Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 125283

February 10, 2006

PAN PACIFIC INDUSTRIAL SALES CO., INC., Petitioner,

vs.
COURT OF APPEALS and NICOLAS CAPISTRANO, Respondents.
DECISION
TINGA, J.:
Petitioner Pan Pacific Industrial Sales Co., Inc. (Pan Pacific) filed the instant Petition for Review on
Certiorari1 assailing the Decision2 dated 4 June 1996 of the Court of Appeals Fourteenth Division in C.A.
G.R. No. CV-41112. The challenged Decision affirmed in toto the Decision3 dated 24 April 1992 of the
Regional Trial Court (RTC) of Manila, Branch 18 in Civil Case No. 88-46720.
The case arose when on 22 December 1988, private respondent Nicolas Capistrano (Capistrano) filed an
Amended Complaint4 before the RTC of Manila against Severo C. Cruz III (Cruz), his spouse Lourdes
Yap Miranda, and Atty. Alicia Guanzon,5 pleading two causes of action.6
The first cause of action is for the nullification, or alternatively, for the "rescission," of a Deed of Absolute
Sale7 covering a parcel of land that Capistrano owned, located at 1821 (Int.), Otis Street (now Paz
Guanzon Street), Paco, Manila, and covered by Transfer Certificate of Title (TCT) No. 143599 to Cruz.8
This is the subject lot. Capistrano denied having executed the deed.
The second cause of action is for the rescission of another agreement with an alternative prayer for
specific performance. Capistrano alleged that he agreed to sell another parcel of land in the same vicinity
to Cruz. According to Capistrano, Cruz only paid P100,000.00 of the stipulated purchase price, thereby
leaving P250,000.00 still unpaid.9
The operative facts follow.
On 10 September 1982, Capistrano executed a Special Power of Attorney10 authorizing Cruz to mortgage
the subject lot in favor of Associated Bank (the Bank) as security for the latters loan accommodation.11
Shortly, by virtue of the Special Power of Attorney, Cruz obtained a loan in the amount of P500,000.00
from the Bank. Thus, he executed a Real Estate Mortgage12 over the subject lot in favor of the Bank.13
Capistrano and Cruz then executed a letter-agreement dated 23 September 1982 whereby Cruz agreed
to buy the subject lot for the price of P350,000.00, of which P200,000.00 would be paid out of the loan
secured by Cruz, and the balance of P150,000.00 in eight (8) quarterly payments of P18,750.00 within
two (2) years from 30 October 1982, without need of demand and with interest at 18% in case of
default.14
On 15 March 1983, Capistrano executed the Deed of Absolute Sale15 over the subject lot in favor of Cruz.
Two (2) days later, on 17 March 1983, Notary Public Vicente J. Benedicto (Benedicto) notarized the deed.
However, it was earlier or on 9 March 1983 that Capistranos wife, Josefa Borromeo Capistrano, signed

the Marital Consent16 evidencing her conformity in advance to the sale. The Marital Consent was also
sworn to before Benedicto.
Following the execution of the deed of sale, Cruz continued payments to Capistrano for the subject lot.
Sometime in October 1985, Capistrano delivered to Cruz a Statement of Account17 signed by Capistrano,
showing that as of 30 October 1985, Cruzs balance stood at P19,561.00 as principal, and P3,520.98 as
interest, or a total of P23,081.98.
Thus, in May 1987, with the mortgage on the subject lot then being in danger of foreclosure by the Bank,
Cruz filed a case with the RTC of Manila, Branch 11, docketed as Civil Case No. 87-40647, to enjoin the
foreclosure. Cruz impleaded Capistrano and his spouse Josefa Borromeo Capistrano as defendants, the
title to the subject lot not having been transferred yet to his name.18
Cruz also devised a way to save the subject lot from foreclosure by seeking a buyer for it and eventually
arranging for the buyer to pay the mortgage debt. Towards this end, Cruz succeeded in engaging Pan
Pacific. Thus, on 22 September 1988, Pan Pacific paid off Cruzs debt in the amount of P1,180,000.00.19
Consequently, on 23 September
1988, the Bank executed a Cancellation of Real Estate Mortgage.20 On even date, Cruz executed a Deed
of Absolute Sale21 over the subject lot in favor of Pan Pacific, attaching thereto the previous Deed of
Absolute Sale executed by Capistrano in favor of Cruz.
Surprisingly, on 20 October 1988, Capistrano filed a Revocation of Special Power of Attorney22 with the
Register of Deeds of Manila. Less than a week later, Capistrano sent the Register of Deeds another letter
informing said officer of his having come to know of the sale of the subject lot by Cruz to Pan Pacific and
requesting the officer to withhold any action on the transaction.23
Before long, in November 1988, Capistrano filed the precursory complaint before the Manila RTC in Civil
Case No. 88-46720.
Pan Pacific, which bought the subject lot from the Cruz spouses, was allowed to intervene in the
proceedings and joined Cruz, et al. in resisting the complaint insofar as the first cause of action on the
subject lot is concerned.24
Then on 24 April 1992, a Decision was rendered by the trial court in favor of Capistrano on both causes of
action, the dispositive portion of which reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, Severo E.
(sic) Cruz III, his spouse, Lourdes Miranda Cruz, and the intervenor, Pan Pacific Industrial Sales Co., Inc.,
as follows:

Grounds

1. Declaring the Letter-Agreement, dated September 23, 1982, Exhibit "C", as resolved and/or rescinded;
2. Declaring both the Deed of Absolute Sale, Exhibit "H", and the document entitled, "Marital Consent",
Exhibit "K", null and void;
3. Declaring the Deed of Absolute Sale executed by the spouses Severo C. Cruz, III and Lourdes
Miranda Cruz in favor of the intervenor, Pan Pacific Industrial Sales, Co., Inc., Exhibit "8", null and void;
4. Making the writ of preliminary injunction issued by this Court on November 23, 1988, permanent;

5. Ordering the intervenor, thru its legal counsel and corporate secretary, Atty. Senen S. Burgos, who has
possession of the owners copy of TCT No. 143599 of the Register of Deeds of Manila, in the name of the
plaintiff, to surrender the same to this Court within ten days from finality of the decision for turn over to the
plaintiff;
6. Ordering Defendant Register of Deeds of Manila to reject and not give due course to the documents
submitted to it, which have for their purpose the transfer of the real estate property covered by TCT No.
143599 from the name of the plaintiff to Defendant Cruz and/or to the intervenor; and
7. Ordering the spouses Severo C. Cruz, III and Lourdes Miranda Cruz to pay the plaintiff the sum of
P69,561.00 as net amount due to the latter as per the computation in the end-part of this decision.
The counterclaims of both Severo C. Cruz, III and spouse, and of the intervenor, Pan Pacific Industrial
Sales Co., Inc., are both dismissed, for lack of merit.
Double costs against the defendants-Cruz spouses.
SO ORDERED.25
To arrive at the conclusion that the first Deed of Absolute Sale and the Marital Consent are spurious, the
trial court mainly relied on Capistranos disavowal of his signature and that of his wifes, together with
extrinsic factors which in its opinion evinced the spuriousness.
Pan Pacific and the Cruz spouses interposed separate appeals to the Court of Appeals, their common
concern being the trial courts finding that the Deed of Absolute Sale and the Marital Consent were
spurious.26
Contention of cruz and panpacific

In assailing this finding, Pan Pacific and the Cruz spouses contended that Capistrano failed to present
clear and convincing evidence to overturn the presumption of regularity of public documents like the
documents in question.27
Ruling

The Court of Appeals affirmed the RTC Decision. Concerning the subject lot, it held that while a notarial
document cannot be disproved by the mere denial of the signer, the denial in this case should be taken
together with the other circumstances of the case which in sum constitute clear and convincing evidence
sufficient to overcome the presumption of regularity of the documents.28
The Cruz spouses did not elevate the Court of Appeals Decision to this Court. Thus, the RTC Decision
became final as to them.
Pan Pacific, however, filed the instant Petition solely concerning the first cause of action in the Amended
Complaint. Pan Pacific contends that the genuineness and due execution of the Deed of Absolute Sale
and Marital Consent cannot be overridden by the self-serving testimony of Capistrano. It stresses that the
trial court cannot rely on irrelevant extrinsic factors to rule against the genuineness of the deed.29 Finally,
it points out that Capistrano cannot contest the sale of the subject lot to Cruz, as the sale had already
been consummated.30
Contention of capistrano to panpacific appeal

For his part, Capistrano posits in his Memorandum31 that Pan Pacific is not an innocent purchaser for
value and in good faith as Cruz was never the registered owner of the subject lot. Pan Pacific was bound
at its peril to investigate the right of Cruz to transfer the property to it. Moreover, Capistrano asserts that
the legal presumption of regularity of public documents does not obtain in this case as the documents in
question were not properly notarized. He adds that the parties never appeared before the notary public as
in fact the deed had only been delivered by Capistrano to the house of Cruzs mother.

Furthermore, Capistrano maintains that his spouses signature on the Marital Consent is a forgery as it
was virtually impossible for her to have signed the same. Lastly, Capistrano disputes Cruzs assertion that
the sale had been consummated, pointing out that the Amended Complaint consisted of two (2) causes of
action pertaining to two (2) separate lots, and Cruz had only paid P100,000.00 of the total price of the lot
subject of the second cause of action.1avvphil.net
The petition is imbued with merit.
Pan Pacific disputes the common conclusion reached by the courts below that the presumption of
regularity of the Deed of Absolute Sale and the Marital Consent, which in its estimation are both public
documents, has been rebutted by Capistranos countervailing evidence. The correctness of the
conclusions on the alleged spuriousness of the documents in question drawn by the courts below from
the facts on record is before this Court. The issue is a question of law cognizable by the Court.32
Deeply embedded in our jurisprudence is the rule that notarial documents celebrated with all the legal
requisites under the safeguard of a notarial certificate is evidence of a high character and to overcome its
recitals, it is incumbent upon the party challenging it to prove his claim with clear, convincing and more
than merely preponderant evidence.33
A notarized document carries the evidentiary weight conferred upon it with respect to its due execution,
and it has in its favor the presumption of regularity which may only be rebutted by evidence so clear,
strong and convincing as to exclude all controversy as to the falsity of the certificate. Absent such, the
presumption must be upheld. The burden of proof to overcome the presumption of due execution of a
notarial document lies on the one contesting the same. Furthermore, an allegation of forgery must be
proved by clear and convincing evidence, and whoever alleges it has the burden of proving the same.34
Evidently, as he impugns the genuineness of the documents, Capistrano has the burden of making out a
clear-cut case that the documents are bogus. The courts below both concluded that Capistrano had
discharged this burden. However, this Court does not share the conclusion. Indeed, Capistrano failed to
present evidence of the forgery that is enough to overcome the presumption of authenticity.
To support the allegation of the spuriousness of his signature on the Deed of Absolute Sale and that of
his wife on the Marital Consent, Capistrano relied heavily on his bare denial, at the same time taking
sanctuary behind other circumstances which supposedly cast doubt on the authenticity of the documents.
Capistrano did not bother to present corroborating witnesses much less an independent expert witness
who could declare with authority and objectivity that the challenged signatures are forged. It befuddles the
Court why both the courts below did not find this irregular considering that the Court has previously
declared in Sy Tiangco v. Pablo and Apao,,35 "that the execution of a document that has been ratified
before a notary public cannot be disproved by the mere denial of the alleged signer."
The case of Chilianchin v. Coquinco36 also finds application in this regard wherein we stated that:
As the lower court correctly said, the plaintiff did not even present a sample of his authentic signature to
support his contention that it is not his the (sic) signature appearing in said document. He did not call a
handwriting expert to prove his assertion. His attorney, at the beginning of the trial, made it of record that
if the defendant present an expert in hand-writing to show that the signature in question is genuine, the
plaintiff will also present an expert to the contrary, as if it were incumbent upon the defendant to show that
the signature of the plaintiff in Exhibit A is genuine . . . .37
Corollarily, he who disavows the authenticity of his signature on a public document bears the
responsibility to present evidence to that effect. Mere disclaimer is not sufficient. At the very least, he

should present corroborating witnesses to prove his assertion. At best, he should present an expert
witness.
On the other hand, the Court cannot understand why an unfavorable inference arose not from
Capistranos but from Cruzs failure to have the documents examined by an expert witness of the National
Bureau Investigation (NBI) and to present the notary public as witness. Specifically, the courts below took
Cruzs inability to obtain the NBI examination of the documents as he had somehow undertaken as an
indication that the documents are counterfeit.38
The courts below may have forgotten that on Capistrano lies the burden to prove with clear and
convincing evidence that the notarized documents are spurious. Nothing in law or jurisprudence reposes
on Cruz the obligation to prove that the documents are genuine and duly executed. Hence it is not
incumbent upon Cruz to call the notary public or an expert witness. In contrast, Capistrano should have
called the expert witness, the notary public himself or the witnesses to the document to prove his
contention that he never signed the deed of sale, that its subscribing witnesses never saw him sign the
same, and that he never appeared before the notary public before whom the acknowledgment was made.
In fact, there is no evidence that the notarization of the documents did not take place. All that Capistrano
could say on this matter was that he had not seen Benedicto, the notary public.39 The assertion that the
parties to the deed never appeared before the notary public is not supported by evidence either. The
courts below drew an inference to that effect from Cruzs testimony that the deed of sale was dropped or
delivered to his mothers house.40 That is not a reasonable deduction to make as it is plainly conjectural.
No conclusion can be derived therefrom which could destroy the genuineness of the deed. The testimony
means what it declares: that the copy of the deed was dropped at the house of Cruzs mother. That is all.
Nor can the Court lend credence to the thinking of the courts below that since Cruz had a balance of
P132,061.00 owing to Capistrano as of the date of the deed of sale, the latter could not have possibly
executed the deed. This is plain guesswork. From the existence of Cruzs outstanding balance, the nonexistence of the deed of sale does not necessarily follow.
Indeed, a vendor may agree to a deed of absolute sale even before full payment of the purchase price.
Article 1478 of the Civil Code states that "the parties may stipulate that ownership in the thing shall not
pass to the purchaser until he has fully paid the price." A sensu contrario, the parties may likewise
stipulate that the ownership of the property may pass even if the purchaser has not fully paid the price.
The courts below also assigned an adverse connotation to Cruzs impleading of the Capistrano spouses
as party-defendants in the action against the Bank to enjoin the foreclosure of the mortgage on the
subject lot. Cruzs move is congruent with both his strong desire to protect his interest in the subject lot
and the reality that there was an existing deed of sale in his favor. Precisely, his interest in the lot is borne
out and had arisen from the deed of sale. As purchaser of the lot, he had to avert the foreclosure of the
mortgage thereon. And to ensure against the dismissal of the action for failure to join a real party-ininterest, he had to implead Capistrano in whose name the title to the subject lot was registered still.
Apart from Capistranos abject failure to overcome the presumption of regularity and genuineness with
which the Deed of Absolute Sale is impressed as a public document, Capistranos cause is eviscerated
by his own acts in writing before and after the execution of the deed. Said written acts constitute indelible
recognition of the existence and genuineness of the Deed of Absolute Sale.
First is the letter-agreement41 dated 23 September 1982 made and signed by Capistrano in favor of Cruz,
which the latter also signed subsequently, stating that Cruz will, as he did, purchase the subject lot for
P350,000.00 to be paid according to the terms provided therein.

Second is the Statement of Account42 signed by Capistrano, which he delivered to Cruz, showing that as
of 30 October 1985, Cruzs balance of the stipulated purchase price consisted of P19,561.00 as principal
and P3,520.98 as interest, or a total of P23,081.98.
Third is Capistranos Amended Complaint itself which illustrates his own manifest uncertainty as to the
relief he was seeking in court. He demanded that the Deed of Absolute Sale be nullified yet he prayed in
the same breath for the "rescission" of the same43 evidently, a self-defeating recognition of the contract.
In asking for "rescission," Capistrano obviously was invoking Article 1191 of the Civil Code which provides
that the "power to rescind," which really means to resolve or cancel, is implied in reciprocal obligations "in
case one of the obligors should not comply with what is incumbent upon him." When a party asks for the
resolution or cancellation of a contract it is implied that he recognizes its existence. A non-existent
contract need not be cancelled.
These are unmistakable written admissions of Capistrano that he really intended to sell the subject lot to
Cruz and that he received payments for it from the latter as late as the year 1985. It is thus a little baffling
why in 1988, he decided to disown the Deed of Absolute Sale. The most plausible explanation for his
sudden change of mind would be his belated realization that he parted with the subject lot for too small an
amount (P350,000.00), compared to the price pegged by Cruz (P1,800,000.00) in the sale to Pan Pacific.
Now, to the Marital Consent. The fact that the document contains a jurat, not an acknowledgment, should
not affect its genuineness or that of the related document of conveyance itself, the Deed of Absolute Sale.
In this instance, a jurat suffices as the document only embodies the manifestation of the spouses
consent,44 a mere appendage to the main document.
The use of a jurat, instead of an acknowledgement does not elevate the Marital Consent to the level of a
public document but instead consigns it to the status of a private writing.45 The lack of acknowledgment,
however, does not render a deed invalid. The necessity of a public document for contracts which transmit
or extinguish real rights over immovable property, as mandated by Article 1358 of the Civil Code, is only
for convenience; it is not essential for validity or enforceability.46
From the perspective of the law on evidence, however, the presumption of regularity does not hold true
with respect to the Marital Consent which is a private writing. It is subject to the requirement of proof
under Section 20, Rule 132 of the Rules of Court which states:
Section 20. Proof of private document.- Before any private document offered as authentic is received in
evidence, its due execution and authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or handwriting of the maker.
Any other private document need only be identified as that which is claimed to be.
The requirement of proof of the authenticity of the Marital Consent was adequately met, in this case,
through the testimony of Cruz to the effect that, together with the other witnesses to the document, he
was present when Capistranos wife affixed her signature thereon before notary public Benedicto.47
Viewed against this positive declaration, Capistranos negative and self-serving assertions that his wifes
signature on the document was forged because "(i)t is too beautiful" and that his wife could not have
executed the Marital Consent because it was executed on her natal day and she was somewhere else,
crumble and become unworthy of belief.

That the Marital Consent was executed prior to the Deed of Absolute Sale also does not indicate that it is
phoney. A fair assumption is that it was executed in anticipation of the Deed of Absolute Sale which was
accomplished a scant six (6) days later.
With respect to whatever balance Cruz may still owe to Capistrano, the Court believes that this is not a
concern of Pan Pacific as the latter is not a party to the Deed of Absolute Sale between Capistrano and
Cruz. But of course, Pan Pacific should enjoy full entitlement to the subject lot as it was sold to him by
Cruz who earlier had acquired title thereto absolutely and unconditionally by virtue of the Deed of
Absolute Sale. Otherwise laid down, Cruz had the right to sell the subject lot to Pan Pacific in 1988, as he
in fact did. Thus, the question of whether or not Pan Pacific is a purchaser in good faith should be
deemed irrelevant.1avvphil.net
WHEREFORE, the Petition is GRANTED. The Decision dated 4 June 1996 of the Court of Appeals in CAG.R. CV No. 41112 is REVERSED and SET ASIDE. Respondent Nicolas Capistrano is ordered to
surrender the owners duplicate certificate of Transfer of Certificate of Title No. 143599 to the Register of
Deeds of Manila to enable the issuance of a new title over the subject lot in the name of petitioner Pan
Pacific Industrial Sales, Inc. Costs against respondent Nicolas Capistrano.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 165881

April 19, 2006

OSCAR VILLAMARIA, JR. Petitioner,

vs.
COURT OF APPEALS and JERRY V. BUSTAMANTE, Respondents
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari under Rule 65 of the Revised Rules of Court assailing the
Decision1 and Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 78720 which set aside the
Resolution3 of the National Labor Relations Commission (NLRC) in NCR-30-08-03247-00, which in turn
affirmed the Decision4 of the Labor Arbiter dismissing the complaint filed by respondent Jerry V.
Bustamante.
Petitioner Oscar Villamaria, Jr. was the owner of Villamaria Motors, a sole proprietorship engaged in
assembling passenger jeepneys with a public utility franchise to operate along the Baclaran-Sucat route.
By 1995, Villamaria stopped assembling jeepneys and retained only nine, four of which he operated by
employing drivers on a "boundary basis." One of those drivers was respondent Bustamante who drove
the jeepney with Plate No. PVU-660. Bustamante remitted P450.00 a day to Villamaria as boundary and
kept the residue of his daily earnings as compensation for driving the vehicle. In August 1997, Villamaria
verbally agreed to sell the jeepney to Bustamante under the "boundary-hulog scheme," where
Bustamante would remit to Villarama P550.00 a day for a period of four years; Bustamante would then
become the owner of the vehicle and continue to drive the same under Villamarias franchise. It was also
agreed that Bustamante would make a downpayment of P10,000.00.
On August 7, 1997, Villamaria executed a contract entitled "Kasunduan ng Bilihan ng Sasakyan sa
Pamamagitan ng Boundary-Hulog"5 over the passenger jeepney with Plate No. PVU-660, Chassis No.
EVER95-38168-C and Motor No. SL-26647. The parties agreed that if Bustamante failed to pay the
boundary-hulog for three days, Villamaria Motors would hold on to the vehicle until Bustamante paid his
arrears, including a penalty of P50.00 a day; in case Bustamante failed to remit the daily boundary-hulog
for a period of one week, the Kasunduan would cease to have legal effect and Bustamante would have to
return the vehicle to Villamaria Motors.
Under the Kasunduan, Bustamante was prohibited from driving the vehicle without prior authority from
Villamaria Motors. Thus, Bustamante was authorized to operate the vehicle to transport passengers only
and not for other purposes. He was also required to display an identification card in front of the windshield
of the vehicle; in case of failure to do so, any fine that may be imposed by government authorities would
be charged against his account. Bustamante further obliged himself to pay for the cost of replacing any
parts of the vehicle that would be lost or damaged due to his negligence. In case the vehicle sustained
serious damage, Bustamante was obliged to notify Villamaria Motors before commencing repairs.
Bustamante was not allowed to wear slippers, short pants or undershirts while driving. He was required to
be polite and respectful towards the passengers. He was also obliged to notify Villamaria Motors in case
the vehicle was leased for two or more days and was required to attend any meetings which may be

called from time to time. Aside from the boundary-hulog, Bustamante was also obliged to pay for the
annual registration fees of the vehicle and the premium for the vehicles comprehensive insurance.
Bustamante promised to strictly comply with the rules and regulations imposed by Villamaria for the
upkeep and maintenance of the jeepney.
Bustamante continued driving the jeepney under the supervision and control of Villamaria. As agreed
upon, he made daily remittances of P550.00 in payment of the purchase price of the vehicle. Bustamante
failed to pay for the annual registration fees of the vehicle, but Villamaria allowed him to continue driving
the jeepney.
In 1999, Bustamante and other drivers who also had the same arrangement with Villamaria Motors failed
to pay their respective boundary-hulog. This prompted Villamaria to serve a "Paalala,"6 reminding them
that under the Kasunduan, failure to pay the daily boundary-hulog for one week, would mean their
respective jeepneys would be returned to him without any complaints. He warned the drivers that the
Kasunduan would henceforth be strictly enforced and urged them to comply with their obligation to avoid
litigation.
On July 24, 2000, Villamaria took back the jeepney driven by Bustamante and barred the latter from
driving the vehicle.
On August 15, 2000, Bustamante filed a Complaint7 for Illegal Dismissal against Villamaria and his wife
Teresita. In his Position Paper,8 Bustamante alleged that he was employed by Villamaria in July 1996
under the boundary system, where he was required to remit P450.00 a day. After one year of
continuously working for them, the spouses Villamaria presented the Kasunduan for his signature, with
the assurance that he (Bustamante) would own the jeepney by March 2001 after paying P550.00 in daily
installments and that he would thereafter continue driving the vehicle along the same route under the
same franchise. He further narrated that in July 2000, he informed the Villamaria spouses that the surplus
engine of the jeepney needed to be replaced, and was assured that it would be done. However, he was
later arrested and his drivers license was confiscated because apparently, the replacement engine that
was installed was taken from a stolen vehicle. Due to negotiations with the apprehending authorities, the
jeepney was not impounded. The Villamaria spouses took the jeepney from him on July 24, 2000, and he
was no longer allowed to drive the vehicle since then unless he paid them P70,000.00.
Bustamante prayed that judgment be rendered in his favor, thus:
WHEREFORE, in the light of the foregoing, it is most respectfully prayed that judgment be rendered
ordering the respondents, jointly and severally, the following:
1. Reinstate complainant to his former position without loss of seniority rights and execute a Deed of Sale
in favor of the complainant relative to the PUJ with Plate No. PVU-660;
2. Ordering the respondents to pay backwages in the amount of P400.00 a day and other benefits
computed from July 24, 2000 up to the time of his actual reinstatement;
3. Ordering respondents to return the amount of P10,000.00 and P180,000.00 for the expenses incurred
by the complainant in the repair and maintenance of the subject jeep;
4. Ordering the respondents to refund the amount of One Hundred (P100.00) Pesos per day counted
from August 7, 1997 up to June 2000 or a total of P91,200.00;
5. To pay moral and exemplary damages of not less than P200,000.00;

6. Attorneys fee[s] of not less than 10% of the monetary award.

Other just and equitable reliefs under the premises are also being prayed for.9
In their Position Paper,10 the spouses Villamaria admitted the existence of the Kasunduan, but alleged
that Bustamante failed to pay the P10,000.00 downpayment and the vehicles annual registration fees.
They further alleged that Bustamante eventually failed to remit the requisite boundary-hulog of P550.00 a
day, which prompted them to issue the Paalaala. Instead of complying with his obligations, Bustamante
stopped making his remittances despite his daily trips and even brought the jeepney to the province
without permission. Worse, the jeepney figured in an accident and its license plate was confiscated;
Bustamante even abandoned the vehicle in a gasoline station in Sucat, Paraaque City for two weeks.
When the security guard at the gasoline station requested that the vehicle be retrieved and Teresita
Villamaria asked Bustamante for the keys, Bustamante told her: "Di kunin ninyo." When the vehicle was
finally retrieved, the tires were worn, the alternator was gone, and the battery was no longer working.
Citing the cases of Cathedral School of Technology v. NLRC11 and Canlubang Security Agency
Corporation v. NLRC,12 the spouses Villamaria argued that Bustamante was not illegally dismissed since
the Kasunduan executed on August 7, 1997 transformed the employer-employee relationship into that of
vendor-vendee. Hence, the spouses concluded, there was no legal basis to hold them liable for illegal
dismissal. They prayed that the case be dismissed for lack of jurisdiction and patent lack of merit.
In his Reply,13 Bustamante claimed that Villamaria exercised control and supervision over the conduct of
his employment. He maintained that the rulings of the Court in National Labor Union v. Dinglasan,14
Magboo v. Bernardo,15 and Citizen's League of Free Workers v. Abbas16 are germane to the issue as
they define the nature of the owner/operator-driver relationship under the boundary system. He further
reiterated that it was the Villamaria spouses who presented the Kasunduan to him and that he conformed
thereto only upon their representation that he would own the vehicle after four years. Moreover, it
appeared that the Paalala was duly received by him, as he, together with other drivers, was made to affix
his signature on a blank piece of paper purporting to be an "attendance sheet."
On March 15, 2002, the Labor Arbiter rendered judgment17 in favor of the spouses Villamaria and ordered
the complaint dismissed on the following ratiocination:
Respondents presented the contract of Boundary-Hulog, as well as the PAALALA, to prove their claim
that complainant violated the terms of their contract and afterwards abandoned the vehicle assigned to
him. As against the foregoing, [the] complaints (sic) mere allegations to the contrary cannot prevail.
Not having been illegally dismissed, complainant is not entitled to damages and attorney's fees.18
Bustamante appealed the decision to the NLRC,19 insisting that the Kasunduan did not extinguish the
employer-employee relationship between him and Villamaria. While he did not receive fixed wages, he
kept only the excess of the boundary-hulog which he was required to remit daily to Villamaria under the
agreement. Bustamante maintained that he remained an employee because he was engaged to perform
activities which were necessary or desirable to Villamarias trade or business.
The NLRC rendered judgment20 dismissing the appeal for lack of merit, thus:
WHEREFORE, premises considered, complainant's appeal is hereby DISMISSED for reasons not stated
in the Labor Arbiter's decision but mainly on a jurisdictional issue, there being none over the subject
matter of the controversy.21

The NLRC ruled that under the Kasunduan, the juridical relationship between Bustamante and Villamaria
was that of vendor and vendee, hence, the Labor Arbiter had no jurisdiction over the complaint.
Bustamante filed a Motion for Reconsideration, which the NLRC resolved to deny on May 30, 2003.22
Bustamante elevated the matter to the CA via Petition for Certiorari, alleging that the NLRC erred
I
IN DISMISSING PETITIONERS APPEAL "FOR REASON NOT STATED IN THE LABOR ARBITERS
DECISION, BUT MAINLY ON JURISDICTIONAL ISSUE;"
II
IN DISREGARDING THE LAW AND PREVAILING JURISPRUDENCE WHEN IT DECLARED THAT THE
RELATIONSHIP WHICH WAS ESTABLISHED BETWEEN PETITIONER AND THE PRIVATE
RESPONDENT WAS DEFINITELY A MATTER WHICH IS BEYOND THE PROTECTIVE MANTLE OF
OUR LABOR LAWS.23
Bustamante insisted that despite the Kasunduan, the relationship between him and Villamaria continued
to be that of employer-employee and as such, the Labor Arbiter had jurisdiction over his complaint. He
further alleged that it is common knowledge that operators of passenger jeepneys (including taxis) pay
their drivers not on a regular monthly basis but on commission or boundary basis, or even the boundaryhulog system. Bustamante asserted that he was dismissed from employment without any lawful or just
cause and without due notice.
For his part, Villamaria averred that Bustamante failed to adduce proof of their employer-employee
relationship. He further pointed out that the Dinglasan case pertains to the boundary system and not the
boundary-hulog system, hence inapplicable in the instant case. He argued that upon the execution of the
Kasunduan, the juridical tie between him and Bustamante was transformed into a vendor-vendee
relationship. Noting that he was engaged in the manufacture and sale of jeepneys and not in the business
of transporting passengers for consideration, Villamaria contended that the daily fees which Bustmante
paid were actually periodic installments for the the vehicle and were not the same fees as understood in
the boundary system. He added that the boundary-hulog plan was basically a scheme to help the driverbuyer earn money and eventually pay for the unit in full, and for the owner to profit not from the daily
earnings of the driver-buyer but from the purchase price of the unit sold. Villamaria further asserted that
the apparently restrictive conditions in the Kasunduan did not mean that the means and method of driverbuyers conduct was controlled, but were mere ways to preserve the vehicle for the benefit of both
parties: Villamaria would be able to collect the agreed purchase price, while Bustamante would be
assured that the vehicle would still be in good running condition even after four years. Moreover, the right
of vendor to impose certain conditions on the buyer should be respected until full ownership of the
property is vested on the latter. Villamaria insisted that the parallel circumstances obtaining in Singer
Sewing Machine Company v. Drilon24 has analogous application to the instant issue.
In its Decision25 dated August 30, 2004, the CA reversed and set aside the NLRC decision. The fallo of
the decision reads:
UPON THE VIEW WE TAKE IN THIS CASE, THUS, the impugned resolutions of the NLRC must be, as
they are hereby are, REVERSED AND SET ASIDE, and judgment entered in favor of petitioner:

1. Sentencing private respondent Oscar Villamaria, Jr. to pay petitioner Jerry Bustamante separation pay
computed from the time of his employment up to the time of termination based on the prevailing minimum
wage at the time of termination; and,
2. Condemning private respondent Oscar Villamaria, Jr. to pay petitioner Jerry Bustamante back wages
computed from the time of his dismissal up to March 2001 based on the prevailing minimum wage at the
time of his dismissal.
Without Costs.
SO ORDERED.26
The appellate court ruled that the Labor Arbiter had jurisdiction over Bustamantes complaint. Under the
Kasunduan, the relationship between him and Villamaria was dual: that of vendor-vendee and employeremployee. The CA ratiocinated that Villamarias exercise of control over Bustamantes conduct in
operating the jeepney is inconsistent with the formers claim that he was not engaged in the transportation
business. There was no evidence that petitioner was allowed to let some other person drive the jeepney.
The CA further held that, while the power to dismiss was not mentioned in the Kasunduan, it did not mean
that Villamaria could not exercise it. It explained that the existence of an employment relationship did not
depend on how the worker was paid but on the presence or absence of control over the means and
method of the employees work. In this case, Villamarias directives (to drive carefully, wear an
identification card, don decent attire, park the vehicle in his garage, and to inform him about provincial
trips, etc.) was a means to control the way in which Bustamante was to go about his work. In view of
Villamarias supervision and control as employer, the fact that the "boundary" represented installment
payments of the purchase price on the jeepney did not remove the parties employer-employee
relationship.
While the appellate court recognized that a weeks default in paying the boundary-hulog constituted an
additional cause for terminating Bustamantes employment, it held that the latter was illegally dismissed.
According to the CA, assuming that Bustamante failed to make the required payments as claimed by
Villamaria, the latter nevertheless failed to take steps to recover the unit and waited for Bustamante to
abandon it. It also pointed out that Villamaria neither submitted any police report to support his claim that
the vehicle figured in a mishap nor presented the affidavit of the gas station guard to substantiate the
claim that Bustamante abandoned the unit.
Villamaria received a copy of the decision on September 8, 2004, and filed, on September 17, 2004, a
motion for reconsideration thereof. The CA denied the motion in a Resolution27 dated November 2, 2004,
and Villamaria received a copy thereof on November 8, 2004.
Villamaria, now petitioner, seeks relief from this Court via petition for review on certiorari under Rule 65 of
the Rules of Court, alleging that the CA committed grave abuse of its discretion amounting to excess or
lack of jurisdiction in reversing the decision of the Labor Arbiter and the NLRC. He claims that the CA
erred in ruling that the juridical relationship between him and respondent under the Kasunduan was a
combination of employer-employee and vendor-vendee relationships. The terms and conditions of the
Kasunduan clearly state that he and respondent Bustamante had entered into a conditional deed of sale
over the jeepney; as such, their employer-employee relationship had been transformed into that of
vendor-vendee. Petitioner insists that he had the right to reserve his title on the jeepney until after the
purchase price thereof had been paid in full.

In his Comment on the petition, respondent avers that the appropriate remedy of petitioner was an appeal
via a petition for review on certiorari under Rule 45 of the Rules of Court and not a special civil action of
certiorari under Rule 65. He argues that petitioner failed to establish that the CA committed grave abuse
of its discretion amounting to excess or lack of jurisdiction in its decision, as the said ruling is in accord
with law and the evidence on record.
Respondent further asserts that the Kasunduan presented to him by petitioner which provides for a
boundary-hulog scheme was a devious circumvention of the Labor Code of the Philippines. Respondent
insists that his juridical relationship with petitioner is that of employer-employee because he was engaged
to perform activities which were necessary or desirable in the usual business of petitioner, his employer.
In his Reply, petitioner avers that the Rules of Procedure should be liberally construed in his favor; hence,
it behooves the Court to resolve the merits of his petition.
We agree with respondents contention that the remedy of petitioner from the CA decision was to file a
petition for review on certiorari under Rule 45 of the Rules of Court and not the independent action of
certiorari under Rule 65. Petitioner had 15 days from receipt of the CA resolution denying his motion for
the reconsideration within which to file the petition under Rule 45.28 But instead of doing so, he filed a
petition for certiorari under Rule 65 on November 22, 2004, which did not, however, suspend the running
of the 15-day reglementary period; consequently, the CA decision became final and executory upon the
lapse of the reglementary period for appeal. Thus, on this procedural lapse, the instant petition stands to
be dismissed.29
It must be stressed that the recourse to a special civil action under Rule 65 of the Rules of Court is
proscribed by the remedy of appeal under Rule 45. As the Court elaborated in Tomas Claudio Memorial
College, Inc. v. Court of Appeals:30
We agree that the remedy of the aggrieved party from a decision or final resolution of the CA is to file a
petition for review on certiorari under Rule 45 of the Rules of Court, as amended, on questions of facts or
issues of law within fifteen days from notice of the said resolution. Otherwise, the decision of the CA shall
become final and executory. The remedy under Rule 45 of the Rules of Court is a mode of appeal to this
Court from the decision of the CA. It is a continuation of the appellate process over the original case. A
review is not a matter of right but is a matter of judicial discretion. The aggrieved party may, however,
assail the decision of the CA via a petition for certiorari under Rule 65 of the Rules of Court within sixty
days from notice of the decision of the CA or its resolution denying the motion for reconsideration of the
same. This is based on the premise that in issuing the assailed decision and resolution, the CA acted with
grave abuse of discretion, amounting to excess or lack of jurisdiction and there is no plain, speedy and
adequate remedy in the ordinary course of law. A remedy is considered plain, speedy and adequate if it
will promptly relieve the petitioner from the injurious effect of the judgment and the acts of the lower court.
The aggrieved party is proscribed from filing a petition for certiorari if appeal is available, for the remedies
of appeal and certiorari are mutually exclusive and not alternative or successive. The aggrieved party is,
likewise, barred from filing a petition for certiorari if the remedy of appeal is lost through his negligence. A
petition for certiorari is an original action and does not interrupt the course of the principal case unless a
temporary restraining order or a writ of preliminary injunction has been issued against the public
respondent from further proceeding. A petition for certiorari must be based on jurisdictional grounds
because, as long as the respondent court acted within its jurisdiction, any error committed by it will
amount to nothing more than an error of judgment which may be corrected or reviewed only by appeal.31

However, we have also ruled that a petition for certiorari under Rule 65 may be considered as filed under
Rule 45, conformably with the principle that rules of procedure are to be construed liberally, provided that
the petition is filed within the reglementary period under Section 2, Rule 45 of the Rules of Court, and
where valid and compelling circumstances warrant that the petition be resolved on its merits.32 In this
case, the petition was filed within the reglementary period and petitioner has raised an issue of
substance: whether the existence of a boundary-hulog agreement negates the employer-employee
relationship between the vendor and vendee, and, as a corollary, whether the Labor Arbiter has
jurisdiction over a complaint for illegal dismissal in such case.
We resolve these issues in the affirmative.
The rule is that, the nature of an action and the subject matter thereof, as well as, which court or agency
of the government has jurisdiction over the same, are determined by the material allegations of the
complaint in relation to the law involved and the character of the reliefs prayed for, whether or not the
complainant/plaintiff is entitled to any or all of such reliefs.33 A prayer or demand for relief is not part of the
petition of the cause of action; nor does it enlarge the cause of action stated or change the legal effect of
what is alleged.34 In determining which body has jurisdiction over a case, the better policy is to consider
not only the status or relationship of the parties but also the nature of the action that is the subject of their
controversy.35
Article 217 of the Labor Code, as amended, vests on the Labor Arbiter exclusive original jurisdiction only
over the following:
x x x (a) Except as otherwise provided under this Code, the Labor Arbiters shall have original and
exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the case
by the parties for decision without extension, even in the absence of stenographic notes, the following
cases involving all workers, whether agricultural or non-agricultural:
1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases that workers may file involving wage, rates
of pay, hours of work, and other terms and conditions of employment;
4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-employee
relations;
5. Cases arising from violation of Article 264 of this Code, including questions involving the legality of
strikes and lockouts; and
6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other
claims, arising from employer-employee relationship, including those of persons in domestic or household
service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether
accompanied with a claim for reinstatement.
(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters.
(c) Cases arising from the interpretation or implementation of collective bargaining agreements, and those
arising from the interpretation or enforcement of company personnel policies shall be disposed of by the
Labor Arbiter by referring the same to the grievance machinery and voluntary arbitration as may be
provided in said agreements.

In the foregoing cases, an employer-employee relationship is an indispensable jurisdictional requisite.36

The jurisdiction of Labor Arbiters and the NLRC under Article 217 of the Labor Code is limited to disputes
arising from an employer-employee relationship which can only be resolved by reference to the Labor
Code, other labor statutes or their collective bargaining agreement.37 Not every dispute between an
employer and employee involves matters that only the Labor Arbiter and the NLRC can resolve in the
exercise of their adjudicatory or quasi-judicial powers. Actions between employers and employees where
the employer-employee relationship is merely incidental is within the exclusive original jurisdiction of the
regular courts.38 When the principal relief is to be granted under labor legislation or a collective bargaining
agreement, the case falls within the exclusive jurisdiction of the Labor Arbiter and the NLRC even though
a claim for damages might be asserted as an incident to such claim.39
We agree with the ruling of the CA that, under the boundary-hulog scheme incorporated in the
Kasunduan, a dual juridical relationship was created between petitioner and respondent: that of
employer-employee and vendor-vendee. The Kasunduan did not extinguish the employer-employee
relationship of the parties extant before the execution of said deed.
As early as 1956, the Court ruled in National Labor Union v. Dinglasan40 that the jeepney owner/operatordriver relationship under the boundary system is that of employer-employee and not lessor-lessee. This
doctrine was affirmed, under similar factual settings, in Magboo v. Bernardo41 and Lantaco, Sr. v.
Llamas,42 and was analogously applied to govern the relationships between auto-calesa owner/operator
and driver,43 bus owner/operator and conductor,44 and taxi owner/operator and driver.45
The boundary system is a scheme by an owner/operator engaged in transporting passengers as a
common carrier to primarily govern the compensation of the driver, that is, the latters daily earnings are
remitted to the owner/operator less the excess of the boundary which represents the drivers
compensation. Under this system, the owner/operator exercises control and supervision over the driver. It
is unlike in lease of chattels where the lessor loses complete control over the chattel leased but the
lessee is still ultimately responsible for the consequences of its use. The management of the business is
still in the hands of the owner/operator, who, being the holder of the certificate of public convenience,
must see to it that the driver follows the route prescribed by the franchising and regulatory authority, and
the rules promulgated with regard to the business operations. The fact that the driver does not receive
fixed wages but only the excess of the "boundary" given to the owner/operator is not sufficient to change
the relationship between them. Indubitably, the driver performs activities which are usually necessary or
desirable in the usual business or trade of the owner/operator.46
Under the Kasunduan, respondent was required to remit P550.00 daily to petitioner, an amount which
represented the boundary of petitioner as well as respondents partial payment (hulog) of the purchase
price of the jeepney.
Respondent was entitled to keep the excess of his daily earnings as his daily wage. Thus, the daily
remittances also had a dual purpose: that of petitioners boundary and respondents partial payment
(hulog) for the vehicle. This dual purpose was expressly stated in the Kasunduan. The well-settled rule is
that an obligation is not novated by an instrument that expressly recognizes the old one, changes only the
terms of payment, and adds other obligations not incompatible with the old provisions or where the new
contract merely supplements the previous one. 47 The two obligations of the respondent to remit to
petitioner the boundary-hulog can stand together.
In resolving an issue based on contract, this Court must first examine the contract itself, keeping in mind
that when the terms of the agreement are clear and leave no doubt as to the intention of the contracting
parties, the literal meaning of its stipulations shall prevail.48 The intention of the contracting parties should

be ascertained by looking at the words used to project their intention, that is, all the words, not just a
particular word or two or more words standing alone. The various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense which may result from all of them taken
jointly.49 The parts and clauses must be interpreted in relation to one another to give effect to the whole.
The legal effect of a contract is to be determined from the whole read together.50
Under the Kasunduan, petitioner retained supervision and control over the conduct of the respondent as
driver of the jeepney, thus:
Ang mga patakaran, kaugnay ng bilihang ito sa pamamagitan ng boundary hulog ay ang mga
sumusunod:
1. Pangangalagaan at pag-iingatan ng TAUHAN NG IKALAWANG PANIG ang sasakyan ipinagkatiwala
sa kanya ng TAUHAN NG UNANG PANIG.
2. Na ang sasakyan nabanggit ay gagamitin lamang ng TAUHAN NG IKALAWANG PANIG sa
paghahanapbuhay bilang pampasada o pangangalakal sa malinis at maayos na pamamaraan.
3. Na ang sasakyan nabanggit ay hindi gagamitin ng TAUHAN NG IKALAWANG PANIG sa mga bagay
na makapagdudulot ng kahihiyan, kasiraan o pananagutan sa TAUHAN NG UNANG PANIG.
4. Na hindi ito mamanehohin ng hindi awtorisado ng opisina ng UNANG PANIG.
5. Na ang TAUHAN NG IKALAWANG PANIG ay kinakailangang maglagay ng ID Card sa harap ng
windshield upang sa pamamagitan nito ay madaliang malaman kung ang nagmamaneho ay awtorisado
ng VILLAMARIA MOTORS o hindi.
6. Na sasagutin ng TAUHAN NG IKALAWANG PANIG ang [halaga ng] multa kung sakaling mahuli ang
sasakyang ito na hindi nakakabit ang ID card sa wastong lugar o anuman kasalanan o kapabayaan.
7. Na sasagutin din ng TAUHAN NG IKALAWANG PANIG ang materyales o piyesa na papalitan ng
nasira o nawala ito dahil sa kanyang kapabayaan.
8. Kailangan sa VILLAMARIA MOTORS pa rin ang garahe habang hinuhulugan pa rin ng TAUHAN NG
IKALAWANG PANIG ang nasabing sasakyan.
9. Na kung magkaroon ng mabigat na kasiraan ang sasakyang ipinagkaloob ng TAUHAN NG UNANG
PANIG, ang TAUHAN NG IKALAWANG PANIG ay obligadong itawag ito muna sa VILLAMARIA
MOTORS bago ipagawa sa alin mang Motor Shop na awtorisado ng VILLAMARIA MOTORS.
10. Na hindi pahihintulutan ng TAUHAN NG IKALAWANG PANIG sa panahon ng pamamasada na ang
nagmamaneho ay naka-tsinelas, naka short pants at nakasando lamang. Dapat ang nagmamaneho ay
laging nasa maayos ang kasuotan upang igalang ng mga pasahero.
11. Na ang TAUHAN NG IKALAWANG PANIG o ang awtorisado niyang driver ay magpapakita ng
magandang asal sa mga pasaheros at hindi dapat magsasalita ng masama kung sakali man may
pasaherong pilosopo upang maiwasan ang anumang kaguluhan na maaaring kasangkutan.
12. Na kung sakaling hindi makapagbigay ng BOUNDARY HULOG ang TAUHAN NG IKALAWANG
PANIG sa loob ng tatlong (3) araw ay ang opisina ng VILLAMARIA MOTORS ang may karapatang
mangasiwa ng nasabing sasakyan hanggang matugunan ang lahat ng responsibilidad. Ang halagang

dapat bayaran sa opisina ay may karagdagang multa ng P50.00 sa araw-araw na ito ay nasa
pangangasiwa ng VILLAMARIA MOTORS.
13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi makapagbigay ng BOUNDARY HULOG sa
loob ng isang linggo ay nangangahulugan na ang kasunduang ito ay wala ng bisa at kusang ibabalik ng
TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan sa TAUHAN NG UNANG PANIG.
14. Sasagutin ng TAUHAN NG IKALAWANG PANIG ang bayad sa rehistro, comprehensive insurance
taon-taon at kahit anong uri ng aksidente habang ito ay hinuhulugan pa sa TAUHAN NG UNANG PANIG.
15. Na ang TAUHAN NG IKALAWANG PANIG ay obligadong dumalo sa pangkalahatang pagpupulong
ng VILLAMARIA MOTORS sa tuwing tatawag ang mga tagapangasiwa nito upang maipaabot ang
anumang mungkahi sa ikasusulong ng samahan.
16. Na ang TAUHAN NG IKALAWANG PANIG ay makikiisa sa lahat ng mga patakaran na magkakaroon
ng pagbabago o karagdagan sa mga darating na panahon at hindi magiging hadlang sa lahat ng mga
balakin ng VILLAMARIA MOTORS sa lalo pang ipagtatagumpay at ikakatibay ng Samahan.
17. Na ang TAUHAN NG IKALAWANG PANIG ay hindi magiging buwaya sa pasahero upang hindi
kainisan ng kapwa driver at maiwasan ang pagkakasangkot sa anumang gulo.
18. Ang nasabing sasakyan ay hindi kalilimutang siyasatin ang kalagayan lalo na sa umaga bago
pumasada, at sa hapon o gabi naman ay sisikapin mapanatili ang kalinisan nito.
19. Na kung sakaling ang nasabing sasakyan ay maaarkila at aabutin ng dalawa o higit pang araw sa
lalawigan ay dapat lamang na ipagbigay alam muna ito sa VILLAMARIA MOTORS upang maiwasan ang
mga anumang suliranin.
20. Na ang TAUHAN NG IKALAWANG PANIG ay iiwasan ang pakikipag-unahan sa kaninumang
sasakyan upang maiwasan ang aksidente.
21. Na kung ang TAUHAN NG IKALAWANG PANIG ay mayroon sasabihin sa VILLAMARIA MOTORS
mabuti man or masama ay iparating agad ito sa kinauukulan at iwasan na iparating ito kung [kani-kanino]
lamang upang maiwasan ang anumang usapin. Magsadya agad sa opisina ng VILLAMARIA MOTORS.
22. Ang mga nasasaad sa KASUNDUAN ito ay buong galang at puso kong sinasang-ayunan at buong
sikap na pangangalagaan ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan at gagamitin
lamang ito sa paghahanapbuhay at wala nang iba pa.51
The parties expressly agreed that petitioner, as vendor, and respondent, as vendee, entered into a
contract to sell the jeepney on a daily installment basis of P550.00 payable in four years and that
petitioner would thereafter become its owner. A contract is one of conditional sale, oftentimes referred to
as contract to sell, if the ownership or title over the
property sold is retained by the vendor, and is not passed to the vendee unless and until there is full
payment of the purchase price and/or upon faithful compliance with the other terms and conditions that
may lawfully be stipulated.52 Such payment or satisfaction of other preconditions, as the case may be, is a
positive suspensive condition, the failure of which is not a breach of contract, casual or serious, but
simply an event that would prevent the obligation of the vendor to convey title from acquiring binding
force.53 Stated differently, the efficacy or obligatory force of the vendor's obligation to transfer title is
subordinated to the happening of a future and uncertain event so that if the suspensive condition does not
take place, the parties would stand as if the conditional obligation had never existed.54 The vendor may

extrajudicially terminate the operation of the contract, refuse conveyance, and retain the sums or
installments already received, where such rights are expressly provided for.55
Under the boundary-hulog scheme, petitioner retained ownership of the jeepney although its material
possession was vested in respondent as its driver. In case respondent failed to make his P550.00 daily
installment payment for a week, the agreement would be of no force and effect and respondent would
have to return the jeepney to petitioner; the employer-employee relationship would likewise be terminated
unless petitioner would allow respondent to continue driving the jeepney on a boundary basis of P550.00
daily despite the termination of their vendor-vendee relationship.
The juridical relationship of employer-employee between petitioner and respondent was not negated by
the foregoing stipulation in the Kasunduan, considering that petitioner retained control of respondents
conduct as driver of the vehicle. As correctly ruled by the CA:

Ruling

The exercise of control by private respondent over petitioners conduct in operating the jeepney he was
driving is inconsistent with private respondents claim that he is, or was, not engaged in the transportation
business; that, even if petitioner was allowed to let some other person drive the unit, it was not shown that
he did so; that the existence of an employment relation is not dependent on how the worker is paid but on
the presence or absence of control over the means and method of the work; that the amount earned in
excess of the "boundary hulog" is equivalent to wages; and that the fact that the power of dismissal was
not mentioned in the Kasunduan did not mean that private respondent never exercised such power, or
could not exercise such power.
Moreover, requiring petitioner to drive the unit for commercial use, or to wear an identification card, or to
don a decent attire, or to park the vehicle in Villamaria Motors garage, or to inform Villamaria Motors
about the fact that the unit would be going out to the province for two days of more, or to drive the unit
carefully, etc. necessarily related to control over the means by which the petitioner was to go about his
work; that the ruling applicable here is not Singer Sewing Machine but National Labor Union since the
latter case involved jeepney owners/operators and jeepney drivers, and that the fact that the "boundary"
here represented installment payment of the purchase price on the jeepney did not withdraw the
relationship from that of employer-employee, in view of the overt presence of supervision and control by
the employer.56
Neither is such juridical relationship negated by petitioners claim that the terms and conditions in the
Kasunduan relative to respondents behavior and deportment as driver was for his and respondents
benefit: to insure that respondent would be able to pay the requisite daily installment of P550.00, and that
the vehicle would still be in good condition despite the lapse of four years. What is primordial is that
petitioner retained control over the conduct of the respondent as driver of the jeepney.
Indeed, petitioner, as the owner of the vehicle and the holder of the franchise, is entitled to exercise
supervision and control over the respondent, by seeing to it that the route provided in his franchise, and
the rules and regulations of the Land Transportation Regulatory Board are duly complied with. Moreover,
in a business establishment, an identification card is usually provided not just as a security measure but
to mainly identify the holder thereof as a bona fide employee of the firm who issues it.57
As respondents employer, it was the burden of petitioner to prove that respondents termination from
employment was for a lawful or just cause, or, at the very least, that respondent failed to make his daily
remittances of P550.00 as boundary. However, petitioner failed to do so. As correctly ruled by the
appellate court:

It is basic of course that termination of employment must be effected in accordance with law. The just and
authorized causes for termination of employment are enumerated under Articles 282, 283 and 284 of the
Labor Code.
Parenthetically, given the peculiarity of the situation of the parties here, the default in the remittance of the
boundary hulog for one week or longer may be considered an additional cause for termination of
employment. The reason is because the Kasunduan would be of no force and effect in the event that the
purchaser failed to remit the boundary hulog for one week. The Kasunduan in this case pertinently
stipulates:
13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi makapagbigay ng BOUNDARY HULOG sa
loob ng isang linggo ay NANGANGAHULUGAN na ang kasunduang ito ay wala ng bisa at kusang
ibabalik ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan sa TAUHAN NG UNANG PANIG
na wala ng paghahabol pa.
Moreover, well-settled is the rule that, the employer has the burden of proving that the dismissal of an
employee is for a just cause. The failure of the employer to discharge this burden means that the
dismissal is not justified and that the employee is entitled to reinstatement and back wages.
In the case at bench, private respondent in his position paper before the Labor Arbiter, alleged that
petitioner failed to pay the miscellaneous fee of P10,000.00 and the yearly registration of the unit; that
petitioner also stopped remitting the "boundary hulog," prompting him (private respondent) to issue a
"Paalala," which petitioner however ignored; that petitioner even brought the unit to his (petitioners)
province without informing him (private respondent) about it; and that petitioner eventually abandoned the
vehicle at a gasoline station after figuring in an accident. But private respondent failed to substantiate
these allegations with solid, sufficient proof. Notably, private respondents allegation viz, that he retrieved
the vehicle from the gas station, where petitioner abandoned it, contradicted his statement in the Paalala
that he would enforce the provision (in the Kasunduan) to the effect that default in the remittance of the
boundary hulog for one week would result in the forfeiture of the unit. The Paalala reads as follows:
"Sa lahat ng mga kumukuha ng sasakyan
"Sa pamamagitan ng BOUNDARY HULOG
"Nais ko pong ipaalala sa inyo ang Kasunduan na inyong pinirmahan particular na ang paragrapo 13 na
nagsasaad na kung hindi kayo makapagbigay ng Boundary Hulog sa loob ng isang linggo ay kusa
ninyong ibabalik and nasabing sasakyan na inyong hinuhulugan ng wala ng paghahabol pa.
"Mula po sa araw ng inyong pagkatanggap ng Paalala na ito ay akin na pong ipatutupad ang nasabing
Kasunduan kayat aking pinaaalala sa inyong lahat na tuparin natin ang nakalagay sa kasunduan upang
maiwasan natin ito.
"Hinihiling ko na sumunod kayo sa hinihingi ng paalalang ito upang hindi na tayo makaabot pa sa korte
kung sakaling hindi ninyo isasauli ang inyong sasakyan na hinuhulugan na ang mga magagastos ay kayo
pa ang magbabayad sapagkat ang hindi ninyo pagtupad sa kasunduan ang naging dahilan ng pagsampa
ng kaso.
"Sumasainyo
"Attendance: 8/27/99
"(The Signatures appearing herein

include (sic) that of petitioners) (Sgd.)

OSCAR VILLAMARIA, JR."
If it were true that petitioner did not remit the boundary hulog for one week or more, why did private
respondent not forthwith take steps to recover the unit, and why did he have to wait for petitioner to
abandon it?1avvphil.net
On another point, private respondent did not submit any police report to support his claim that petitioner
really figured in a vehicular mishap. Neither did he present the affidavit of the guard from the gas station
to substantiate his claim that petitioner abandoned the unit there.58
Petitioners claim that he opted not to terminate the employment of respondent because of magnanimity
is negated by his (petitioners) own evidence that he took the jeepney from the respondent only on July
24, 2000.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The decision of the Court of Appeals in
CA-G.R. SP No. 78720 is AFFIRMED. Costs against petitioner.
SO ORDERED.

PLATINUM PLANS PHILS INC V. CUCUECO 488 SCRA 156 (2006)

FACTS: Respondent Cucueco filed a case for specific performance with damages against petitioner
Platinum Plans pursuant to an alleged contract of sale executed by them for the purchase of a
condominium unit.

a.

According to the respondent: sometime in July 1993, he offered to buy from petitioner Platinum
Plans Phils a condominium unit he was leasing from the latter for P 4 million payable in 2
installments of P2 million with the following terms and conditions:
Cucueco will issue a check for P100,00 as earnest money

b.
He will issue a post-dated check for P1.9 million to be encashed on September 30, 1993 on the
condition that he will stop paying rentals for the said unit after September 30
c.
In case Platinum Plans has an outstanding loan of less than P2 million with the bank as of
December 1993, Cucueco shall assume the same and pay the difference from the remaining P2 million

Cucueco likewise claimed that Platinum Plans accepted his offerby encashing the checks he
issued. However, he was surprised to learn that Platinum Plans had changed the due date of the
installment payment to September 30, 1993.

Respondent argued that there was a perfected sale between him and Platinum plans and as
such, he may validly demand from the petitioner to execute the necessary deed of sale
transferring ownership and title over the property in his favor

Platinum Plans denied Cucuecos allegations and asserted that Cucuecos initial down payment
was forfeited based on the following terms and conditions:

a.

The terms of payment only includes two installments (August 1993 and September 1993)

b.
In case of non-compliance on the part of the vendee, all installments made shall be forfeited in favor
of the vendor Platinum Plans
c.

Ownership over the property shall not pass until payment of the full purchase price

Petitioners anchor their argument on the claim that there was no meeting of the minds between
the two parties, as evidenced by their letter of non-acceptance.

The trial court ruled in favor of Platinum, citing that since the element of consent was absent there
was no perfected contract. The trial court ordered Platinum Plans to return the P2 million they had
received from Cucueco, and for Cucueco to pay Platinum Plans rentals in arrears for the use of
the unit.

Upon appeal, CA held that there was a perfected contract despite the fact that both parties never
agreed on the date of payment of the remaining balance. CA ordered Cucueco to pay the
remaining balance of the purchase price and for Platinum Plans, to execute a deed of sale over
the property

ISSUE: WON the contract there is a perfected contract of sale

HELD: No, it is a contract to sell.

In a contract of sale, the vendor cannot recover ownership of the thing sold until and unless the contract
itself is resolved and set aside. Art 1592 provides:

In the sale of immovable property, even though it may have been stipulated that upon failure to pay the
price at the time agreed upon, the rescission of the contract shall of right take place, the vendee may pay,
even after the expiration of the period, as long as no demand for rescission of the contract has been
upon him either judicially or by a notarial act. After the demand, the court may not grant him a new
term.

Based on the above provision, a party who fails to invoke judicially or by notarial act would be
prevented from blocking the consummation of the same in light of the precept that mere failure to
fulfill the contract does not by itself have the effect of rescission.

On the other hand, a contract to sell is bilateral contract whereby the prospective seller, while expressly
reserving the ownership of the subject property despite its delivery to the prospective buyer, commits to
sell the property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, i.e.,
full payment of the purchase price. Full payment here is considered as a positive suspensive condition.

As a result if the party contracting to sell, because of non-compliance with the suspensive condition,
seeks to eject the prospective buyer from, the land, the seller is enforcing the contract and is not
resolving it. The failure to pay is not a breach of contract but an event which prevent the
obligation to convey title from materializing.

In the present case, neither side was able to produce any written evidence documenting the actual terms
of their agreement. The trial court was correct in finding that there was no meeting of minds in this
case considering that the acceptance of the offer was not absolute and uncondition. In earlier
cases, the SC held that before a valid and binding contract of sale can exist, the manner of payment of
the purchase price must first be established.

Furthermore, the reservation of the title in the name of Platinum Plans clearly indicates an intention
of the parties to enter into a contract of sell. Where the seller promises to execute a deed of absolute
sale upon completion of the payment of purchase price, the agreement is a contract to sell.

The court cannot, in this case, step in to cure the deficiency by fixing the period pursuant to:
1. The relief sought by Cucueco was for specific performance to compel Platinum Plans to receive
the balance of the purchase price.
2. The relief provide in Art 1592 only applies to contracts of sale
3.

Because of the differing dates set by both parties, the court would have no basis for granting
Cucueco an extension of time within which to pay the outstanding balance

SELLER CANNOT TREAT THE CONTRACT AS CANCELLED WITHOUT SERVING NOTICE

The act of a party in treating the contract as cancelled should be made known to the other party because
this act is subject to scrutiny and review by the courts in cased the alleged defaulter brings the matter for
judicial determination as explained in UP v. De los Angeles. In the case at bar, there were repeated
written notices sent by Platinum Plans to Cucueco that failure to pay the balance would result in the
cancellation of the contract and forfeiture of the down payment already made. Under these circumstance,
the cancellation made by Platinum Plans is valid and reasonable (except for the forfeiture of the down
payment because Cucueco never agreed to the same)

EFFECTS OF CONTRACT TO SELL

A contract to sell would be rendered ineffective and without force and effect by the non-fulfillment of the
buyers obligation to pay since this is a suspensive condition to the obligation of the seller to sell and
deliver the title of the property. As an effect, the parties stand as if the conditional obligation had
never existed. There can be no rescission of an obligation that is still non-existent as the suspensive
condition has not yet occurred.

CAS RELIANCE ON LEVY HERMANOS V. GERVACIO IS MISPLACED

It was unnecessary for CA to distinguish whether the transaction between the parties was an installment
sale or a straight sale. In the first place, there is no valid and enforceable contract to speak of.

Republic of the Philippines

Supreme Court
Manila
SECOND DIVISION

PILIPINAS SHELL PETROLEUM

CORPORATION,
Petitioner,

- versus -

G.R. No. 163562

Present:
PUNO, J., Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.

Promulgated:
CARLOS ANG GOBONSENG, JR.,
Respondent.
July 21, 2006

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

GARCIA, J.:

In this petition for review under Rule 45 of the Rules of Court, petitioner Pilipinas Shell Petroleum
Corporation (Pilipinas Shell, hereafter) seeks the reversal and setting aside of the Decision1[1] dated
October 10, 2003 of the Court of Appeals (CA) in CA-G.R. CV No. 63777, as reiterated in its
Resolution2[2] of April 13, 2004, reversing an earlier decision of the Regional Trial Court (RTC) of Negros
Oriental, Dumaguete City, Branch 40, in a suit for collection of rentals with damages thereat commenced
by the herein respondent Carlos Ang Gobonseng against, among others, the herein petitioner. The
rentals sought to be collected pertain to a gasoline station at Lot No. 853-A, located at corner Real
Urdaneta streets, Dumaguete City.

The factual backdrop:

Sometime on January 5, 1982, one Julio Tan Pastor, original owner of Lot No. 853-A, sold it to
the respondent for P1.3 million, albeit in the covering Deed of Absolute Sale executed by the parties, the
amount indicated was only P13,000.00, evidently to avoid payment of the correct legal fees in the
registration and transfer of title to the vendee. On the same date, however, the parties, in order to reflect
their real intentions, executed a Memorandum of Agreement thereunder spelling out the true terms and
conditions of their transaction, to wit:

1.

Purchase price is P1,300,000.00 (P1.3 million);

2.
P500,000.00 shall be paid upon the execution of the Deed of Sale. Out of this amount part
shall be paid to whatever mortgage obligation there is with the Philippines National Bank and/or any other
bank involving lot no. 853-A; and its improvements;

3.
Balance of P800,000.00 will be paid in five (5) years at a yearly payment of P160,000.00 the
first payment to be paid one year from date hereof and succeeding four installments every year
thereafter;

4.
All obligations or liabilities on or involving lot no. 853-A or its improvements such as electric
bills, water bills, telephone bills, etc., shall be for the account of the VENDOR which if not paid will be
automatically deductible from the first payment of the remaining balance;

5.
Real property taxes full for 1981 over lot no. 853-A and its improvements, capital gains tax,
documentary stamp tax, sales tax shall be shouldered by the VENDOR; Registration expenses shall be
shouldered by the VENDEE;

6.
Upon the execution of the Deed of Sale, ownership and possession shall automatically pass
to the VENDEE; The VENDOR agrees to pay a penalty of P500.00 for every day of delay in vacating the
property;

Respondent, armed with the inaccurate Deed of Absolute Sale earlier executed by Julio Tan
Pastor, and notwithstanding the Memorandum of Agreement aforementioned, succeeded in registering
the conveying instrument with the Registry of Deeds and was then issued Transfer Certificate of Title
(TCT) No. 13607 over Lot No. 853-A in his own name.

In the meantime, vendor Tan Pastor presented for encashment the postdated checks issued to
him by respondent as payment for the subject lot. Unfortunately, the drawee bank dishonored those
checks for a variety of reasons, namely, drawn against insufficient funds, stop payment order or closed
account. This prompted vendor Tan Pastor to file against respondent a criminal action for violation of
Batas Pambansa (BP) 22, otherwise known as the Bouncing Checks Law, docketed as Criminal Case
No. 7071, entitled People of the Philippines v. Carlos Ang Gobonseng, Jr., of the xxx.

It appears that prior to the sale of Lot No. 853-A to respondent, Tan Pastor had been operating
thereon a gasoline station, first with Flying A, subsequently with Getty Oil, and later with Basic Land Oil
and Energy Corporation (BLECOR).
In 1982, Pilipinas Shell acquired BLECOR, including all the latters assets, liabilities and
contracts. Thereafter, Tan Pastor remained as the distributor of Pilipinas Shell products and continued to
operate the gas station on Lot No. 853-A until 1991.

Sometime in 1991, respondent sent demand letters to Pilipinas Shell for payment by the latter of
rentals for its occupancy and use of his property. Responding to said letters, Pilipinas Shell disowned
liability for the rentals, explaining that the gas station on Lot No. 853-A was a dealer-owned filling station,
hence the demands for rental payment must be directed to Tan Pastor. In any event, Pilipinas Shell,
hoping for an amicable settlement of the controversy between respondent and Tan Pastor relative to Lot
No. 853-A, facilitated a meeting between the two.

True enough, on January 30, 1992, thru the efforts of Pilipinas Shell, Tan Pastor and respondent
executed an Agreement3[3] embodying the following terms and conditions:

The parties herein have agreed, as follows:

1.
For humanitarian, peace, and other considerations, Carlos A. Gobonseng, Jr., the OWNER,
hereby allows Julio Tan Pastor the use of Lot No. 853-A at Corner Real-Urdaneta Streets, Dumaguete
City, covered by TCT No. 13607, as a gas/ fuel/ gasoline/ oil/ filling, selling and servicing, station, and for
such other use appropriate, or related, to the same, without any rental for a period of THREE (3) YEARS
from January 1st 1992, or up to December 31st 1994, NON-EXTENDIBLE;

2.
Consistent with the foregoing, Julio Tan Pastor is authorized to enter into any business
contract with a third person for the use of said property for a period of THREE (3) YEARS from JANUARY
1st 1992 or up to DECEMBER 31st 1994, the DEADLINE;

3.
No construction, renovation or repair, shall be done by Julio Tan Pastor, without the PRIOR
written consent of the owner, Carlos A. Gobonseng, Jr.;

4.
All improvements, including old and new constructions, repairs, replacements, and other
removable items, shall automatically belong in ownership to the owner, Carlos A. Gobonseng, Jr., upon
and at the time of completion of construction of work, installation or repair or replacement, excluding
those owned or constructed by Shell Petroleum Corp., or Francisco Baludoy Salva, which shall
automatically belong to Carlos Ang Gobonseng, Jr. upon the expiration of the lease contract which the
latter executed in favor of Francisco C. Salva;

5.
Subject to the terms and conditions stipulated in the contract of lease between Carlos Ang
Gobonseng, Jr. and Francisco C. Salva, Julio Tan Pastor and children or heirs, or Lessee, or third
person, obligate and undertake to VACATE Lot No. 853-A NOT later than December 31, 1994. On
December 31, 1994, PEACEFUL POSSESSION of the property and premises shall be TURNED OVER
to the owner, Carlos A. Gobonseng, Jr., otherwise, a penalty of P5,000.00 for every day of delay in
vacating the premises is imposed;

6.
All the parties herein have no more further claimes against each other, and waived,
abandoned, relinquished, any such claim or claims;

Thereafter, Tan Pastor executed and filed in Criminal Case No. 7071 an Affidavit of Desistance
thereunder making known his lack of interest in further pursuing the case, which was eventually
dismissed.

The controversy could have ended there were it not for the fact that on November 13, 1992, in the
RTC of Negros Oriental, respondent filed a civil suit for collection of rentals and damages against Tan
Pastor and Pilipinas Shell. In his complaint, docketed as Civil Case No. 10389, respondent, as plaintiff,
alleged ownership of Lot No. 853-A on the basis of TCT No. 13607. He further averred that since 1982,
he had been paying the realty taxes due thereon and that Tan Pastor and Pilipinas Shell continued
occupying said lot and using the same as a gasoline and service station without paying rentals therefor.
He thus prayed that judgment be rendered ordering Tan Pastor and petitioner to pay him rentals and
damages for their use and occupation of his lot from 1982 to 1991.

In its Answer, Pilipinas Shell countered that plaintiffs claim for unpaid rentals had no basis
because the gasoline station on his property is a dealer-owned filling station, as evidenced by a
certification4[4] issued by the president of the Shell Dealers Association of the Philippines. Pilipinas
Shell likewise emphasized that Lot No. 853-A was initially the subject of controversy between respondent
and Tan Pastor until 1992 when, thru its efforts, the warring parties executed an Agreement whereunder
both (Tan Pastor and respondent) made it expressly clear that they have no more further claims against
each other, and waived, abandoned, relinquished, any such claim or claims. On this premise, Pilipinas
Shell argued that respondents demand for rentals is devoid of any legal or factual basis.

In the meantime, Tan Pastor died, leaving his heirs who were accordingly substituted as Pilipinas
Shells co-defendant in the case.

On March 15, 1999, the trial court came out with its decision5[5] rendering judgment for Pilipinas
Shell and its co-defendants, to wit:

WHEREFORE, premises considered, plaintiffs complaint for collection of rental and damages against
Pilipinas Shell and the heirs of Julio Tan Pastor is hereby dismissed for lack of cause of action against
them.

Further, plaintiff (Gobonseng) is hereby ordered to pay defendant Pilipinas Shell the amount of
P150,000.00 for the other defendants, the heirs of Julio Tan Pastor.

The cross-claim filed by defendant Pilipinas Shell Petroleum Corporation against its co-defendants, the
heirs of Julio Tan Pastor is hereby denied for lack of legal basis.

SO ORDERED.

Therefrom, respondent went to the CA.

As stated at the threshold hereof, the CA, in its Decision6[6] of October 10, 2003, reversed that of
the trial court, thus:

WHEREFORE, in view of the foregoing considerations, the decision appealed from is hereby
REVERSED and SET ASIDE and a new one is entered, ordering appellee Pilipinas Shell Petroleum
Corporation to pay unto appellant: P8,000 per month as reasonable compensation for the use and
occupation of Lot No. 853-A as a Shell refilling station starting from 1982 until 1991 plus interest at 12%
per annum until fully paid and attorneys fees of 20% of the total amount due the appellant, without
prejudice to its cross-claim against its co-defendants, which is hereby reinstated and prompt resolution of
which by the court a quo is hereby directed.

SO ORDERED.

With its motion for reconsideration having been denied by the CA in its equally challenged
Resolution7[7] of April 13, 2004, Pilipinas Shell is now with this Court raising the following issues:

1)
Whether or not the decision of the Honorable Court of Appeals in upholding the ownership
by Respondent of Lot 853-A is in accordance with the provision of Article 1496 of the Civil Code of the
Philippines considering that there was no delivery yet to the Respondent of the property which was the
subject of a contract of sale between him and Julio Tan Pastor;

2)
Whether or not the decision of the Honorable Court of Appeals making the Petitioner liable
for the payment of rentals for the use of Lot 853-A by Julio Tan Pastor as an operator of a dealer-owned
filling station is consistent with Article 1157 of the Civil Code of the Philippines which provides for the
legal sources of obligation;

3)
Whether or not the decision of the Honorable Court of Appeals in reversing the findings of
facts of the trial court on the ground that the judge who penned the decision is not the one who heard the
testimonies of all the witnesses, is in accordance with the general rule that the trial courts decision is to
be given credence and accorded due preference by the appellate court.

Then, as now, respondent insists that he had sufficiently established his ownership of Lot No.
853-A thru the Deed of Absolute Sale, the Memorandum of Agreement between him and Tan Pastor,
TCT No. 13607 and his faithful and religious payments of the real estate taxes due on the property. To
him, the existence of a gasoline station in his property since 1982 entitles him to the payment of rentals
by Pilipinas Shell.

Pilipinas Shell, on the other hand, contends that respondent is without cause of action against it.
It asserts non-liability for rentals because the gasoline station on Lot 853-A was operated by Tan Pastor
as a dealer-owned station. Expounding on this concept, Pilipinas Shell explained that in a dealerowned filling station, the owner of the lot is at the same time the operator of the station, with Pilipinas
Shell merely providing the dealer-owner with certain equipment and facilities for the operation of his gas
station. Pilipinas Shell further alleged that it was made aware of the change in the ownership of Lot No.
853-A only in the latter part of 1991 when it received a letter from respondent demanding payment of
rentals therefor.

Apparently, Tan Pastor did not see the need to inform Pilipinas Shell of the change in ownership
of the subject lot primarily because according to him, ownership of the lot remained with him until full
payment of the agreed price shall have been effected. As it appears, Pilipinas Shell totally believed Tan
Pastors representation since there was indeed a pending criminal case for violation of BP 22 against
respondent, coupled by the fact that Tan Pastor continued to be in possession and use of Lot No. 853-A
as a filling and service station for Pilipinas Shells petroleum products until 1992.

We grant the petition.

Anent the issue of ownership of Lot No. 853-A, we hold that this particular question has already
been rendered moot by subsequent events and acts of respondent and Tan Pastor. Significantly,
respondent and Tan Pastor both admit and agree that said lot was the subject of the Deed of Absolute
Sale between them. Despite contrasting allegations on the payment of the contract price, both agreed on
the object and consideration of the sale.

It must be stressed that a contract of sale is not a real, but a consensual contract. In
Buenaventura v. Court of Appeals,8[8] this Court made it clear that a contract of sale, being consensual in
nature, becomes valid and binding upon the meeting of the minds of the parties as to the object and the
price. If there is a meeting of the minds, the contract is valid despite the manner of payment, or even if
the manner of payment was breached.

In fine, it is not the act of payment of the contract price that determines the validity of a contract of
sale. The manner of payment and the payment itself of the agreed price have nothing to do with the
perfection of the contract. Payment of the price goes into the performance of the contract. Failure of a
party to effect payment of the contract price results in a right to demand the fulfillment or cancellation of
the obligation under an existing valid contract.9[9]

Here, the controversy between Tan Pastor and respondent with respect to the manner of payment or the
breach thereof does not vitiate the validity and binding effect of their contract of sale. In this light,
respondent cannot thus be faulted for registering the document of sale and successfully securing TCT
No. 13607 covering Lot No. 853-A in his name.

However, coming to the more basic issue herein of whether or not respondent is entitled to the payment
of rentals by Pilipinas Shell for the use and occupancy of Lot No. 853-A, the Court finds and so holds that
respondents claim has no basis in fact and in law.

To the mind of the Court, respondents entitlement to rentals turns on the nature of the gasoline station
being operated by Tan Pastor on the subject lot. To resolve this, we must necessarily venture into
determining whether the gasoline station thereat was dealer-owned or company-owned. Undoubtedly,
this exercise involves an examination of facts which is normally beyond the ambit of this Court. For, wellsettled is the rule that this Court, not being a trier of facts, does not normally embark in the evaluation of
evidence adduced during trial. The rule, however, admits of exceptions. So it is that in Sampayan v.
Court of Appeals,10[10] the Court held:

[i]t is a settled rule that in the exercise of the Supreme Court's power of review, the Court is not a trier of
facts and does not normally undertake the re-examination of the evidence presented by the contending
parties' during the trial of the case considering that the findings of facts of the CA are conclusive and
binding on the Court. However, the Court had recognized several exceptions to this rule, to wit: (1) when
the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made
is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when
in making its findings the Court of Appeals went beyond the issues of the case, or its findings are contrary
to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial
court; (8) when the findings are conclusions without citation of specific evidence on which they are based;
(9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not
disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of
evidence and contradicted by the evidence on record; and (11) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a
different conclusion.

To the Court, exceptions (5), (7) and (11), above, find application in the instant case. And after a careful
evaluation of the evidence, the Court finds for the petitioner.

To begin with, the trial courts conclusion that Tan Pastor operated the gasoline station in his capacity as
dealer-owner is well-supported by the evidence on record. Pilipinas Shell has shown clear and
convincing proof that the outlet at Lot No. 853-A was dealer-owned gas station as per the Certification of
the president of the Shell Dealers Association of the Philippines. It may be that such a certification,
coming as it does from the president of petitioners dealers association, does not warrant the probative
value it otherwise deserves. It bears emphasis, however, that respondent himself does not dispute the
fact that he never demanded rental payments from Tan Pastor from 1982 to 1991. It was only after the
criminal case for bouncing checks was dismissed that he claimed entitlement to rentals. Prior thereto, he
never demanded for any rental payment, much less instituted any action to enforce the same.

Besides, and as correctly observed by the trial court, there was an admission by the respondent himself
that, since 1982 up to 1991, he had been in the possession of Lot No. 853-A and nobody else. Coming as
it does from the respondent no less, that statement commands great weight and respect. The lower court
succinctly summarizes:

There was no legal basis for plaintiff Carlos Gobonseng, Jr. to demand payment from Pilipinas Shell as
he himself admitted that he was in possession of the property from 1982 to 1991. As his testimony is
against his interest, it became more believable the lack of legal anchorage to base his demand for rental
payment from 1982 to 1992. No less than the Court who asked him the questions and hereunder is his
answer:
Court:

Q --

Who was in possession of the property

since 1982 up to 1991?

A --

I am the actual possessor from 1982

to 1991.

Q --

Is it not a fact that it was Julio

Tan Pastors who was in possession
of that property since 1982 and up to

1991?
A --

xxx

Q --

No, it is not, Your Honor.

xxx

You mean to tell the Court that prior

to 1992 Julio Tan Pastor was not in

possession of the property in question?

A --

Not in possession, Your Honor. As an

operator, Your Honor, selling the shell
products, Your Honor.

Q --

Who was in possession of that property?

A --

Me, myself, Your Honor. (TSN, p. 5, 5-29-96)

What is more, respondent and Tan Pastor had already executed an Agreement11[11] whereunder they
declared that they had no more further claims against each other, and waived, abandoned, relinquished,
any such claim or claims. If anything else, such declaration evidenced respondents stance in not
collecting rentals for the use of the subject property as he even in fact allowed Tan Pastor the use of Lot
No. 853-A at Corner Real-Urdaneta Streets, Dumaguete City, covered by TCT No. 13607, as a gas/ fuel/
gasoline/ oil/ filling, selling and servicing, station, and for such other use appropriate, or related, to the
same, without any rental for a period of THREE (3) YEARS from January 1st 1992, or up to
December 31st 1994, NON-EXTENDIBLE. (Emphasis supplied.)

Thus, respondent is now estopped from demanding payment of rentals from Tan Pastor or Pilipinas Shell.
In Bank of the Philippine Islands v. Casa Montessori International,12[12] we ruled:

Estoppel precludes individuals from denying or asserting, by their own deed or representation, anything
contrary to that established as the truth, in legal contemplation. Our rules on evidence even make a juris
et de jure presumption that whenever one has, by ones own act or omission, intentionally and
deliberately led another to believe a particular thing to be true and to act upon that belief, one cannot in
any litigation arising from such act or omission be permitted to falsify that supposed truth.

Lastly, respondent insists that Pilipinas Shell had recognized his ownership of Lot No. 853-A and his right
to collect rentals when the latter, through a letter,13[13] sought his permission to refurbish the gasoline
station located thereat.

We are not persuaded.

A careful scrutiny of the letter referred to would reveal that it was made and sent to respondent on
February 7, 1992, a few days after Tan Pastor and respondent had made amends and executed an
Agreement to waive any and all further claims against each other. Clearly, Pilipinas Shell was made
aware of this development and the change in the ownership of Lot No. 853-A. To reiterate, Pilipinas Shell
was even instrumental in this amicable settlement of the controversy between respondent and Tan
Pastor. Hence, it is but proper for Pilipinas Shell to address respondent in seeking permission to make
any improvements on the lot.

We note that in the decision under review, the CA made a finding that there is not enough
evidence for it to competently pass upon and make a ruling on the nature of the gasoline station
situated on Lot No. 853-A. We rule and so hold that such a finding all the more strengthens the trial
courts decision as more in accord with the evidence adduced in the course of the proceedings thereat.
As it is, the trial courts decision reflects and shows its distinct advantage of having heard the witnesses
themselves, observed their deportment and their manner of testifying and behavior during trial.

Finally, respondent submits that the CA correctly set aside the trial courts decision on the ground
that the judge who heard most of the witnesses was other than the judge who ultimately penned the

decision in the case. On this score, respondent argues that the findings of fact of the trial court cannot be
given credence and accorded due deference.

The Court does not agree. The circumstance that the judge who wrote the decision had not heard the
testimonies of the witnesses does not automatically taint his decision. Here, the decision of the trial court
made reference to several transcripts of stenographic notes taken in the course of trial. Likewise, several
exhibits were referred to and used as evidence to substantiate the trial courts conclusions. The validity of
a decision is not necessarily impaired by the fact that its ponente only took over from a colleague who
had earlier presided at the trial. This circumstance alone cannot be the basis for the reversal of the trial
courts decision unless there is a clear showing of grave abuse of discretion in the appreciation or a
misapprehension of the facts,14[14] of which we find none.

WHEREFORE, the instant petition is GRANTED and the assailed Decision and Resolution of the CA are
REVERSED and SET ASIDE. The decision dated March 15, 1999 of the RTC in Civil Case No. 10389 is
REINSTATED.

No pronouncement as to costs.

SO ORDERED.

FIRST DIVISION

JMA HOUSE INCORPORATED,

Petitioner,

G.R. No. 154156

Present:

PANGANIBAN, C.J.,
Chairperson,
- versus AUSTRIA-MARTINEZ,
CALLEJO, SR., and

YNARES-SANTIAGO,

CHICO-NAZARIO, JJ.
STA. MONICA INDUSTRIAL
and DEVELOPMENT
CORPORATION and A.
GUERRERO DEVELOPMENT
CORPORATION,
Respondents.

Promulgated:

August 31, 2006

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

DECISION
CALLEJO, SR., J.:

Before the Court is a Petition for Review on Certiorari of the Decision15[1] of the Court of Appeals (CA) in
CA-G.R. CV No. 60085 affirming on appeal the Decision16[2] of the Regional Trial Court (RTC), Quezon
City, Branch 105, in Civil Case No. Q-91-10576.
JMA House Incorporated (JMA) applied for a P1,500,000.00 loan from the Pioneer Savings and Loan
Association, Inc. (Pioneer). To secure payment thereof, JMA executed a real estate mortgage over a
parcel of land identified as Lot No. 4, Block No. 13, Subdivision Plan No. Psd-35337 covered by Transfer
Certificate of Title (TCT) No. 268126. The lot, which was located in Quezon City across Gate 1 of the
Maryknoll College, had an area of 1,611.6 square meters.17[3] There was likewise a three-storey

commercial and residential building which was occupied by tenants.18[4] Upon the failure of JMA to pay
its loan, the real estate mortgage was foreclosed extrajudicially. Pioneer was the winning bidder at
P2,000,000.00 during the sale at public auction held on August 26, 1985. The Sheriff executed a
Certificate of Sale over the property in favor of Pioneer which was annotated at the dorsal portion of TCT
No. 268126 on October 11, 1985.19[5] JMA had one year or until October 11, 1986 to redeem the
property.

JMA decided to redeem the property from Pioneer sometime in June 1986. It offered to borrow from Sta.
Monica Industrial and Development Corporation (Sta. Monica) the amount of P2,300,000.00. During the
negotiations between Rosita Alberto, the General Manager of JMA, and Sta. Monicas president Eugenio
Trinidad, the parties agreed that the latter would purchase the property for P3,021,000.00.20[6] Trinidad
insisted that JMA execute a deed of absolute sale over the property for the price of P4,100,000.00.
Rosita Alberto suggested that instead of a deed of absolute sale, a real estate mortgage be executed
considering that the property was worth much more than P4,100,000.00. Trinidad refused. By way of a
compromise, Alberto suggested that a supplement deed giving JMA the option to repurchase the property
within a period of two years be executed.21[7] Trinidad agreed to this proposal. Thus, the lawyers of JMA
and Sta. Monica prepared two deeds.22[8] From the P3,021,000.00 it received from Sta. Monica, JMA
remitted P2,300,000.00 to Pioneer.

On June 23, 1986, Pioneer and JMA executed a Deed of Legal Redemption and Absolute Sale in which
Pioneer, for and consideration of P2,300,000.00, transferred to JMA all the rights over the property,
including the improvements thereon, which Pioneer acquired under the Certificate of Sale.23[9] The
parties, likewise, declared therein that it was their intention that, with the execution of said deed, the loan
of JMA amounting to P1,250,000.00, including all interests, penalties and charges thereon, were
considered fully paid and legally extinguished.24[10]

On June 30, 1986 JMA, represented by its General Manager Rosita Alberto, executed a Deed of Absolute
Sale over the lot, including the buildings thereon, in favor of Sta. Monica, represented by Eugenio

Trinidad. The receipt for P4,100,000.00 as purchase price was acknowledged by JMA from Sta.
Monica.25[11] As agreed upon by the parties, the parties likewise executed a contract denominated as
Option to Buy, in which Sta. Monica gave JMA the option to buy the property for P4,100,000.00 within
one (1) year from the execution of the Deed Of Absolute Sale on or before July 1, 1987, with a grace
period of one year immediately upon the expiration thereof (until July 1, 1988). The parties agreed that,
in case JMA availed of such extension, JMA would be obligated to pay an additional amount equivalent to
3.5% a month as liquidated damages, until the whole amount is fully paid and/or the option is finally
exercised.26[12]

Alberto turned over to Trinidad the owners duplicate of TCT No. 26812.6 The Register of Deeds
thereafter issued TCT No. 347638 in the name of Sta. Monica;27[13] however, the Option to Buy was not
annotated at the dorsal portion of the title.

As agreed upon between JMA and Sta. Monica, the latter thenceforth paid the realty taxes on the
property.28[14] JMA continued collecting the rentals from the tenants of the buildings with the knowledge
and conformity of Sta. Monica. On November 17, 1986, Sta. Monica mortgaged the property to the PCI
Capital Corporation as security for a P3,600,000.00 loan.29[15]

In a letter dated January 26, 1988, Sta. Monica, through Eugenio Trinidad, informed Rosita Alberto and
the tenants of the buildings in the property that due to the failure of JMA to repurchase the property, it
had been sold to A. Guerrero Development Corporation (AGCOR) effective February 1, 1988, and, as the
new owner, AGCOR would be collecting the rentals.30[16] Rosita Alberto protested to Trinidad, insisting
that the period given to JMA to buy back the property had not yet elapsed. Nevertheless, on February 2,
1988, Sta. Monica and AGCOR executed a Deed of Absolute Sale over the property for P5,700,000.00,
receipt of which was acknowledged by Sta. Monica.31[17] Part of the amount was used by Sta. Monica to
redeem the property from PCI Capital Corporation which executed a Release of Real Estate Mortgage on

February 16, 1988.32[18] On February 17, 1988, the Register of Deeds issued TCT No. 376746 in the
name of AGCOR.33[19] It paid the realty taxes on the property starting 1988.34[20]

Despite the sale of the property to AGCOR, Trinidad received, on June 30, 1988, five checks from Rosita
Alberto drawn against the account of JMA in the total amount of P3,000,000.00. He likewise received
P57,000.00 from Atty. Rosalie Alberto, Rositas sister and a

member of the JMA Board of Directors as partial payment of the account of JMA for the property located
at No. 335, Katipunan Street, Quezon City.35[21] However, the checks were dishonored by the drawee
Bank.36[22] Trinidad failed to return the cash amount of P57,000.00 to JMA.

On October 30, 1989, AGCOR mortgaged the property to Planters Development Bank as security for a
P7,000,000.00 loan.37[23]

Almost two years thereafter, or on November 11, 1991, JMA filed a complaint against Sta. Monica and
AGCOR, as defendants, in the RTC of Quezon City for specific performance, reconveyance and
damages. It alleged that it mortgaged its property to Sta. Monica as security for a P3,021,000.00 loan and
P1,079,000.00 as interest; however, upon the insistence of Trinidad, in lieu of a real estate mortgage, a
deed of absolute sale was executed over the property for the price of P4,100,000.00; an Option to Buy
was also executed in its favor, giving it the option to buy the property for P4,100,000.00 within a period of
one (1) year from execution thereof, and in the meantime, it retained dominion over the property; on
January 26, 1988, it received notice that beginning February 1, 1988, the tenants will pay their rentals to
the new owner of the property, defendant AGCOR, to which it protested; defendant Sta. Monica assured
the plaintiff that defendant AGCOR was aware of its option to buy the property.

JMA further alleged that it informed defendant Sta. Monica on June 30, 1988 that it was ready to
repurchase the property for P5,822,000.00 with an initial payment of P3,057,000.00 to be immediately
tendered on said date, and the remaining balance of P2,765,000.00 after one month. Sta. Monica
assured JMA that the property would be delivered to it with AGCORs conformity. JMA paid
P3,057,000.00 on June 30, 1988, per redemption receipt issued by Trinidad, who however refused to
receive the balance. Despite representations to defendant AGCOR to abide by the Option to Buy,
AGCOR maintained its right to possess and own the property and even filed ejectment cases against it;
worse, Sta. Monica never returned the downpayment given on June 30, 1988 and continues to benefit
therefrom.

JMA averred that it had a right to repurchase the property under the terms of the Option to Buy
Agreement dated June 30, 1986, considering that the transaction actually entered into is one of equitable
mortgage and not a deed of sale with option to buy. Defendant Sta. Monica is mandated by law to abide
by the said agreement and could not have sold the questioned property to defendant AGCOR, taking into
account that it has accepted the amount of P3,057,000.00 as downpayment for the purchase price.
Having sold the property to AGCOR, defendant Sta. Monica must be made to pay the plaintiff the amount

of P15,000,000.00 which is the actual market value of the property, as well as the rental payments which
it failed to collect.38[24] The plaintiff prayed that judgment be rendered in its favor, thus:

WHEREFORE, it is most respectfully prayed of this Honorable Court that judgment be rendered in favor
of the plaintiff ordering:

1) Defendants Sta. Monica and AGCOR to respect and acknowledge the right of JMA to repurchase and
consequently own and possess the property free from liens and all encumbrances;

2) Defendants to solidarily pay the plaintiff the accrued rentals of P2,362,500.00 as of October 1991, with
an additional P52,500.00 every month thereafter until defendant AGCOR ceases to collect the mentioned
rentals from the tenants of the premises;

3) Ordering defendants to pay exemplary damages in the amount of P100,000.00, nominal damages in
the amount of P100,000.00, attorneys fees in the sum of P200,000.00 and the costs of suit;

Just and equitable reliefs are, likewise, prayed for under the premises.39[25]

For its part, Sta. Monica alleged in its Answer to the complaint the following special and affirmative
defenses: (1) JMA has no cause of action against it; (2) the complaint is unfounded and malicious; (3) it
acted in good faith; (4) the supposed Option to Buy is not supported by valuable consideration and,
therefore, is unenforceable; (5) assuming arguendo that there was an extension to exercise the said
Option to Buy, it was not in writing, without consideration and, therefore, unenforceable; (6) the
amount/s which JMA had given to it had been offset by the value of the property and the resulting
damages sustained by it (Sta. Monica). Defendant claimed P1,000,000.00, P500,000.00, P200,000.00
and P100,000.00 compulsory counterclaim representing actual, moral and exemplary damages, including
attorneys fees and the litigation expenses, respectively.

Defendant AGCOR alleged in its Answer with Cross-claim and Counterclaims that the physical
possession of the subject property was voluntarily surrendered by Sta. Monica to it upon execution of the
Deed of Absolute Sale. It came to know of the alleged Option to Buy only on September 30, 1988 when
Trinidad made an offer to repurchase the subject property with an initial downpayment of P3,000,000.00,
the balance to be paid on the following day. However, Trinidad never showed up or called as promised.

As special and affirmative defenses, it claimed that there was no cause of action against it, since even
assuming that an option to buy was duly executed, it was not a party thereto. It pointed out that the option
was not registered nor annotated in the title with the Register of Deeds for the purpose of giving notice to
the whole world; JMA was estopped from claiming that its contract40[26] with Sta. Monica was a sale with
right to repurchase, considering that there was no pre-existing condition or limitation whatsoever to serve
as notice to third persons dealing with the said property; it was a purchaser in good faith without
knowledge of any agreement between JMA and Sta. Monica or any fact that would vitiate consent in the
acquisition of the property; it acquired legal title thru sale and in fact, TCT No. 376746 was issued in its
name; and JMA is guilty of laches and it had not completely exercised its option to repurchase by paying
the total amount and there is no proof that the option was extended by Sta. Monica for another year.

By way of cross-claim, AGCOR alleged that JMA and Sta. Monica should be the only parties in this case,
since they executed the Option to Buy, to its exclusion. Because of its inclusion as defendant, its
goodwill was damaged and it was deprived of its right of full ownership; thus, cross-defendant Sta.
Monica should be held liable for actual or compensatory damages in the amount of P1,000,000.00. It
likewise asserted compulsory counterclaims in the amount of P500,000.00 as moral damages,
P300,000.00 as exemplary damages, and P200,000.00 as attorneys fees.41[27]

On January 10, 1992, Eugenio Trinidad died.42[28] Victor Trinidad became the President of Sta.
Monica.

During trial, JMA presented Rosita Alberto and her sister, Atty. Rosalie Alberto as witnesses.
Rosita testified that she graduated from the University of the Philippines with a Bachelor of Arts degree in
Economics.43[29] It was Eugenio Trinidad who insisted that JMA execute a deed of absolute sale
instead of a real estate mortgage to secure the P4,100,000.00 loan.44[30] She, in turn, requested that an
option to buy be executed by the plaintiff to supplement the deed of absolute sale to which Trinidad
agreed.45[31] JMA retained possession of the property and continued collecting rentals from the tenants
since the transaction between the parties was precisely a contract of mortgage.46[32] When she

protested to Trinidads letter dated January 26, 1988 informing her and the tenants that the property had
not been repurchased by JMA, Trinidad verbally assured her that JMA could repurchase the property and
pay the price thereof within a reasonable time. Trinidad agreed to the repurchasing of the property for
P5,822,000.00 payable in two installments, to wit: (a) P3,057,000.00 on June 30, 1988; and (b) the
balance of P2,768,000.00 within a reasonable time. On June 30, 1988, P3,000,000.00 in checks and
P57,000.00 cash was paid by JMA, through Atty. Rosalie Alberto and Atty. Rellosa to Trinidad, and for
which the latter issued a redemption receipt. JMA was ready to pay the balance of the repurchase price
(P2,768,000.00) but Trinidad could not be located, and worse, failed to return the initial amount
paid.47[33]

On cross-examination, Rosita Alberto admitted that her agreement with Trinidad, that JMA can
repurchase the property by paying the price within a reasonable time, was merely verbal because she
trusted Trinidad.48[34] JMA did not file any complaint for consignation of the amount for its repurchase
of the property.49[35] She admitted that the checks delivered to Trinidad had been dishonored.50[36] The
respective lawyers of Sta. Monica and JMA typed the deed of absolute sale and option to buy.51[37]

Atty. Rosalie Alberto testified that JMA is a family corporation. She learned of the deed of absolute sale
and option to buy only in February 1988.52[38] She represented JMA in the negotiations with Trinidad for
the repurchase of the property. Trinidad informed her that he had already informed defendant AGCOR of
plaintiffs tender of P3,057,000.00. He, however, suggested that she personally inform AGCOR of said
tender. When she did so, Guerrero informed her that AGCOR could no longer accept the offer.53[39]
She wanted to tell Trinidad about what Guerrero had said, but she could no longer locate him.54[40]

Franco Marquez, President of the Philippine Appraisal Co., Inc., testified that the property was appraised
on May 15, 1986, and its value was pegged at P11,080,000.00.55[41]

Defendant Sta. Monica presented its president, Victor Trinidad, who testified on the damages sustained
by it. On cross-examination, he admitted that, despite the deed of absolute sale, it never took possession
of the property.56[42] Neither did defendant collect rentals from the tenants of the building because of the
option to buy.57[43]

Alberto Guerrero, a doctor of medicine and a lawyer, testified that he was the president of AGCOR, also a
family corporation. When the property was offered for sale by Sta. Monica, he examined the title in the
Register of Deeds and discovered that it was mortgaged to PCI Capital Corporation.58[44] He agreed to
buy the property and paid Sta. Monicas loan on February 3 and 16, 1988, upon which a Release of Real
Estate Mortgage was issued.59[45] In due course, defendants AGCOR and Sta. Monica executed a Deed
of Absolute Sale covering the property.60[46] He further declared that AGCOR secured a P2,500,000.00
loan from Planters Bank and used the money to pay Sta. Monica. On October 30, 1989, Sta. Monica
executed a real estate mortgage over the property in favor of Planters Bank as security for a
P7,000,000.00 loan. The deed was annotated at the dorsal portion of TCT No. 376746 on November 15,
1980.61[47] The property was declared for taxation purposes after the property had been
purchased.62[48]

On January 26, 1996, JMA filed an Omnibus Motion to Admit Newly-Discovered Evidence, which
included the Appraisal Report of the Philippine Appraisal Co., Inc.63[49] to prove the fair market value of
the property as of February 1, 1988. The RTC granted the motion and allowed Franco M. Marquez to
testify on the Appraisal Report.64[50] The plaintiff offered the Report as part of the motion and to prove
that the appraisal value of the property in May 1986 was P11,080,000.00. The report was admitted as
part of the testimony of Marquez.65[51]

On December 8, 1997, the trial court rendered judgment in favor of the defendants. It ordered the
dismissal of the complaint and ordered the plaintiff to pay P50,000.00 to each of the defendants. The
fallo of the decision reads:

WHEREFORE, in light of the foregoing, the Court renders judgment as follows:

1. Plaintiffs complaint is dismissed and it is ordered on the counterclaim, to pay the amount of
P50,000.00 each to defendant Sta. Monica Industrial & Development Corporation and defendant A.
Guerrero Development Corporation as attorneys fees; and to pay the costs of suit;

2. The cross-claim of A. Guerrero Development Corporation against Sta. Monica Industrial and
Development Corporation is dismissed.

SO ORDERED.66[52]

The trial court disbelieved the testimony of Atty. Alberto, holding that to declare the transaction
between the plaintiff and defendant Sta. Monica as an equitable mortgage would be unjust to the
latter.67[53] The trial court noted that the plaintiff agreed to the execution of the deed of absolute sale and
the option to buy; Rosita Alberto was an Economics graduate and was assisted by a lawyer. When the
deed of absolute sale over the property was executed, JMA even offered to repurchase/buy the property
instead of redeeming it, and waited up to June 30, 1988 to tender the repurchase price. The RTC
concluded that the true intention of the parties was the property to be sold to Sta. Monica for profit, with
JMA retaining the option to buy it back for P4,100,000.00 within a specific period of time. Moreover,
considering that JMA failed to file an action for reformation of deed, it was estopped from claiming that the
deed of absolute sale and option to buy failed to reflect the true intention of the parties.
The RTC ruled that the Appraisal Report had no probative weight because the property subject thereof
was covered by TCT No. 20416, not the property covered by TCT No. 268216 which was the subject of
the contract between the plaintiff and defendant Sta. Monica. Further, the remittances made to Trinidad
by way of checks did not buttress the case for JMA because they were so remitted after the stipulated
one-year period and was short of the agreed amount of P4,100,000.00. It was further pointed out that the
checks bounced.

The RTC also declared that before AGCOR bought the property, it had no knowledge of the option to buy
executed by JMA and Sta. Monica; and even if it had, JMA had failed to exercise its option and pay the
purchase price of the property within the stipulated period. It was further stated that there is no evidence
to prove the supposed obligation of Sta. Monica to return the amount of P57,000.00 received by Trinidad
on June 30, 1988; there is no evidence that he was authorized by Sta. Monica to do so and that he
received the amount for and in its behalf.68[54]

JMA appealed the decision to the CA. On January 28, 2002, the appellate court dismissed the
appeal and affirmed the decision of the RTC, holding that the contracts entered into by the parties are
what they purport to be: a Deed of Absolute Sale and Option to Buy; the deeds were notarized, hence,
are public documents, and have the presumption of regularity. Furthermore, there were no ambiguities in
the deeds. It was further held that JMA was barred by laches to enforce its claim that the deed of absolute
sale was in fact an equitable mortgage. It pointed out that the property was not repurchased within the
timeline fixed in the Option to Buy.69[55]

JMA filed a motion for the reconsideration of the decision which the CA denied on July 1, 2002.70[56]

JMA, now petitioner, filed the instant petition for review on certiorari, seeking to reverse the ruling
of the CA on the following grounds:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT APPLYING ARTICLE 1602 OF
THE CIVIL CODE AND NOT HOLDING THAT THE CONTRACT SUBJECT MATTER OF THE INSTANT
PETITION IS THAT OF AN EQUITABLE MORTGAGE.

II

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT PETITIONER IS

GUILTY OF LACHES IN ASSERTING ITS RIGHT OVER ITS PROPERTY.

III

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN UPHOLDING THE FINDING OF THE
LOWER COURT THAT RESPONDENT AGCOR HAS NO KNOWLEDGE OF THE
OPTION TO BUY.71[57]

It maintains that the trial court and the CA failed to consider the testimony of its General Manager Rosita
Alberto, to prove that the contract entered into between it and respondent Sta. Monica is, in reality, a real
estate mortgage. Petitioner maintains that the trial court and the appellate court ignored the facts based
on the following evidence: (1) petitioner was in dire need of money when it executed the Deed of Absolute
Sale and Option to Buy on June 30, 1985; (2) it continued to possess the property after the execution of
the Deed of Sale and Option to Buy, and even collected the rentals from the tenants of the commercial
and residential buildings; (3) the purchase price of P4,100,000.00 is grossly inadequate as purchase price
of the property compared to its market value (P11,080,000.00) as found by the Philippine Appraisal
Company.

On the other hand, respondents aver that the issues raised by the petitioner are factual, which the Court
is proscribed from reviewing. Moreover, the findings of facts of the trial court were affirmed by the CA;
hence, such findings are conclusive on this Court. They insist that the CA decision is in accord with the
law and the evidence on record. Article 1602 of the New Civil Code does not apply in this case because
petitioner failed to exercise its option and pay the agreed upon repurchase price; hence, the CA correctly
ruled that it was barred by laches when it filed its complaint below only on November 11, 1991.

The threshold issues are the following: (1) whether the Court is proscribed from reviewing the factual
issues raised by petitioner; (2) whether the transaction between the parties is an equitable mortgage; (3)
whether the petitioner is barred by laches from filing the action against the respondent; and (4) whether
respondent AGCOR was in good faith when it purchased the property from respondent Sta. Monica for
P5,700,000.00.

The petition is denied for lack of merit.

Section 1, Rule 45 of the Rules of Court provides that only questions of law may be raised in this Court.
Th e rationale for the rule is that the Court is not a trier of facts; it is not to re-examine and calibrate the

evidence on record, as such task is assigned to the trial court. The trial courts findings, as affirmed by the
CA, are conclusive on this Court unless there is preponderant evidence that the lower court ignored,
misconstrued or misinterpreted cogent and substantial facts and circumstances which, if considered,
would modify or reverse the outcome of the case.72[58] The Court may look into and resolve factual
issues in exceptional cases such as when the findings and conclusions of the trial court are contrary to
evidence on record or tainted with grave abuse of discretion amounting to excess of jurisdiction.

On the second issue, the law is that if the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall control.73[59] When the
language of the contract is explicit, leaving no doubt as to the intention of the drafters, the courts may not
read into it any other intention that would contradict its plain import.74[60] The clear terms of the contract
should never be the subject matter of interpretation. Neither abstract justice nor the rule of liberal
interpretation justifies the creation of a contract for the parties which they did not make themselves or the
imposition upon one party to a contract or obligation not assumed simply or merely to avoid seeming
hardships.75[61] Their true meaning must be enforced, as it is to be presumed that the contracting
parties know their scope and effects.76[62] If the parties execute two or more separate writings covering
a common transaction and subject matter, the writings should be read and interpreted together to render
the parties intention effective.77[63] On the other hand, if the contract is ambiguous or the contracting
parties offer conflicting claims on their intent, the trial court, at the first instance, has to ascertain the true
intent of the parties, taking into account the contemporaneous and subsequent conduct, actions and
words of the parties material to the case,78[64] and pertinent facts having a tendency to fix and determine
the real intent of the parties and undertaking shall be considered. It is the parties intention which shall
be accorded primordial consideration. The reasonableness of the result obtained, after analysis and
construction of the contract/contracts, must also be carefully considered.79[65] The ascertained intention
of the parties is deemed an integral part of the contract, as though it had been originally expressed in
unequivocal terms. The Court will enforce the true agreement of the parties even if the property in
question has already been registered and a new transfer certificate of title is issued in the name of the
transferee.80[66]

The rule is that he who alleges that a contract does not reflect the true intention of the parties thereto may
prove the same by documentary or parol evidence.81[67] In this case, petitioner alleges that the Deed of
Absolute Sale and Option to Buy do not reflect the true intention of the parties, which according to it is a
loan with mortgage or an equitable mortgage. The petitioner is burdened to prove, by clear and
convincing evidence, the terms of the writings.82[68] In the language of State Supreme Court of North
Carolina in Obriant v. Lee,83[69] the intention must be established, not by simple declarations of the
parties, but by proof of facts and circumstances, inconsistent with the rule of absolute purchase,
otherwise, the solemnity of deeds would always be exposed to the slippery memory of witnesses. The
presumption is that the contract is what it purports to be; and, to establish its character as a mortgage, the
evidence must be clear, unequivocal and convincing which reasons tending to show that the transaction
was intended as a security for debt; and thus to be a mortgage must be sufficient to satisfy every
reasonable mind without hesitation.84[70] A less rigorous rule would mean that no man is safe in taking a
deed of property. It would be only necessary for the grantor to bring witnesses to an agreement that the
deed was regarded as an equitable mortgage, to enable him, on payment of the purchase price and
interest, to redeem, particularly if the value of the property had doubled or trebled in ratio.85[71] Unless
the testimony is entirely plain and convincing beyond reasonable controversy, the writing will be held to
express correctly the intention of the parties.86[72] If there is a doubt as to the fact whether the
transaction is in the nature of a mortgage, the presumption, in order to avoid a forfeiture is always in favor
of a position to redeem, to subserve abstract justice and avert injurious consequences.87[73]

An equitable mortgage is one which, although lacking in some formality, or form or words or other
requisites deemed required by statutes nevertheless reveals the intention of the parties to charge a real
property as security for a debt and contains nothing impossible or contrary to law. An equitable mortgage
may be constituted by any writing from which the intention to create such a lien may be patterned.

Under Article 1602 of the New Civil Code, a contract shall be presumed to be an equitable mortgage in
any of the following cases:

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

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

(3) When upon or after the expiration of the right to repurchase another instrument extending the period
of redemption or granting a new period is executed;

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

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

For the presumptions under the article to apply, two requisites must concur: (1) that the parties entered
into a contract denominated as a sale; and (2) that their intention was to secure an existing debt by way
of mortgage.88[74] In order for a deed to be declared a mortgage, the relation of debtor and creditor must
exist between the grantor in such a deed and one who seeks to have it declared a mortgage.89[75]
There must be a continuing binding debt; a debt in its fullest sense. Where there is no debt, there can be
no mortgage; for if there is nothing to secure, there can be no security.90[76] If there is an indebtedness
or liability between the parties, either a debt existing prior to

the conveyance, or a debt arising from a loan made at the time of the conveyance, or from any other
cause, and this debt is still left subsistent, not being discharged or satisfied by the conveyance, but the
grantor is regarded as still owing and bound to pay at some future time, so that the payment stipulated for
in the agreement to re-convey is in reality the payment of this existing debt, then the whole transaction
amounts to a mortgage, whatever stipulation they may have inserted in the instruments. If there is no
relation of debtor-creditor, but by the terms of the contract one is merely given an option to buy real
property for a fixed amount and for a fixed price, there is no equitable mortgage; the optionee is not
bound to buy and to pay for said real property.91[77]

In the present case, the trial and appellate courts declared that based on the evidence on record,
petitioner sold the property to respondent Sta. Monica for P3,021,000.00; as stated in the Option to Buy,
petitioner may opt to repurchase the property for P4,100,000.00. Respondent Sta. Monica agrees with the
findings of the trial court and the appellate court.92[78]

The trial court failed to make any finding why petitioner sold the property to respondent Sta. Monica for
P3,021,000.00, which is contrary to what appears on the face of the deed of absolute sale P4,100,000.00-which amount petitioner acknowledged to have received from said respondent. Although
petitioner claimed in its complaint that the true purchase price of the property was P3,021,000.00 and that
it borrowed from respondent Sta. Monica P1,079,000.00 as mortgage for one year (from June 30, 1986 to
June 30, 1987), no testimonial and documentary evidence was adduced to prove the same. Petitioner
was burdened to prove its claim in its complaint that it borrowed P3,021,000.00 from respondent Sta.
Monica,93[79] failing which its claim will be defeated even if respondents failed to present any evidence
to prove their side.94[80]

To reiterate, there is no evidence on record that petitioner borrowed P3,021,000.00 from respondent Sta.
Monica in 1986 as alleged in its complaint. The only evidence on record is that petitioner decided in June
1986 to redeem the property from Pioneer much earlier than the one-year-period therefor and needed
P2,300,000.00 for the purpose. Petitioner received the amount from respondent Sta. Monica and was
able to redeem the property from Pioneer. The only evidence of petitioner that it received money from
respondent Sta. Monica is the Deed of Absolute Sale, in which the petitioner acknowledged to have
received P4,100,000.00.

The Redemption Receipt signed by Trinidad on June 30, 1988 for P3,000,000.00 in the form of checks
and P57,000.00 in cash as partial payment of the account of JMA for the property x x x does not

constitute evidence that petitioner secured a loan of P3,021,000.00 from respondent Sta. Monica in June
1986. The said amount was part of the P5,822,000.00 which petitioner was obliged to pay to respondent
Sta. Monica, in case it opted to buy the property under the Option to Buy, representing the repurchase
price, inclusive of liquidated damages. In fact, Rosita Alberto testified that petitioner expected respondent
Sta. Monica to execute a deed of sale over the property upon its payment of P4,100,000.00. This is
gleaned from the testimony of Atty. Alberto:

Atty. Balbastro:
Q
Let me put it this way, under these documents, Exhibits B and C, more particularly Exhibit C, the
Option to Buy, JMA House Incorporated was given up to June 30, 1988 within which to exercise her
option to buy, is that correct?
A

Yes, Sir.

And as of June 30, 1988, how much money did you tender to Sta. Monica Industrial Corporation?

I tendered a total amount of three million fifty-seven thousand pesos, Sir.

And how much is the redemption price, if you know? If you know the repurchase price?

A
Based on the papers that can be found on the deed of absolute sale, if JMA House Incorporated
was to redeem the property during the first year, we were supposed to repurchase on time.

COURT:
Q

You are a lawyer, right?

Yes, Your Honor.

WITNESS:
A
To repurchase the property within the first year, a total amount of four million one hundred
thousand pesos, inclusive of interest, was supposed to be paid. If the repurchase was to be made on the
second year, interests of 3.5 per cent per month was to be added on the face value which is one million
one hundred thousand pesos.

xxxx

Atty. Balbastro:
Q
Aside from Exhibit G, you do not have any other document concerning the payment you made to
Sta. Monica Industrial Corporation?
A

No other.

Q
Now, subsequent to the payments (sic) of Exhibits B and C, no other written document was
executed between JMA House Incorporated and Sta. Monica Industrial and Development Corporation, is
that correct?
A
No other because we were expecting that the next document to be executed was a deed of
absolute sale of Sta. Monica Industrial Corporation back to JMA House Incorporated covering the
property.95[81]

If, as claimed by petitioner, the transaction between it and respondent Sta. Monica was an equitable
mortgage, the latter would be obliged to execute a Cancellation of Real Estate Mortgage or Release of
Mortgage over the property in favor of the petitioner. But, as admitted by Rosita Alberto, petitioner did not
expect respondent Sta. Monica to execute any of these; petitioner expected that a deed of sale would be
executed in its favor.

It bears stressing that petitioner and respondent Sta. Monica were assisted by their respective lawyers
during the negotiations held between Rosita Alberto and Trinidad. While Trinidad insisted on a deed of
absolute sale, Rosita Alberto suggested that a real estate mortgage be executed by the parties instead.
Trinidad rejected this, upon which Rosita proposed that an option to buy be executed as a supplement to
the deed of absolute sale, to which Trinidad readily agreed. Obviously, the parties had arrived at a

compromise to execute two deeds: a deed of absolute sale for P4,100,000.00, and a deed of option to
enable petitioner to buy the property for the same price. Rosita Alberto testified, thus:

Q
Now, you also made mention that you had mortgaged the property to Sta. Monica Industrial
Corporation. Did you execute any document to prove that mortgage?
A
Yes. Through the negotiation we were talking about a real estate mortgage but Mr. Trinidad
insisted on a deed of sale in their favor. However, I requested for another document an option to
buy/option to repurchase which is supplement to the deed of sale which would give us two years from the
date of signing, to repurchase the property.

ATTY. LAZARO:
Q

Madam Witness, do you still recall the exact date when this deed of absolute sale was executed?

It was June 30th 1986.

And how about the option to buy agreement that you are mentioning? When was it executed?

It was executed [simultaneously] on the same day, June 30, 1986.

Q
I am going to show you now a deed of absolute sale between JMA House Incorporated and Sta.
Monica Industrial and Development Corporation which has been previously marked as Exhibit B and
Exhibit B-1. What is the relation of this deed of absolute sale to the one that you are referring to?
A

This is the same deed of absolute sale that we signed.

Q
And I am calling your attention to Exhibit B-1 wherein the signature over and above the name
Rosita Alberto [appears], whose signature is that?
A

My signature, Sir.

Q
And I am also calling your attention to the signature over and above the name Eugenio E.
Trinidad, President and General Manager. Whose signature is that?
A

Mr. Trinidad[s].96[82]

The respective lawyers of petitioner and respondent Sta. Monica thereafter prepared the deeds which
were executed on June 30, 1986 before the same Notary Public, Atilano H. Lim. According to Rosita
Alberto, the Option to Buy supplemented the Deed of Absolute Sale. The testimony of Rosita Alberto on
the matter follows:

Q
Alright, I will read to you your Exh. C, under the second WHEREAS, and I quote: Whereas, the
parties in the aforementioned Deed mutually agreed that the VENDOR JMA HOUSE INCORPORATED is
given an option to buy back the properties subject thereto Do you recall this provision?
A

Yes. This is the document.

Q
And, in this second WHEREAS, the aforementioned Deed referred to here is the Deed referred to
in the first WHEREAS, that is the Deed of Absolute Sale, marked as Exhibit B, is that correct?
A

Yes.

Q
I am going back to my first question. In other words, the basis of the option to buy is the
supposed mutual agreement between JMA House Incorporated and Sta. Monica Industrial and
Development Corporation to give JMA House Incorporated the [option] to buy back the property as
provided in the Deed of Absolute Sale marked here as Exhibit B, is that correct?
A

They were supplementing each other, the option to buy and the deed of absolute sale.97[83]

The fact that petitioner sold the property to respondent Sta. Monica is evidenced by Rosita Albertos
admission that she delivered to respondent Sta. Monica the owners duplicate of TCT No. 268126, after
which the latter had the property registered in its name, conformably with their pre-arrangement. This
can be gleaned from her testimony, in answer to the questions of counsel of respondent AGCOR:

ATTY. LUCAS:
Q

After June 30, 1986, Your Honor.

WITNESS:
A
After June 30, 1986, the taxes were paid by STA. MONICA. That was the pre-arrangement, Your
Honor, with STA. MONICA. And it would be absurd for JMA to pay the taxes when the title was with STA.
MONICA. And we believe that they would be using it for their purposes, the title; for STA. MONICAs
purposes. So, they are more than willing to take up the taxes.98[84]

Although Rosita Alberto did not specify the particulars of her pre-arrangement with Trinidad outside of
the Deed of Absolute Sale and Option to Buy, it can safely be presumed that they agreed that petitioner
would continue collecting rentals from the tenants, and respondent may mortgage

the property as security for its P3,600,000.00 loan from the PCI Capital Corporation. Petitioner would
then be able to generate funds for the purchase of the property on or before June 30, 1987 or 1988, partly
from the rentals. On the other hand, respondent Sta. Monica was able to generate funds from its loan,
with the property as collateral, for its business. Both parties benefited under the arrangement.

While it is true that per Appraisal Report of the Philippine Appraisal Corporation, the property of the
petitioner had a value, as of 1986, of P11,080,000.00, despite which, Alberto agreed to sell the property
for P4,100,000.00 under the Deed of Absolute Sale, nevertheless, Alberto cannot be faulted. After all,
under the Option to Buy, petitioner was obliged to pay only P4,100,000.00.

It must be stressed that an option is a continuing offer or contract by which an owner stipulates with
another that the latter shall have the right to buy the property at a fixed price with a certain time, or under,
or in compliance with, certain terms and conditions; or which gives to the owner of the property the right
to sell or demand a sale.99[85] It is, in fine, an unaccepted offer, governed by the second paragraph of
Article 1479 of the New Civil Code which states that a promise to buy and sell a determinate thing for a
price certain is reciprocally demandable. An option is not of itself a purchase, but merely secures the
privilege to buy. An option is a privilege given by the owner of the property to another to buy the property
at his election, and the owner does not sell the property but gives another the right to buy at his
election.100[86] It imposes no binding obligation on the person holding the option, aside from the
consideration for the offer. Without acceptance, it is not, properly speaking, treated as a contract, and
does not vest, transfer or agree to transfer, any title to, or any interest or right in the subject property, but
is merely a contract by which the owner of the property gives the optionee the right or privilege of
accepting the offer and buying the property on certain terms.101[87]

Thus, an option contract involves two distinct elements, that is: (1) the offer to sell, which does
not become a contract until accepted; (2) the completed contract to lease the offer for a specified
time.102[88] It is a separate and distinct contract from that which the parties may enter into, upon the
consummation of the option.

It bears stressing that an option must be supported by a consideration distinct and separate from the
price. A consideration for an optional contract is just as important as the consideration for any other kind
of contract.103[89] If there is no consideration for the optional contract, then it cannot be enforced

anymore than any other contract where no consideration exists.104[90] However, case law is that
although an option is not binding as a contract for want of consideration, yet if the offer contained therein
is not withdrawn, its acceptance within the time limited gives rise to a contract of sale, binding on the
vendor, which cannot be affected by any subsequent attempt to withdraw the offer.105[91]

The optionee or promisee is burdened to prove such consideration for the option. The consideration for
the option is not presumed. In Villamor v. Court of Appeals,106[92] the Court ruled that consideration is
the why of the contract, the essential reason which moves the contracting parties to enter into the
contract.107[93] The consideration for a contract, including an option, need not be money or anything of
monetary value but may consist of either a benefit or a detriment to the promisor.108[94] There is
sufficient consideration for

a promise if there is any benefit to the promisee or any detriment to the promisor. A benefit should not
necessarily accrue to the promisee if a detriment to the promisor is present; and there is consideration if
the promisee does anything legal which he is not bound to do or refrain from doing anything which he has
a right to do, whether or not there is any actual loan or detriment to him or actual benefit to the
promisor.109[95] It is sufficient that something valuable flows from the person to whom it is made, or that
he suffers some prejudice or inconvenience, and that the promise is the inducement to the transaction.
Indeed, there is a consideration if the promisee, in return for the promise, does anything legal which he is
not bound to do, or refrains from doing anything which he has a right to do, whether there is any actual
loss or detriment to him or actual benefit to the promisor or not.110[96]

We agree with the rulings of the trial court and the CA that the option granted to the petitioner has a
consideration distinct from the purchase price of the property for P4,100,000.00.

As gleaned from the Option to Buy itself, the agreement was executed by the parties because of the
Deed of Absolute Sale they had executed on the same occasion. Instead of the parties executing a Real
Estate Mortgage as suggested by petitioner, the parties, by way of compromise, agreed to execute a
Deed of Absolute Sale, on the condition that they execute an Option to Buy, giving petitioner the privilege
to repurchase the property within a period of one year, with a grace period of one year immediately upon
the expiration of the original one year period. As admitted by Rosita Alberto, the two deeds
complemented each other, the Option to Buy being a supplement to the Deed of Absolute Sale. In fine,
petitioner would not have agreed to sell the property to respondent Sta. Monica unless petitioner was
given the option to repurchase the property for the same amount.

However, we agree with the ruling of the CA that petitioner failed to exercise its option and notify
respondent Sta. Monica of its acceptance of the latters offer within the timeline under the Option to Buy.
Under the said deed, petitioner had one year from June 30, 1986 or up to June 30, 1987 to exercise its
option, and in case of failure to do so, it had a one year grace period (from July 1, 1987 to June 30,
1988), provided that, in the latter case, it would pay equitable damages of 3.5% a month from July 1,
1987 to June 30, 1988 until full payment of the purchase price or until the option is finally exercised. The
pertinent portion of the contract reads:

NOW, THEREFORE, for and in consideration of the foregoing premises, stipulations and conditions, the
JMA HOUSE INCORPORATED is hereby given an option to buy back the subject properties mentioned in
the aforesaid Deed of Absolute Sale, and in like manner the STA. MONICA INDUSTRIAL AND
DEVELOPMENT CORPORATION hereby undertakes and binds itself to resell the same unto the said
JMA HOUSE INCORPORATED within a period of One (1) year from and after date of execution of the
said Deed for a fixed consideration of FOUR MILLION ONE HUNDRED THOUSAND PESOS
(P4,100,000.00) Philippine Currency; PROVIDED, HOWEVER, should the said JMA HOUSE

INCORPORATED failed (sic) to exercise the herein option to buy back within the above-stated period, the
JMA HOUSE INCORPORATED be (sic) given a grace period of another One (1) year immediately
thereafter. In case of such extension the JMA HOUSE INCORPORATED hereby undertakes and binds
itself to pay an amount equivalent to Three and one-half percent (sic) month for and as liquidated
damages until the whole amount is fully paid and/or the option is finally exercised.

It is clear that petitioner failed to exercise its option on or before June 30, 1987. Neither did petitioner
exercise its option and pay the liquidated damages to respondent Sta. Monica from July 1, 1987 up to
June 1988. This impelled respondent Sta. Monica to inform petitioner that because of its failure to
exercise its option to purchase the property, it had to discontinue collecting the rentals from the tenants of
the buildings. On February 2, 1988, respondent Sta. Monica sold the property to respondent AGCOR,
which secured TCT No. 376746 on February 17, 1988.

The Option to Buy provides that acceptance must be accompanied by payment of liquidated damages;
such payment is a condition precedent to the exercise of the right to buy, and the money must be
tendered or offered. A mere notice of an intention to accept, or of an acceptance without such payment
or tender, does not constitute a valid compliance.111[97] Respondent Sta. Monicas acceptance of the
five checks in the total amount of P3,000,000.00 and the cash amount of P57,000.00 on June 30, 1988,
as partial payment of petitioners account did not resuscitate the right which petitioner had by then already
lost, particularly since the property had already been sold and titled to AGCOR. The said partial payment
was an exercise in futility, made worse by the fact that the five checks were dishonored by the drawee
bank.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. Costs against the petitioner.
SO ORDERED.
THIRD DIVISION
SPOUSES ADIEL DE LA CENA and
CARIDAD AREVALO DE LA CENA,
Petitioners,

- versus -

SPOUSES JOSE BRIONES and HERMINIA

LLEDO BRIONES,
Respondents.

G.R. No. 160805

Present:
Quisumbing, J., Chairperson,
Carpio,
Carpio Morales,
Tinga, and
VELASCO, JR., JJ.
Promulgated:

November 24, 2006

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
QUISUMBING, J.:
For review on certiorari are the Decision112[1] dated November 25, 2002 of the Court of Appeals in CAG.R. CV No. 43335, and its Resolution dated October 16, 2003, denying the motion for reconsideration.
The appellate court reversed the decision dated July 27, 1993 of the Regional Trial Court of Legazpi City,
Branch 6, in Civil Case No. 8248 for quieting of title, recovery of possession and damages.

The facts are as follows:

Involved in this case is a six-meter by nine-meter portion of a 1,011-square meter lot located at
Bagumbayan, Daraga, Albay. The whole lot is now registered under Transfer Certificate of Title (TCT)
No. T-54600 in the name of petitioners, spouses Adiel de la Cena and Caridad Arevalo de la Cena (the
de la Cenas).113[2] It was previously owned by the spouses Antonio and Josefa Arevalo (the Arevalos),
parents of petitioner Caridad Arevalo de la Cena.

Sometime in 1969, the respondents, spouses Jose and Herminia Briones (the Brioneses), rented from the
Arevalos, a house constructed on the contested portion of the aforementioned lot. Five months later,

respondents bought the house. Then on January 31, 1977, respondents also bought the contested
portion of said lot from the Arevalos. They paid P1,260 as downpayment.114[3]

Unknown to the Brioneses, the whole lot had been mortgaged by the Arevalos to Albay Development
Bank. On April 24, 1979, TCT No. T-54600 was issued to petitioners, who paid an unspecified amount to
the Arevalos for the whole lot and P9,000 to the bank representing the balance of the loan obtained by
the Arevalos.115[4]

Thereafter, petitioners de la Cenas demanded that respondents Brioneses vacate the contested portion.
When respondents refused and after a barangay conciliation failed, petitioners filed before the Regional
Trial Court of Legazpi City a complaint for quieting of title, recovery of possession, and damages against
respondents.

The trial court decided in favor of petitioners de la Cenas, disposing of the case as follows:
WHEREFORE, premises considered, decision is hereby rendered:
1)
Declaring the claim of ownership of defendants [respondents herein] upon the property in question
based upon exhibit 1 as invalid and ineffec[t]ive and is prejudicial to the title of the plaintiffs [petitioners
herein] and casting a cloud upon said title which cloud is hereby ordered removed and the plaintiffs title
hereby ordered quieted.
2)
The plaintiffs are hereby ordered to pay the defendants P35,952.93 as reimbursement for the value
of the expenses incurred by the defendants in renovating or repairs inuring to plaintiffs benefits.
3)
Within thirty (30) days from the payment of the aforesaid P35,952.93 by the plaintiffs to the
defendants, the defendants shall vacate the property in question leaving the house behind.
4)

Costs against both plaintiffs and defendants.

SO ORDERED.116[5]
While the trial court found that there was a perfected contract of sale of the contested portion
between respondents Brioneses and the Arevalos, it said that the sale did not bind petitioners de la
Cenas because, (1) the acknowledgment receipt117[6] issued by the Arevalos of the downpayment of
respondents was not a public document under Article 1358 (1)118[7] of the Civil Code; and (2) the sale

was unregistered. The trial court further noted that petitioners de la Cenas were unaware of the previous
sale of the contested portion to the Brioneses. Nonetheless, it faulted petitioners de la Cenas for not
ascertaining the nature of respondents Brioneses possession of the contested portion, since the former
were aware that the Brioneses had purchased the house that stood thereon.
Upon respondents appeal, the Court of Appeals reversed the trial courts decision. Thus,
WHEREFORE, the appeal is GRANTED. The assailed decision is REVERSED and SET ASIDE. The
parties shall, at their expense share and share alike, cause a SURVEY to determine their respective
portions of Lot No. 2 consistent with this decision. Thereafter, in accordance with the said survey, the
Register of Deeds of Albay shall ISSUE a new transfer certificate of title to defendants-appellants
[respondents herein] for the portion pertaining to them, while the remaining portion of Lot No. 2 shall
continue to pertain to plaintiffs-appellees [petitioners herein] under their TCT No. T-54600.
SO ORDERED.119[8]
The appellate court similarly held that there was a perfected contract of sale of the contested
portion based on the receipt acknowledging the downpayment.120[9] The appellate court found that the
sale had been consummated and it took note of respondents full payment of the purchase price of
P6,000 on installment basis, as testified to by respondent Herminia Briones.121[10] The appellate court
also concluded that petitioner Caridad Arevalo de la Cena had known of the sale of the house and the
contested portion to respondents. Thus, the appellate court ruled that even if petitioners were first to
register the sale, their registration was tainted with bad faith.

The appellate court denied petitioners motion for reconsideration.

Hence, the instant petition raising the following issues:

1.
Whether or not there existed a perfected contract of sale between petitioners predecessors-ininterest, the Arevalo spouses and the respondents; and
2.
Assuming that there was such a perfected contract of sale, whether or not the petitioners had
knowledge thereof prior to the registration of the property in their names.122[11]
We will resolve the issues in the order presented. Petitioners contend that the Court of Appeals
erred in ruling that there was a perfected contract of sale based on the receipt acknowledging the
downpayment. Petitioners also contend that the receipt neither stated the portion sold, nor the price, nor
the buyer. They aver that there had yet been no meeting of the minds upon the object of the contract and
the price.

Respondents counter that a contract of sale is perfected by mere agreement of the parties; even
without the receipt acknowledging the downpayment, there could still be a perfected contract of sale.

At this juncture, we note that petitioners did not appeal the trial courts finding that there was a perfected
contract of sale of the contested portion to respondents. By not appealing, petitioners are deemed to
have accepted the trial courts factual findings and conclusions of law on this matter.123[12]

In addition, a contract of sale is perfected by mere consent, upon a meeting of the minds on the object of
the contract and the price.124[13] When the Arevalos accepted the P1,260 as downpayment, they had
agreed to the sale of the contested portion to respondents. In fact, the contract of sale had already been
consummated. Hence, its enforcement cannot be barred by the Statute of Frauds, which applies only to
an executory agreement.125[14]

We note that the Arevalos delivered the contested portion to respondents; the respondents had paid the
P1,260 as downpayment; the downpayment was received; the respondents had paid on installment the
balance of the full purchase price of P6,000;126[15] some installments were paid weekly as demanded
by the Arevalos who did not issue receipts;127[16] P400 owed by the Arevalos to respondent Herminia
Brioness mother, was also used to offset the price;128[17] respondents paid the last installment in
1980;129[18] and respondents continued their actual possession. Moreover, ownership of the thing sold
was transferred to the buyer upon actual or constructive delivery.130[19]

Petitioners also contend that the Court of Appeals erred in concluding that they knew of the sale between
the Arevalos and respondents. They insist that they had no knowledge of the sale of the contested

portion to respondents. Hence, they claim they were buyers in good faith who had also in good faith first
registered the sale.

In a double sale of immovable property, as in this case, ownership belongs to the person who in good
faith first recorded it in the registry of property.131[20] The requirement is two-fold: acquisition in good
faith and registration in good faith. But here, petitioners failed to show that they were in good faith
because as second buyers they were not ignorant of the first sale to respondents from the time petitioners
acquired the whole lot until the title was transferred to them.132[21]

The records reveal that petitioner Caridad Arevalo de la Cena had testified on direct examination that at
the time they acquired the whole lot from her parents, respondents were already staying on the contested
portion, thus:
q
Now, at the time you acquired the property way back in 1979 were the [respondents] already
staying in the property in question?
a

Yes, sir, they were already staying in the property.133[22]

(Emphasis supplied.)
Further, Caridad knew of respondents claim that they bought the house from the formers parents. She
also knew that respondents renovated the house after they bought it, as revealed by the testimony of
Caridad on additional direct examination:
q

[Do] you have any knowledge when the [respondents] started renovating the house?

a
It was long time but the renovation was gradual. They have started the renovation when they
allegedly purchased it.134[23] (Emphasis supplied.)
The records also reveal that Caridad testified on cross-examination that she talked to
respondents only after herein petitioners had bought the whole lot, to wit:
q

I am asking you whether you talked to [respondents] when you bought the property?

I talked to them after we purchased the property.135[24] (Emphasis supplied.)

Thus, Caridads testimony belie petitioners contention that their knowledge of respondents claims over
the [contested] portion arose only after, not before, the lot had been titled or registered in their name or
only after the demand to vacate was received by136[25] respondents. On direct examination, Caridad
testified:
q

Did [respondents] comply with your demands?

They did not.

Why? Do you know the reason why they refused?

a
I have been hearing stories because they have been telling people that they have already
purchased the property.
q

When was that[?] When did you learn of such allegation of the [respondents]?

a
Even before we asked them to vacate we have been hearing stories already.137[26]
(Emphasis supplied.)
Patently, petitioners made no efforts to clarify the true nature of respondents possession, despite
knowing of the latters claim of ownership and actual, visible and public possession of the contested
portion. One who buys real property in actual possession of another should at least inquire as to the right
of the ones in possession. Absent such inquiry, petitioners cannot be regarded as bona fide buyers as
against respondents, the ones in possession of the contested portion.138[27] The rule is that if a buyer
in a double sale registers the sale after he has acquired knowledge that there was a previous sale of the
same property to a third party or that another person claims said property in a previous sale, the
registration will constitute a registration in bad faith and will not confer on him any right.139[28]
WHEREFORE, the petition is DENIED for lack of merit. Petitioners are ORDERED to reconvey to
respondents the six-meter by nine-meter contested portion of the lot covered by Transfer Certificate of
Title No. T-54600. Thereafter, the Register of Deeds of Albay shall issue the corresponding transfer

certificate of title of the reconveyed portion. All expenses for the purpose shall be shared equally by the
parties. The remaining area covered by TCT No. T-54600 shall remain with petitioners.

Costs against petitioners.

SO ORDERED.
SECOND DIVISION
G.R. NO. 127636 : November 24, 2006]
E. ROMMEL REALTY AND DEVELOPMENT CORPORATION, as subrogee of ANTONINA GUIDO,
MAURO CASTANEDA, MARGARITA GUIDO, GRACIANO L. AMANTE, FELIZA GUIDO, ANTONIO
AQUINO, CRISANTA GUIDO, BUENAVENTURA B. ENRIQUEZ, CANDIDA GUIDO, JACOB ASSAD,
ESPERANZA GUIDO, ANGEL BENITO, ALFREDO GUIDO, CLARA MINDA ANSELMO, EUFRONIA
GUIDO, JOSE LORENO, PRISCILLA GUIDO VDA. DE ESGUERRA, BENEDICTO LOPEZ,
PROFETIZA GUIDO, AIDA DEL CARMEN, BUENSUCESO GUIDO, HERMINIA VILLAREAL, CARLOS
GUIDO, AMANDA C. RIVERA, JOSE A. ROJAS and EMILIAN M. ROJAS, * Petitioner, v. STA. LUCIA
REALTY DEVELOPMENT CORPORATION, ** Respondent.
DECISION
CORONA, J.:
This is a Petition for Review on Certiorari 1 of the September 19, 1996 decision2 and November 15, 1996
resolution3 of the Court of Appeals in CA-G.R. SP No. 41305.
This controversy stemmed from a case decided by this Court entitled Republic v. CA4 which is already in
its execution stage in the court of origin. Given that the resolution of the present dispute will inevitably
take into consideration our pronouncements in said case, a brief background is in order.
In 1979, the Republic of the Philippines, through the Solicitor General, filed a complaint for declaration of
nullity of Decree No. 6145, the owner's duplicate copy of Transfer Certificate of Title (TCT) No. 23377 in
the names of Francisco
and Hermogenes Guido5 and all titles derived from the decree.6 This case was docketed as Civil Case
No. 34242 of the former Court of First Instance7 of Rizal.8 These documents covered a vast area of land
called "Hacienda Angono" located in Binangonan, Rizal.9 The Republic alleged that said documents were
false, spurious, fabricated and never issued by virtue of judicial proceedings for the registration of land.10
The trial court dismissed the complaint and declared Decree No. 6145 and TCT No. 23377 genuine and
authentic.11 This was affirmed by the CA.12crlwvirtualibrry
In his motion for reconsideration, the Solicitor General prayed for an alternative judgment declaring the
decree and its derivative titles authentic except with respect to such portions of the property which were
either: (1) possessed and owned by bona fide occupants who had already acquired indefeasible titles
thereto or (2) possessed and owned by bona fide occupants and their families with lengths of possession
which

amounted to ownership.13 This motion was denied.14crlwvirtualibrry

When elevated to us, the same prayer for alternative judgment was presented.15 This time, all the private
respondents therein accepted the alternative prayer of the Solicitor General.16crlwvirtualibrry
In our decision in Republic v. CA,17 we upheld the findings of the courts below that Decree No. 6145 and
TCT No. 23377 were authentic.18 However, we also took into consideration the fact that the private
respondents therein unanimously accepted the alternative prayer of the Solicitor General:
Moreover, conscious of the resulting "[large-scale] dispossession and social displacement of several
hundreds of bona fide occupants and their families" which the Solicitor General pointed out, the private
respondent[s] agreed unanimously to accept the alternative prayer of the petitioner in their joint
memorandum. This agreement by private respondents takes the form of a waiver. Though a valid and
clear right over the property exists in their [favor], they seemingly have voluntarily abandoned the same in
favor of: 1) those who possessed and actually occupied specific portions and obtained torrens certificates
of titles, and 2) those who possessed certain specific portions for such lengths of time as to amount to full
ownership. The waiver, not being contrary to law, morals, good customs and good policy, is valid and
binding on the private respondents.
However, with respect to the second set of possessors, whose alleged bona fide occupancy of specific
portions of the property is not evidenced by Torrens Titles, it is imperative that their claims/occupancy be
duly proven in an appropriate proceeding.19crlwvirtualibrry
Thus, the dispositive portion of the decision read:
ACCORDINGLY, the decision of the [CA] in CA-G.R. No. 12933 is AFFIRMED subject to the herein
declared superior rights of bona fide occupants with registered titles within the area covered by the
questioned decree and bona fide occupants therein with length of possession which had ripened to
ownership, the latter to be determined in an appropriate proceeding.
SO ORDERED.20crlwvirtualibrry
This present petition was brought to us by petitioner E. Rommel Realty and Development Corporation
which is claiming to be the subrogee of the rights and interests of Antonina Guido, et al.21 Respondent
Sta. Lucia Realty and Development Corporation is the owner-developer of Greenridge Executive
Village,22 a subdivision project located within the land covered by TCT No. 23377. It claims to have
obtained its title from the heirs of Francisco and Honorata de la Cruz.23crlwvirtualibrry
Pursuant to our decision, the Regional Trial Court (RTC) of Pasig City, Branch 155, issued on July 21,
1994 a writ of possession directing the branch sheriff to place Guido, et al. in possession of "portions of
the property which were not occupied either by bona fide occupants with registered titles or bona fide
occupants with lengths of possession which had ripened to ownership and the portions occupied by
squatters."24crlwvirtualibrry
It appears that respondent was in possession of a certain parcel of land25 situated in front of the
Greenridge Executive Village where its main gate is located, linking the subdivision to the national
highway.26 On February 29, 1996, a notice to vacate was served on respondent giving it five days to
vacate this parcel of land. Consequently, on April 11, 1996, respondent filed an urgent motion to quash
the writ of possession dated July 21, 1994 claiming that it had been a bona fide occupant and possessor
of the 29,999 sq. m. lot for a period of time which, by itself and through its predecessors-in-interest, had
already ripened into ownership.27crlwvirtualibrry

The RTC, in an order dated July 12, 1996, denied this motion, along with the other motions filed by other
entities.28 It held that respondent should ventilate its claim in an appropriate proceeding separate and
distinct from the case (Civil Case No. 34242) where the writ of possession was issued.29 It stated that its
duty to execute the decision in Republic v. CA, as the court of origin, was purely ministerial and it could
not, on mere motion of respondent, interpret or qualify such decision. Accordingly, on July 15, 1996, a
second alias writ of possession and second notice to vacate were issued.30crlwvirtualibrry
Aggrieved, respondent filed a petition for certiorari and prohibition with the CA. It was granted in a
decision promulgated on September 19, 1996. In this ruling, it appears that the CA agreed with the RTC
that the rights of respondent had to be decided in an independent and separate proceeding and could not
simply be addressed in the proceeding for execution.31 However, it held that in the execution of the
judgment, the RTC deprived respondent of its right to present evidence in order to prove the character of
its possession of the land in dispute.32 As a result, the CA set aside and declared null and void the July
12, 1996 order (denying respondent's urgent motion to quash the writ of possession) and July 15, 1996
second alias writ of possession.33crlwvirtualibrry
Hence, this petition.
At its core, this controversy boils down to one main issue: whether or not petitioner was entitled to a writ
of possession of the 29,999 sq. m. lot (hereinafter referred to as "the property") possessed and claimed
by respondent.
To resolve this issue, there is a need to revisit our ruling in Republic v. CA. As already stated, we ruled
there that, as Decree No. 6145 and TCT No. 23377 were authentic documents, Guido et al. had
incontrovertible title to the land. Nevertheless, Guido et al., through their waiver, were also considered to
have abandoned their right in favor of two sets of occupants: (1) those who possessed and actually
occupied specific portions and obtained Torrens Certificates of Titles and (2) those who possessed
certain specific portions for such a length of time as to amount to full ownership, to be determined in an
appropriate proceeding.34crlwvirtualibrry
Petitioner argues that it was entitled to a writ of possession because respondent was not able to prove in
appropriate proceedings that it fell within the second set of qualified occupants. It asserts that what the
Republic v. CA decision contemplated was a final and executory judgment declaring respondent's
possession to be bona fide and to have ripened into ownership as of March 29, 1976.35crlwvirtualibrry
Respondent, on the other hand, admits that it did not yet have a certificate of title over the property.36 But
it contends that through its predecessors-in-interest, it had already established, in an appropriate
application for registration of title, that it was within the second set of possessors. It claims that its
predecessors-in-interest, the heirs of de la Cruz, had instituted this application docketed as L.R.C. No.
049-B before RTC, Binangonan, Rizal, Branch 69.37 The Land Registration Authority submitted to the
land registration court a supplementary report dated October 10, 1992 recommending the segregation of
the lot of the heirs of de la Cruz from TCT No. M-00850 (derived from TCT No. 23377)38 and the issuance
of a new certificate of title in their favor.39 On March 18, 1993, the land registration court issued a
resolution40 declaring the vested right of the heirs of de la Cruz (whose length of possession was
peaceful, notorious and in the concept of an owner from 1940 up to the promulgation of the decision) had
ripened into ownership.41crlwvirtualibrry
We uphold the ruling of the CA that the writ of possession of the disputed property should be nullified.
In order to execute our decision in Republic v. CA, which has long become final and executory, petitioner,
as alleged subrogee of Guido et al., was issued a writ of possession over the land covered by TCT No.

23377. Indisputably, in upholding the authenticity of the certificate of title, we recognized Guido, et al.'s
right of ownership over the land. However, at the same time, our decision also very clearly imposed a
limitation to their right over the land.rbl rl l lbrr
We stated that:
Though a valid and clear right over the property exists in their [favor], they seemingly have voluntarily
abandoned the same in favor of: 1) those who possessed and actually occupied specific portions and
obtained torrens certificates of titles, and 2) those who possessed certain specific portions for such
lengths of time as to amount to full ownership. The waiver, not being contrary to law, morals, good
customs and good policy, is valid and binding on the private respondents.42crlwvirtualibrry
Thus, in the dispositive portion of the decision, we affirmed that TCT No. 23377 was authentic but
"subject to the herein declared superior rights of bona fide occupants with registered titles within
the area covered by the questioned decree and bona fide occupants therein with length of
possession which had ripened to ownership, the latter to be determined in an appropriate
proceeding."43crlwvirtualibrry
We agree that respondent had already proven its claim in an appropriate proceeding. In L.R.C. No. 049B, initiated by the heirs of de la Cruz (the predecessors of respondent), it was shown that the possession
of applicant heirs had already ripened to ownership44 as of March 29, 1976.45 This ruling inured to
respondent's benefit.
The records do not show that respondent ever obtained a certificate of title over the disputed property.46
Nevertheless, the right of ownership of respondent's predecessors-in-interest had been recognized. As
the purchaser of the property, respondent became the owner of the property and acquired the right to
exercise all the attributes of ownership, including the right to possession (jus possidendi).47 Respondent,
who was in actual possession of the property before the writ of possession was implemented, possessed
it as owner of the property. It can thus rightfully assert its right of possession which is among the bundle
of rights enjoyed by an owner of a property under Art. 428 of the New Civil Code.48crlwvirtualibrry
Hence, respondent can rightfully claim the superior rights we acknowledged in Republic v. CA and the CA
correctly nullified petitioner's writ of possession insofar as it affected the property in the possession of
respondent.
WHEREFORE, the petition is hereby DENIED.
Costs against petitioner.
SO ORDERED.

FIRST DIVISION
G.R. NO. 166862 : December 20, 2006
MANILA METAL CONTAINER CORPORATION, Petitioner,
REYNALDO C. TOLENTINO, Intervenor, v. PHILIPPINE NATIONAL BANK, Respondent,
DMCI-PROJECT DEVELOPERS, INC., Intervenor.
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R.
No. 46153 which affirmed the decision2 of the Regional Trial Court (RTC), Branch 71, Pasig City, in Civil
Case No. 58551, and its Resolution3 denying the motion for reconsideration filed by petitioner Manila
Metal Container Corporation (MMCC).
The Antecedents
Petitioner was the owner of a 8,015 square meter parcel of land located in Mandaluyong (now a City),
Metro Manila. The property was covered by Transfer Certificate of Title (TCT) No. 332098 of the Registry
of Deeds of Rizal. To secure a P900,000.00 loan it had obtained from respondent Philippine National
Bank (PNB), petitioner executed a real estate mortgage over the lot. Respondent PNB later granted
petitioner a new credit accommodation of P1,000,000.00; and, on November 16, 1973, petitioner
executed an Amendment4 of Real Estate Mortgage over its property. On March 31, 1981, petitioner
secured another loan of P653,000.00 from respondent PNB, payable in quarterly installments of
P32,650.00, plus interests and other charges.5crlwvirtualibrry
On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure of the real estate
mortgage and sought to have the property sold at public auction for P911,532.21, petitioner's outstanding
obligation to respondent PNB as of June 30, 1982,6 plus interests and attorney's fees.
After due notice and publication, the property was sold at public auction on September 28, 1982 where
respondent PNB was declared the winning bidder for P1,000,000.00. The Certificate of Sale7 issued in its
favor was registered with the Office of the Register of Deeds of Rizal, and was annotated at the dorsal
portion of the title on February 17, 1983. Thus, the period to redeem the property was to expire on
February 17, 1984.
Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that it be granted an
extension of time to redeem/repurchase the property.8 In its reply dated August 30, 1983, respondent
PNB informed petitioner that the request had been referred to its Pasay City Branch for appropriate action
and recommendation.9crlwvirtualibrry
In a letter10 dated February 10, 1984, petitioner reiterated its request for a one year extension from
February 17, 1984 within which to redeem/repurchase the property on installment basis. It reiterated its
request to repurchase the property on installment.11 Meanwhile, some PNB Pasay City Branch personnel
informed petitioner that as a matter of policy, the bank does not accept "partial
redemption."12crlwvirtualibrry
Since petitioner failed to redeem the property, the Register of Deeds cancelled TCT No. 32098 on June 1,
1984, and issued a new title in favor of respondent PNB.13 Petitioner's offers had not yet been acted upon
by respondent PNB.

Meanwhile, the Special Assets Management Department (SAMD) had prepared a statement of account,
and as of June 25, 1984 petitioner's obligation amounted to P1,574,560.47. This included the bid price of
P1,056,924.50, interest, advances of insurance premiums, advances on realty taxes, registration
expenses, miscellaneous expenses and publication cost.14 When apprised of the statement of account,
petitioner remitted P725,000.00 to respondent PNB as "deposit to repurchase," and Official Receipt No.
978191 was issued to it.15crlwvirtualibrry
In the meantime, the SAMD recommended to the management of respondent PNB that petitioner be
allowed to repurchase the property for P1,574,560.00. In a letter dated November 14, 1984, the PNB
management informed petitioner that it was rejecting the offer and the recommendation of the SAMD. It
was suggested that petitioner purchase the property for P2,660,000.00, its minimum market value.
Respondent PNB gave petitioner until December 15, 1984 to act on the proposal; otherwise, its
P725,000.00 deposit would be returned and the property would be sold to other interested
buyers.16crlwvirtualibrry
Petitioner, however, did not agree to respondent PNB's proposal. Instead, it wrote another letter dated
December 12, 1984 requesting for a reconsideration. Respondent PNB replied in a letter dated December
28, 1984, wherein it reiterated its proposal that petitioner purchase the property for P2,660,000.00. PNB
again informed petitioner that it would return the deposit should petitioner desire to withdraw its offer to
purchase the property.17 On February 25, 1985, petitioner, through counsel, requested that PNB
reconsider its letter dated December 28, 1984. Petitioner declared that it had already agreed to the
SAMD's offer to purchase the property for P1,574,560.47, and that was why it had paid P725,000.00.
Petitioner warned respondent PNB that it would seek judicial recourse should PNB insist on the
position.18crlwvirtualibrry
On June 4, 1985, respondent PNB informed petitioner that the PNB Board of Directors had accepted
petitioner's offer to purchase the property, but for P1,931,389.53 in cash less the P725,000.00 already
deposited with it.19 On page two of the letter was a space above the typewritten name of petitioner's
President, Pablo Gabriel, where he was to affix his signature. However, Pablo Gabriel did not conform to
the letter but merely indicated therein that he had received it.20 Petitioner did not respond, so PNB
requested petitioner in a letter dated June 30, 1988 to submit an amended offer to repurchase.
Petitioner rejected respondent's proposal in a letter dated July 14, 1988. It maintained that respondent
PNB had agreed to sell the property for P1,574,560.47, and that since its P725,000.00 downpayment had
been accepted, respondent PNB was proscribed from increasing the purchase price of the property.21
Petitioner averred that it had a net balance payable in the amount of P643,452.34. Respondent PNB,
however, rejected petitioner's offer to pay the balance of P643,452.34 in a letter dated August 1,
1989.22crlwvirtualibrry
On August 28, 1989, petitioner filed a complaint against respondent PNB for "Annulment of Mortgage and
Mortgage Foreclosure, Delivery of Title, or Specific Performance with Damages." To support its cause of
action for specific performance, it alleged the following:
34. As early as June 25, 1984, PNB had accepted the down payment from Manila Metal in the substantial
amount of P725,000.00 for the redemption/repurchase price of P1,574,560.47 as approved by its SMAD
and considering the reliance made by Manila Metal and the long time that has elapsed, the approval of
the higher management of the Bank to confirm the agreement of its SMAD is clearly a potestative
condition which cannot legally prejudice Manila Metal which has acted and relied on the approval of
SMAD. The Bank cannot take advantage of a condition which is entirely dependent upon its own will after
accepting and benefiting from the substantial payment made by Manila Metal.

35. PNB approved the repurchase price of P1,574,560.47 for which it accepted P725,000.00 from Manila
Metal. PNB cannot take advantage of its own delay and long inaction in demanding a higher amount
based on unilateral computation of interest rate without the consent of Manila Metal.
Petitioner later filed an amended complaint and supported its claim for damages with the following
arguments:
36. That in order to protect itself against the wrongful and malicious acts of the defendant Bank, plaintiff is
constrained to engage the services of counsel at an agreed fee of P50,000.00 and to incur litigation
expenses of at least P30,000.00, which the defendant PNB should be condemned to pay the plaintiff
Manila Metal.
37. That by reason of the wrongful and malicious actuations of defendant PNB, plaintiff Manila Metal
suffered besmirched reputation for which defendant PNB is liable for moral damages of at least
P50,000.00.
38. That for the wrongful and malicious act of defendant PNB which are highly reprehensible, exemplary
damages should be awarded in favor of the plaintiff by way of example or correction for the public good of
at least P30,000.00.23
Petitioner prayed that, after due proceedings, judgment be rendered in its favor, thus:
a) Declaring the Amended Real Estate Mortgage (Annex "A") null and void and without any legal force
and effect.
b) Declaring defendant's acts of extra-judicially foreclosing the mortgage over plaintiff's property and
setting it for auction sale null and void.
c) Ordering the defendant Register of Deeds to cancel the new title issued in the name of PNB (TCT NO.
43792) covering the property described in paragraph 4 of the Complaint, to reinstate TCT No. 37025 in
the name of Manila Metal and to cancel the annotation of the mortgage in question at the back of the TCT
No. 37025 described in paragraph 4 of this Complaint.
d) Ordering the defendant PNB to return and/or deliver physical possession of the TCT No. 37025
described in paragraph 4 of this Complaint to the plaintiff Manila Metal.
e) Ordering the defendant PNB to pay the plaintiff Manila Metal's actual damages, moral and exemplary
damages in the aggregate amount of not less than P80,000.00 as may be warranted by the evidence and
fixed by this Honorable Court in the exercise of its sound discretion, and attorney's fees of P50,000.00
and litigation expenses of at least P30,000.00 as may be proved during the trial, and costs of suit.
Plaintiff likewise prays for such further reliefs which may be deemed just and equitable in the premises.24
In its Answer to the complaint, respondent PNB averred, as a special and affirmative defense, that it had
acquired ownership over the property after the period to redeem had elapsed. It claimed that no contract
of sale was perfected between it and petitioner after the period to redeem the property had expired.
During pre-trial, the parties agreed to submit the case for decision, based on their stipulation of facts.25
The parties agreed to limit the issues to the following:
1. Whether or not the June 4, 1985 letter of the defendant approving/accepting plaintiff's offer to purchase
the property is still valid and legally enforceable.

2. Whether or not the plaintiff has waived its right to purchase the property when it failed to conform with
the conditions set forth by the defendant in its letter dated June 4, 1985.
3. Whether or not there is a perfected contract of sale between the parties.26
While the case was pending, respondent PNB demanded, on September 20, 1989, that petitioner vacate
the property within 15 days from notice,27 but petitioners refused to do so.
On March 18, 1993, petitioner offered to repurchase the property for P3,500,000.00.28 The offer was
however rejected by respondent PNB, in a letter dated April 13, 1993. According to it, the prevailing
market value of the property was approximately P30,000,000.00, and as a matter of policy, it could not
sell the property for less than its market value.29 On June 21, 1993, petitioner offered to purchase the
property for P4,250,000.00 in cash.30 The offer was again rejected by respondent PNB on September 13,
1993.31crlwvirtualibrry
On May 31, 1994, the trial court rendered judgment dismissing the amended complaint and respondent
PNB's counterclaim. It ordered respondent PNB to refund the P725,000.00 deposit petitioner had made.32
The trial court ruled that there was no perfected contract of sale between the parties; hence, petitioner
had no cause of action for specific performance against respondent. The trial court declared that
respondent had rejected petitioner's offer to repurchase the property. Petitioner, in turn, rejected the
terms and conditions contained in the June 4, 1985 letter of the SAMD. While petitioner had offered to
repurchase the property per its letter of July 14, 1988, the amount of P643,422.34 was way below the
P1,206,389.53 which respondent PNB had demanded. It further declared that the P725,000.00 remitted
by petitioner to respondent PNB on June 4, 1985 was a "deposit," and not a downpayment or earnest
money.
On appeal to the CA, petitioner made the following allegations:
I
THE LOWER COURT ERRED IN RULING THAT DEFENDANT-APPELLEE'S LETTER DATED 4 JUNE
1985 APPROVING/ACCEPTING PLAINTIFF-APPELLANT'S OFFER TO PURCHASE THE SUBJECT
PROPERTY IS NOT VALID AND ENFORCEABLE.
II
THE LOWER COURT ERRED IN RULING THAT THERE WAS NO PERFECTED CONTRACT OF SALE
BETWEEN PLAINTIFF-APPELLANT AND DEFENDANT-APPELLEE.
III
THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLLANT WAIVED ITS RIGHT TO
PURCHASE THE SUBJECT PROPERTY WHEN IT FAILED TO CONFORM WITH CONDITIONS SET
FORTH BY DEFENDANT-APPELLEE IN ITS LETTER DATED 4 JUNE 1985.
IV
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT IT WAS THE DEFENDANTAPPELLEE WHICH RENDERED IT DIFFICULT IF NOT IMPOSSIBLE FOR PLAINTIFF-APPELLANT TO
COMPLETE THE BALANCE OF THEIR PURCHASE PRICE.
V

THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT THERE WAS NO VALID
RESCISSION OR CANCELLATION OF SUBJECT CONTRACT OF REPURCHASE.
VI
THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED AND REFUSED TO SUBMIT
THE AMENDED REPURCHASE OFFER.
VII
THE LOWER COURT ERRED IN DISMISSING THE AMENDED COMPLAINT OF PLAINTIFFAPPELLANT.
VIII
THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-APPELLANT ACTUAL, MORAL AND
EXEMPLARY DAMAGES, ATTOTRNEY'S FEES AND LITIGATION EXPENSES.33
Meanwhile, on June 17, 1993, petitioner's Board of Directors approved Resolution No. 3-004, where it
waived, assigned and transferred its rights over the property covered by TCT No. 33099 and TCT No.
37025 in favor of Bayani Gabriel, one of its Directors.34 Thereafter, Bayani Gabriel executed a Deed of
Assignment over 51% of the ownership and management of the property in favor of Reynaldo Tolentino,
who later moved for leave to intervene as plaintiff-appellant. On July 14, 1993, the CA issued a resolution
granting the motion,35 and likewise granted the motion of Reynaldo Tolentino substituting petitioner
MMCC, as plaintiff-appellant, and his motion to withdraw as intervenor.36crlwvirtualibrry
The CA rendered judgment on May 11, 2000 affirming the decision of the RTC.37 It declared that
petitioner obviously never agreed to the selling price proposed by respondent PNB (P1,931,389.53) since
petitioner had kept on insisting that the selling price should be lowered to P1,574,560.47. Clearly
therefore, there was no meeting of the minds between the parties as to the price or consideration of the
sale.
The CA ratiocinated that petitioner's original offer to purchase the subject property had not been accepted
by respondent PNB. In fact, it made a counter-offer through its June 4, 1985 letter specifically on the
selling price; petitioner did not agree to the counter-offer; and the negotiations did not prosper. Moreover,
petitioner did not pay the balance of the purchase price within the sixty-day period set in the June 4, 1985
letter of respondent PNB. Consequently, there was no perfected contract of sale, and as such, there was
no contract to rescind.
According to the appellate court, the claim for damages and the counterclaim were correctly dismissed by
the court a quo for no evidence was presented to support it. Respondent PNB's letter dated June 30,
1988 cannot revive the failed negotiations between the parties. Respondent PNB merely asked petitioner
to submit an amended offer to repurchase. While petitioner reiterated its request for a lower selling price
and that the balance of the repurchase be reduced, however, respondent rejected the proposal in a letter
dated August 1, 1989.
Petitioner filed a motion for reconsideration, which the CA likewise denied.
Thus, petitioner filed the instant Petition for Review on Certiorari, alleging that:
I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THERE IS
NO PERFECTED CONTRACT OF SALE BETWEEN THE PETITIONER AND RESPONDENT.

II. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE
AMOUNT OF PHP725,000.00 PAID BY THE PETITIONER IS NOT AN EARNEST MONEY.
III. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE
FAILURE OF THE PETITIONER-APPELLANT TO SIGNIFY ITS CONFORMITY TO THE TERMS
CONTAINED IN PNB'S JUNE 4, 1985 LETTER MEANS THAT THERE WAS NO VALID AND LEGALLY
ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES.
IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT NON-PAYMENT OF THE
PETITIONER-APPELLANT OF THE BALANCE OF THE OFFERED PRICE IN THE LETTER OF PNB
DATED JUNE 4, 1985, WITHIN SIXTY (60) DAYS FROM NOTICE OF APPROVAL CONSTITUTES NO
VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES.
V. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE LETTERS OF
PETITIONER-APPELLANT DATED MARCH 18, 1993 AND JUNE 21, 1993, OFFERING TO BUY THE
SUBJECT PROPERTY AT DIFFERENT AMOUNT WERE PROOF THAT THERE IS NO PERFECTED
CONTRACT OF SALE.38
The threshold issue is whether or not petitioner and respondent PNB had entered into a perfected
contract for petitioner to repurchase the property from respondent.
Petitioner maintains that it had accepted respondent's offer made through the SAMD, to sell the property
for P1,574,560.00. When the acceptance was made in its letter dated June 25, 1984; it then deposited
P725,000.00 with the SAMD as partial payment, evidenced by Receipt No. 978194 which respondent had
issued. Petitioner avers that the SAMD's acceptance of the deposit amounted to an acceptance of its
offer to repurchase. Moreover, as gleaned from the letter of SAMD dated June 4, 1985, the PNB Board of
Directors had approved petitioner's offer to purchase the property. It claims that this was the suspensive
condition, the fulfillment of which gave rise to the contract. Respondent could no longer unilaterally
withdraw its offer to sell the property for P1,574,560.47, since the acceptance of the offer resulted in a
perfected contract of sale; it was obliged to remit to respondent the balance of the original purchase price
of P1,574,560.47, while respondent was obliged to transfer ownership and deliver the property to
petitioner, conformably with Article 1159 of the New Civil Code.
Petitioner posits that respondent was proscribed from increasing the interest rate after it had accepted
respondent's offer to sell the property for P1,574,560.00. Consequently, respondent could no longer
validly make a counter-offer of P1,931,789.88 for the purchase of the property. It likewise maintains that,
although the P725,000.00 was considered as "deposit for the repurchase of the property" in the receipt
issued by the SAMD, the amount constitutes earnest money as contemplated in Article 1482 of the New
Civil Code. Petitioner cites the rulings of this Court in Villonco v. Bormaheco39 and Topacio v. Court of
Appeals.40crlwvirtualibrry
Petitioner avers that its failure to append its conformity to the June 4, 1984 letter of respondent and its
failure to pay the balance of the price as fixed by respondent within the 60-day period from notice was to
protest respondent's breach of its obligation to petitioner. It did not amount to a rejection of respondent's
offer to sell the property since respondent was merely seeking to enforce its right to pay the balance of
P1,570,564.47. In any event, respondent had the option either to accept the balance of the offered price
or to cause the rescission of the contract.
Petitioner's letters dated March 18, 1993 and June 21, 1993 to respondent during the pendency of the
case in the RTC were merely to compromise the pending lawsuit, they did not constitute separate offers

to repurchase the property. Such offer to compromise should not be taken against it, in accordance with
Section 27, Rule 130 of the Revised Rules of Court.
For its part, respondent contends that the parties never graduated from the "negotiation stage" as they
could not agree on the amount of the repurchase price of the property. All that transpired was an
exchange of proposals and counter-proposals, nothing more. It insists that a definite agreement on the
amount and manner of payment of the price are essential elements in the formation of a binding and
enforceable contract of sale. There was no such agreement in this case. Primarily, the concept of
"suspensive condition" signifies a future and uncertain event upon the fulfillment of which the obligation
becomes effective. It clearly presupposes the existence of a valid and binding agreement, the effectivity
of which is subordinated to its fulfillment. Since there is no perfected contract in the first place, there is no
basis for the application of the principles governing "suspensive conditions."
According to respondent, the Statement of Account prepared by SAMD as of June 25, 1984 cannot be
classified as a counter-offer; it is simply a recital of its total monetary claims against petitioner. Moreover,
the amount stated therein could not likewise be considered as the counter-offer since as admitted by
petitioner, it was only recommendation which was subject to approval of the PNB Board of Directors.
Neither can the receipt by the SAMD of P725,000.00 be regarded as evidence of a perfected sale
contract. As gleaned from the parties' Stipulation of Facts during the proceedings in the court a quo, the
amount is merely an acknowledgment of the receipt of P725,000.00 as deposit to repurchase the
property. The deposit of P725,000.00 was accepted by respondent on the condition that the purchase
price would still be approved by its Board of Directors. Respondent maintains that its acceptance of the
amount was qualified by that condition, thus not absolute. Pending such approval, it cannot be legally
claimed that respondent is already bound by any contract of sale with petitioner.
According to respondent, petitioner knew that the SAMD has no capacity to bind respondent and that its
authority is limited to administering, managing and preserving the properties and other special assets of
PNB. The SAMD does not have the power to sell, encumber, dispose of, or otherwise alienate the assets,
since the power to do so must emanate from its Board of Directors. The SAMD was not authorized by
respondent's Board to enter into contracts of sale with third persons involving corporate assets. There is
absolutely nothing on record that respondent authorized the SAMD, or made it appear to petitioner that it
represented itself as having such authority.
Respondent reiterates that SAMD had informed petitioner that its offer to repurchase had been approved
by the Board subject to the condition, among others, "that the selling price shall be the total bank's claim
as of documentation date x x x payable in cash (P725,000.00 already deposited)
within 60 days from notice of approval." A new Statement of Account was attached therein indicating the
total bank's claim to be P1,931,389.53 less deposit of P725,000.00, or P1,206,389.00. Furthermore, while
respondent's Board of Directors accepted petitioner's offer to repurchase the property, the acceptance
was qualified, in that it required a higher sale price and subject to specified terms and conditions
enumerated therein. This qualified acceptance was in effect a counter-offer, necessitating petitioner's
acceptance in return.
The Ruling of the Court
The ruling of the appellate court that there was no perfected contract of sale between the parties on June
4, 1985 is correct.

A contract is a meeting of minds between two persons whereby one binds himself, with respect to the
other, to give something or to render some service.41 Under Article 1318 of the New Civil Code, there is
no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Contracts are perfected by mere consent which is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract.42 Once perfected, they bind
other contracting parties and the obligations arising therefrom have the form of law between the parties
and should be complied with in good faith. The parties are bound not only to the fulfillment of what has
been expressly stipulated but also to the consequences which, according to their nature, may be in
keeping with good faith, usage and law.43crlwvirtualibrry
By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and
deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.44 The
absence of any of the essential elements will negate the existence of a perfected contract of sale. As the
Court ruled in Boston Bank of the Philippines v. Manalo:45
A definite agreement as to the price is an essential element of a binding agreement to sell personal or
real property because it seriously affects the rights and obligations of the parties. Price is an essential
element in the formation of a binding and enforceable contract of sale. The fixing of the price can never
be left to the decision of one of the contracting parties. But a price fixed by one of the contracting parties,
if accepted by the other, gives rise to a perfected sale.46
A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there
is merely an offer by one party without acceptance of the other, there is no contract.47 When the contract
of sale is not perfected, it cannot, as an independent source of obligation, serve as a binding juridical
relation between the parties.48crlwvirtualibrry
In San Miguel Properties Philippines, Inc. v. Huang,49 the Court ruled that the stages of a contract of sale
are as follows: (1) negotiation, covering the period from the time the prospective contracting parties
indicate interest in the contract to the time the contract is perfected; (2) perfection, which takes place
upon the concurrence of the essential elements of the sale which are the meeting of the minds of the
parties as to the object of the contract and upon the price; and (3) consummation, which begins when the
parties perform their respective undertakings under the contract of sale, culminating in the extinguishment
thereof.
A negotiation is formally initiated by an offer, which, however, must be certain.50 At any time prior to the
perfection of the contract, either negotiating party may stop the negotiation. At this stage, the offer may be
withdrawn; the withdrawal is effective immediately after its manifestation. To convert the offer into a
contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain,
unequivocal, unconditional and without variance of any sort from the proposal. In Adelfa Properties, Inc.
v. Court of Appeals,51 the Court ruled that:
x x x The rule is that except where a formal acceptance is so required, although the acceptance must be
affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the
offeror, it may be shown by acts, conduct, or words of the accepting party that clearly manifest a present

intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown by the acts,
conduct, or words of a party recognizing the existence of the contract of sale.52
A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a rejection of
the original offer. A counter-offer is considered in law, a rejection of the original offer and an attempt to
end the negotiation between the parties on a different basis.53 Consequently, when something is desired
which is not exactly what is proposed in the offer, such acceptance is not sufficient to guarantee consent
because any modification or variation from the terms of the offer annuls the offer.54 The acceptance must
be identical in all respects with that of the offer so as to produce consent or meeting of the minds.
In this case, petitioner had until February 17, 1984 within which to redeem the property. However, since it
lacked the resources, it requested for more time to redeem/repurchase the property under such terms
and conditions agreed upon by the parties.55 The request, which was made through a letter dated August
25, 1983, was referred to the respondent's main branch for appropriate action.56 Before respondent could
act on the request, petitioner again wrote respondent as follows:
1. Upon approval of our request, we will pay your goodselves ONE HUNDRED & FIFTY THOUSAND
PESOS (P150,000.00);
2. Within six months from date of approval of our request, we will pay another FOUR HUNDRED FIFTY
THOUSAND PESOS (P450,000.00); andcralawlibrary
3. The remaining balance together with the interest and other expenses that will be incurred will be paid
within the last six months of the one year grave period requested for.57
When the petitioner was told that respondent did not allow "partial redemption,"58 it sent a letter to
respondent's President reiterating its offer to purchase the property.59 There was no response to
petitioner's letters dated February 10 and 15, 1984.
The statement of account prepared by the SAMD stating that the net claim of respondent as of June 25,
1984 was P1,574,560.47 cannot be considered an unqualified acceptance to petitioner's offer to purchase
the property. The statement is but a computation of the amount which petitioner was obliged to pay in
case respondent would later agree to sell the property, including interests, advances on insurance
premium, advances on realty taxes, publication cost, registration expenses and miscellaneous expenses.
There is no evidence that the SAMD was authorized by respondent's Board of Directors to accept
petitioner's offer and sell the property for P1,574,560.47. Any acceptance by the SAMD of petitioner's
offer would not bind respondent. As this Court ruled in AF Realty Development, Inc. v. Diesehuan Freight
Services, Inc.:60
Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall
be exercised by the board of directors. Just as a natural person may authorize another to do certain acts
in his behalf, so may the board of directors of a corporation validly delegate some of its functions to
individual officers or agents appointed by it. Thus, contracts or acts of a corporation must be made either
by the board of directors or by a corporate agent duly authorized by the board. Absent such valid
delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of
the corporation, but not in the course of, or connected with the performance of authorized duties of such
director, are held not binding on the corporation.

Thus, a corporation can only execute its powers and transact its business through its Board of Directors
and through its officers and agents when authorized by a board resolution or its bylaws.61crlwvirtualibrry
It appears that the SAMD had prepared a recommendation for respondent to accept petitioner's offer to
repurchase the property even beyond the one-year period; it recommended that petitioner be allowed to
redeem the property and pay P1,574,560.00 as the purchase price. Respondent later approved the
recommendation that the property be sold to petitioner. But instead of the P1,574,560.47 recommended
by the SAMD and to which petitioner had previously conformed, respondent set the purchase price at
P2,660,000.00. In fine, respondent's acceptance of petitioner's offer was qualified, hence can be at most
considered as a counter-offer. If petitioner had accepted this counter-offer, a perfected contract of sale
would have arisen; as it turns out, however, petitioner merely sought to have the counter-offer
reconsidered. This request for reconsideration would later be rejected by respondent.
We do not agree with petitioner's contention that the P725,000.00 it had remitted to respondent was
"earnest money" which could be considered as proof of the perfection of a contract of sale under Article
1482 of the New Civil Code. The provision reads:
ART. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the
price and as proof of the perfection of the contract.
This contention is likewise negated by the stipulation of facts which the parties entered into in the trial
court:
8. On June 8, 1984, the Special Assets Management Department (SAMD) of PNB prepared an updated
Statement of Account showing MMCC's total liability to PNB as of June 25, 1984 to be P1,574,560.47 and
recommended this amount as the repurchase price of the subject property.
9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to repurchase the property. The
deposit of P725,000 was accepted by PNB on the condition that the purchase price is still subject
to the approval of the PNB Board.62
Thus, the P725,000.00 was merely a deposit to be applied as part of the purchase price of the property,
in the event that respondent would approve the recommendation of SAMD for respondent to accept
petitioner's offer to purchase the property for P1,574,560.47. Unless and until the respondent accepted
the offer on these terms, no perfected contract of sale would arise. Absent proof of the concurrence of all
the essential elements of a contract of sale, the giving of earnest money cannot establish the existence of
a perfected contract of sale.63crlwvirtualibrry
It appears that, per its letter to petitioner dated June 4, 1985, the respondent had decided to accept the
offer to purchase the property for P1,931,389.53. However, this amounted to an amendment of
respondent's qualified acceptance, or an amended counter-offer, because while the respondent lowered
the purchase price, it still declared that its acceptance was subject to the following terms and conditions:
1. That the selling price shall be the total Bank's claim as of documentation date (pls. see attached
statement of account as of 5-31-85), payable in cash (P725,000.00 already deposited) within sixty (60)
days from notice of approval;
2. The Bank sells only whatever rights, interests and participation it may have in the property and you are
charged with full knowledge of the nature and extent of said rights, interests and participation and waive
your right to warranty against eviction.

3. All taxes and other government imposts due or to become due on the property, as well as expenses
including costs of documents and science stamps, transfer fees, etc., to be incurred in connection with
the execution and registration of all covering documents shall be borne by you;
4. That you shall undertake at your own expense and account the ejectment of the occupants of the
property subject of the sale, if there are any;
5. That upon your failure to pay the balance of the purchase price within sixty (60) days from receipt of
advice accepting your offer, your deposit shall be forfeited and the Bank is thenceforth authorized to sell
the property to other interested parties.
6. That the sale shall be subject to such other terms and conditions that the Legal Department may
impose to protect the interest of the Bank.64
It appears that although respondent requested petitioner to conform to its amended counter-offer,
petitioner refused and instead requested respondent to reconsider its amended counter-offer. Petitioner's
request was ultimately rejected and respondent offered to refund its P725,000.00 deposit.
In sum, then, there was no perfected contract of sale between petitioner and respondent over the subject
property.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED.
The assailed decision is AFFIRMED. Costs against petitioner Manila Metal Container Corporation.
SO ORDERED.
Ynares-Santiago, J., Working Chairperson, Austria-Martinez, and Chico-Nazario, JJ., concur.
Panganiban, C.J.,retired as of December 7, 2006.

THIRD DIVISION
[G.R. No. 149750. June 16, 2003.]
AURORA ALCANTARA-DAUS, Petitioner, v. Spouses HERMOSO and SOCORRO DE LEON,
Respondents.
DECISION

PANGANIBAN, J.:

While a contract of sale is perfected by mere consent, ownership of the thing sold is acquired only upon
its delivery to the buyer. Upon the perfection of the sale, the seller assumes the obligation to transfer
ownership and to deliver the thing sold, but the real right of ownership is transferred only "by tradition" or
delivery thereof to the buyer.chanrob1es virtua1 1aw 1ibrary
The Case

Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, seeking to set aside the
February 9, 2001 Decision and the August 31, 2001 Resolution of the Court of Appeals 2 (CA) in CA-GR
CV No. 47587. The dispositive portion of the assailed Decision reads as follows:jgc:chanrobles.com.ph
"WHEREFORE, premises considered, the decision of the trial court is hereby REVERSED, and judgment
rendered:chanrob1es virtual 1aw library
1. Declaring null and void and of no effect, the [D]eed of [A]bsolute [S]ale dated December 6, 1975, the
[D]eed of [E]xtra-judicial [P]artition and [Q]uitclaim dated July 1, 1985, and T.C.T. No. T-31262;
2. Declaring T.C.T. No. 42238 as valid and binding;
3. Eliminating the award of P5,000.00 each to be paid to defendants-appellees." 3
The assailed Resolution 4 denied petitioners Motion for Reconsideration.
The Facts

The antecedents of the case were summarized by the Regional Trial Court (RTC) and adopted by the CA
as follows:jgc:chanrobles.com.ph
"This is a [C]omplaint for annulment of documents and title, ownership, possession, injunction, preliminary
injunction, restraining order and damages.

Aurora alcantata
" [Respondents] alleged in their [C]omplaint that they are the owners of a parcel of land hereunder

described as follows, to wit:chanrob1es virtual 1aw library

A parcel of land (Lot No. 4786 of the Cadastral Survey of San Manuel) situated in the Municipality of San
Manuel, Bounded on the NW., by Lot No. 4785; and on the SE., by Lot Nos. 11094 & 11096; containing
an area of Four Thousand Two Hundred Twelve (4,212) sq. m., more or less. Covered by Original
Certificate of Title No. 22134 of the Land Records of Pangasinan.
which [Respondent] Hermoso de Leon inherited from his father Marcelino de Leon by virtue of a [D]eed of
[E]xtra-judicial [P]artition. Sometime in the early 1960s, [respondents] engaged the services of the late
Atty. Florencio Juan to take care of the documents of the properties of his parents. Atty. Juan let them
sign voluminous documents. After the death of Atty. Juan, some documents surfaced and most revealed
that their properties had been conveyed by sale or quitclaim to [Respondent] Hermosos brothers and
sisters, to Atty. Juan and his sisters, when in truth and in fact, no such conveyances were ever intended
by them. His signature in the [D]eed of [E]xtra-judicial [P]artition with [Q]uitclaim made in favor of . . .
Rodolfo de Leon was forged. They discovered that the land in question was sold by . . . Rodolfo de Leon
to [Petitioner] Aurora Alcantara. They demanded annulment of the document and reconveyance but
defendants refused . . . .
x

" [Petitioner] Aurora Alcantara-Daus [averred] that she bought the land in question in good faith and for
value on December 6, 1975. [She] has been in continuous, public, peaceful, open possession over the
same and has been appropriating the produce thereof without objection from anyone." 5
On August 23, 1994, the RTC (Branch 48) of Urdaneta, Pangasinan 6 rendered its Decision 7 in favor of
herein petitioner. It ruled that respondents claim was barred by laches, because more than 18 years had
passed since the land was sold. It further ruled that since it was a notarial document, the Deed of
Extrajudicial Partition in favor of Rodolfo de Leon was presumptively authentic.
Ruling of the Court of Appeals

In reversing the RTC, the CA held that laches did not bar respondents from pursuing their claim.
Notwithstanding the delay, laches is a doctrine in equity and may not be invoked to resist the enforcement
of a legal right.
The appellate court also held that since Rodolfo de Leon was not the owner of the land at the time of the
sale, he could not transfer any land rights to petitioner. It further declared that the signature of Hermoso
de Leon on the Deed of Extrajudicial Partition and Quitclaim upon which petitioner bases her claim
was a forgery. It added that under the above circumstances, petitioner could not be said to be a buyer in
good faith.
Hence, this Petition. 8
The Issues

Petitioner raises the following issues for our consideration:jgc:chanrobles.com.ph

"1. Whether or not the Deed of Absolute Sale dated December 6, 1975 executed by Rodolfo de Leon
(deceased) over the land in question in favor of petitioner was perfected and binding upon the parties
therein?
"2. Whether or not the evidentiary weight of the Deed of Extrajudicial Partition with Quitclaim, executed by
[R]espondent Hermoso de Leon, Perlita de Leon and Carlota de Leon in favor of Rodolfo de Leon was
overcome by more than [a] preponderance of evidence of respondents?
"3. Whether or not the possession of petitioner including her predecessor-in-interest Rodolfo de Leon
over the land in question was in good faith?
"4. And whether or not the instant case initiated and filed by respondents on February 24, 1993 before the
trial court has prescribed and respondents are guilty of laches?" 9
The Courts Ruling

The Petition has no merit.

First Issue:chanrob1es virtual 1aw library
Validity of the Deed of Absolute Sale
Petitioner argues that, having been perfected, the Contract of Sale executed on December 6, 1975 was
thus binding upon the parties thereto.
A contract of sale is consensual. It is perfected by mere consent, 10 upon a meeting of the minds 11 on
the offer and the acceptance thereof based on subject matter, price and terms of payment. 12 At this
stage, the sellers ownership of the thing sold is not an element in the perfection of the contract of
sale.chanrob1es virtua1 1aw 1ibrary
The contract, however, creates an obligation on the part of the seller to transfer ownership and to deliver
the subject matter of the contract. 13 It is during the delivery that the law requires the seller to have the
right to transfer ownership of the thing sold. 14 In general, a perfected contract of sale cannot be
challenged on the ground of the sellers non-ownership of the thing sold at the time of the perfection of
the contract. 15
Further, even after the contract of sale has been perfected between the parties, its consummation by
delivery is yet another matter. It is through tradition or delivery that the buyer acquires the real right of
ownership over the thing sold. 16
Undisputed is the fact that at the time of the sale, Rodolfo de Leon was not the owner of the land he
delivered to petitioner. Thus, the consummation of the contract and the consequent transfer of ownership
would depend on whether he subsequently acquired ownership of the land in accordance with Article

1434 of the Civil Code. 17 Therefore, we need to resolve the issue of the authenticity and the due
execution of the Extrajudicial Partition and Quitclaim in his favor.
Second Issue:chanrob1es virtual 1aw library
Authenticity of the Extrajudicial Partition
Petitioner contends that the Extrajudicial Partition and Quitclaim is authentic, because it was notarized
and executed in accordance with law. She claims that there is no clear and convincing evidence to set
aside the presumption of regularity in the issuance of such public document. We disagree.
As a general rule, the due execution and authenticity of a document must be reasonably established
before it may be admitted in evidence. 18 Notarial documents, however, may be presented in evidence
without further proof of their authenticity, since the certificate of acknowledgement is prima facie evidence
of the execution of the instrument or document involved. 19 To contradict facts in a notarial document and
the presumption of regularity in its favor, the evidence must be clear, convincing and more than merely
preponderant. 20
The CA ruled that the signatures of Hermoso de Leon on the Extrajudicial Partition and Quitclaim was
forged. However, this factual finding is in conflict with that of the RTC. While normally this Court does not
review factual issues, 21 this rule does not apply when there is a conflict between the holdings of the CA
and those of the trial court, 22 as in the present case.
After poring over the records, we find no reason to reverse the factual finding of the appellate court. A
comparison of the signatures of Hermoso de Leon 23 with his purported signature on the Deed of
Extrajudicial Partition with Quitclaim 24 will readily reveal that the latter is a forgery. As aptly held by the
CA, such variance cannot be attributed to the age or the mechanical acts of the person
signing.25cralaw:red
Without the corroborative testimony of the attesting witnesses, the lone account of the notary regarding
the due execution of the Deed is insufficient to sustain the authenticity of this document. He can hardly be
expected to dispute the authenticity of the very Deed he notarized. 26 For this reason, his testimony was
as it should be minutely scrutinized by the appellate court, and was found wanting.
Third Issue:chanrob1es virtual 1aw library
Possession in Good Faith
Petitioner claims that her possession of the land is in good faith and that, consequently, she has acquired
ownership thereof by virtue of prescription. We are not persuaded.chanrob1es virtua1 1aw 1ibrary
It is well-settled that no title to registered land in derogation of that of the registered owner shall be
acquired by prescription or adverse possession. 27 Neither can prescription be allowed against the
hereditary successors of the registered owner, because they merely step into the shoes of the decedent
and are merely the continuation of the personality of their predecessor in interest. 28 Consequently, since
a certificate of registration 29 covers it, the disputed land cannot be acquired by prescription regardless of
petitioners good faith.
Fourth Issue:chanrob1es virtual 1aw library

Prescription of Action and Laches

Petitioner also argues that the right to recover ownership has prescribed, and that respondents are guilty
of laches. Again, we disagree.
Article 1141 of the New Civil Code provides that real actions over immovable properties prescribe after
thirty years. This period for filing an action is interrupted when a complaint is filed in court. 30 Rodolfo de
Leon alleged that the land had been allocated to him by his brother Hermoso de Leon in March 1963, 31
but that the Deed of Extrajudicial Partition assigning the contested land to the latter was executed only on
September 16, 1963. 32 In any case, the Complaint to recover the land from petitioner was filed on
February 24, 1993, 33 which was within the 30-year prescriptive period.
On the claim of laches, we find no reason to reverse the ruling of the CA. Laches is based upon equity
and the public policy of discouraging stale claims. 34 Since laches is an equitable doctrine, its application
is controlled by equitable considerations. 35 It cannot be used to defeat justice or to perpetuate fraud and
injustice. 36 Thus, the assertion of laches to thwart the claim of respondents is foreclosed, because the
Deed upon which petitioner bases her claim is a forgery.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
Puno, Sandoval-Gutierrez, Corona and Carpio Morales, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 119255

April 9, 2003

TOMAS K. CHUA, petitioner,

vs.
COURT OF APPEALS and ENCARNACION VALDES-CHOY, respondents.
CARPIO, J.:
The Case
This is a petition for review on certiorari seeking to reverse the decision1 of the Court of Appeals in an
action for specific performance2 filed in the Regional Trial Court3 by petitioner Tomas K. Chua ("Chua")
against respondent Encarnacion Valdes-Choy ("Valdes-Choy"). Chua sought to compel Valdes-Choy to
consummate the sale of her paraphernal house and lot in Makati City. The Court of Appeals reversed the
decision4 rendered by the trial court in favor of Chua.
The Facts
Valdes-Choy advertised for sale her paraphernal house and lot ("Property") with an area of 718 square
meters located at No. 40 Tampingco Street corner Hidalgo Street, San Lorenzo Village, Makati City. The
Property is covered by Transfer Certificate of Title No. 162955 ("TCT") issued by the Register of Deeds of
Makati City in the name of Valdes-Choy. Chua responded to the advertisement. After several meetings,
Chua and Valdes-Choy agreed on a purchase price of P10,800,000.00 payable in cash.
On 30 June 1989, Valdes-Choy received from Chua a check for P100,000.00. The receipt ("Receipt")
evidencing the transaction, signed by Valdes-Choy as seller, and Chua as buyer, reads:
30 June 1989
RECEIPT
RECEIVED from MR. TOMAS K. CHUA PBCom Check No. 206011 in the amount of ONE HUNDRED
THOUSAND PESOS ONLY (P100,000.00) as EARNEST MONEY for the sale of the property located at
40 Tampingco cor. Hidalgo, San Lorenzo Village, Makati, Metro Manila (Area : 718 sq. meters).
The balance of TEN MILLION SEVEN HUNDRED THOUSAND (P10,700,000.00) is payable on or before
155 July 1989. Capital Gains Tax for the account of the seller. Failure to pay balance on or before 15 July
1989 forfeits the earnest money. This provided that all papers are in proper order.6
CONFORME:
ENCARNACION VALDES
Seller
TOMAS K. CHUA

Buyer
x x x.7
In the morning of 13 July 1989, Chua secured from Philippine Bank of Commerce ("PBCom") a
manager's check for P480,000.00. Strangely, after securing the manager's check, Chua immediately gave
PBCom a verbal stop payment order claiming that this manager's check for P480,000.00 "was lost and/or
misplaced."8 On the same day, after receipt of Chua's verbal order, PBCom Assistant VicePresident
Julie C. Pe notified in writing9 the PBCom Operations Group of Chua's stop payment order.
In the afternoon of 13 July 1989, Chua and Valdes-Choy met with their respective counsels to execute
the necessary documents and arrange the payments.10 Valdes-Choy as vendor and Chua as vendee
signed two Deeds of Absolute Sale ("Deeds of Sale"). The first Deed of Sale covered the house and lot
for the purchase price of P8,000,000.00.11 The second Deed of Sale covered the furnishings, fixtures and
movable properties contained in the house for the purchase price of P2,800,000.00.12 The parties also
computed the capital gains tax to amount to P485,000.00.
On 14 July 1989, the parties met again at the office of Valdes-Choy's counsel. Chua handed to ValdesChoy the PBCom manager's check for P485,000.00 so Valdes-Choy could pay the capital gains tax as
she did not have sufficient funds to pay the tax. Valdes-Choy issued a receipt showing that Chua had a
remaining balance of P10,215,000.00 after deducting the advances made by Chua. This receipt reads:
July 14, 1989
Received from MR. TOMAS K. CHUA PBCom. Check No. 325851 in the amount of FOUR HUNDRED
EIGHTY FIVE THOUSAND PESOS ONLY (P485,000.00) as Partial Payment for the sale of the property
located at 40 Tampingco Cor. Hidalgo St., San Lorenzo Village, Makati, Metro Manila (Area 718 sq.
meters), covered by TCT No. 162955 of the Registry of Deeds of Makati, Metro Manila.
The total purchase price of the above-mentioned property is TEN MILLION EIGHT HUNDRED
THOUSAND PESOS only, broken down as follows:
SELLING PRICE

P10,800,000.00

EARNEST MONEY

P100,000.00

PARTIAL PAYMENT

485,000.00
585,000.00

BALANCE DUE TO
ENCARNACION VALDEZ-CHOY

P10,215,000.00

PLUS P80,000.00 for documentary stamps

paid in advance by seller

80,000.00
P10,295,000.00

x x x.13

On the same day, 14 July 1989, Valdes-Choy, accompanied by Chua, deposited the P485,000.00
manager's check to her account with Traders Royal Bank. She then purchased a Traders Royal Bank
manager's check for P480,000.00 payable to the Commissioner of Internal Revenue for the capital gains
tax. Valdes-Choy and Chua returned to the office of Valdes-Choy's counsel and handed the Traders
Royal Bank check to the counsel who undertook to pay the capital gains tax. It was then also that Chua
showed to Valdes-Choy a PBCom manager's check for P10,215,000.00 representing the balance of the
purchase price. Chua, however, did not give this PBCom manager's check to Valdes-Choy because the
TCT was still registered in the name of Valdes-Choy. Chua required that the Property be registered first in
his name before he would turn over the check to Valdes-Choy. This angered Valdes-Choy who tore up
the Deeds of Sale, claiming that what Chua required was not part of their agreement.14
On the same day, 14 July 1989, Chua confirmed his stop payment order by submitting to PBCom an
affidavit of loss15 of the PBCom Manager's Check for P480,000.00. PBCom Assistant Vice-President Pe,
however, testified that the manager's check was nevertheless honored because Chua subsequently
verbally advised the bank that he was lifting the stop-payment order due to his "special arrangement" with
the bank.16
On 15 July 1989, the deadline for the payment of the balance of the purchase price, Valdes-Choy
suggested to her counsel that to break the impasse Chua should deposit in escrow the P10,215,000.00
balance.17 Upon such deposit, Valdes-Choy was willing to cause the issuance of a new TCT in the name
of Chua even without receiving the balance of the purchase price. Valdes-Choy believed this was the only
way she could protect herself if the certificate of title is transferred in the name of the buyer before she is
fully paid. Valdes-Choy's counsel promised to relay her suggestion to Chua and his counsel, but nothing
came out of it.
On 17 July 1989, Chua filed a complaint for specific performance against Valdes-Choy which the trial
court dismissed on 22 November 1989. On 29 November 1989, Chua re-filed his complaint for specific
performance with damages. After trial in due course, the trial court rendered judgment in favor of Chua,
the dispositive portion of which reads:
Applying the provisions of Article 1191 of the new Civil Code, since this is an action for specific
performance where the plaintiff, as vendee, wants to pursue the sale, and in order that the fears of the
defendant may be allayed and still have the sale materialize, judgment is hereby rendered:
I. 1. Ordering the defendant to deliver to the Court not later than five (5) days from finality of this decision:
a. the owner's duplicate copy of TCT No. 162955 registered in her name;
b. the covering tax declaration and the latest tax receipt evidencing payment of real estate taxes;
c. the two deeds of sale prepared by Atty. Mark Bocobo on July 13, 1989, duly executed by defendant in
favor of the plaintiff, whether notarized or not; and
2. Within five (5) days from compliance by the defendant of the above, ordering the plaintiff to deliver to
the Branch Clerk of Court of this Court the sum of P10,295,000.00 representing the balance of the
consideration (with the sum of P80,000.00 for stamps already included);
3. Ordering the Branch Clerk of this Court or her duly authorized representative:
a. to make representations with the BIR for the payment of capital gains tax for the sale of the house and
lot (not to include the fixtures) and to pay the same from the funds deposited with her;

b. to present the deed of sale executed in favor of the plaintiff, together with the owner's duplicate copy of
TCT No. 162955, real estate tax receipt and proof of payment of capital gains tax, to the Makati Register
of Deeds;
c. to pay the required registration fees and stamps (if not yet advanced by the defendant) and if needed
update the real estate taxes all to be taken from the funds deposited with her; and
d. surrender to the plaintiff the new Torrens title over the property;
4. Should the defendant fail or refuse to surrender the two deeds of sale over the property and the fixtures
that were prepared by Atty. Mark Bocobo and executed by the parties, the Branch Clerk of Court of this
Court is hereby authorized and empowered to prepare, sign and execute the said deeds of sale for and in
behalf of the defendant;
5. Ordering the defendant to pay to the plaintiff;
a. the sum of P100,000.00 representing moral and compensatory damages for the plaintiff; and
b. the sum of P50,000.00 as reimbursement for plaintiff's attorney's fees and cost of litigation.
6. Authorizing the Branch Clerk of Court of this Court to release to the plaintiff, to be taken from the funds
said plaintiff has deposited with the Court, the amounts covered at paragraph 5 above;
7. Ordering the release of the P10,295,000.00 to the defendant after deducting therefrom the following
amounts:
a. the capital gains tax paid to the BIR;
b. the expenses incurred in the registration of the sale, updating of real estate taxes, and transfer of title;
and
c. the amounts paid under this judgment to the plaintiff.
8. Ordering the defendant to surrender to the plaintiff or his representatives the premises with the
furnishings intact within seventy-two (72) hours from receipt of the proceeds of the sale;
9. No interest is imposed on the payment to be made by the plaintiff because he had always been ready
to pay the balance and the premises had been used or occupied by the defendant for the duration of this
case.
II. In the event that specific performance cannot be done for reasons or causes not attributable to the
plaintiff, judgment is hereby rendered ordering the defendant:
1. To refund to the plaintiff the earnest money in the sum of P100,000.00, with interest at the legal rate
from June 30, 1989 until fully paid;
2. To refund to the plaintiff the sum of P485,000.00 with interest at the legal rate from July 14, 1989 until
fully paid;
3. To pay to the plaintiff the sum of P700,000.00 in the concept of moral damages and the additional sum
of P300,000.00 in the concept of exemplary damages; and

4. To pay to the plaintiff the sum of P100,000.00 as reimbursement of attorney's fees and cost of
litigation.
SO ORDERED.18
Valdes-Choy appealed to the Court of Appeals which reversed the decision of the trial court. The Court of
Appeals handed down a new judgment, disposing as follows:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE, and another one is
rendered:
(1) Dismissing Civil Case No. 89-5772;
(2) Declaring the amount of P100,000.00, representing earnest money as forfeited in favor of defendantappellant;
(3) Ordering defendant-appellant to return/refund the amount of P485,000.00 to plaintiff-appellee without
interest;
(4) Dismissing defendant-appellant's compulsory counter-claim; and
(5) Ordering the plaintiff-appellee to pay the costs.19
Hence, the instant petition.
The Trial Court's Ruling
The trial court found that the transaction reached an impasse when Valdes-Choy wanted to be first paid
the full consideration before a new TCT covering the Property is issued in the name of Chua. On the
other hand, Chua did not want to pay the consideration in full unless a new TCT is first issued in his
name. The trial court faulted Valdes-Choy for this impasse.
The trial court held that the parties entered into a contract to sell on 30 June 1989, as evidenced by the
Receipt for the P100,000.00 earnest money. The trial court pointed out that the contract to sell was
subject to the following conditions: (1) the balance of P10,700,000.00 was payable not later than 15 July
1989; (2) Valdes-Choy may stay in the Property until 13 August 1989; and (3) all papers must be "in
proper order" before full payment is made.
The trial court held that Chua complied with the terms of the contract to sell. Chua showed that he was
prepared to pay Valdes-Choy the consideration in full on 13 July 1989, two days before the deadline of 15
July 1989. Chua even added P80,000.00 for the documentary stamp tax. He purchased from PBCom two
manager's checks both payable to Valdes-Choy. The first check for P485,000.00 was to pay the capital
gains tax. The second check for P10,215,000.00 was to pay the balance of the purchase price. The trial
court was convinced that Chua demonstrated his capacity and readiness to pay the balance on 13 July
1989 with the production of the PBCom manager's check for P10,215,000.00.
On the other hand, the trial court found that Valdes-Choy did not perform her correlative obligation under
the contract to sell to put all the papers in order. The trial court noted that as of 14 July 1989, the capital
gains tax had not been paid because Valdes-Choy's counsel who was suppose to pay the tax did not do
so. The trial court declared that Valdes-Choy was in a position to deliver only the owner's duplicate copy
of the TCT, the signed Deeds of Sale, the tax declarations, and the latest realty tax receipt. The trial court
concluded that these documents were all useless without the Bureau of Internal Revenue receipt

evidencing full payment of the capital gains tax which is a pre-requisite to the issuance of a new
certificate of title in Chua's name.
The trial court held that Chua's non-payment of the balance of P10,215,000.00 on the agreed date was
due to Valdes-Choy's fault.
The Court of Appeals' Ruling
In reversing the trial court, the Court of Appeals ruled that Chua's stance to pay the full consideration only
after the Property is registered in his name was not the agreement of the parties. The Court of Appeals
noted that there is a whale of difference between the phrases "all papers are in proper order" as written
on the Receipt, and "transfer of title" as demanded by Chua.
Contrary to the findings of the trial court, the Court of Appeals found that all the papers were in order and
that Chua had no valid reason not to pay on the agreed date. Valdes-Choy was in a position to deliver the
owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest realty
tax receipt. The Property was also free from all liens and encumbrances.
The Court of Appeals declared that the trial court erred in considering Chua's showing to Valdes-Choy of
the PBCom manager's check for P10,215,000.00 as compliance with Chua's obligation to pay on or
before 15 July 1989. The Court of Appeals pointed out that Chua did not want to give up the check unless
"the property was already in his name."20 Although Chua demonstrated his capacity to pay, this could not
be equated with actual payment which he refused to do.
The Court of Appeals did not consider the non-payment of the capital gains tax as failure by Valdes-Choy
to put the papers "in proper order." The Court of Appeals explained that the payment of the capital gains
tax has no bearing on the validity of the Deeds of Sale. It is only after the deeds are signed and notarized
can the final computation and payment of the capital gains tax be made.
The Issues
In his Memorandum, Chua raises the following issues:
1. WHETHER THERE IS A PERFECTED CONTRACT OF SALE OF IMMOVABLE PROPERTY;
2. WHETHER VALDES-CHOY MAY RESCIND THE CONTRACT IN CONTROVERSY WITHOUT
OBSERVING THE PROVISIONS OF ARTICLE 1592 OF THE NEW CIVIL CODE;
3. WHETHER THE WITHHOLDING OF PAYMENT OF THE BALANCE OF THE PURCHASE PRICE ON
THE PART OF CHUA (AS VENDEE) WAS JUSTIFIED BY THE CIRCUMSTANCES OBTAINING AND
MAY NOT BE RAISED AS GROUND FOR THE AUTOMATIC RESCISSION OF THE CONTRACT OF
SALE;
4. WHETHER THERE IS LEGAL AND FACTUAL BASIS FOR THE COURT OF APPEALS TO DECLARE
THE "EARNEST MONEY" IN THE AMOUNT OF P100,000.00 AS FORFEITED IN FAVOR OF VALDESCHOY;
5. WHETHER THE TRIAL COURT'S JUDGMENT IS IN ACCORD WITH LAW, REASON AND EQUITY
DESERVING OF BEING REINSTATED AND AFFIRMED.21

The issues for our resolution are: (a) whether the transaction between Chua and Valdes-Choy is a
perfected contract of sale or a mere contract to sell, and (b) whether Chua can compel Valdes-Choy to
cause the issuance of a new TCT in Chua's name even before payment of the full purchase price.
The Court's Ruling
The petition is bereft of merit.
There is no dispute that Valdes-Choy is the absolute owner of the Property which is registered in her
name under TCT No.162955, free from all liens and encumbrances. She was ready, able and willing to
deliver to Chua the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations,
and the latest realty tax receipt. There is also no dispute that on 13 July 1989, Valdes-Choy received
PBCom Check No. 206011 for P100,000.00 as earnest money from Chua. Likewise, there is no
controversy that the Receipt for the P100,000.00 earnest money embodied the terms of the binding
contract between Valdes-Choy and Chua.
Further, there is no controversy that as embodied in the Receipt, Valdes-Choy and Chua agreed on the
following terms: (1) the balance of P10,215,000.00 is payable on or before 15 July 1989; (2) the capital
gains tax is for the account of Valdes-Choy; and (3) if Chua fails to pay the balance of P10,215,000.00 on
or before 15 July 1989, Valdes-Choy has the right to forfeit the earnest money, provided that "all papers
are in proper order." On 13 July 1989, Chua gave Valdes-Choy the PBCom manager's check for
P485,000.00 to pay the capital gains tax.
Both the trial and appellate courts found that the balance of P10,215,000.00 was not actually paid to
Valdes-Choy on the agreed date. On 13 July 1989, Chua did show to Valdes-Choy the PBCom
manager's check for P10,215,000.00, with Valdes-Choy as payee. However, Chua refused to give this
check to Valdes-Choy until a new TCT covering the Property is registered in Chua's name. Or, as the trial
court put it, until there is proof of payment of the capital gains tax which is a pre-requisite to the issuance
of a new certificate of title.
First and Second Issues: Contract of Sale or Contract to Sell?
Chua has consistently characterized his agreement with Valdez-Choy, as evidenced by the Receipt, as a
contract to sell and not a contract of sale. This has been Chua's persistent contention in his pleadings
before the trial and appellate courts.
Chua now pleads for the first time that there is a perfected contract of sale rather than a contract to sell.
He contends that there was no reservation in the contract of sale that Valdes-Choy shall retain title to the
Property until after the sale. There was no agreement for an automatic rescission of the contract in case
of Chua's default. He argues for the first time that his payment of earnest money and its acceptance by
Valdes-Choy precludes the latter from rejecting the binding effect of the contract of sale. Thus, Chua
claims that Valdes-Choy may not validly rescind the contract of sale without following Article 159222 of the
Civil Code which requires demand, either judicially or by notarial act, before rescission may take place.
Chua's new theory is not well taken in light of well-settled jurisprudence. An issue not raised in the court
below cannot be raised for the first time on appeal, as this is offensive to the basic rules of fair play,
justice and due process.23 In addition, when a party deliberately adopts a certain theory, and the case is
tried and decided on that theory in the court below, the party will not be permitted to change his theory on
appeal. To permit him to change his theory will be unfair to the adverse party.24

Nevertheless, in order to put to rest all doubts on the matter, we hold that the agreement between Chua
and Valdes-Choy, as evidenced by the Receipt, is a contract to sell and not a contract of sale. The
distinction between a contract of sale and contract to sell is well-settled:
In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in a
contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until
full payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership
over the property and cannot recover it until and unless the contract is resolved or rescinded; whereas, in
a contract to sell, title is retained by the vendor until full payment of the price. In the latter contract,
payment of the price is a positive suspensive condition, failure of which is not a breach but an event that
prevents the obligation of the vendor to convey title from becoming effective.25
A perusal of the Receipt shows that the true agreement between the parties was a contract to sell.
Ownership over the Property was retained by Valdes-Choy and was not to pass to Chua until full payment
of the purchase price.
First, the Receipt provides that the earnest money shall be forfeited in case the buyer fails to pay the
balance of the purchase price on or before 15 July 1989. In such event, Valdes-Choy can sell the
Property to other interested parties. There is in effect a right reserved in favor of Valdes-Choy not to push
through with the sale upon Chua's failure to remit the balance of the purchase price before the deadline.
This is in the nature of a stipulation reserving ownership in the seller until full payment of the purchase
price. This is also similar to giving the seller the right to rescind unilaterally the contract the moment the
buyer fails to pay within a fixed period.26
Second, the agreement between Chua and Valdes-Choy was embodied in a receipt rather than in a deed
of sale, ownership not having passed between them. The signing of the Deeds of Sale came later when
Valdes-Choy was under the impression that Chua was about to pay the balance of the purchase price.
The absence of a formal deed of conveyance is a strong indication that the parties did not intend
immediate transfer of ownership, but only a transfer after full payment of the purchase price.27
Third, Valdes-Choy retained possession of the certificate of title and all other documents relative to the
sale. When Chua refused to pay Valdes-Choy the balance of the purchase price, Valdes-Choy also
refused to turn-over to Chua these documents.28 These are additional proof that the agreement did not
transfer to Chua, either by actual or constructive delivery, ownership of the Property.29
It is true that Article 1482 of the Civil Code provides that "[W]henever earnest money is given in a contract
of sale, it shall be considered as part of the price and proof of the perfection of the contract." However,
this article speaks of earnest money given in a contract of sale. In this case, the earnest money was given
in a contract to sell. The Receipt evidencing the contract to sell stipulates that the earnest money is a
forfeitable deposit, to be forfeited if the sale is not consummated should Chua fail to pay the balance of
the purchase price. The earnest money forms part of the consideration only if the sale is consummated
upon full payment of the purchase price. If there is a contract of sale, Valdes-Choy should have the right
to compel Chua to pay the balance of the purchase price. Chua, however, has the right to walk away from
the transaction, with no obligation to pay the balance, although he will forfeit the earnest money. Clearly,
there is no contract of sale. The earnest money was given in a contract to sell, and thus Article 1482,
which speaks of a contract of sale, is not applicable.
Since the agreement between Valdes-Choy and Chua is a mere contract to sell, the full payment of the
purchase price partakes of a suspensive condition. The non-fulfillment of the condition prevents the
obligation to sell from arising and ownership is retained by the seller without further remedies by the

buyer.30 Article 1592 of the Civil Code permits the buyer to pay, even after the expiration of the period, as
long as no demand for rescission of the contract has been made upon him either judicially or by notarial
act. However, Article 1592 does not apply to a contract to sell where the seller reserves the ownership
until full payment of the price.31
Third and Fourth Issues: Withholding of Payment of the
Balance of the Purchase Price and Forfeiture of the Earnest Money
Chua insists that he was ready to pay the balance of the purchase price but withheld payment because
Valdes-Choy did not fulfill her contractual obligation to put all the papers in "proper order." Specifically,
Chua claims that Valdes-Choy failed to show that the capital gains tax had been paid after he had
advanced the money for its payment. For the same reason, he contends that Valdes-Choy may not forfeit
the earnest money even if he did not pay on time.
There is a variance of interpretation on the phrase "all papers are in proper order" as written in the
Receipt. There is no dispute though, that as long as the papers are "in proper order," Valdes-Choy has
the right to forfeit the earnest money if Chua fails to pay the balance before the deadline.
The trial court interpreted the phrase to include payment of the capital gains tax, with the Bureau of
Internal Revenue receipt as proof of payment. The Court of Appeals held otherwise. We quote verbatim
the ruling of the Court of Appeals on this matter:
The trial court made much fuss in connection with the payment of the capital gains tax, of which Section
33 of the National Internal Revenue Code of 1977, is the governing provision insofar as its computation is
concerned. The trial court failed to consider Section 34-(a) of the said Code, the last sentence of which
provides, that "[t]he amount realized from the sale or other disposition of property shall be the sum of
money received plus the fair market value of the property (other than money) received;" and that the
computation of the capital gains tax can only be finally assessed by the Commission on Internal Revenue
upon the presentation of the Deeds of Absolute Sale themselves, without which any premature
computation of the capital gains tax becomes of no moment. At any rate, the computation and payment of
the capital gains tax has no bearing insofar as the validity and effectiveness of the deeds of sale in
question are concerned, because it is only after the contracts of sale are finally executed in due form and
have been duly notarized that the final computation of the capital gains tax can follow as a matter of
course. Indeed, exhibit D, the PBC Check No. 325851, dated July 13, 1989, in the amount of
P485,000.00, which is considered as part of the consideration of the sale, was deposited in the name of
appellant, from which she in turn, purchased the corresponding check in the amount representing the
sum to be paid for capital gains tax and drawn in the name of the Commissioner of Internal Revenue,
which then allayed any fear or doubt that that amount would not be paid to the Government after all.32
We see no reason to disturb the ruling of the Court of Appeals.
In a contract to sell, the obligation of the seller to sell becomes demandable only upon the happening of
the suspensive condition. In this case, the suspensive condition is the full payment of the purchase price
by Chua. Such full payment gives rise to Chua's right to demand the execution of the contract of sale.
It is only upon the existence of the contract of sale that the seller becomes obligated to transfer the
ownership of the thing sold to the buyer. Article 1458 of the Civil Code defines a contract of sale as
follows:

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.
x x x. (Emphasis supplied)
Prior to the existence of the contract of sale, the seller is not obligated to transfer ownership to the buyer,
even if there is a contract to sell between them. It is also upon the existence of the contract of sale that
the buyer is obligated to pay the purchase price to the seller. Since the transfer of ownership is in
exchange for the purchase price, these obligations must be simultaneously fulfilled at the time of the
execution of the contract of sale, in the absence of a contrary stipulation.
In a contract of sale, the obligations of the seller are specified in Article 1495 of the Civil Code, as follows:
Art. 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing
which is the object of the sale. (Emphasis supplied)
The obligation of the seller is to transfer to the buyer ownership of the thing sold. In the sale of real
property, the seller is not obligated to transfer in the name of the buyer a new certificate of title, but rather
to transfer ownership of the real property. There is a difference between transfer of the certificate of title in
the name of the buyer, and transfer of ownership to the buyer. The buyer may become the owner of the
real property even if the certificate of title is still registered in the name of the seller. As between the seller
and buyer, ownership is transferred not by the issuance of a new certificate of title in the name of the
buyer but by the execution of the instrument of sale in a public document.
In a contract of sale, ownership is transferred upon delivery of the thing sold. As the noted civil law
commentator Arturo M. Tolentino explains it, Delivery is not only a necessary condition for the enjoyment of the thing, but is a mode of acquiring
dominion and determines the transmission of ownership, the birth of the real right. The delivery, therefore,
made in any of the forms provided in articles 1497 to 1505 signifies that the transmission of ownership
from vendor to vendee has taken place. The delivery of the thing constitutes an indispensable requisite
for the purpose of acquiring ownership. Our law does not admit the doctrine of transfer of property by
mere consent; the ownership, the property right, is derived only from delivery of the thing. x x x.33
(Emphasis supplied)
In a contract of sale of real property, delivery is effected when the instrument of sale is executed in a
public document. When the deed of absolute sale is signed by the parties and notarized, then delivery of
the real property is deemed made by the seller to the buyer. Article 1498 of the Civil Code provides that
Art. 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to
the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear
or cannot clearly be inferred.
x x x.
Similarly, in a contract to sell real property, once the seller is ready, able and willing to sign the deed of
absolute sale before a notary public, the seller is in a position to transfer ownership of the real property to
the buyer. At this point, the seller complies with his undertaking to sell the real property in accordance
with the contract to sell, and to assume all the obligations of a vendor under a contract of sale pursuant to
the relevant articles of the Civil Code. In a contract to sell, the seller is not obligated to transfer ownership

to the buyer. Neither is the seller obligated to cause the issuance of a new certificate of title in the name
of the buyer. However, the seller must put all his papers in proper order to the point that he is in a position
to transfer ownership of the real property to the buyer upon the signing of the contract of sale.
In the instant case, Valdes-Choy was in a position to comply with all her obligations as a seller under the
contract to sell. First, she already signed the Deeds of Sale in the office of her counsel in the presence of
the buyer. Second, she was prepared to turn-over the owner's duplicate of the TCT to the buyer, along
with the tax declarations and latest realty tax receipt. Clearly, at this point Valdes-Choy was ready, able
and willing to transfer ownership of the Property to the buyer as required by the contract to sell, and by
Articles 1458 and 1495 of the Civil Code to consummate the contract of sale.
Chua, however, refused to give to Valdes-Choy the PBCom manager's check for the balance of the
purchase price. Chua imposed the condition that a new TCT should first be issued in his name, a
condition that is found neither in the law nor in the contract to sell as evidenced by the Receipt. Thus, at
this point Chua was not ready, able and willing to pay the full purchase price which is his obligation under
the contract to sell. Chua was also not in a position to assume the principal obligation of a vendee in a
contract of sale, which is also to pay the full purchase price at the agreed time. Article 1582 of the Civil
Code provides that
Art. 1582. The vendee is bound to accept delivery and to pay the price of the thing sold at the time and
place stipulated in the contract.
x x x. (Emphasis supplied)
In this case, the contract to sell stipulated that Chua should pay the balance of the purchase price "on or
before 15 July 1989." The signed Deeds of Sale also stipulated that the buyer shall pay the balance of the
purchase price upon signing of the deeds. Thus, the Deeds of Sale, both signed by Chua, state as
follows:
Deed of Absolute Sale covering the lot:
xxx
For and in consideration of the sum of EIGHT MILLION PESOS (P8,000,000.00), Philippine Currency,
receipt of which in full is hereby acknowledged by the VENDOR from the VENDEE, the VENDOR sells,
transfers and conveys unto the VENDEE, his heirs, successors and assigns, the said parcel of land,
together with the improvements existing thereon, free from all liens and encumbrances.34 (Emphasis
supplied)
Deed of Absolute Sale covering the furnishings:
xxx
For and in consideration of the sum of TWO MILLION EIGHT HUNDRED THOUSAND PESOS
(P2,800,000.00), Philippine Currency, receipt of which in full is hereby acknowledged by the VENDOR
from the VENDEE, the VENDOR sells, transfers and conveys unto the VENDEE, his heirs, successors
and assigns, the said furnitures, fixtures and other movable properties thereon, free from all liens and
encumbrances.35 (Emphasis supplied)
However, on the agreed date, Chua refused to pay the balance of the purchase price as required by the
contract to sell, the signed Deeds of Sale, and Article 1582 of the Civil Code. Chua was therefore in
default and has only himself to blame for the rescission by Valdes-Choy of the contract to sell.

Even if measured under existing usage or custom, Valdes-Choy had all her papers "in proper order."
Article 1376 of the Civil Code provides that:
Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities
of a contract, and shall fill the omission of stipulations which are ordinarily established.
Customarily, in the absence of a contrary agreement, the submission by an individual seller to the buyer
of the following papers would complete a sale of real estate: (1) owner's duplicate copy of the Torrens
title;36 (2) signed deed of absolute sale; (3) tax declaration; and (3) latest realty tax receipt. The buyer can
retain the amount for the capital gains tax and pay it upon authority of the seller, or the seller can pay the
tax, depending on the agreement of the parties.
The buyer has more interest in having the capital gains tax paid immediately since this is a pre-requisite
to the issuance of a new Torrens title in his name. Nevertheless, as far as the government is concerned,
the capital gains tax remains a liability of the seller since it is a tax on the seller's gain from the sale of the
real estate. Payment of the capital gains tax, however, is not a pre-requisite to the transfer of ownership
to the buyer. The transfer of ownership takes effect upon the signing and notarization of the deed of
absolute sale.
The recording of the sale with the proper Registry of Deeds37 and the transfer of the certificate of title in
the name of the buyer are necessary only to bind third parties to the transfer of ownership.38 As between
the seller and the buyer, the transfer of ownership takes effect upon the execution of a public instrument
conveying the real estate.39 Registration of the sale with the Registry of Deeds, or the issuance of a new
certificate of title, does not confer ownership on the buyer. Such registration or issuance of a new
certificate of title is not one of the modes of acquiring ownership.40
In this case, Valdes-Choy was ready, able and willing to submit to Chua all the papers that customarily
would complete the sale, and to pay as well the capital gains tax. On the other hand, Chua's condition
that a new TCT be first issued in his name before he pays the balance of P10,215,000.00, representing
94.58% of the purchase price, is not customary in a sale of real estate. Such a condition, not specified in
the contract to sell as evidenced by the Receipt, cannot be considered part of the "omissions of
stipulations which are ordinarily established" by usage or custom.41 What is increasingly becoming
customary is to deposit in escrow the balance of the purchase price pending the issuance of a new
certificate of title in the name of the buyer. Valdes-Choy suggested this solution but unfortunately, it drew
no response from Chua.
Chua had no reason to fear being swindled. Valdes-Choy was prepared to turn-over to him the owner's
duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest realty tax
receipt. There was no hindrance to paying the capital gains tax as Chua himself had advanced the money
to pay the same and Valdes-Choy had procured a manager's check payable to the Bureau of Internal
Revenue covering the amount. It was only a matter of time before the capital gains tax would be paid.
Chua acted precipitately in filing the action for specific performance a mere two days after the deadline of
15 July 1989 when there was an impasse. While this case was dismissed on 22 November 1989, he did
not waste any time in re-filing the same on 29 November 1989.
Accordingly, since Chua refused to pay the consideration in full on the agreed date, which is a suspensive
condition, Chua cannot compel Valdes-Choy to consummate the sale of the Property. Article 1181 of the
Civil Code provides that ART. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of
those already acquired shall depend upon the happening of the event which constitutes the condition.

Chua acquired no right to compel Valdes-Choy to transfer ownership of the Property to him because the
suspensive condition - the full payment of the purchase price - did not happen. There is no correlative
obligation on the part of Valdes-Choy to transfer ownership of the Property to Chua. There is also no
obligation on the part of Valdes-Choy to cause the issuance of a new TCT in the name of Chua since
unless expressly stipulated, this is not one of the obligations of a vendor.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 37652 dated 23 February 1995 is
AFFIRMED in toto.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and Azcuna, JJ., concur.