether of the same or of different styles.

(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty days from the date of their shipment.

In order to classify a contract, due regard must be given to its essential clauses. In the contract in question, what was essential, as constituting its cause and subject matter, is that the plaintiff was to furnish the defendant with the beds which the latter might order, at the price stipulated, and that the defendant was to pay the price in the manner stipulated. The price agreed upon was the one determined by the plaintiff for the sale of these beds in Manila, with a discount of from 20 to 25 per cent, according to their class. Payment was to be made at the end of sixty days, or before, at the plaintiff's request, or in cash, if the defendant so preferred, and in these last two cases an additional discount was to be allowed for prompt payment. These are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the term fixed, without any other consideration and regardless as to whether he had or had not sold the beds.

(C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight, insurance, and cost of unloading from the vessel at the point where the beds are received, shall be paid by Mr. Parsons.

(D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when made shall be considered as a prompt payment, and as such a deduction of 2 per cent shall be made from the amount of the invoice.

The same discount shall be made on the amount of any invoice which Mr. Parsons may deem convenient to pay in cash.

It would be enough to hold, as we do, that the contract by and between the defendant and the plaintiff is one of purchase and sale, in order to show that it was not one made on the basis of a commission on sales, as the plaintiff claims it was, for these contracts are incompatible with each other. But, besides, examining the clauses of this contract, none of them is found that substantially supports the plaintiff's contention. Not a single one of these clauses necessarily conveys the idea of an agency. The words commission on sales used in clause (A) of article 1 mean nothing else, as stated in the contract itself, than a mere discount on the invoice price. The word agency, also used in articles 2 and 3, only expresses that the defendant was the only one that could sell the plaintiff's beds in the Visayan Islands. With regard to the remaining clauses, the least that can be said is that they are not incompatible with the contract of purchase and sale.

(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in price which he may plan to make in respect to his beds, and agrees that if on the date when such alteration takes effect he should have any order pending to be served to Mr. Parsons, such order shall enjoy the advantage of the alteration if the price thereby be lowered, but shall not be affected by said alteration if the price thereby be increased, for, in this latter case, Mr. Quiroga assumed the obligation to invoice the beds at the price at which the order was given.

(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds.

The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the defendant corporation and who established and managed the latter's business in Iloilo. It appears that this witness, prior to the time of his testimony, had serious trouble with the defendant, had maintained a civil suit against it, and had even accused one of its partners, Guillermo Parsons, of falsification. He testified that it was he who drafted the contract Exhibit A, and, when questioned as to what was his purpose in contracting with the plaintiff, replied that it was to be an agent for his beds and to collect a commission on sales. However, according to the defendant's evidence, it was Mariano Lopez Santos, a director of the corporation, who prepared Exhibit A. But, even supposing that Ernesto Vidal has stated the truth, his statement as to what was his idea in contracting with the plaintiff is of no importance, inasmuch as the agreements contained in Exhibit A which he claims to have drafted, constitute, as we have said, a contract of purchase and sale, and not one of commercial agency. This only means that Ernesto Vidal was mistaken in his classification of the contract. But it must be understood that a contract is what the law defines it to be, and not what it is called by the contracting parties.

ART. 2. In compensation for the expenses of advertisement which, for the benefit of both contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes the obligation to offer and give the preference to Mr. Parsons in case anyone should apply for the exclusive agency for any island not comprised with the Visayan group.

The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell; that, without previous notice, it forwarded to the defendant the beds that it wanted; and that the defendant received its commission for the beds sold by the plaintiff directly to persons in Iloilo. But all this, at the most only shows that, on the part of both of them, there was mutual tolerance in the performance of the contract in disregard of its terms;

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and it gives no right to have the contract considered, not as the parties stipulated it, but as they performed it. Only the acts of the contracting parties, subsequent to, and in connection with, the execution of the contract, must be considered for the purpose of interpreting the contract, when such interpretation is necessary, but not when, as in the instant case, its essential agreements are clearly set forth and plainly show that the contract belongs to a certain kind and not to another. Furthermore, the return made was of certain brass beds, and was not effected in exchange for the price paid for them, but was for other beds of another kind; and for the letter Exhibit L-1, requested the plaintiff's prior consent with respect to said beds, which shows that it was not considered that the defendant had a right, by virtue of the contract, to make this return. As regards the shipment of beds without previous notice, it is insinuated in the record that these brass beds were precisely the ones so shipped, and that, for this very reason, the plaintiff agreed to their return. And with respect to the so-called commissions, we have said that they merely constituted a discount on the invoice price, and the reason for applying this benefit to the beds sold directly by the plaintiff to persons in Iloilo was because, as the defendant obligated itself in the contract to incur the expenses of advertisement of the plaintiff's beds, such sales were to be considered as a result of that advertisement.

Held: 1) A contract for a piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as to whether the thing transferred is one not in existence and which would never have existed but for the order, of the person desiring it. In such case, the contract is one for a piece of work, not a sale. On the other hand, if the thing subject of the contract would have existed and been the subject of a sale to some other person even if the order had not been given, then the contract is one of sale. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work . The contract in question is one for a piece of work. It is not petitioners line of business to manufacture air-conditioning systems to be sold off-the-shelf. Its business and particular field of expertise is the fabrication and installation of such systems as ordered by customers and in accordance with the particular plans and specifications provided by the customers. Naturally, the price or compensation for the system manufactured and installed will depend greatly on the particular plans and specifications agreed upon with the customers. 2)

In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his right and cannot complain for having acted thus at his own free will.

For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the defendant was one of purchase and sale, and that the obligations the breach of which is alleged as a cause of action are not imposed upon the defendant, either by agreement or by law.

The judgment appealed from is affirmed, with costs against the appellant. So ordered.

ENGINEERING

AND

MACHINERY

CORP.

VS.

COURT

OF

APPEALS

G.R. No. 52267 January 24, 1996 Facts: Almeda and Engineering signed a contract, wherein Engineering undertook to fabricate, furnish and install the air-conditioning system in the latters building along Buendia Avenue, Makati in consideration of P210,000.00. Petitioner was to furnish the materials, labor, tools and all services required in order to so fabricate and install said system. The system was completed in 1963 and accepted by private respondent, who paid in full the contract price. Almeda learned from the employees of NIDC of the defects of the air-conditioning system of the building. Almeda spent for the repair of the airconditioning system. He now sues Engineering for the refund of the repair. Engineering contends that the contract was of sale and the claim is barred by prescription since the responsibility of a vendor for any hidden faults or defects in the thing sold runs only for 6 months (Arts 1566, 1567, 1571). Almeda contends that since it was a contract for a piece of work, hence the prescription period was ten years (Hence Art 1144 should apply on written contracts). RTC found that Engineering failed to install certain parts and accessories called for by the contract, and deviated from the plans of the system, thus reducing its operational effectiveness to achieve a fairly desirable room temperature.

The original complaint is one for damages arising from breach of a written contract and not a suit to enforce warranties against hidden defects we here with declare that the governing law is Article 1715 (supra). However, inasmuch as this provision does not contain a specific prescriptive period, the general law on prescription, which is Article 1144 of the Civil Code, will apply. Said provision states, inter alia, that actions upon a written contract prescribe in ten (10) years. Since the governing contract was executed on September 10, 1962 and the complaint was filed on May 8, 1971, it is clear that the action has not prescribed. RESTITUTA V. VDA. DE GORDON, 1 petitioner, vs. THE COURT OF APPEALS 2 and ROSARIO DUAZO, respondents.

TEEHANKEE, J.:

The Court affirms the appealed decision finding the same to be in accordance with the applicable law. The appellate court correctly upheld the tax sale of the real properties at which respondent Rosario Duazo acquired the same and her ownership upon petitioner Restituta V. Vda. de Gordon's failure to redeem the same, having found the sale to have been conducted "under the direction and supervision of the City Treasurer of Quezon City after the proper procedure and legal formalities had been duly accomplished."

The apppellate court's decision under review held as follows: Issue: 1) WON the contract for the fabrication and installation of a central air-conditioning system in a building, one of sale or for a piece of work? CONTRACT FOR PIECE OF WORK. 2) Corrollarily WON the claim for refund was extinguished by prescription? NO. The opposition [to respondent Duazo's petition for consolidation of ownership] has not controverted by specific denials the material averments in the petition. Hence the material averments in the petition are deemed admitted. (Section 1, Rule 9, Revised Rules of Court)

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Moreover, the opposition has not raised the issue of irregularity in the public sale of the two parcels of land in question. This defense is deemed waived. (Section 2, Rule 9, Id.)

The uncontested averments in the petition and the annex attached to said petition disclose that the two parcels of land in question were sold at public auction at the City Hall, Quezon City on December 3, 1964 under the direction and supervision of the City Treasurer of Quezon City after the proper procedures and legal formalities had been duly accomplished; that the taxes against the two parcels of land in question for the years 1953 to 1963, inclusive, remained unpaid; that the City Treasurer of Quezon City, upon warrant of a certified copy of the record of such delinquency, advertised for sale the two parcels of land in question to satisfy the taxes, penalties and costs for a period of thirty (30) days prior to the sale on December 3, 1964, by keeping a notice of sale posted at the main entrance on the City Hall and in a public and conspicuous place in the district where the same is located and by publication of said notice once a week for three (3) weeks in the "DAILY MIRROR", a newspaper of general circulation in Quezon City, the advertisement stating the amount of taxes and penalties due, time and place of sale, name of the taxpayer against whom the taxes are levied, approximate area, lot and block number, location by district, street and street number of the property; "hat at the public sale on December 3, 1964, the two parcels of land in question were sold to [Duazo] for the amount of P10,500.00 representing the tax, penalty and costs; that the certificate of sale executed by the City treasurer was duly registered on December 28, 1964 in the office of the Register of Deeds of Quezon City; that upon the failure of the registered owner to redeem the two parcels of land in question within the one year period prescribed by law, the City Treasurer of Quezon City executed on January 4, 1966 a final deed of sale of said lands and the improvements thereon; and that said final deed of sale was also registered in the Office of the Register of Deeds of Quezon City on January 18, 1966.

It is true that respondent treasurer now claims that the prices for which the lands were sold are unconscionable considering the wide divergence between their assessed values and the amounts for which they had been actually sold. However, while in ordinary sales for reasons of equity a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one's conscience as to justify- the courts to interfere, such does not follow when the law gives to the owner the right to redeem, as when a sale is made at public auction upon the theory that the lesser the price the easier it is for the owner to effect the redemption. And so it was aptly said:

When there is the right to redeem, inadequacy of pace should not be material because the judgment debtor may reacquire the property or also sell his right to redeeem and thus recover the loss he claims to have suffered by reason of the price obtained at the auction sale. (emphasis supplied).

The principal issues to be resolved in this appeal are (1) whether the price is so grossly inadequate as to justify the setting aside of the public sale and (2) whether the oppositor [Gordon] is entitled to redeem the two parcels of land in question.

The contention that the oppositor can still redeem the two parcels of land in question because the public sale has not been judicially confirmed deserves scant consideration. The cases cited by the oppositor and by the lower court all refer to foreclosure of mortgage sales which are by express provision of law subject to judicial confirmation. The public sale in the instant case is governed by Section 40 of Commonwealth Act No. 470 which gives the delinquent taxpayer a period of one year from the date of the sale within which to repurchase the property sold. In case the delinquent taxpayer does not repurchase the property sold within the period of one year from the date of the sale, it becomes a mandatory duty of the provincial treasurer to issue in favor of the purchaser a final deed of sale. (Velasquez vs. Coronel, supra) We find that the oppositor is not entitled to repurchase the two parcels of land in question because she failed to do so within one year from the date of the sale thereof.

The combined assessed value of the two parcels of land is P16,800.00. The price paid at the public sale is P10,500.00. The residential house on the land is assessed at P45,580.00. But the assessment was made in 1961. The present value of the residential house must be much less now considering the depreciation for over ten years.

WHEREFORE, the order appealed from is hereby reversed and the ownership of [Duazo] over the two parcels of land in question and the improvements thereon is declared consolidated. The Register of Deeds of Quezon City is hereby ordered to cancel Transfer Certificates of Title Nos. 12204 and 12205 and to issue the corresponding transfer certificates of title to [Duazo] over the two parcels of land in question, upon the payment of the prescribed fees. No pronouncement as to costs.

While the price of P10,500.00 is less than the total assessed value of the land and the improvement thereon, said price cannot be considered so grossly inadequate as to be shocking to the conscience of the court.

The Court finds petitioner's assignment of errors to be without merit.

In Director of Lands vs. Abarca, 61 Phil. 70, cited by the lower court in the order appealed from, the Supreme Court considered the price of P877.25 as so inadequate to shock the conscience of the court because the assessed value of the property in question was P60,000.00. The assessed value of the land was more than sixty times the price paid at the auction sale.

Petitioner's first assignment of error as to alleged lack of personal notice of the tax sale is negated by her own averments in her own opposition filed in the court a quo that "(T)he Oppositor in the above entitled petition is a woman 80 years of age. She was not aware of the auction sale conducted by the City Treasurer of Quezon City on December 3, 1964 or if there was any notice sent to her, the same did not reach her or it must have escaped her mind considering her age. ... 4

In the case at bar, the price of P10,500.00 is about one sixth of the total assessed value of the two parcels of land in question and the residential house thereon. The finding of the lower court that the house and land in question have a fair market value of not less than P200,000.00 has no factual basis. It cannot be said, therefore, that the price of P10,500.00 is so inadequate as to be shocking to the conscience of the court.

Petitioner's second assignment of error that the period for redemption should be the two-year period provided in Republic Act No. 1275 likewise has no merit, since the specific law governing tax sales of properties in Quezon City is the Quezon City Charter, Commonwealth Act No. 502 which provides in section 31 thereof for a one-year redemption period. The special law covering Quezon City necessarily prevails over the general law. Furthermore, as respondent has pointed out, as of the time of filing in 1974 of respondent's brief, petitioner had not then for a period of 10 years (and 17 years as of now) sought to exercise her alleged right of redemption or make an actual tender thereof, as follows:

Mere inadequacy of the price alone is not sufficient ground to annul the public sale. (Barrozo vs. Macaraeg, 83 Phil. 378).

Moreover, in Velasquez vs. Coronet, 5 SCRA 985, 988, the Supreme Court has held:

Morever, even if we do concede, merely for the sake of argument, that the provisions of Rep. Act No. 1275 may be made applicable in this case which is certainly not and Petitioner should have been granted TWO (2) YEARS from date of the public sale, within which to exercise her right of redemption, yet since the sale of the questioned land to herein Respondent in that public auction in 1964, herein Petitioner never had

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shown any good faith in exercising her right of redemption. Since 1964 when the auction sale took place, up to the present, 1974, or a period of TEN (10) YEARS have already elapsed and yet herein Petitioner never made any tender of payments with either the Court of First Instance of Quezon City or the Court of Appeals, or the Supreme Court, at least to show her good faith.

Antonita authorizing her to fence off the said lot and to construct a road in the adjacent lot. 9 On December 13, 1996, Gabriel Jr. acknowledged receipt of a PhP 40,000 payment from petitioners. 10 Through a letter11 dated May 1, 1997, Gabriel Jr. acknowledged that petitioner had so far made an aggregate payment of PhP 65,000, leaving an outstanding balance of PhP 60,000. A receipt Gabriel Jr. issued dated November 24, 1997 reflected a PhP 10,000 payment.

Furthermore, if herein Petitioner really believes in good faith, that [she] had still that right of redemption, then she should have paid the real estate taxes, but as the records wig show, since 1964, Private Respondent Duazo is the one paying the real estate taxes of the lands in question 5

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

Petitioner's third and last assignment of error as to the alleged gross inadequacy of the purchase price must likewise fail. As the Court has held in Velasquez vs. Coronet 6 alleged gross inadequacy of price is not material "when the law gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price the easier it is for the owner to effect the redemption." As the Court further stressed in the recent case of Tajonera vs. Court of Appeals, 7 the law governing tax sales for delinquent taxes may be "harsh and drastic, but it is a necessary means of insuring the prompt collection of taxes so essential to the life of the Government."

As narrated by the RTC, the lot conveyance from Gabriel Jr. to Bernard was effected against the following backdrop: Badly in need of money, Gabriel Jr. borrowed from Bernard the amount of PhP 50,000, payable in two weeks at a fixed interest rate, with the further condition that the subject lot would answer for the loan in case of default. Gabriel Jr. failed to pay the loan and this led to the execution of a Deed of Sale 12 dated June 30, 1999 and the issuance later of TCT No. T-7278213 for subject lot in the name of Bernard upon cancellation of TCT No. 71499 in the name of Gabriel, Jr. As the RTC decision indicated, the reluctant Bernard agreed to acquire the lot, since he had by then ready buyers in respondents Marcos Cid and Benjamin F. Cid (Marcos and Benjamin or the Cids).

ACCORDINGLY, the appellate court's decision under review is hereby affirmed. Without costs.

Subsequently, Bernard sold to the Cids the subject lot for PhP 80,000. Armed with a Deed of Absolute Sale of a Registered Land14 dated January 19, 2000, the Cids were able to cancel TCT No. T-72782 and secure TCT No. 7278315 covering the subject lot. Just like in the immediately preceding transaction, the deed of sale between Bernard and the Cids had respondent Eduardo J. Fuentebella (Eduardo) as one of the instrumental witnesses. Marcos and Benjamin, in turn, ceded the subject lot to Eduardo through a Deed of Absolute Sale 16 dated May 11, 2000. Thus, the consequent cancellation of TCT No. T-72782 and issuance on May 16, 2000 of TCT No. T327617 over subject lot in the name of Eduardo.

ANTHONY ORDUA, DENNIS ORDUA, and ANTONITA ORDUA, Petitioners, vs. EDUARDO J. FUENTEBELLA, MARCOS S. CID, BENJAMIN F. CID, BERNARD G. BANTA, and ARMANDO GABRIEL, JR., Respondents.

DECISION

VELASCO, JR., J.: In this Petition for Review1 under Rule 45 of the Rules of Court, Anthony Ordua, Dennis Ordua and Antonita Ordua assail and seek to set aside the Decision2 of the Court of Appeals (CA) dated December 4, 2006 in CAG.R. CV No. 79680, as reiterated in its Resolution of March 6, 2007, which affirmed the May 26, 2003 Decision3 of the Regional Trial Court (RTC), Branch 3 in Baguio City, in Civil Case No. 4984-R, a suit for annulment of title and reconveyance commenced by herein petitioners against herein respondents.

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

Sometime in May 2000, or shortly after his purchase of the subject lot, Eduardo, through his lawyer, sent a letter addressed to the residence of Gabriel Jr. demanding that all persons residing on or physically occupying the subject lot vacate the premises or face the prospect of being ejected.19 Learning of Eduardos threat, petitioners went to the residence of Gabriel Jr. at No. 34 Dominican Hill, Baguio City. There, they met Gabriel Jr.s estranged wife, Teresita, who informed them about her having filed an affidavit complaint against her husband and the Cids for falsification of public documents on March 30, 2000. According to Teresita, her signature on the June 30, 1999 Gabriel Jr.Bernard deed of sale was a forgery. Teresita further informed the petitioners of her intent to honor the aforementioned 1996 verbal agreement between Gabriel Sr. and Antonita and the partial payments they gave her father-in-law and her husband for the subject lot. On July 3, 2001, petitioners, joined by Teresita, filed a Complaint 20 for Annulment of Title, Reconveyance with Damages against the respondents before the RTC, docketed as Civil Case No. 4984-R, specifically praying that TCT No. T-3276 dated May 16, 2000 in the name of Eduardo be annulled. Corollary to this prayer, petitioners pleaded that Gabriel Jr.s title to the lot be reinstated and that petitioners be declared as entitled to acquire ownership of the same upon payment of the remaining balance of the purchase price therefor agreed upon by Gabriel Sr. and Antonita.

Central to the case is a residential lot with an area of 74 square meters located at Fairview Subdivision, Baguio City, originally registered in the name of Armando Gabriel, Sr. (Gabriel Sr.) under Transfer Certificate of Title (TCT) No. 67181 of the Registry of Deeds of Baguio City. 4 As gathered from the petition, with its enclosures, and the comments thereon of four of the five respondents, 5 the Court gathers the following relevant facts:

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

While impleaded and served with summons, Gabriel Jr. opted not to submit an answer. As early as 1979, however, Antonita and her sons, Dennis and Anthony Ordua, were already occupying the subject lot on the basis of some arrangement undisclosed in the records and even constructed their house thereon. They also paid real property taxes for the house and declared it for tax purposes, as evidenced by Tax Declaration No. (TD) 96-04012-1110877 in which they place the assessed value of the structure at PhP 20,090. After the death of Gabriel Sr., his son and namesake, respondent Gabriel Jr., secured TCT No. T-714998 over the subject lot and continued accepting payments from the petitioners. On December 12, 1996, Gabriel Jr. wrote

Ruling of the RTC

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

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WHEREFORE, the instant complaint is hereby DISMISSED for lack of merit. The four (4) plaintiffs are hereby ordered by this Court to pay each defendant (except Armando Gabriel, Jr., Benjamin F. Cid, and Eduardo J. Fuentebella who did not testify on these damages), Moral Damages of Twenty Thousand (P20,000.00) Pesos, so that each defendant shall receive Moral Damages of Eighty Thousand (P80,000.00) Pesos each. Plaintiffs shall also pay all defendants (except Armando Gabriel, Jr., Benjamin F. Cid, and Eduardo J. Fuentebella who did not testify on these damages), Exemplary Damages of Ten Thousand (P10,000.00) Pesos each so that eachdefendant shall receive Forty Thousand (P40,000.00) Pesos as Exemplary Damages. Also, plaintiffs are ordered to pay each defendant (except Armando Gabriel, Jr., Benjamin F. Cid, and Eduardo J. Fuentebella who did not testify on these damages), Fifty Thousand (P50,000.00) Pesos as Attorneys Fees, jointly and solidarily. Cost of suit against the plaintiffs.21

5. xxx IN RULING THAT THE INSTANT ACTION HAD ALREADY PRESCRIBED.

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

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

On the main, the RTC predicated its dismissal action on the basis of the following grounds and/or premises: The petition is meritorious. 1. Eduardo was a purchaser in good faith and, hence, may avail himself of the provision of Article 154422 of the Civil Code, which provides that in case of double sale, the party in good faith who is able to register the property has better right over the property; 2. Under Arts. 135623 and 135824 of the Code, conveyance of real property must be in the proper form, else it is unenforceable;

Statute of Frauds Inapplicable to Partially Executed Contracts

3. The verbal sale had no adequate consideration; and 4. Petitioners right of action to assail Eduardos title prescribes in one year from date of the issuance of such title and the one-year period has already lapsed.

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

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

Pursuant to such sale, Antonita and her two sons established their residence on the lot, occupying the house they earlier constructed thereon. They later declared the property for tax purposes, as evidenced by the issuance of TD 96-04012-111087 in their or Antonitas name, and paid the real estates due thereon, obviously as sign that they are occupying the lot in the concept of owners. Given the foregoing perspective, Eduardos assertion in his Answer that "persons appeared in the property" 27only after "he initiated ejectment proceedings" 28 is clearly baseless. If indeed petitioners entered and took possession of the property after he (Eduardo) instituted the ejectment suit, how could they explain the fact that he sent a demand letter to vacate sometime in May 2000?

The CA Ruling

On December 4, 2006, the appellate court rendered the assailed Decision affirming the RTC decision. The falloreads:

WHEREFORE, premises considered, the instant appeal is hereby DISMISSED and the 26 May 2003 Decision of the Regional Trial Court, Branch 3 of Baguio City in Civil Case No. 4989-R is hereby AFFIRMED. SO ORDERED.25

With the foregoing factual antecedents, the question to be resolved is whether or not the Statute of Frauds bars the enforcement of the verbal sale contract between Gabriel Sr. and Antonita.

The CA, just as the RTC, ruled that the contract is unenforceable for non-compliance with the Statute of Frauds.

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

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

1. xxx WHEN IT HELD THAT THE SALE OF THE SUBJECT LOT BY ARMANDO GABRIEL, SR. AND RESPONDENT ARMANDO GABRIEL, JR. TO THE PETITIONERS IS UNENFORCEABLE. The Statute of Frauds, in context, provides that a contract for the sale of real property or of an interest therein shall be unenforceable unless the sale or some note or memorandum thereof is in writing and subscribed by the party or his agent. However, where the verbal contract of sale has been partially executed through the partial payments made by one party duly received by the vendor, as in the present case, the contract is taken out of the scope of the Statute.

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

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

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

The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses, by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged. 31 The Statute requires certain contracts to be evidenced by some note or memorandum in order to be enforceable. The term "Statute of Frauds" is descriptive of statutes that require certain classes of contracts to be in writing. The Statute does not deprive the parties of the right to

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contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render it enforceable.32

Yet, the other respondents (purchasers of subject lot) still maintain that they are innocent purchasers for value whose rights are protected by law and besides which prescription has set in against petitioners action for annulment of title and reconveyance. The RTC and necessarily the CA found the purchaser-respondents thesis on prescription correct stating in this regard that Eduardos TCT No. T-3276 was issued on May 16, 2000 while petitioners filed their complaint for annulment only on July 3, 2001. To the courts below, the one-year prescriptive period to assail the issuance of a certificate of title had already elapsed.

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

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

We are not persuaded.

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

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

There was Adequate Consideration

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

Without directly saying so, the trial court held that the petitioners cannot sue upon the oral sale since in its own words: "x x x for more than a decade, [petitioners] have not paid in full Armando Gabriel, Sr. or his estate, so that the sale transaction between Armando Gabriel Sr. and [petitioners] [has] no adequate consideration." The trial courts posture, with which the CA effectively concurred, is patently flawed. For starters, they equated incomplete payment of the purchase price with inadequacy of price or what passes as lesion, when both are different civil law concepts with differing legal consequences, the first being a ground to rescind an otherwise valid and enforceable contract. Perceived inadequacy of price, on the other hand, is not a sufficient ground for setting aside a sale freely entered into, save perhaps when the inadequacy is shocking to the conscience.35

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

We are unable to agree with the RTC.

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

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

The Issues of Prescription and the Bona Fides of the Respondents as Purchasers

The general rule is that one dealing with a parcel of land registered under the Torrens System may safely rely on the correctness of the certificate of title issued therefor and is not obliged to go beyond the certificate. 41 Where, in other words, the certificate of title is in the name of the seller, the innocent purchaser for value has the right to rely on what appears on the certificate, as he is charged with notice only of burdens or claims on the res as noted in the certificate. Another formulation of the rule is that (a) in the absence of anything to arouse suspicion or (b) except where the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or (c) when the purchaser has knowledge of a defect of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the property, 42 said purchaser is without obligation to look beyond the certificate and investigate the title of the seller.

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

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

Eduardo and, for that matter, Bernard and Marcos and Benjamin, can hardly claim to be innocent purchasers for value or purchasers in good faith. For each knew or was at least expected to know that somebody else other than Gabriel, Jr. has a right or interest over the lot. This is borne by the fact that the initial seller, Gabriel Jr., was not in possession of subject property. With respect to Marcos and Benjamin, they knew as buyers that Bernard, the seller, was not also in possession of the same property. The same goes with Eduardo, as buyer, with respect to Marcos and Benjamin.ten.lihpwa1

Basic is the rule that a buyer of a piece of land which is in the actual possession of persons other than the seller must be wary and should investigate the rights of those in possession. Otherwise, without such inquiry, the buyer can hardly be regarded as a buyer in good faith. When a man proposes to buy or deal with realty, his duty is to

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read the public manuscript, i.e., to look and see who is there upon it and what his rights are. A want of caution and diligence which an honest man of ordinary prudence is accustomed to exercise in making purchases is, in contemplation of law, a want of good faith. The buyer who has failed to know or discover that the land sold to him is in adverse possession of another is a buyer in bad faith. 43

(3) documents questioned by Moises Jocson, in total reversal of the decision of the then Court of First Instance of Cavite, Branch I, which declared them as null and void; and of its resolution, dated September 30, 1980, denying therein appellee's motion for reconsideration.

Where the land sold is in the possession of a person other than the vendor, the purchaser must go beyond the certificates of title and make inquiries concerning the rights of the actual possessor. 44 And where, as in the instant case, Gabriel Jr. and the subsequent vendors were not in possession of the property, the prospective vendees are obliged to investigate the rights of the one in possession. Evidently, Bernard, Marcos and Benjamin, and Eduardo did not investigate the rights over the subject lot of the petitioners who, during the period material to this case, were in actual possession thereof. Bernard, et al. are, thus, not purchasers in good faith and, as such, cannot be accorded the protection extended by the law to such purchasers.45 Moreover, not being purchasers in good faith, their having registered the sale, will not, as against the petitioners, carry the day for any of them under Art. 1544 of the Civil Code prescribing rules on preference in case of double sales of immovable property. Occeav. Esponilla46 laid down the following rules in the application of Art. 1544: (1) knowledge by the first buyer of the second sale cannot defeat the first buyers rights exc ept when the second buyer first register in good faith the second sale; and (2) knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since such knowledge taints his registration with bad faith.

Petitioner Moises Jocson and respondent Agustina Jocson-Vasquez are the only surviving offsprings of the spouses Emilio Jocson and Alejandra Poblete, while respondent Ernesto Vasquez is the husband of Agustina. Alejandra Poblete predeceased her husband without her intestate estate being settled. Subsequently, Emilio Jocson also died intestate on April 1, 1972.

As adverted to above, the present controversy concerns the validity of three (3) documents executed by Emilio Jocson during his lifetime. These documents purportedly conveyed, by sale, to Agustina Jocson-Vasquez what apparently covers almost all of his properties, including his one-third (1/3) share in the estate of his wife. Petitioner Moises Jocson assails these documents and prays that they be declared null and void and the properties subject matter therein be partitioned between him and Agustina as the only heirs of their deceased parents.

The documents, which were presented as evidence not by Moises Jocson, as the party assailing its validity, but rather by herein respondents, are the following:

Upon the facts obtaining in this case, the act of registration by any of the three respondent-purchasers was not coupled with good faith. At the minimum, each was aware or is at least presumed to be aware of facts which should put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor. The award by the lower courts of damages and attorneys fees to some of the herein respondents was predicated on the filing by the original plaintiffs of what the RTC characterized as an unwarranted suit. The basis of the award, needless to stress, no longer obtains and, hence, the same is set aside.

1) "Kasulatan ng Bilihan ng Lupa," marked as Exhibit 3 (pp. 12-13, Records) for the defendant in the court a quo, dated July 27, 1968. By this document Emilio Jocson sold to Agustina Jocson-Vasquez six (6) parcels of land, all located at Naic, Cavite, for the sum of ten thousand P10,000.00 pesos. On the same document Emilio Jocson acknowledged receipt of the purchase price, thus:

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

Na ngayon, alang-alang sa halagang SAMPUNG LIBONG PISO (P10,000) salaping Pilipino na aking tinanggap ng buong kasiyahan loob at ang pagkakatanggap ay aking hayagang inaamin sa pamamagitan ng kasulatang ito, sa aking anak na si Agustina Jocson, na may sapat na gulang, mamamayang Pilipino, asawa ni Ernesto Vasquez, at naninirahan sa Poblacion, Naic, Cavite, ay aking ipinagbile ng lubusan at kagyat at walang ano mang pasubali ang nabanggit na anim na pirasong lupa na nasa unang dahon ng dokumentong ito, sa nabanggit na Agustina Jocson, at sa kaniyang tagapagmana o makakahalili at gayon din nais kong banggitin na kahit na may kamurahan ang ginawa kong pagbibile ay dahilan sa ang nakabile ay aking anak na sa akin at mapaglingkod, madamayin at ma-alalahanin, na tulad din ng isa ko pang anak na lalaki. Ang kuartang tinanggap ko na P10,000.00, ay gagamitin ko sa aking katandaan at mga huling araw at sa aking mga ibang mahahalagang pangangailangan. [Emphasis supplied]

No pronouncement as to costs.

SO ORDERED.

Na nais ko ring banggitin na ang ginawa kong ito ay hindi labag sa ano mang batas o kautusan, sapagkat ang aking pinagbile ay akin at nasa aking pangalan. Ang mga lupang nasa pangalan ng aking nasirang asawa ay hindi ko ginagalaw ni pinakikialaman at iyon ay dapat na hatiin ng dalawa kong anak alinsunod sa umiiral na batas (p. 13, Records.)

MOISES JOCSON, petitioner, vs. HON. COURT OF APPEALS, AGUSTINA JOCSON-VASQUEZ, ERNESTO VASQUEZ, respondents.

Dolorfino and Dominguez Law Officers for petitioner.

2) "Kasulatan ng Ganap na Bilihan,"dated July 27,1968, marked as Exhibit 4 (p. 14, Records). On the face of this document, Emilio Jocson purportedly sold to Agustina Jocson-Vasquez, for the sum of FIVE THOUSAND (P5,000.00) PESOS, two rice mills and a camarin (camalig) located at Naic, Cavite. As in the first document, Moises Jocson acknowledged receipt of the purchase price:

Gabriel G. Mascardo for private respondents.

MEDIALDEA, J.:

'Na alang-alang sa halagang LIMANG LIBONG PISO (P5,000.00) salaping Pilipino na aking tinanggap ng buong kasiyahan loob sa aking anak na Agustina Jocson .... Na ang halagang ibinayad sa akin ay may kamurahan ng kaunti ngunit dahil sa malaking pagtingin ko sa kaniya ... kaya at pinagbile ko sa kaniya ang mga nabanggit na pagaari kahit na hindi malaking halaga ... (p. 14, Records).

This is a petition for review on certiorari under Rule 45 of the Rules of Court of the decision of the Court of Appeals in CA- G.R. No. 63474, promulgated on April 30, 1980, entitled "MOISES JOCSON, plaintiff-appellee, versus AGUSTINA JOCSON-VASQUEZ and ERNESTO VASQUEZ, defendant-appellants," upholding the validity of three

3) Lastly, the "Deed of Extrajudicial Partition and Adjudication with Sale, "dated March 9, 1969, marked as Exhibit 2 (p. 10-11, Records), whereby Emilio Jocson and Agustina

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Jocson-Vasquez, without the participation and intervention of Moises Jocson, extrajudicially partitioned the unsettled estate of Alejandra Poblete, dividing the same into three parts, one-third (1/3) each for the heirs of Alejandra Poblete, namely: Emilio Jocson, Agustina Jocson-Vasquez and Moises Jocson. By the same instrument, Emilio sold his one- third (1/3) share to Agustin for the sum of EIGHT THOUSAND (P8,000.00) PESOS. As in the preceding documents, Emilio Jocson acknowledged receipt of the purchase price:

Now for and in consideration of the sum of only eight thousand (P8,000.00) pesos, which I, the herein Emilio Jocson had received from my daughter Agustina Jocson, do hereby sell, cede, convey and transfer, unto the said Agustina Jocson, her heirs and assigns, administrators and successors in interests, in the nature of absolute and irrevocable sale, all my rights, interest, shares and participation, which is equivalent to one third (1/3) share in the properties herein mentioned and described the one third being adjudicated unto Agustina Jocson and the other third (1/3) portion being the share of Moises Jocson. (p. 11, Records).

The trial court sustained the foregoing contentions of petitioner (pp. 59-81, Record on Appeal). It declared that the considerations mentioned in the documents were merely simulated and fictitious because: 1) there was no showing that Agustina Jocson-Vasquez paid for the properties; 2) the prices were grossly inadequate which is tantamount to lack of consideration at all; and 3) the improbability of the sale between Emilio Jocson and Agustina JocsonVasquez, taking into consideration the circumstances obtaining between the parties; and that the real intention of the parties were donations designed to exclude Moises Jocson from participating in the estate of his parents. It further declared the properties mentioned in Exhibits 3 and 4 as conjugal properties of Emilio Jocson and Alejandra Poblete, because they were registered in the name of "Emilio Jocson, married to Alejandra Poblete" and ordered that the properties subject matter of all the documents be registered in the name of herein petitioners and private respondents.

On appeal, the Court of Appeals in CA-G.R. No. 63474-R rendered a decision (pp. 29-42, Rollo) and reversed that of the trial court's and ruled that:

These documents were executed before a notary public. Exhibits 3 and 4 were registered with the Office of the Register of Deeds of Cavite on July 29, 1968 and the transfer certificates of title covering the properties therein in the name of Emilio Jocson, married to Alejandra Poblete," were cancelled and new certificates of title were issued in the name of Agustina Jocson-Vasquez. Exhibit 2 was not registered with the Office of the Register of Deeds.

1. That insofar as Exhibits 3 and 4 are concerned the appellee's complaint for annulment, which is indisputably based on fraud, and undue influence, is now barred by prescription, pursuant to the settled rule that an action for annulment of a contract based on fraud must be filed within four (4) years, from the discovery of the fraud, ... which in legal contemplation is deemed to be the date of the registration of said document with the Register of Deeds ... and the records admittedly show that both Exhibits 3 and 4, were all registered on July 29, 1968, while on the other hand, the appellee's complaint was filed on June 20, 1973, clearly beyond the aforesaid four-year prescriptive period provided by law;

Herein petitioner filed his original complaint (Record on Appeal, p. 27, Rollo) on June 20,1973 with the then Court of First Instance of Naic, Cavite (docketed as Civil Case No. TM- 531), and which was twice amended. In his Second Amended Complaint (pp. 47-58, Record on Appeal), herein petitioner assailed the above documents, as aforementioned, for being null and void.

It is necessary to partly quote the allegation of petitioner in his complaint for the reason that the nature of his causes of action is at issue, thus:

2. That the aforesaid contracts, Exhibits 2, 3, and 4, are decisively not simulated or fictitious contracts, since Emilio Jocson actually and really intended them to be effective and binding against him, as to divest him of the full dominion and ownership over the properties subject of said assailed contracts, as in fact all his titles over the same were all cancelled and new ones issued to appellant Agustina Jocson-Vasquez ...;

8. [With regard the first document, that] the defendants, through fraud, deceit, undue pressure and influence and other illegal machinations, were able to induce, led, and procured their father ... to sign [the] contract of sale ..., for the simulated price of P10,000.00, which is a consideration that is shocking to the conscience of ordinary man and despite the fact that said defendants have no work or livelihood of their own ...; that the sale is null and void, also, because it is fictitious, simulated and fabricated contract x x x (pp. 52-53, Record on Appeal). [Emphasis supplied]

3. That in regard to Exhibit 2, the same is valid and subsisting, and the partition with sale therein made by and between Emilio Jocson and Agustina Jocson-Vasquez, affecting the 2/3 portion of the subject properties described therein have all been made in accordance with Article 996 of the New Civil Code on intestate succession, and the appellee's (herein petitioner) remaining 1/3 has not been prejudiced (pp. 41-42, Rollo).

In this petition for review, Moises Jocson raised the following assignments of errors:

xxx xxx xxx

12. [With regards the second and third document, that they] are null and void because the consent of the father, Emilio Jocson, was obtained with fraud, deceit, undue pressure, misrepresentation and unlawful machinations and trickeries committed by the defendant on him; and that the said contracts are simulated, fabricated and fictitious, having been made deliberately to exclude the plaintiff from participating and with the dishonest and selfish motive on the part of the defendants to defraud him of his legitimate share on said properties [subject matter thereof]; and that without any other business or employment or any other source of income, defendants who were just employed in the management and administration of the business of their parents, would not have the sufficient and ample means to purchase the said properties except by getting the earnings of the business or by simulated consideration ... (pp. 54-55, Record on Appeal). [Emphasis supplied]

1. HAS THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THE SUIT FOR THE ANNULMENT OF CONTRACTS FILED BY PETITIONERS WITH THE TRIAL COURT IS "BASED ON FRAUD" AND NOT ON ITS INEXISTENCE AND NULLITY BECAUSE OF IT'S BEING SIMULATED OR FICTITIOUS OR WHOSE CAUSE IS CONTRARY TO LAW, MORALS AND GOOD CUSTOMS?

II. HAS THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THE COMPLAINT FILED BY PETITIONER IN THE TRIAL COURT IS BARRED BY PRESCRIPTION?

III. HAS THE RESPONDENT COURT OF APPEALS ERRED IN NOT DECLARING AS INEXISTENT AND NULL AND VOID THE CONTRACTS IN QUESTION AND IN REVERSING THE DECLARING DECISION OF THE TRIAL COURT? (p. 2, Rollo)

Petitioner explained that there could be no real sale between a father and daughter who are living under the same roof, especially so when the father has no need of money as the properties supposedly sold were all incomeproducing. Further, petitioner claimed that the properties mentioned in Exhibits 3 and 4 are the unliquidated conjugal properties of Emilio Jocson and Alejandra Poblete which the former, therefore, cannot validly sell (pp. 53, 57, Record on Appeal). As far as Exhibit 2 is concerned, petitioner questions not the extrajudicial partition but only the sale by his father to Agustina of the former's 1/3 share (p. 13, Rollo).

I.

The first and second assignments of errors are related and shall be jointly discussed.

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According to the Court of Appeals, herein petitioner's causes of action were based on fraud. Under Article 1330 of the Civil Code, a contract tainted by vitiated consent, as when consent was obtained through fraud, is voidable; and the action for annulment must be brought within four years from the time of the discovery of the fraud (Article 1391, par. 4, Civil Code), otherwise the contract may no longer be contested. Under present jurisprudence, discovery of fraud is deemed to have taken place at the time the convenant was registered with the Register of Deeds (Gerona vs. De Guzman, No. L-19060, May 29,1964, 11 SCRA 153). Since Exhibits 3 and 4 were registered on July 29, 1968 but Moises Jocson filed his complaint only on June 20, 1973, the Court of Appeals ruled that insofar as these documents were concerned, petitioner's "annulment suit" had prescribed.

There is another ground relied upon by petitioner in assailing Exhibits 3 and 4, that the properties subject matter therein are conjugal properties of Emilio Jocson and Alejandra Poblete. It is the position of petitioner that since the properties sold to Agustina Jocson-Vasquez under Exhibit 3 were registered in the name of "Emilio Jocson, married to Alejandra Poblete," the certificates of title he presented as evidence (Exhibits "E', to "J', pp. 4-9, Records) were enough proof to show that the properties covered therein were acquired during the marriage of their parents, and, therefore, under Article 160 of the Civil Code, presumed to be conjugal properties.

Article 160 of the Civil Code provides that: If fraud were the only ground relied upon by Moises Jocson in assailing the questioned documents, We would have sustained the above pronouncement. But it is not so. As pointed out by petitioner, he further assailed the deeds of conveyance on the ground that they were without consideration since the amounts appearing thereon as paid were in fact merely simulated.

All property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the wife.

In Cobb-Perez vs. Hon. Gregorio Lantin, No. L-22320, May 22, 1968, 23 SCRA 637, 644, We held that: According to Article 1352 of the Civil Code, contracts without cause produce no effect whatsoever. A contract of sale with a simulated price is void (Article 1471; also Article 1409 [3]]), and an action for the declaration of its nullity does not prescribe (Article 1410, Civil Code; See also, Castillo v. Galvan, No. L-27841, October 20, l978, 85 SCRA 526). Moises Jocsons saction, therefore, being for the judicial declaration of nullity of Exhibits 3 and 4 on the ground of simulated price, is imprescriptible.

II.

For petitioner, however, the above discussion may be purely academic. The burden of proof in showing that contracts lack consideration rests on he who alleged it. The degree of proof becomes more stringent where the documents themselves show that the vendor acknowledged receipt of the price, and more so where the documents were notarized, as in the case at bar. Upon consideration of the records of this case, We are of the opinion that petitioner has not sufficiently proven that the questioned documents are without consideration.

Firstly, Moises Jocson's claim that Agustina Jocson-Vasquez had no other source of income other than what she derives from helping in the management of the family business (ricefields and ricemills), and which was insufficient to pay for the purchase price, was contradicted by his own witness, Isaac Bagnas, who testified that Agustina and her husband were engaged in the buy and sell of palay and rice (p. 10, t.s.n., January 14, 1975). Amazingly, petitioner himself and his wife testified that they did not know whether or not Agustina was involved in some other business (p. 40, t.s.n., July 30, 1974; p. 36, t.s.n., May 24, 1974).

Anent their claim that the shares in question are conjugal assets, the spouses Perez adduced not a modicum of evidence, although they repeatedly invoked article 160 of the New Civil Code which provides that ... . As interpreted by this Court, the party who invokes this presumption must first prove that the property in controversy was acquired during the marriage. In other words, proof of acquisition during the coverture is a condition sine qua non for the operation of the presumption in favor of conjugal ownership. Thus in Camia de Reyes vs. Reyes de Ilano [62 Phil. 629, 639], it was held that "according to law and jurisprudence, it is sufficient to prove that the Property was acquired during the marriage in order that the same may be deemed conjugal property." In the recent case of Maramba vs. Lozano, et. al. [L-21533, June 29, 1967, 20 SCRA 474], this Court, thru Mr. Justice Makalintal, reiterated that "the presumption under Article 160 of the Civil Code refers to property acquired during the marriage," and then concluded that since "there is no showing as to when the property in question was acquired...the fact that the title is in the wife's name alone is determinative." Similarly, in the case at bar, since there is no evidence as to when the shares of stock were acquired, the fact that they are registered in the name of the husband alone is an indication that the shares belong exclusively to said spouse.'

This pronouncement was reiterated in the case of Ponce de Leon vs. Rehabilitation Finance Corporation, No. L24571, December 18, 1970, 36 SCRA 289, and later in Torela vs. Torela, No. 1,27843, October 11, 1979, 93 SCRA 391.

On the other hand, Agustina testified that she was engaged in the business of buying and selling palay and rice even before her marriage to Ernesto Vasquez sometime in 1948 and continued doing so thereafter (p. 4, t.s.n., March 15, 1976). Considering the foregoing and the presumption that a contract is with a consideration (Article 1354, Civil Code), it is clear that petitioner miserably failed to prove his allegation.

Secondly, neither may the contract be declared void because of alleged inadequacy of price. To begin with, there was no showing that the prices were grossly inadequate. In fact, the total purchase price paid by Agustina JocsonVasquez is above the total assessed value of the properties alleged by petitioner. In his Second Amended Complaint, petitioner alleged that the total assessed value of the properties mentioned in Exhibit 3 was P8,920; Exhibit 4, P3,500; and Exhibit 2, P 24,840, while the purchase price paid was P10,000, P5,000, and P8,000, respectively, the latter for the 1/3 share of Emilio Jocson from the paraphernal properties of his wife, Alejandra Poblete. And any difference between the market value and the purchase price, which as admitted by Emilio Jocson was only slight, may not be so shocking considering that the sales were effected by a father to her daughter in which case filial love must be taken into consideration (Alsua-Betts vs. Court of Appeals, No. L-46430-31, April 30, 1979, 92 SCRA 332).

It is thus clear that before Moises Jocson may validly invoke the presumption under Article 160 he must first present proof that the disputed properties were acquired during the marriage of Emilio Jocson and Alejandra Poblete. The certificates of title, however, upon which petitioner rests his claim is insufficient. The fact that the properties were registered in the name of "Emilio Jocson, married to Alejandra Poblete" is no proof that the properties were acquired during the spouses' coverture. Acquisition of title and registration thereof are two different acts. It is well settled that registration does not confer title but merely confirms one already existing (See Torela vs. Torela, supra). It may be that the properties under dispute were acquired by Emilio Jocson when he was still a bachelor but were registered only after his marriage to Alejandra Poblete, which explains why he was described in the certificates of title as married to the latter.

Contrary to petitioner's position, the certificates of title show, on their face, that the properties were exclusively Emilio Jocson's, the registered owner. This is so because the words "married to' preceding "Alejandra Poblete' are merely descriptive of the civil status of Emilio Jocson Litam v. Rivera, 100 Phil. 354; Stuart v. Yatco, No. L-16467, April 27, 1962, 4 SCRA 1143; Magallon v. Montejo, G.R. No. L-73733, December 16, 1986, 146 SCRA 282). In other words, the import from the certificates of title is that Emilio Jocson is the owner of the properties, the same having been registered in his name alone, and that he is married to Alejandra Poblete.

Further, gross inadequacy of price alone does not affect a contract of sale, except that it may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract (Article 1470, Civil Code) and there is nothing in the records at all to indicate any defect in Emilio Jocson's consent.

Thirdly, any discussion as to the improbability of a sale between a father and his daughter is purely speculative which has no relevance to a contract where all the essential requisites of consent, object and cause are clearly present.

We are not unmindful that in numerous cases We consistently held that registration of the property in the name of only one spouse does not negate the possibility of it being conjugal (See Bucoy vs. Paulino, No. L-25775, April 26, 1968, 23 SCRA 248). But this ruling is not inconsistent with the above pronouncement for in those cases there was proof that the properties, though registered in the name of only one spouse, were indeed conjugal properties, or that they have been acquired during the marriage of the spouses, and therefore, presumed conjugal, without the

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adverse party having presented proof to rebut the presumption (See Mendoza vs- Reyes, No. L-31618, August 17, 1983, 124 SCRA 154).

In the instant case, had petitioner, Moises Jocson, presented sufficient proof to show that the disputed properties were acquired during his parents' coverture. We would have ruled that the properties, though registered in the name of Emilio Jocson alone, are conjugal properties in view of the presumption under Article 160. There being no such proof, the condition sine qua non for the application of the presumption does not exist. Necessarily, We rule that the properties under Exhibit 3 are the exclusive properties of Emilio Jocson.

private instrument in which he also gave him the residential lot, on the understanding that the latter would take care of the grantor and would bury him upon his death. 6 Danguilan presented three other witnesses 7 to corroborate his statements and to prove that he had been living in the land since his marriage to Isidra and had remained in possession thereof after Domingo Melad's death in 1945. Two of said witnesses declared that neither the plaintiff nor her mother lived in the land with Domingo Melad. 8

There being no showing also that the camarin and the two ricemills, which are the subject of Exhibit 4, were conjugal properties of the spouses Emilio Jocson and Alejandra Poblete, they should be considered, likewise, as the exclusive properties of Emilio Jocson, the burden of proof being on petitioner.

The decision of the trial court was based mainly on the issue of possession. Weighing the evidence presented by the parties, the judge 9 held that the defendant was more believable and that the plaintiff's evidence was "unpersuasive and unconvincing." It was held that the plaintiff's own declaration that she moved out of the property in 1946 and left it in the possession of the defendant was contradictory to her claim of ownership. She was also inconsistent when she testified first that the defendant was her tenant and later in rebuttal that he was her administrator. The decision concluded that where there was doubt as to the ownership of the property, the presumption was in favor of the one actually occupying the same, which in this case was the defendant. 10 The review by the respondent court 11 of this decision was manifestly less than thorough. For the most part it merely affirmed the factual findings of the trial court except for an irrelevant modification, and it was only toward the end that it went to and resolved what it considered the lone decisive issue.

ACCORDINGLY, the petition is DISMISSED and the decision of the Court of Appeals is AFFIRMED.

SO ORDERED. The respondent court held that Exhibits 2-b and 3-a, by virtue of which Domingo Melad had conveyed the two parcels of land to the petitioner, were null and void. The reason was that they were donations of real property and as such should have been effected through a public instrument. It then set aside the appealed decision and declared the respondents the true and lawful owners of the disputed property.

FELIX DANGUILAN, petitioner, vs. INTERMEDIATE APPELLATE COURT, APOLONIA MELAD, assisted by her husband, JOSE TAGACAY,respondents.

The said exhibits read as follows: Pedro R. Perez, Jr. for petitioner. EXHIBIT 2-b is quoted as follows: 12 Teodoro B. Mallonga for private respondent. I, DOMINGO MELAD, of legal age, married, do hereby declare in this receipt the truth of my giving to Felix Danguilan, my agricultural land located at Barrio Fugu-Macusi, Penablanca, Province of Cagayan, Philippine Islands; that this land is registered under my name; that I hereby declare and bind myself that there is no one to whom I will deliver this land except to him as he will be the one responsible for me in the event that I will die and also for all other things needed and necessary for me, he will be responsible because of this land I am giving to him; that it is true that I have nieces and nephews but they are not living with us and there is no one to whom I will give my land except to Felix Danguilan for he lives with me and this is the length 175 m. and the width is 150 m.

CRUZ, J.:

The subject of this dispute is the two lots owned by Domingo Melad which is claimed by both the petitioner and the respondent. The trial court believed the petitioner but the respondent court, on appeal, upheld the respondent. The case is now before us for a resolution of the issues once and for all.

On January 29, 1962, the respondent filed a complaint against the petitioner in the then Court of First Instance of Cagayan for recovery of a farm lot and a residential lot which she claimed she had purchased from Domingo Melad in 1943 and were now being unlawfully withheld by the defendant. 1 In his answer, the petitioner denied the allegation and averred that he was the owner of the said lots of which he had been in open, continuous and adverse possession, having acquired them from Domingo Melad in 1941 and 1943. 2 The case was dismissed for failure to prosecute but was refiled in 1967. 3

IN WITNESS WHEREOF, I hereby sign my name below and also those present in the execution of this receipt this 14th day of September 1941.

Penablanca Cagayan, September 14, 1941.

(SGD.) DOMINGO MELAD At the trial, the plaintiff presented a deed of sale dated December 4, 1943, purportedly signed by Domingo Melad and duly notarized, which conveyed the said properties to her for the sum of P80.00. 4 She said the amount was earned by her mother as a worker at the Tabacalera factory. She claimed to be the illegitimate daughter of Domingo Melad, with whom she and her mother were living when he died in 1945. She moved out of the farm only when in 1946 Felix Danguilan approached her and asked permission to cultivate the land and to stay therein. She had agreed on condition that he would deliver part of the harvest from the farm to her, which he did from that year to 1958. The deliveries having stopped, she then consulted the municipal judge who advised her to file the complaint against Danguilan. The plaintiff 's mother, her only other witness, corroborated this testimony. 5

WITNESSES: 1. (T.M.) ISIDRO MELAD 2. (SGD.) FELIX DANGUILAN 3. (T.M.) ILLEGIBLE EXHIBIT 3-a is quoted as follows: 13

For his part, the defendant testified that he was the husband of Isidra Melad, Domingo's niece, whom he and his wife Juana Malupang had taken into their home as their ward as they had no children of their own. He and his wife lived with the couple in their house on the residential lot and helped Domingo with the cultivation of the farm. Domingo Melad signed in 1941 a private instrument in which he gave the defendant the farm and in 1943 another

I, DOMINGO MELAD, a resident of Centro, Penablanca, Province of Cagayan, do hereby swear and declare the truth that I have delivered my residential lot at Centro, Penablanca, Cagayan, to Felix Danguilan, my son-in-law because I have no child; that I

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have thought of giving him my land because he will be the one to take care of SHELTERING me or bury me when I die and this is why I have thought of executing this document; that the boundaries of this lot ison the east, Cresencio Danguilan; on the north, Arellano Street; on the south by Pastor Lagundi and on the west, Pablo Pelagio and the area of this lot is 35 meters going south; width and length beginning west to east is 40 meters.

death in 1945. 18 It was also alleged that even after the supposed execution of the said contract, the respondent considered Domingo Melad the owner of the properties and that she had never occupied the same. 19

Considering these serious challenges, the appellate court could have devoted a little more time to examining Exhibit "E" and the circumstances surrounding its execution before pronouncing its validity in the manner described above. While it is true that the due execution of a public instrument is presumed, the presumption is disputable and will yield to contradictory evidence, which in this case was not refuted.

IN WITNESS HEREOF, I hereby sign this receipt this 18th day of December 1943. At any rate, even assuming the validity of the deed of sale, the record shows that the private respondent did not take possession of the disputed properties and indeed waited until 1962 to file this action for recovery of the lands from the petitioner. If she did have possession, she transferred the same to the petitioner in 1946, by her own sworn admission, and moved out to another lot belonging to her step-brother. 20 Her claim that the petitioner was her tenant (later changed to administrator) was disbelieved by the trial court, and properly so, for its inconsistency. In short, she failed to show that she consummated the contract of sale by actual delivery of the properties to her and her actual possession thereof in concept of purchaser-owner. (SGD.) ILLEGIBLE (SGD.) DANIEL ARAO As was held in Garchitorena v. Almeda: 21

(SGD.) DOMINGO MELAD

WITNESSES:

It is our view, considering the language of the two instruments, that Domingo Melad did intend to donate the properties to the petitioner, as the private respondent contends. We do not think, however, that the donee was moved by pure liberality. While truly donations, the conveyances were onerous donations as the properties were given to the petitioner in exchange for his obligation to take care of the donee for the rest of his life and provide for his burial. Hence, it was not covered by the rule in Article 749 of the Civil Code requiring donations of real properties to be effected through a public instrument. The case at bar comes squarely under the doctrine laid down in Manalo v. De Mesa, 14 where the Court held:

There can be no doubt that the donation in question was made for a valuable consideration, since the donors made it conditional upon the donees' bearing the expenses that might be occasioned by the death and burial of the donor Placida Manalo, a condition and obligation which the donee Gregorio de Mesa carried out in his own behalf and for his wife Leoncia Manalo; therefore, in order to determine whether or not said donation is valid and effective it should be sufficient to demonstrate that, as a contract, it embraces the conditions the law requires and is valid and effective, although not recorded in a public instrument.

Since in this jurisdiction it is a fundamental and elementary principle that ownership does not pass by mere stipulation but only by delivery (Civil Code, Art. 1095; Fidelity and Surety Co. v. Wilson, 8 Phil. 51), and the execution of a public document does not constitute sufficient delivery where the property involved is in the actual and adverse possession of third persons (Addison vs. Felix, 38 Phil. 404; Masallo vs. Cesar, 39 Phil. 134), it becomes incontestable that even if included in the contract, the ownership of the property in dispute did not pass thereby to Mariano Garchitorena. Not having become the owner for lack of delivery, Mariano Garchitorena cannot presume to recover the property from its present possessors. His action, therefore, is not one of revindicacion, but one against his vendor for specific performance of the sale to him. In the aforecited case of Fidelity and Deposit Co. v. Wilson, 22 Justice Mapa declared for the Court:

The private respondent argues that as there was no equivalence between the value of the lands donated and the services for which they were being exchanged, the two transactions should be considered pure or gratuitous donations of real rights, hence, they should have been effected through a public instrument and not mere private writings. However, no evidence has been adduced to support her contention that the values exchanged were disproportionate or unequal.

Therefore, in our Civil Code it is a fundamental principle in all matters of contracts and a well- known doctrine of law that "non mudis pactis sed traditione dominia rerum transferuntur". In conformity with said doctrine as established in paragraph 2 of article 609 of said code, that "the ownership and other property rights are acquired and transmitted by law, by gift, by testate or intestate succession, and, in consequence of certain contracts, by tradition". And as the logical application of this disposition article 1095 prescribes the following: "A creditor has the rights to the fruits of a thing from the time the obligation to deliver it arises. However, he shall not acquire a real right" (and the ownership is surely such) "until the property has been delivered to him."

On the other hand, both the trial court and the respondent court have affirmed the factual allegation that the petitioner did take care of Domingo Melad and later arranged for his burial in accordance with the condition imposed by the donor. It is alleged and not denied that he died when he was almost one hundred years old, 15which would mean that the petitioner farmed the land practically by himself and so provided for the donee (and his wife) during the latter part of Domingo Melad's life. We may assume that there was a fair exchange between the donor and the donee that made the transaction an onerous donation.

In accordance with such disposition and provisions the delivery of a thing constitutes a necessary and indispensable requisite for the purpose of acquiring the ownership of the same by virtue of a contract. As Manresa states in his Commentaries on the Civil Code, volume 10, pages 339 and 340: "Our law does not admit the doctrine of the transfer of property by mere consent but limits the effect of the agreement to the due execution of the contract. ... The ownership, the property right, is only derived from the delivery of a thing ... "

Regarding the private respondent's claim that she had purchased the properties by virtue of a deed of sale, the respondent court had only the following to say: "Exhibit 'E' taken together with the documentary and oral evidence shows that the preponderance of evidence is in favor of the appellants." This was, we think, a rather superficial way of resolving such a basic and important issue.

As for the argument that symbolic delivery was effected through the deed of sale, which was a public instrument, the Court has held:

The deed of sale was allegedly executed when the respondent was only three years old and the consideration was supposedly paid by her mother, Maria Yedan from her earnings as a wage worker in a factory. 16 This was itself a suspicious circumstance, one may well wonder why the transfer was not made to the mother herself, who was after all the one paying for the lands. The sale was made out in favor of Apolonia Melad although she had been using the surname Yedan her mother's surname, before that instrument was signed and in fact even after she got married. 17 The averment was also made that the contract was simulated and prepared after Domingo Melad's

The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be delivered when it is placed "in the hands and possession of the vendee." (Civil Code, art. 1462). It is true that the same article declares that the execution of a public instrument is equivalent to the delivery of the thing which is the object of the contract, but, in order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have had such control over the thing sold

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that, at the moment of the sale, its material delivery could have been made. It is not enough to confer upon the purchaser the ownership and theright of possession. The thing sold must be placed in his control. When there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if, notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name, because such tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to realitythe delivery has not been effected. 23

On November 6, 1979, the motorcycle was registered in the Land Transportation Commission in the name of Alberto Nepales. A registration certificate (Exh. 2) in his name was issued by the Land Transportation Commission on November 6, 1979 (Exh. 2-b). The registration fees were paid by him, evidenced by an official receipt, Exhibit 3.

On January 22, 1980, the motorcycle was delivered to a certain Julian Nepales who was allegedly the agent of Alberto Nepales but the latter denies it (p. 15, t.s.n., August 2, 1984). The record shows that Alberto and Julian Nepales presented the unit to DBP's Appraiser-Investigator Ernesto Arriesta at the DBP offices in Kabankalan, Negros Occidental Branch (p. 12, Rollo). The motorcycle met an accident on February 3, 1980 at Binalbagan, Negros Occidental. An investigation conducted by the DBP revealed that the unit was being driven by a certain Zacarias Payba at the time of the accident (p. 33, Rollo). The unit was a total wreck (p. 36, t.s.n., August 2,1984; p. 13, Rollo), was returned, and stored inside Norkis' warehouse.

There is no dispute that it is the petitioner and not the private respondent who is in actual possession of the litigated properties. Even if the respective claims of the parties were both to be discarded as being inherently weak, the decision should still incline in favor of the petitioner pursuant to the doctrine announced in Santos & Espinosa v. Estejada 24 where the Court announced:

If the claim of both the plaintiff and the defendant are weak, judgment must be for the defendant, for the latter being in possession is presumed to be the owner, and cannot be obliged to show or prove a better right.

On March 20, 1980, DBP released the proceeds of private respondent's motorcycle loan to Norkis in the total sum of P7,500. As the price of the motorcycle later increased to P7,828 in March, 1980, Nepales paid the difference of P328 (p. 13, Rollo) and demanded the delivery of the motorcycle. When Norkis could not deliver, he filed an action for specific performance with damages against Norkis in the Regional Trial Court of Himamaylan, Negros Occidental, Sixth (6th) Judicial Region, Branch LVI, where it was docketed as Civil Case No. 1272. He alleged that Norkis failed to deliver the motorcycle which he purchased, thereby causing him damages.

WHEREFORE, the decision of the respondent court is SET ASIDE and that of the trial court REINSTATED, with costs against the private respondent. It is so ordered.

Norkis answered that the motorcycle had already been delivered to private respondent before the accident, hence, the risk of loss or damage had to be borne by him as owner of the unit.

NORKIS DISTRIBUTORS, INC., petitioner, vs. THE COURT OF APPEALS & ALBERTO NEPALES, respondents.

After trial on the merits, the lower court rendered a decision dated August 27, 1985 ruling in favor of private respondent (p. 28, Rollo.) thus:

Jose D. Palma for petitioner.

Public Attorney's Office for private respondent.

WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants. The defendants are ordered to pay solidarity to the plaintiff the present value of the motorcycle which was totally destroyed, plus interest equivalent to what the Kabankalan Sub-Branch of the Development Bank of the Philippines will have to charge the plaintiff on fits account, plus P50.00 per day from February 3, 1980 until full payment of the said present value of the motorcycle, plus P1,000.00 as exemplary damages, and costs of the litigation. In lieu of paying the present value of the motorcycle, the defendants can deliver to the plaintiff a brand-new motorcycle of the same brand, kind, and quality as the one which was totally destroyed in their possession last February 3, 1980. (pp. 2829,Rollo.)

GRIO-AQUINO, J.:p On appeal, the Court of appeals affirmed the appealed judgment on August 21, 1989, but deleted the award of damages "in the amount of Fifty (P50.00) Pesos a day from February 3, 1980 until payment of the present value of the damaged vehicle" (p35, Rollo). The Court of Appeals denied Norkis' motion for reconsideration. Hence, this Petition for Review.

Subject of this petition for review is the decision of the Court of Appeals (Seventeenth Division) in CA-G.R. No. 09149, affirming with modification the judgment of the Regional Trial Court, Sixth (6th) Judicial Region, Branch LVI. Himamaylan, Negros Occidental, in Civil Case No. 1272, which was private respondent Alberto Nepales' action for specific performance of a contract of sale with damages against petitioner Norkis Distributors, Inc.

The facts borne out by the record are as follows:

The principal issue in this case is who should bear the loss of the motorcycle. The answer to this question would depend on whether there had already been a transfer of ownership of the motorcycle to private respondent at the time it was destroyed.

Petitioner Norkis Distributors, Inc. (Norkis for brevity), is the distributor of Yamaha motorcycles in Negros Occidental with office in Bacolod City with Avelino Labajo as its Branch Manager. On September 20, 1979, private respondent Alberto Nepales bought from the Norkis-Bacolod branch a brand new Yamaha Wonderbike motorcycle Model YL2DX with Engine No. L2-329401K Frame No. NL2-0329401, Color Maroon, then displayed in the Norkis showroom. The price of P7,500.00 was payable by means of a Letter of Guaranty from the Development Bank of the Philippines (DBP), Kabankalan Branch, which Norkis' Branch Manager Labajo agreed to accept. Hence, credit was extended to Nepales for the price of the motorcycle payable by DBP upon release of his motorcycle loan. As security for the loan, Nepales would execute a chattel mortgage on the motorcycle in favor of DBP. Branch Manager Labajo issued Norkis Sales Invoice No. 0120 (Exh.1) showing that the contract of sale of the motorcycle had been perfected. Nepales signed the sales invoice to signify his conformity with the terms of the sale. In the meantime, however, the motorcycle remained in Norkis' possession.

Norkis' theory is that:

. . . After the contract of sale has been perfected (Art. 1475) and even before delivery, that is, even before the ownership is transferred to the vendee, the risk of loss is shifted from the vendor to the vendee. Under Art. 1262, the obligation of the vendor to deliver a determinate thing becomes extinguished if the thing is lost by fortuitous event (Art. 1174), that is, without the fault or fraud of the vendor and before he has incurred in delay (Art. 11 65, par. 3). If the thing sold is generic, the loss or destruction does not extinguish the obligation (Art. 1263). A thing is determinate when it is particularly designated or physically segregated from all others of the same class (Art. 1460). Thus, the vendor becomes released from his obligation to deliver the determinate thing sold while the vendee's obligation to pay the price subsists. If the vendee had paid the price in advance the vendor may retain the same. The legal effect, therefore, is that the

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vendee assumes the risk of loss by fortuitous event (Art. 1262) after the perfection of the contract to the time of delivery. (Civil Code of the Philippines, Ambrosio Padilla, Vol. 5,1987 Ed., p. 87.)

Julian Nepales to get the motorcycle from Norkis Distributors or to enter into any transaction with Norkis relative to said motorcycle. (p. 5, t.s.n., February 6, 1985). This circumstances more than amply rebut the disputable presumption of delivery upon which Norkis anchors its defense to Nepales' action (pp. 33-34, Rollo).

Norkis concedes that there was no "actual" delivery of the vehicle. However, it insists that there was constructive delivery of the unit upon: (1) the issuance of the Sales Invoice No. 0120 (Exh. 1) in the name of the private respondent and the affixing of his signature thereon; (2) the registration of the vehicle on November 6, 1979 with the Land Transportation Commission in private respondent's name (Exh. 2); and (3) the issuance of official receipt (Exh. 3) for payment of registration fees (p. 33, Rollo).

Article 1496 of the Civil Code which provides that "in the absence of an express assumption of risk by the buyer, the things sold remain at seller's risk until the ownership thereof is transferred to the buyer," is applicable to this case, for there was neither an actual nor constructive delivery of the thing sold, hence, the risk of loss should be borne by the seller, Norkis, which was still the owner and possessor of the motorcycle when it was wrecked. This is in accordance with the well-known doctrine of res perit domino.

That argument is not well taken. As pointed out by the private respondent, the issuance of a sales invoice does not prove transfer of ownership of the thing sold to the buyer. An invoice is nothing more than a detailed statement of the nature, quantity and cost of the thing sold and has been considered not a bill of sale (Am. Jur. 2nd Ed., Vol. 67, p. 378).

WHEREFORE, finding no reversible error in the decision of the Court of Appeals in CA-G.R. No. 09149, we deny the petition for review and hereby affirm the appealed decision, with costs against the petitioner.

SO ORDERED. In all forms of delivery, it is necessary that the act of delivery whether constructive or actual, be coupled with the intention of delivering the thing. The act, without the intention, is insufficient (De Leon, Comments and Cases on Sales, 1978 Ed., citing Manresa, p. 94).

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners, vs. THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION, respondents.

When the motorcycle was registered by Norkis in the name of private respondent, Norkis did not intend yet to transfer the title or ownership to Nepales, but only to facilitate the execution of a chattel mortgage in favor of the DBP for the release of the buyer's motorcycle loan. The Letter of Guarantee (Exh. 5) issued by the DBP, reveals that the execution in its favor of a chattel mortgage over the purchased vehicle is a pre-requisite for the approval of the buyer's loan. If Norkis would not accede to that arrangement, DBP would not approve private respondent's loan application and, consequently, there would be no sale.

Antonio M. Albano for petitioners.

Umali, Soriano & Associates for private respondent.

In other words, the critical factor in the different modes of effecting delivery, which gives legal effect to the act, is the actual intention of the vendor to deliver, and its acceptance by the vendee. Without that intention, there is no tradition (Abuan vs. Garcia, 14 SCRA 759).

VITUG, J.:

In the case of Addison vs. Felix and Tioco (38 Phil. 404, 408), this Court held:

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

The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be delivered when it is "placed in the hands and possession of the vendee." (Civil Code, Art. 1462). It is true that the same article declares that the execution of a public instrument is equivalent to the delivery of the thing which is the object of the contract, but, in order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have had such control over the thing sold that, at the moment of the sale, its material delivery could have been made. It is not enough to confer upon the purchaser the ownership and the right of possession. The thing sold must be placed in his control. When there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name, because such tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to reality-the delivery has riot been effects .(Emphasis supplied.)

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

The Court of Appeals correctly ruled that the purpose of the execution of the sales invoice dated September 20, 1979 (Exh. B) and the registration of the vehicle in the name of plaintiff-appellee (private respondent) with the Land Registration Commission (Exhibit C) was not to transfer to Nepales the ownership and dominion over the motorcycle, but only to comply with the requirements of the Development Bank of the Philippines for processing private respondent's motorcycle loan. On March 20, 1980, before private respondent's loan was released and before he even paid Norkis, the motorcycle had already figured in an accident while driven by one Zacarias Payba. Payba was not shown by Norkis to be a representative or relative of private respondent. The latter's supposed relative, who allegedly took possession of the vehicle from Norkis did not explain how Payba got hold of the vehicle on February 3, 1980. Norkis' claim that Julian Nepales was acting as Alberto's agent when he allegedly took delivery of the motorcycle (p. 20, Appellants' Brief), is controverted by the latter. Alberto denied having authorized

On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the Regional Trial Court, Branch 31, Manila in Civil Case No. 8741058, alleging, among others, that plaintiffs are tenants or lessees of residential and commercial spaces owned by defendants described as Nos. 630-638 Ongpin Street, Binondo, Manila; that they have occupied said spaces since 1935 and have been religiously paying the rental and complying with all the conditions of the lease contract; that on several occasions before October 9, 1986, defendants informed plaintiffs that they are offering to sell the premises and are giving them priority to acquire the same; that during the negotiations, Bobby Cu Unjieng offered a price of P6-million while plaintiffs made a counter offer of P5-million; that plaintiffs thereafter asked the defendants to put their offer in writing to which request defendants acceded; that in reply to defendant's letter, plaintiffs wrote them on October 24, 1986 asking that they specify the terms and conditions of the offer to sell; that when plaintiffs did not receive any reply, they sent another letter dated January 28, 1987 with the same request; that since defendants failed to specify the terms and conditions of the offer to sell and because of information received that defendants were about to sell the property, plaintiffs were compelled to file the complaint to compel defendants to sell the property to them.

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

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

transferring the property in question to herein petitioner Buen Realty and Development Corporation, subject to the following terms and conditions:

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

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

2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees for the transfer of title in his favor and other expenses incidental to the sale of above-described property including capital gains tax and accrued real estate taxes.

SO ORDERED. As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on December 3, 1990.

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

On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees demanding that the latter vacate the premises.

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

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

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

On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows:

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

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

SO ORDERED.

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

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

On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition)

It is the observation of the Court that this property in dispute was the subject of theNotice of Lis Pendens and that the

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

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

WHEREFORE, defendants are hereby ordered to execute the necessary Deed of Sale of the property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million pesos in recognition of plaintiffs' right of first refusal and that a new Transfer Certificate of Title be issued in favor of the buyer.

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

All previous transactions involving the same property notwithstanding the issuance of another title to Buen Realty Corporation, is hereby set aside as having been executed in bad faith.

SO ORDERED.

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

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

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

Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation. In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code provides:

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

A contract of sale may be absolute or conditional.

SO ORDERED.

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

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

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

An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted. 5

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

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 ofoption. This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil Code, viz:

We affirm the decision of the appellate court.

Art. 1479. . . .

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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. (1451a) 6 Observe, however, that the option is not the contract of sale itself. 7 The optionee has the right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings. 8

fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of private respondents to honor the right of first refusal, the remedy is not a writ of execution on the judgment, since there is none to execute, but an action for damages in a proper forum for the purpose.

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

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:

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

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

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

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

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

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

SO ORDERED.

EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC., petitioners, vs. MAYFAIR THEATER, INC., respondent.

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

HERMOSISIMA, JR., J.: Before us is a petition for review of the decision 1 of the Court of Appeals 2 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 decision, the respondent court reversed the trial court 3 which, in dismissing the complaint for specific performance with damages and annulment of contract, 4 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, the said lease contracts. 5

Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its existence, nor would it sanction an action for specific performance without thereby negating the indispensable element of consensuality in the perfection of contracts. 11 It is not to say, however, that the right of first refusal would be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for instance, the circumstances expressed in Article 19 12 of the Civil Code, can warrant a recovery for damages.

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:

The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first refusal" in favor of petitioners. The consequence of such a declaration entails no more than what has heretofore been said. In

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 of Manila.

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On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the latter's lease of a portion of Carmelo's property particularly described, to wit:

It appears that on August 19, 1974 your Mr. Henry Pascal informed our client's Mr. Henry Yang through the telephone that your company desires to sell your above-mentioned C.M. Recto Avenue property.

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.

Under your company's two lease contracts with our client, it is uniformly provided:

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."

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).

Two years later, on March 31, 1969, Mayfair entered into a second contract of lease with Carmelo for the lease of another portion of Carmelo's property, to wit:

Carmelo did not reply to this letter.

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.

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.

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,

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.

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 hereof that the purchaser shall recognize this lease and be bound by all the terms and conditions thereof.

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 consideration (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:

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.

1. That there was a deed of sale of the contested premises by the defendant Carmelo . . . in favor of defendant Equatorial . . .;

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:

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);

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3. That the two buildings erected on this land are not of the condominium plan;

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 premises. 6

4. That the amounts stipulated and mentioned in paragraphs 3 (a) and (b) of the contracts of lease constitute the consideration for the plaintiff's occupancy of the leased premises, subject of the same contracts of lease, Exhibits A and B;

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: xxx xxx xxx 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, 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 . . . in effect there is no option, on the ground that there is no consideration. Article 1352 of the Civil Code, provides:

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;

8. That the leased premises constitute only the portions actually occupied by the theaters; and

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.

9. That what was sold by Carmelo & Bauermann to defendant Equatorial Realty is the land and the two buildings erected thereon.

Contracts therefore without consideration produce no effect whatsoever. Article 1324 provides:

xxx xxx xxx

After assessing the evidence, the court a quo rendered the appealed decision, the decretal portion of which reads as follows:

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: WHEREFORE, judgment is hereby rendered: A promise to buy and sell a determine thing for a price certain is reciprocally demandable.

(1) Dismissing the complaint with costs against the plaintiff;

(2) Ordering plaintiff to pay defendant Carmelo & Bauermann P40,000.00 by way of attorney's fees on its counterclaim;

An accepted unilateral promise to buy or to sell a determine thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.

(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 attorney's fees;

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.

(4) Dismissing defendant Equatorial's crossclaim against defendant Carmelo & Bauermann.

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:

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(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.

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).

(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.

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. 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 laws, 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).

It follows that plaintiff cannot compel defendant Carmelo & Bauermann to sell the C.M. Recto property to the former.

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.

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;

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.

2. Directing the plaintiff-appellant Mayfair Theater Inc. to pay and return to Equatorial the amount of P11,300,000.00 within fifteen (15) days from notice of this Decision, and ordering Equatorial Realty Development, Inc. to accept such payment;

xxx xxx xxx

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 defendants-appellants Carmelo & Bauermann, Inc. and Equatorial Realty Development, Inc. as valid and binding upon all the parties. 8

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."

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.

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 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.

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

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:

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Q Can you tell this Honorable Court how you made the offer to Mr. Henry Yang by telephone?

exclusive owner of the leased premises and at the same time a co-owner with Carmelo of the subjacent land in proportion to Mayfair's interest over the premises sold to it. 10

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.).

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:

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?

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

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 enter property. (TSN, November 29, 1983, p. 18).

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 We rule, therefore, that the foregoing interpretation best renders effectual the intention of the parties. 9

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 Carmelo's offer to sell pertained to the entire property in question. The Court of Appeals ruled as to this issue in this wise:

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

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 appellant's 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 thereof, could have been sold independently of the other parcels.

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". 11

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 Resolution, 12 dated December 9, 1992, we already took note of this matter and set out the proper applicable procedure to be the following:

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 Mayfair's 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

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 Bancfor proper disposition. 13

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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 of paragraph 8 stipulated in the two contracts of lease between Carmelo and Mayfair in the face of conflicting findings by the trial court and the Court of Appeals; and (2) to determine the rights and obligations of Carmelo and Mayfair, as well as Equatorial, in the aftermath of the sale by Carmelo of the entire Claro M. Recto property to Equatorial.

An agreement in writing to give a person the option to purchase lands within a given timeat a named price is neither a sale nor an agreement to sell. It is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something; that is, the right or privilege to buy at the election or option of the other party. The second party gets in praesenti, not lands, nor an agreement that he shall have lands, but he does get something of value; that is, the right to call for and receive lands if he elects. The owner parts with his right to sell his lands, except to the second party, for a limited period. The second party receives this right, or, rather, from his point of view, he receives the right to elect to buy.

Both contracts of lease in question provide the identically worded paragraph 8, which reads: 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 (Emphasis ours.)

That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the same.

In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize this lease and be bound by all the terms and conditions thereof. 14

The rule so early established in this jurisdiction is that the deed of option or the option clause in a contract, in order to be valid and enforceable, must, among other things, indicate the definite price at which the person granting the option, is willing to sell.

We 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, 15 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.

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 specified; 17 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 not supported by a distinct consideration; 18 in the same vein in yet one other case, we also invalidated an instrument entitled, "Option to Purchase" a parcel of land for the sum of P1,510.00 because of lack of consideration; 19 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 of each party is the consideration for that of the other. 20 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 case of Ang Yu Asuncion vs. Court of Appeals 21 that:

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 . . . 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, . . . there can be no contract without the requisite, among others, of the cause for the obligation to be established.

. . . 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.

In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following language:

A contract of sale may be absolute or conditional.

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.)

When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of the thing sold in retained until the fulfillment of a positive suspensive condition (normally, the full payment of the purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory force. ...

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 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.

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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:

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.

Art. 1479. . . .

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 accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price. (1451a).

An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. It is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. It must be supported by consideration. 22 In the instant case, the right of first refusal is an integral part of the contracts of lease. The consideration is built into the reciprocal obligations of the parties.

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:

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 in effectual 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 that price. As stated in Vda. De Quirino vs.Palarca, 23 in reciprocal contract, the obligation or promise of each party is the consideration for that of the other.

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.

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

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 precedent in Ang Yu Asuncion vs. Court of Appeals. 24

First and foremost is that the petitioners acted in bad faith to render Paragraph 8 "inutile".

(2) If the period has a separate consideration, a contract of "option" deemed perfected, and it would be a breach of that contract to withdraw the offer during the agreed period. The option, however, is an independent contract by itself; and it is to be distinguished from the projected main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance (exercise of the option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract ("object" of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for damages for breach of the opinion. . .

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 Mayfair's 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.

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.

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.

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. . . 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.

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 Mayfair's 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 Mayfair's 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 Appeals should be modified, if not amplified under the peculiar facts of this case.

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.

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. Equatorial's 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.

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.

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 right by the contract. 26 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 stipulated period. 27

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.

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 Lease in which Par. 20 is contained. 25

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?

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

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 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

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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.

Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract.

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.

There appears to be no basis in law for adding 12% per annum compounded interest to the purchase price of P11,300,000.00 payable by Mayfair to Carmelo since there was no such stipulation in writing between the parties (Mayfair and Carmelo) but, more importantly, because Mayfair neither incurred in delay in the performance of its obligation nor committed any breach of contract. Indeed, why should Mayfair be penalized by way of making it pay 12% per annum compounded interest when it was Carmelo which violated Mayfair's right of first refusal under the contract?

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.

The equities of the case support the foregoing legal disposition. During the intervening years between 1 August 1978 and this date, Equatorial (after acquiring the C.M. Recto property for the price of P11,300,000.00) had been leasing the property and deriving rental income therefrom. In fact, one of the lessees in the property was Mayfair. Carmelo had, in turn, been using the proceeds of the sale, investment-wise and/or operation-wise in its own business.

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.

WHEREFORE, 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 and Bauermann of the disputed lots. Carmelo & Bauermann is ordered to allow Mayfair Theater, Inc. to buy the aforesaid lots for P11,300,000.00.

It may appear, at first blush, that Mayfair is unduly favored by the solution submitted by this opinion, because the price of P11,300,000.00 which it has to pay Carmelo in the exercise of its right of first refusal, has been subjected to the inroads of inflation so that its purchasing power today is less than when the same amount was paid by Equatorial to Carmelo. But then it cannot be overlooked that it was Carmelo's breach of Mayfair's right of first refusal that prevented Mayfair from paying the price of P11,300,000.00 to Carmelo at about the same time the amount was paid by Equatorial to Carmelo. Moreover, it cannot be ignored that Mayfair had also incurred consequential or "opportunity" losses by reason of its failure to acquire and use the property under its right of first refusal. In fine, any loss in purchasing power of the price of P11,300,000.00 is for Carmelo to incur or absorb on account of its bad faith in breaching Mayfair's contractual right of first refusal to the subject property.

ACCORDINGLY, I vote to order the rescission of the contract of sale between Carmelo and Equatorial of the Claro M. Recto property in question, so that within thirty (30) days from the finality of the Court's decision, the property should be retransferred and delivered by Equatorial to Carmelo with the latter simultaneously returning to Equatorial the sum of P11,300, 000.00.

SO ORDERED.

Separate Opinions

I also vote to allow Mayfair to exercise its right of first refusal, by paying to Carmelo the sum of P11,300,000.00 without interest for the entire subject property, within thirty (30) days from re-acquisition by Carmelo of the titles to the property, with the corresponding obligation of Carmelo to sell and transfer the property to Mayfair within the same period of thirty (30) days.

PADILLA, J., concurring:

PANGANIBAN, J., concurring:

I am of the considered view (like Mr. Justice Jose A. R. Melo) that the Court in this case should categorically recognize Mayfair's right of first refusal under its contract of lease with Carmelo and Bauermann, Inc. (hereafter, Carmelo) and, because of Carmelo's and Equatorial's bad faith in riding "roughshod" over Mayfair's right of first refusal, the Court should order the rescission of the sale of the Claro M. Recto property by the latter to Equatorial (Art. 1380-1381[3], Civil Code). The Court should, in this same case, to avoid multiplicity of suits, likewise allow Mayfair to effectively exercise said right of first refusal, by paying Carmelo the sum of P11,300,000.00 for the entire subject property, without any need of instituting a separate action for damages against Carmelo and/or Equatorial.

In the main, I concur with the ponencia of my esteemed colleague, Mr. Justice Regino C. Hermosisima, Jr., especially with the following doctrinal pronouncements:

1. That while no option to purchase within the meaning of the second paragraph of Article 1479 of the Civil Code was given to Mayfair Theater, Inc. ("Mayfair"), under the two lease contracts a right of first refusal was in fact granted, for which no separate consideration is required by law to be paid or given so as to make it binding upon Carmelo & Bauermann, Inc. ("Carmelo");

I do not agree with the proposition that, in addition to the aforesaid purchase price, Mayfair should be required to pay a compounded interest of 12% per annum of said amount computed from 1 August 1978. Under the Civil Code, a party to a contract may recover interest as indemnity for damages in the following instances:

2. That such right was violated by the latter when it sold the entire property to Equatorial Realty Development, Inc. ("Equatorial") on July 30, 1978, for the sum of P11,300,000.00;

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum.

3. That Equatorial is a buyer in bad faith as it was aware of the lease contracts, its own lawyers having studied said contracts prior to the sale; and

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4. That, consequently, the contract of sale is rescissible.

With respect to the sale of the property, Mayfair was not a party. It therefore had no personality to sue for its annulment, since Art. 1397 of the Civil Code provides, inter alia, that "(t)he action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily."

5. That, finally, under the proven facts, the right of first refusal may be enforced by an action for specific performance. But the facts as alleged and proved clearly in the case at bar make out a case for rescission under Art. 1177, in relation to Art. 1381(3), of the Civil Code, which pertinently read as follows: There appears to be unanimity in the Court insofar as items 1, 2 and 3 above are concerned. It is in items 4 and 5 that there is a marked divergence of opinion. Hence, I shall limit the discussion in this Separate Concurring Opinion to such issues, namely: Is the contract of sale between Carmelo and Equatorial rescissible, and corollarily, may the right of first refusal granted to Mayfair be enforced by an action for specific performance ?

Art. 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them .

It is with a great amount of trepidation that I respectfully disagree with the legal proposition espoused by two equally well-respected colleagues, Mme. Justice Flerida Ruth P. Romero and Mr. Justice Jose C. Vitug who are both acknowledged authorities on Civil Law that a breach of the covenanted right of first refusal, while warranting a suit for damages under Article 19 of the Civil Code, cannot sanction an action for specific performance without thereby negating the indispensable element of con-sensuality in the perfection of contracts.

Art. 1381. The following contracts are rescissible:

xxx xxx xxx Ang Yu Asuncion Not In Point

1

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them;

Such statement is anchored upon a pronouncement in Ang Yu Asuncion vs. CA, which was penned by Mr. Justice Vitug himself. I respectfully submit, however, that that case turned largely on the issue of whether or not the sale of an immovable in breach of a right of first refusal that had been decreed in a final judgment would justify the issuance of certain orders of execution in the same case. The validity of said orders was the subject of the attack before this Court. These orders had not only directed the defendants to execute a deed of sale in favor of the plaintiffs, when there was nothing in the judgment itself decreeing it, but had also set aside the sale made in breach of said right of first refusal and even canceled the title that had been issued to the buyer, who was not a party to the suit and had obviously not been given its day in court. It was thus aptly held:

xxx xxx xxx

(emphasis supplied)

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

The term "creditors" as used in these provisions of the Civil Code is broad enough to include the obligee under an option contract 3 as well as under a right of first refusal, sometimes known as a right of first priority. 4 Thus, inNietes, the Supreme Court, speaking through then Mr. Chief Justice Roberto Concepcion, repeatedly referred to the grantee or optionee as "the creditor" and to the grantor or optioner as "the debtor". 5 In any case, the personal elements of an obligation are the active and passive subjects thereof, the former being known as creditors or obligees and the latter as debtors or obligors. 6 Insofar as the right of first refusal is concerned, Mayfair is the obligee or creditor.

Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser of the property, has acted in good faith or bad faith and whether or not it should, in any case, be considered bound to respect the registration of the lis pendens in Civil Case No. 87-41058 are matters that must be independently addressed in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of execution issued by respondent Judge, let alone ousted from the ownership and possession of the property, without first being duly afforded its day in court. 2

As such creditor, Mayfair had, therefore, the right to impugn the sale in question by way of accion pauliana under the last clause of Art. 1177, aforequoted, because the sale was an act done by the debtor to defraud him of his right to acquire the property. 7 Rescission was also available under par. 3, Art. 1381, abovequoted, as was expressly held in Guzman, Bocaling & Co., a case closely analogous to this one as it was also an action brought by the lessee to enforce his "right of first priority" which is just another name for the right of first refusal and to annul a sale made by the lessor in violation of such right. In said case, this Court, speaking through Mr. Justice Isagani A. Cruz, affirmed the invalidation of the sale and the enforcement of the lessee's right of first priority this wise: 8

In other words, the question of whether specific performance of one's right of first refusal is available as a remedy in case of breach thereof was not before the Supreme Court at all in Ang Yu Asuncion. Consequently, the pronouncements there made bearing on such unlitigated question were mere obiter. Moreover, as will be shown later, the pronouncement that a breach of the right of first refusal would not sanction an action for specific performance but only an action for damages (at p. 615) is at best debatable (and in my humble view, imprecise or incorrect), on top of its being contradicted by extant jurisprudence.

The petitioner argues that assuming the Contract of Sale to be voidable, only the parties thereto could bring an action to annul it pursuant to Article 1397 of the Civil Code. It is stressed that private respondents are strangers to that agreement and therefore have no personality to seek its annulment.

Worth bearing in mind is the fact that two juridical relations, both contractual, are involved in the instant case: (1) the deed of sale between the petitioners dated July 30, 1978, and (2) the contract clause establishing Mayfair's right of first refusal which was violated by said sale.

The respondent court correctly held that the Contract of Sale was not voidable but rescissible. Under Article(s) 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 . (emphasis supplied)

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By the same token, the status of a defrauded creditor can, and should, be granted to Mayfair, for it certainly had substantial interests that were prejudiced by the sale of the subject property to petitioner Equatorial in open violation of Mayfair's right of first refusal under its existing contracts with Carmelo.

In fact, the parity between that case and the present one does not stop there but extends to the crucial and critical fact that there was manifest bad faith on the part of the buyer. Thus, in Guzman, this Court affirmed in toto the appealed judgment of the Court of Appeals which, in turn, had affirmed the trial court's decision insofar as it invalidated the deed of sale in favor of the petitioner-buyer, cancelled its TCT, and ordered the lessor to execute a deed of sale over the leased property in favor of the lessee for the same price and "under the same terms and conditions", aside from affirming as well the damages awarded, but at a reduced amount. 9 In other words, the aggrieved party was allowed to acquire the property itself. The inescapable conclusion from all of the foregoing is not only that rescission is the proper remedy but also and more importantly that specific performance was actually used and given free rein as an effective remedy to enforce a right of first refusal in the wake of its violation, in the cited case of Guzman.

As it turned out, however, Mayfair did not have a chance to file such suit, for it learned of the sale to Equatorial only after it had taken place. But it did file the present action for specific performance and for invalidation of the wrongful sale immediately after learning about the latter act. The act of promptly filing this suit, coupled with the fact that it is one for specific performance, indicates beyond cavil or doubt Mayfair's unqualified acceptance of the misdirected offer of sale, giving rise, thereby, to a demandable obligation on the part of Carmelo to execute the corresponding document of sale upon the payment of the price of P11,300,000.00. In other words, the principle of consensuality of a contract of sale should be deemed satisfied. The aggrieved party's consent to, or acceptance of, the misdirected offer of sale should be legally presumed in the context of the proven facts.

To say, therefore, that the wrongful breach of a right of first refusal does not sanction an action for specific performance simply because, factually, there was no meeting of the minds as to the particulars of the sale since ostensibly no offer was ever made to, let alone accepted by, Mayfair, is to ignore the proven fact of presumed consent. To repeat, that consent was deemed given by Mayfair when it sued for invalidation of the sale and for specific performance of Carmelo's obligation to Mayfair. Nothing in the law as it now stands will be violated, or even simply emasculated, by this holding. On the contrary, the decision in Guzman supports it. Moreover, under the Civil Code provisions on the nature, effect and kinds of obligations, 13 Mayfair's right of first refusal may be classified as one subject to a suspensive condition namely, if Carmelo should decide to sell the leased premises during the life of the lease contracts, then it should make an offer of sale to Mayfair. Futurity and uncertainty, which are the essential characteristics of a condition, 14 were distinctly present. Before the decision to sell was made, Carmelo had absolutely no obligation to sell the property to Mayfair, nor even to make an offer to sell, because in conditional obligations, where the condition is suspensive, the acquisition of rights depends upon the happening of the event which constitutes the condition. 15 Had the decision to sell not been made at all, or had it been made after the expiry of the lease, the parties would have stood as if the conditional obligation had never existed. 16 But the decision to sell was in fact made. And it was made during the life and efficacy of the lease. Undoubtedly, the condition was duly fulfilled; the right of first refusal effectively accrued and became enforceable; and correlatively, Carmelo's obligation to make and send the offer to Mayfair became immediately due and demandable. 17 That obligation was to deliver to Mayfair an offer to sell a determinate thing for a determinate price. As things turned out, a definite and specific offer to sell the entire property for the price of P11,300,000.00 was actually made by Carmelo but to the wrong party. It was that particular offer, and no other, which Carmelo should have delivered to Mayfair, but failed to deliver. Hence, by the time the obligation of Carmelo accrued through the fulfillment of the suspensive condition, the offer to sell had become a determinate thing.

On the other hand, and as already commented on above, the pronouncement in Ang Yu Asuncion to the effect that specific performance is unavailable to enforce a violated right of first refusal is at best a debatable legal proposition, aside from being contradicted by extant jurisprudence. Let me explain why.

The consensuality required for a contract of sale is distinct from, and should not be confused with, the consensuality attendant to the right of first refusal itself. While indeed, prior to the actual sale of the property to Equatorial and the filing of Mayfair's complaint for specific performance, no perfected contract of sale involving the property ever existed between Carmelo as seller and Mayfair as buyer, there already was, in law and in fact, a perfected contract between them which established a right of first refusal, or of first priority.

Specific Performance Is Viable Remedy

The question is: Can this right (of first refusal) be enforced by an action for specific performance upon a showing of its breach by an actual sale of the property under circumstances showing palpable bad faith on the part of both seller and buyer?

Art. 1165 of the Civil Code, earlier quoted in footnote 12, indicates the remedies available to the creditor against the debtor, when it provides that "(w)hen what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170, may compel the debtor to make the delivery," clearly authorizing not only the recovery of damages under Art. 1170 but also an action for specific performance.

The answer, I respectfully submit, should be 'yes'. But even assuming that Carmelo's prestation did not involve the delivery of a determinate offer but only a generic one, the second paragraph of Art. 1165 explicitly gives to the creditor the right "to ask that the obligation be complied with at the expense of the debtor." The availability of an action for specific performance is thus clear and beyond doubt. And the correctness of Guzman becomes all the more manifest.

As already noted, Mayfair's right of first refusal in the case before us is embodied in an express covenant in the lease contracts between it as lessee and Carmelo as lessor, hence the right created is one springing from contract. 10 Indubitably, this had the force of law between the parties, who should thus comply with it in good faith.11 Such right also established a correlative obligation on the part of Carmelo to give or deliver to Mayfair a formal offer of sale of the property in the event Carmelo decides to sell it. The decision to sell was eventually made. But instead of giving or tendering to Mayfair the proper offer to sell, Carmelo gave it to its now co-petitioner, Equatorial, with whom it eventually perfected and consummated, on July 30, 1978, an absolute sale of the property, doing so within the period of effectivity of Mayfair's right of first refusal. Less than two months later, or in September 1978, with the lease still in full force, Mayfair filed the present suit.

Worth stressing at this juncture is the fact that Mayfair had the right to require that the offer to sell the property be sent to it by Carmelo, and not to anybody else. This was violated when the offer was made to Equatorial. Under its covenant with Carmelo, Mayfair had the right, at that point, to sue for either specific performance or rescission, with damages in either case, pursuant to Arts. 1165 and 1191, Civil Code. 12 An action for specific performance and damages seasonably filed, fortified by a writ of preliminary injunction, would have enabled Mayfair to prevent the sale to Equatorial from taking place and to compel Carmelo to sell the property to Mayfair for the same terms and price, for the reason that the filing of the action for specific performance may juridically be considered as a solemn, formal, and unqualified acceptance by Mayfair of the specific terms of the offer of sale. Note that by that time, the price and other terms of the proposed sale by Carmelo had already been determined, being set forth in the offer of sale that had wrongfully been directed to Equatorial.

Upon the other hand, the obiter in Ang Yu Asuncion is further weakened by the fact that the jurisprudence upon which it supposedly rests namely, the cases of Madrigal & CO. vs. Stevenson & Co. 18 and Salonga vs.Farrales 19 did NOT involve a right of first refusal or of first priority. Nor did those two cases involve an option to buy. In Madrigal, plaintiff sued defendant for damages claiming wrongful breach of an alleged contract of sale of 2,000 tons of coal. The case was dismissed because "the minds of the parties never met upon a contract of sale by defendant to plaintiff", 20 each party having signed the broker's memorandum as buyer, erroneously thinking that the other party was the seller! In Salonga, a lessee, who was one of several lessees ordered by final judgment to vacate the leased premises, sued the lessor to compel the latter to sell the leased premises to him, but his suit was not founded upon any right of first refusal and was therefore dismissed on the ground that there was no perfected sale in his favor. He just thought that because the lessor had decided to sell and in fact sold portions of the property to her other lessees, she was likewise obligated to sell to him even in the absence of a perfected contract of sale. In fine, neither of the two cases cited in support of the legal proposition that a breach of the right of first refusal does not sanction an action for specific performance but, at best, only one for damages, provides such support.

Finally, the fact that what was eventually sold to Equatorial was the entire property, not just the portions leased to Mayfair, is no reason to deprive the latter of its right to receive a formal and specific offer. The offer of a larger property might have led Mayfair to reject the offer, but until and unless such rejection was actually made, its right of

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first refusal still stood. Upon the other hand, an acceptance by Mayfair would have saved all concerned the time, trouble, and expense of this protracted litigation. In any case, the disquisition by the Court of Appeals on this point can hardly be faulted; in fact, it amply justifies the conclusions reached in its decision, as well as the dispositions made therein.

I share the opinion that the right granted to Mayfair Theater, Inc., is neither an offer nor an option but merely a right of first refusal as has been so well and amply essayed in the ponencia of our distinguished colleague Mr. Justice Regino C. Hermosisima, Jr.

IN VIEW OF THE FOREGOING, I vote to DENY the petition and to AFFIRM the assailed Decision.

ROMERO, J., concurring and dissenting:

Unfortunately, it would seem that Article 1381 (paragraph 3) of the Civil Code invoked to be the statutory authority for the rescission of the contract of sale between Carmelo & Bauermann, Inc., and Equatorial Realty Development, Inc., has been misapplied. The action for rescission under that provision of the law, unlike in the resolution of reciprocal obligations under Article 1191 of the Code, is merely subsidiary and relates to the specific instance when a debtor, in an attempt to defraud his creditor, enters into a contract with another that deprives the creditor to recover his just claim and leaves him with no other legal means, than by rescission, to obtain reparation. Thus, the rescission is only to the extent necessary to cover the damages caused (Article 1384, Civil Code) and, consistent with its subsidiary nature, would require the debtor to be an indispensable party in the action (see Gigante vs. Republic Savings Bank, 135 Phil. 359).

I share the opinion that the right granted to Mayfair Theater under the identical par 8 of the June 1, 1967 and March 31, 1969 contracts constitute a right of first refusal.

An option is a privilege granted to buy a determinate thing at a price certain within a specified time and is usually supported by a consideration which is why, it may be regarded as a contract in itself. The option results in a perfected contract of sale once the person to whom it is granted decides to exercise it. The right of first refusal is unlike an option which requires a certainty as to the object and consideration of the anticipated contract. When the right of first refusal is exercised, there is no perfected contract of sale because the other terms of the sale have yet to be determined. Hence, in case the offeror reneges on his promise to negotiate with offeree, the latter may only recover damages in the belief that a contract could have been perfected under Article 19 of the New Civil Code.

I beg to disagree, however, with the majority opinion that the contract of sale entered into by Carmelo and Bauermann, Inc. and Equatorial Realty Inc., should be rescinded. Justice Hermosisima, in citing Art. 1381 (3) as ground for recission apparently relied on the case of Guzman, Bocaling and Co. v. Bonnevie (206 SCRA 668 [1992]) where the offeree was likened to the status of a creditor. The case, in citing Tolentino, stated that rescission is a remedy granted by law to 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 restoration of things to their condition prior to celebration of the contract. It is my opinion that "third persons" should be construed to refer to the wards, creditors, absentees, heirs and others enumerated under the law who are prejudiced by the contract sought to be rescinded.

The concept of a right of first refusal as a simple juridical relation, and so governed (basically) by the Civil Code's title on "Human Relations," is not altered by the fact alone that it might be among the stipulated items in a separate document or even in another contract. A "breach" of the right of first refusal can only give rise to an action for damages primarily under Article 19 of the Civil Code, as well as its related provisions, but not to an action for specific performance set out under Book IV of the Code on "Obligations and Contracts." That right, standing by itself, is far distant from being the obligation referred to in Article 1159 of the Code which would have the force of law sufficient to compel compliance per se or to establish a creditor-debtor or obligee-obligor relation between the parties. If, as it is rightly so, a right of first refusal cannot even be properly classed as an offer or as an option, certainly, and with much greater reason, it cannot be the equivalent of, nor be given the same legal effect as, a duly perfected contract. It is not possible to cross out, such as we have said in Ang Yu Asuncion vs. Court of Appeals (238 SCRA 602), the indispensable element of consensuality in the perfection of contracts. It is basic that without mutual consent on the object and on the cause, a contract cannot exist (Art. 1305, Civil Code); corollary to it, no one can be forced, least of all perhaps by a court, into a contract against his will or compelled to perform thereunder.

It is sufficiently clear, I submit, that, there being no binding contract between Carmelo and Mayfair, neither the rescission of the contract between Carmelo and Equatorial nor the directive to Carmelo to sell the property to Mayfair would be legally appropriate.

My brief disquisition should have ended here except for some personal impressions expressed by my esteemed colleague, Mr. Justice Artemio V. Panganiban, on the Ang Yu decision which perhaps need to be addressed. It should be borne in mind that rescission is an extreme remedy which may be exercised only in the specific instances provided by law. Article 1381 (3) specifically refers to contracts undertaken in fraud of creditors when the latter cannot in any manner collect the claims due them. If rescission were allowed for analogous cases, the law would have so stated. While Article 1381 (5) itself says that rescission may be granted to all other contracts specially declared by law to be subject to rescission, there is nothing in the law that states that an offeree who failed to exercise his right of refusal because of bad faith on the part of the offeror may rescind the subsequent contract entered into by the offeror and a third person. Hence, there is no legal justification to rescind the contract between Carmelo and Bauermann, Inc. and Equatorial Realty.

The discussion by the Court in Ang Yu on the right of first refusal is branded as a mere obiter dictum. Justice Panganiban states: The case "turned largely on the issue of whether or not the sale of an immovable in breach of a right of first refusal that had been decreed in a final judgment would justify the issuance of certain orders of execution in the same case. . . . . In other words, the question of whether specific performance of one's right of first refusal is available as a remedy in case of breach thereof was not before the Supreme Court at all in Ang Yu Asuncion."

Neither do I agree with Justice Melo that Mayfair Theater should pay Carmelo and Bauermann, Inc. the amount of P11,300,000.00 plus compounded interest of 12% p.a. Justice Melo rationalized that had Carmelo and Bauermann sold the property to Mayfair, the latter would have paid the property for the same price that Equatorial bought it. It bears emphasis that Carmelo and Bauermann, Inc. and Mayfair never reached an agreement as to the price of the property in dispute because the negotiations between the two parties were not pursued to its very end. We cannot, even for reasons of equity, compel Carmelo to sell the entire property to Mayfair at P11,300,000.00 without violating the consensual nature of contracts.

I vote, therefore, not to rescind the contract of sale entered into by Carmelo and Bauermann, Inc. and Equatorial Realty Development Corp.

Black defines an obiter dictum as "an opinion entirely unnecessary for the decision of the case" and thus "are not binding as precedent." (Black's Law Dictionary, 6th edition, 1990). A close look at the antecedents of Ang Yu as found by the Court of Appeals and as later quoted by this Court would readily disclose that the "right of first refusal" was a major point in the controversy. Indeed, the trial and the appellate courts had rule on it. With due respect, I would not deem it "entirely unnecessary" for this Court to itself discuss the legal connotation and significance of the decreed (confirmatory) right of first refusal. I should add that when the ponencia recognized that, in the case of Buen Realty Development Corporation (the alleged purchaser of the property), the latter could not be held subject of the writ of execution and be ousted from the ownership and possession of the disputed property without first affording it due process, the Court decided to simply put a cap in the final disposition of the case but it could not have intended to thereby mitigate the import of its basic ratio decidendi.

VITUG, J., dissenting:

Justice Panganiban opines that the pronouncement in Ang Yu, i.e., that a breach of the right of first refusal does not sanction an action for specific performance but only an action for damages, "is at best debatable (. . . imprecise or incorrect), on to top of its being contradicted by extant jurisprudence." He then comes up with the novel proposition that "Mayfair's right of first refusal may be classified as one subject to a suspensive condition namely, if Carmelo should decide to sell the leased premises during the life of the lease contracts, then it should make an offer of sale to Mayfair," presumably enforceable by action for specific performance.

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It would be perilous a journey, first of all, to try to seek out a common path for such juridical relations as contracts, options, and rights of first refusal since they differ, substantially enough, in their concepts, consequences and legal implications. Very briefly, in the area on sales particularly, I borrow from Ang Yu, a unanimous decision of the Supreme Court En Banc, which held:

In the above stipulation, the Court ruled, in effect, that the basic terms had been adequately, albeit briefly, spelled out with the lease consideration being deemed likewise to be the essential cause for the option. The situation undoubtedly was not the same that prevailed in Ang Yu or, for that matter, in the case at bar. The stipulation between Mayfair Theater, Inc., and Carmelo & Bauermann, Inc., merely read:

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

That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the same.

The provision was too indefinite to allow it to even come close to within the area of the Guzman ruling.

Justice Panganiban was correct in saying that the "cases of Madrigal & Co. vs. Stevenson & Co. and Salonga vs. Farrales (cited in Ang Yu) did NOT involve a right of first refusal or of first priority. Nor did those two cases involve an option to buy." The two cases, to set the record straight, were cited, not because they were thought to involve a right of first refusal or an option to buy but to emphasize the indispensability of consensuality over the object and cause of contracts in their perfection which would explain why, parallel therewith, Articles 1315 and 1318 of the Civil Code were also mentioned.

An obligation, and so a conditional obligation as well ( albeit subject to the occurrence of the condition), in its context under Book IV of the Civil Code, can only be "a juridical necessity to give, to do or not to do" (Art. 1156, Civil Code), and one that is constituted by law, contracts, quasi-contracts, delicts and quasi-delicts (Art. 1157, Civil Code) which all have their respective legal significance rather well settled in law. The law certainly must have meant to provide congruous, albeit contextual, consequences to its provisions. Interpretare et concordore legibus est optimus interpretendi. As a valid source of an obligation, a contract must have the concurrence of (a) consent of the contracting parties, (b) object certain (subject matter of the contract) and (c) cause (Art. 1318, Civil Code). These requirements, clearly defined, are essential. The consent contemplated by the law is that which is manifested by the meeting of the offer and of the acceptance upon the object and the cause of the obligation. The offer must be certain and the acceptance absolute (Article 1319 of the Civil Code). Thus, a right of first refusal cannot have the effect of a contract because, by its very essence, certain basic terms would have yet to be determined and fixed. How its "breach" be also its perfection escapes me. It is only when the elements concur that the juridical act would have the force of law between the contracting parties that must be complied with in good faith (Article 1159 of the Civil Code; see also Article 1308, of the Civil Code), and, in case of its breach, would allow the creditor or obligee (the passive subject) to invoke the remedy that specifically appertains to it.

One final note: A right of first refusal, in its proper usage, is not a contract; when parties instead make certain the object and the cause thereof and support their understanding with an adequate consideration, that juridical relation is not to be taken as just a right of first refusal but as a contract in itself (termed an "option"). There is, unfortunately, in law a limit to an unabated use of common parlance.

With all due respect, I hold that the judgment of the trial court, although not for all the reasons it has advanced, should be REINSTATED.

The judicial remedies, in general, would, of course, include: (a) The principal remedies (i) of specific performance in obligations to give specific things (Articles 1165 and 1167 of the Civil Code), substitute performance in an obligation to do or to deliver generic things (Article 1165 of the Civil Code) and equivalent performance for damages (Articles 1168 and 1170 of the Civil Code); and (ii) of rescission or resolution of reciprocal obligations; and (b) the subsidiary remedies that may be availed of when the principal remedies are unavailable or ineffective such as (i) accion subrogatoria or subrogatory action (Article 1177 of the Civil Code; see also Articles 1729 and 1893 of the Civil Code); and (ii) accion pauliana or rescissory action (Articles 1177 and 1381 of the Civil Code). And, in order to secure the integrity of final judgments, such ancillary remedies as attachments, replevin, garnishments, receivership, examination of the debtor, and similar remedies, are additionally provided for in procedural law.

Might it be possible, however, that Justice Panganiban was referring to how Ang Yu could relate to the instant case for, verily, his remark, earlier quoted, was followed by an extensive discussion on the factual and case milieu of the present petition? If it were, then I guess it was the applicability of the Ang Yu decision to the instant case that he questioned, but that would not make Ang Yu "imprecise" or "incorrect."

Justice Panganiban would hold the Ang Yu ruling to be inconsistent with Guzman, Bocaling & Co. vs. Bonnevie(206 SCRA 668). I would not be too hasty in concluding similarly. In Guzman, the stipulation involved, although loosely termed a "right of first priority," was, in fact, a contract of option. The provision in the agreement there stated: 20. In case the LESSOR desires or decides to sell the leased property, the LESSEES shall be given a first priority to purchase the same, all things and considerations being equal.(At page 670; emphasis supplied.)

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