G.R. No.

166714
February 9, 2007
AMELIA S. ROBERTS, Petitioner,
vs.
MARTIN B. PAPIO, Respondent.
DECISION
CALLEJO, SR., J.:
Assailed in this petition for review on certiorari is the Decision 1 of the Court
of Appeals (CA), in CA-G.R. CV No. 69034 which reversed and set aside the
Decision2 of the Regional Trial Court (RTC), Branch 150, Makati City, in Civil
Case No. 01-431. The RTC ruling had affirmed with modification the
Decision3 of the Metropolitan Trial Court (MeTC), Branch 64, Makati City in
Civil Case No. 66847. The petition likewise assails the Resolution of the CA
denying the motion for reconsideration of its decision.
The Antecedents
The spouses Martin and Lucina Papio were the owners of a 274-squaremeter residential lot located in Makati (now Makati City) and covered by
Transfer Certificate of Title (TCT) No. S-44980. 4 In order to secure
aP59,000.00 loan from the Amparo Investments Corporation, they executed
a real estate mortgage on the property. Upon Papios failure to pay the loan,
the corporation filed a petition for the extrajudicial foreclosure of the
mortgage.
Since the couple needed money to redeem the property and to prevent the
foreclosure of the real estate mortgage, they executed a Deed of Absolute
Sale over the property on April 13, 1982 in favor of Martin Papios cousin,
Amelia Roberts. Of the P85,000.00 purchase price, P59,000.00 was paid to
the Amparo Investments Corporation, while the P26,000.00 difference was
retained by the spouses.5 As soon as the spouses had settled their
obligation, the corporation returned the owners duplicate of TCT No. S44980, which was then delivered to Amelia Roberts.
Thereafter, the parties (Amelia Roberts as lessor and Martin Papio as lessee)
executed a two-year contract of lease dated April 15, 1982, effective May 1,
1982. The contract was subject to renewal or extension for a like period at
the option of the lessor, the lessee waiving thereby the benefits of an
implied new lease. The lessee was obliged to pay monthly rentals
of P800.00 to be deposited in the lessors account at the Bank of America,
Makati City branch.6
On July 6, 1982, TCT No. S-44980 was cancelled, and TCT No. 114478 was
issued in the name of Amelia Roberts as owner. 7
Martin Papio paid the rentals from May 1, 1982 to May 1, 1984, and
thereafter, for another year.8 He then failed to pay rentals, but he and his
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family nevertheless remained in possession of the property for a period of

almost thirteen (13) years.
In a letter dated June 3, 1998, Amelia Roberts, through counsel, reminded
Papio that he failed to pay the monthly rental of P2,500.00 from January 1,
1986 to December 31, 1997, and P10,000.00 from January 1, 1998 to May
31, 1998; thus, his total liability was P410,000.00. She demanded that Papio
vacate the property within 15 days from receipt of the letter in case he
failed to settle the amount.9 Because he refused to pay, Papio received
another letter from Roberts on April 22, 1999, demanding, for the last time,
that he and his family vacate the property. 10 Again, Papio refused to leave
the premises.
On June 28, 1999, Amelia Roberts, through her attorney-in-fact, Matilde
Aguilar, filed a Complaint11 for unlawful detainer and damages against
Martin Papio before the MeTC, Branch 64, Makati City. She alleged the
following in her complaint:
Sometime in 1982 she purchased from defendant a 274-sq-m residential
house and lot situated at No. 1046 Teresa St., Brgy. Valenzuela, Makati
City.12 Upon Papios pleas to continue staying in the property, they executed
a two-year lease contract13 which commenced on May 1, 1982. The monthly
rental was P800.00. Thereafter, TCT No. 11447814 was issued in her favor
and she paid all the realty taxes due on the property. When the term of the
lease expired, she still allowed Papio and his family to continue leasing the
property. However, he took advantage of her absence and stopped payment
beginning January 1986, and refused to pay despite repeated demands. In
June 1998, she sent a demand letter15 through counsel requiring Papio to
pay rentals from January 1986 up to May 1998 and to vacate the leased
property. The accumulated arrears in rental are as follows: (a)P360,000.00
from January 1, 1986 to December 31, 1997 at P2,500.00 per month; and
(b) P50,000.00, from January 1, 1998 to May 31, 1998 at P10,000.00 per
month.16 She came to the Philippines but all efforts at an amicable
settlement proved futile. Thus, in April 1999, she sent the final demand
letter to defendant directing him and his family to pay and immediately
vacate the leased premises.17
Roberts appended to her complaint copies of the April 13, 1982 Deed of
Absolute Sale, the April 15, 1982 Contract of Lease, and TCT No. 114478.
In his Answer with counterclaim, Papio alleged the following:
He executed the April 13, 1982 deed of absolute sale and the contract of
lease. Roberts, his cousin who is a resident of California, United States of
America (USA), arrived in the Philippines and offered to redeem the
property. Believing that she had made the offer for the purpose of retaining
2

his ownership over the property, he accepted. She then remitted P59,000.00
to the mortgagor for his account, after which the mortgagee cancelled the
real estate mortgage. However, he was alarmed when the plaintiff had a
deed of absolute sale over the property prepared (for P83,000.00 as
consideration) and asked him to sign the same. She also demanded that the
defendant turn over the owners duplicate of TCT No. S-44980. The
defendant was in a quandary. He then believed that if he signed the deed of
absolute sale, Roberts would acquire ownership over the property. He asked
her to allow him to redeem or reacquire the property at any time for a
reasonable amount.18 When Roberts agreed, Papio signed the deed of
absolute sale.
Pursuant to the right to redeem/repurchase given him by Roberts, Papio
purchased the property for P250,000.00. In July 1985, since Roberts was by
then already in the USA, he remitted to her authorized representative,
Perlita Ventura, the amount of P150,000.00 as partial payment for the
property.19 On June 16, 1986, she again remittedP100,000.00, through
Ventura. Both payments were evidenced by receipts signed by
Ventura.20 Roberts then declared that she would execute a deed of absolute
sale and surrender the title to the property. However, Ventura had
apparently misappropriated P39,000.00 out of the P250,000.00 that she had
received; Roberts then demanded that she pay the amount misappropriated
before executing the deed of absolute sale. Thus, the sole reason why
Roberts refused to abide by her promise was the failure of her authorized
representative to remit the full amount of P250,000.00. Despite Papios
demands, Roberts refused to execute a deed of absolute sale. Accordingly,
defendant posited that plaintiff had no cause of action to demand payment
of rental and eject him from the property.
Papio appended to his Answer the following: (1) the letter dated July 18,
1986 of Perlita Ventura to the plaintiff wherein the former admitted having
used the money of the plaintiff to defray the plane fares of Perlitas parents
to the USA, and pleaded that she be allowed to repay the amount within one
year; (b) the letter of Eugene Roberts (plaintiffs husband) to Perlita Ventura
dated July 25, 1986 where he accused Ventura of stealing the money of
plaintiff Amelia (thus preventing the latter from paying her loan on her
house and effect the cancellation of the mortgage), and demanded that she
deposit the balance;21 and (c) plaintiffs letter to defendant Papio dated July
25, 1986 requesting the latter to convince Ventura to remit the balance
of P39,000.00 so that the plaintiff could transfer the title of the property to
the defendant.22
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Papio asserted that the letters of Roberts and her husband are in
themselves admissions or declarations against interest, hence, admissible
to prove that he had reacquired the property although the title was still in
her possession.
In her Affidavit and Position Paper,23 Roberts averred that she had paid the
real estate taxes on the property after she had purchased it; Papios initial
right to occupy the property was terminated when the original lease period
expired; and his continued possession was only by mere tolerance. She
further alleged that the Deed of Sale states on its face that the conveyance
of the property was absolute and unconditional. She also claimed that any
right to repurchase the property must appear in a public document pursuant
to Article 1358, Paragraph 1, of the Civil Code of the Phililppines. 24 Since no
such document exists, defendants supposed real interest over the property
could not be enforced without violating the Statute of Frauds. 25 She stressed
that her Torrens title to the property was an "absolute and indefeasible
evidence of her ownership of the property which is binding and conclusive
upon the whole world."
Roberts admitted that she demanded P39,000.00 from the defendant in her
letter dated July 25, 1986. However, she averred that the amount
represented his back rentals on the property. 26 She declared that she neither
authorized Ventura to sell the property nor to receive the purchase price
therefor. She merely authorized her to receive the rentals from defendant
and to deposit them in her account. She did not know that Ventura had
received P250,000.00 from Papio in July 1985 and on June 16, 1986, and had
signed receipts therefor. It was only on February 11, 1998 that she became
aware of the receipts when she received defendant Papios letter to which
were appended the said receipts. She and her husband offered to sell the
property to the defendant in 1984 for US$15,000.00 on a "take it or leave it"
basis when they arrived in the Philippines in May 1984. 27However,
defendant refused to accept the offer. The spouses then offered to sell the
property anew on December 20, 1997, for P670,000.00 inclusive of back
rentals.28 However, defendant offered to settle his account with the
spouses.29 Again, the offer came on January 11, 1998, but it was rejected.
The defendant insisted that he had already purchased the property in July
1985 for P250,000.00.
Roberts insisted that Papios claim of the right to repurchase the property,
as well as his claim of payment therefor, is belied by his own letter in which
he offered to settle plaintiffs claim for back rentals. Even assuming that the
purchase price of the property had been paid through Ventura, Papio did not
adduce any proof to show that Ventura had been authorized to sell the
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property or to accept any payment thereon. Any payment to Ventura could

have no binding effect on her since she was not privy to the transaction; if
at all, such agreement would be binding only on Papio and Ventura.
She further alleged that defendants own inaction belies his claim of
ownership over the property: first, he failed to cause any notice or
annotation to be made on the Register of Deeds copy of TCT No. 114478 in
order to protect his supposed adverse claim; second, he did not institute
any action against Roberts to compel the execution of the necessary deed
of transfer of title in his favor; and third, the defense of ownership over the
property was raised only after Roberts demanded him to vacate the
property.
Based solely on the parties pleadings, the MeTC rendered its January 18,
2001 Decision30 in favor of Roberts. The fallo of the decision reads:
WHEREFORE, premises considered, finding this case for the plaintiff, the
defendant is hereby ordered to:
1. Vacate the leased premises known as 1046 Teresa St., Valenzuela,
Makati City;
2. Pay plaintiff the reasonable rentals accrual for the period January 1,
1996 to December 13, 1997 at the rate equivalent to Php2,500.00 per
month and thereafter, Php10,000.00 from January 1998 until he
actually vacates the premises;
3. Pay the plaintiff attorneys fees as Php20,000.00; and
4. Pay the costs
SO ORDERED.31
The MeTC held that Roberts merely tolerated the stay of Papio in the
property after the expiration of the contract of lease on May 1, 1984; hence,
she had a cause of action against him since the only elements in an
unlawful detainer action are the fact of lease and the expiration of its term.
The defendant as tenant cannot controvert the title of the plaintiff or assert
any right adverse thereto or set up any inconsistent right to change the
existing relation between them. The plaintiff need not prove her ownership
over the property inasmuch as evidence of ownership can be admitted only
for the purpose of determining the character and extent of possession, and
the amount of damages arising from the detention.
The court further ruled that Papio made no denials as to the existence and
authenticity of Roberts title to the property. It declared that "the certificate
of title is indefeasible in favor of the person whose name appears therein
and incontrovertible upon the expiration of the one-year period from the
date of issue," and that a Torrens title, "which enjoys a strong presumption
5

of regularity and validity, is generally a conclusive evidence of ownership of

the land referred to therein."
As to Papios claim that the transfer of the property was one with right of
repurchase, the MeTC held it to be bereft of merit since the Deed of Sale is
termed as "absolute and unconditional." The court ruled that the right to
repurchase is not a right granted to the seller by the buyer in a subsequent
instrument but rather, a right reserved in the same contract of sale. Once
the deed of absolute sale is executed, the seller can no longer reserve the
right to repurchase; any right thereafter granted in a separate document
cannot be a right of repurchase but some other right.
As to the receipts of payment signed by Ventura, the court gave credence to
Robertss declaration in her Affidavit that she authorized Ventura only to
collect rentals from Papio, and not to receive the repurchase price. Papios
letter of January 31, 1998, which called her attention to the fact that she
had been sending people without written authority to collect money since
1985, bolstered the courts finding that the payment, if at all intended for
the supposed repurchase, never redounded to the benefit of the spouses
Roberts.
Papio appealed the decision to the RTC, alleging the following:
I.
THE LOWER COURT GRAVELY ERRED IN NOT DISMISSING THE CASE FOR
EJECTMENT OUTRIGHT ON THE GROUND OF LACK OF CAUSE OF ACTION.
II.
THE LOWER COURT GRAVELY ERRED IN NOT CONSIDERING THE
DOCUMENTARY EVIDENCE ADDUCED BY DEFENDANT-APPELLANT WHICH
ESTABLISHED THAT A REPURCHASE TRANSACTION EXISTED BETWEEN THE
PARTIES ONLY THAT PLAINTIFF-APPELLEE WITHHELD THE EXECUTION OF THE
ABSOLUTE DEED OF SALE AND THE TRANSFER OF TITLE OF THE SAME IN
DEFENDANT-APPELLANTS NAME.
III.
THE LOWER COURT GRAVELY ERRED IN NOT CONSIDERING THAT THE
LETTERS OF PLAINTIFF-[APPELLEE] AND OF HER HUSBAND ADDRESSED TO
DEFENDANT-APPELLANT AND HIS WIFE ARE IN THEMSELVES ADMISSION
AND/OR DECLARATION OF THE FACT THAT DEFENDANT-APPELLANT HAD
DULY PAID PLAINTIFF-APPELLEE OF THE PURCHASE AMOUNT COVERING THE
SUBJECT PROPERTY.
IV.
THE LOWER COURT GRAVELY ERRED IN NOT DISMISSING THE CASE FOR
EJECTMENT OUTRIGHT CONSIDERING THAT PLAINTIFF-APPELLEE WHO IS
[AN] AMERICAN CITIZEN AND RESIDENT THEREIN HAD NOT APPEARED IN
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COURT ONCE, NEITHER WAS HER ALLEGED ATTORNEY-IN-FACT, MATILDE

AGUILAR NOR [DID] THE LATTER EVER [FURNISH] THE LOWER COURT A
SPECIAL POWER OF ATTORNEY AUTHORIZING HER TO APPEAR IN COURT IN
BEHALF OF HER PRINCIPAL.32
Papio maintained that Roberts had no cause of action for eviction because
she had already ceded her right thereto when she allowed him to redeem
and reacquire the property upon payment of P250,000.00 to Ventura, her
duly authorized representative. He also contended that Robertss claim that
the authority of Ventura is limited only to the collection of the rentals and
not of the purchase price was a mere afterthought, since her appended
Affidavit was executed sometime in October 1999 when the proceedings in
the MeTC had already started.
On March 26, 2001, Roberts filed a Motion for Issuance of Writ of
Execution.33 The court granted the motion in an Order34 dated June 19, 2001.
Subsequently, a Writ of Execution35 pending appeal was issued on
September 28, 2001. On October 29, 2001, Sheriff Melvin M. Alidon
enforced the writ and placed Roberts in possession of the property.
Meanwhile, Papio filed a complaint with the RTC of Makati City, for specific
performance with damages against Roberts. Papio, as plaintiff, claimed that
he entered into a contract of sale with pacto de retro with Roberts, and
prayed that the latter be ordered to execute a Deed of Sale over `the
property in his favor and transfer the title over the property to and in his
name. The case was docketed as Civil Case No. 01-851.
On October 24, 2001, the RTC rendered judgment affirming the appealed
decision of the MeTC. The fallo of the decision reads: 36
Being in accordance with law and the circumstances attendant to the
instant case, the court finds merit in plaintiff-appellees claim. Wherefore,
the challenged decision dated January 18, 2001 is hereby affirmed in toto.
SO ORDERED.37
Both parties filed their respective motions for reconsideration. 38 In an
Order39 dated February 26, 2002, the court denied the motion of Papio but
modified its decision declaring that the computation of the accrued rentals
should commence from January 1986, not January 1996. The decretal
portion of the decision reads:
Wherefore, the challenged decision dated January 18, 2001 is hereby
affirmed with modification that defendant pay plaintiff the reasonable
rentals accrued for the period January 1, 1986 to December [31, 1997] per
month and thereafter and P10,000.00 [per month] from January 1998 to
October 28, 2001 when defendant-appellant actually vacated the subject
leased premises.
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SO ORDERED.40
On February 28, 2002, Papio filed a petition for review 41 in the CA, alleging
that the RTC erred in not finding that he had reacquired the property from
Roberts for P250,000.00, but the latter refused to execute a deed of
absolute sale and transfer the title in his favor. He insisted that the MeTC
and the RTC erred in giving credence to petitioners claim that she did not
authorize Ventura to receive his payments for the purchase price of the
property, citing Roberts letter dated July 25, 1986 and the letter of Eugene
Roberts to Ventura of even date. He also averred that the MeTC and the RTC
erred in not considering his documentary evidence in deciding the case.
On August 31, 2004, the CA rendered judgment granting the petition. The
appellate court set aside the decision of the RTC and ordered the RTC to
dismiss the complaint. The decretal portion of the Decision 42 reads:
WHEREFORE, the judgment appealed from is hereby REVERSED and SET
ASIDE and a new one entered: (1) rendering an initial determination that the
"Deed of Absolute Sale" dated April 13, 1982 is in fact an equitable
mortgage under Article 1603 of the New Civil Code; and (2) resolving
therefore that petitioner Martin B. Papio is entitled to possession of the
property subject of this action; (3) But such determination of ownership and
equitable mortgage are not clothed with finality and will not constitute a
binding and conclusive adjudication on the merits with respect to the issue
of ownership and such judgment shall not bar an action between the same
parties respecting title to the land, nor shall it be held conclusive of the
facts therein found in the case between the same parties upon a different
cause of action not involving possession. All other counterclaims for
damages are hereby dismissed. Cost against the respondent.
SO ORDERED.43
According to the appellate court, although the MeTC and RTC were correct in
holding that the MeTC had jurisdiction over the complaint for unlawful
detainer, they erred in ignoring Papios defense of equitable mortgage, and
in not finding that the transaction covered by the deed of absolute sale by
and between the parties was one of equitable mortgage under Article 1602
of the New Civil Code. The appellate court ruled that Papio retained the
ownership of the property and its peaceful possession; hence, the MeTC
should have dismissed the complaint without prejudice to the outcome of
Civil Case No. 01-851 relative to his claim of ownership over the property.
Roberts filed a motion for reconsideration of the decision on the following
grounds:

I. Petitioner did not allege in his Answer the defense of equitable

mortgage; hence, the lower courts [should] not have discussed the
same;
II. Even assuming that Petitioner alleged the defense of equitable
mortgage, the MeTC could not have ruled upon the said defense,
III. The M[e]TC and the RTC were not remiss in the exercise of their
jurisdiction.44
The CA denied the motion.
In this petition for review, Amelia Salvador-Roberts, as petitioner, avers that:
I. THE HONORABLE COURT OF APPEALS GRIEVEOUSLY (SIC) ERRED IN
DECLARING THAT THE M[e]TC AN(D) THE RTC WERE REMISS IN THE
EXERCISE OF THAT JURISDICTION ACQUIRED BECAUSE IT DID NOT
CONSIDER ALL PETITIONERS DEFENSE OF EQUITABLE MORTGAGE.
II. THE HONORABLE COURT OF APPEALS GRIEVEOUSLY (SIC) ERRED IN
REQUIRING THE M[e]TC AND RTC TO RULE ON A DEFENSE WHICH WAS
NEVER AVAILED OF BY RESPONDENT.45
Petitioner argues that respondent is barred from raising the issue of
equitable mortgage because his defense in the MeTC and RTC was that he
had repurchased the property from the petitioner; by such representation,
he had impliedly admitted the existence and validity of the deed of absolute
sale whereby ownership of the property was transferred to petitioner but
reverted to him upon the exercise of said right. The respondent even filed a
complaint for specific performance with damages, which is now pending in
the RTC of Makati City, docketed as Civil Case No. 01-851 entitled "Martin B.
Papio vs. Amelia Salvador-Roberts." In that case, respondent claimed that
his transaction with the petitioner was a sale with pacto de retro. Petitioner
posits that Article 1602 of the Civil Code applies only when the defendant
specifically alleges this defense. Consequently, the appellate court was
proscribed from finding that petitioner and respondent had entered into an
equitable mortgage under the deed of absolute sale.
Petitioner further avers that respondent was ably represented by counsel
and was aware of the difference between a pacto de retro sale and an
equitable mortgage; thus, he could not have been mistaken in declaring
that he repurchased the property from her.
As to whether a sale is in fact an equitable mortgage, petitioner claims that
the issue should be properly addressed and resolved by the RTC in an action
to enforce ownership, not in an ejectment case before the MeTC where the
main issue involved is possession de facto. According to her, the obvious
import of the CA Decision is that, in resolving an ejectment case, the lower
court must pass upon the issue of ownership (in this case, by applying the
9

presumptions under Art. 1602) which, in effect, would use the same
yardstick as though it is the main action. The procedure will not only
promote multiplicity of suits but also place the new owner in the absurd
position of having to first seek the declaration of ownership before filing an
ejectment suit.
Respondent counters that the defense of equitable mortgage need not be
particularly stated to apprise petitioner of the nature and character of the
repurchase agreement. He contends that he had amply discussed in his
pleadings before the trial and appellate courts all the surrounding
circumstances of the case, such as the relative situation of the parties at the
time; their attitude, acts, conduct, and declarations; and the negotiations
between them that led to the repurchase agreement. Thus, he argues that
the CA correctly ruled that the contract was one of equitable mortgage. He
insists that petitioner allowed him to redeem and reacquire the property,
and accepted his full payment of the property through Ventura, the
authorized representative, as shown by the signed receipts.
The threshold issues are the following: (1) whether the MeTC had jurisdiction
in an action for unlawful detainer to resolve the issue of who between
petitioner and respondent is the owner of the property and entitled to the
de facto possession thereof; (2) whether the transaction entered into
between the parties under the Deed of Absolute Sale and the Contract of
Lease is an equitable mortgage over the property; and (3) whether the
petitioner is entitled to the material or de facto possession of the property.
The Ruling of the Court
On the first issue, the CA ruling (which upheld the jurisdiction of the MeTC to
resolve the issue of who between petitioner or respondent is the lawful
owner of the property, and is thus entitled to the material or de facto
possession thereof) is correct. Section 18, Rule 70 of the Rules of Court
provides that when the defendant raises the defense of ownership in his
pleadings and the question of possession cannot be resolved without
deciding the issue of ownership, the issue of ownership shall be resolved
only to determine the issue of possession. The judgment rendered in an
action for unlawful detainer shall be conclusive with respect to the
possession only and shall in no wise bind the title or affect the ownership of
the land or building. Such judgment would not bar an action between the
same parties respecting title to the land or building. 46
The summary nature of the action is not changed by the claim of ownership
of the property of the defendant.47The MeTC is not divested of its jurisdiction
over the unlawful detainer action simply because the defendant asserts
ownership over the property.
10

The sole issue for resolution in an action for unlawful detainer is material or
de facto possession of the property. Even if the defendant claims juridical
possession or ownership over the property based on a claim that his
transaction with the plaintiff relative to the property is merely an equitable
mortgage, or that he had repurchased the property from the plaintiff, the
MeTC may still delve into and take cognizance of the case and make an
initial or provisional determination of who between the plaintiff and the
defendant is the owner and, in the process, resolve the issue of who is
entitled to the possession. The MeTC, in unlawful detainer case, decides the
question of ownership only if it is intertwined with and necessary to resolve
the issue of possession.48 The resolution of the MeTC on the ownership of
the property is merely provisional or interlocutory. Any question involving
the issue of ownership should be raised and resolved in a separate action
brought specifically to settle the question with finality, in this case, Civil
Case No. 01-851 which respondent filed before the RTC.
The ruling of the CA, that the contract between petitioner and respondent
was an equitable mortgage, is incorrect. The fact of the matter is that the
respondent intransigently alleged in his answer, and even in his affidavit
and position paper, that petitioner had granted him the right to redeem or
repurchase the property at any time and for a reasonable amount; and that,
he had, in fact, repurchased the property in July 1985 for P250,000.00 which
he remitted to petitioner through an authorized representative who signed
receipts therefor; he had reacquired ownership and juridical possession of
the property after his repurchase thereof in 1985; and consequently,
petitioner was obliged to execute a deed of absolute sale over the property
in his favor.
Notably, respondent alleged that, as stated in his letter to petitioner, he was
given the right to reacquire the property in 1982 within two years upon the
payment of P53,000.00, plus petitioners airfare for her trip to the
Philippines from the USA and back; petitioner promised to sign the deed
of absolute sale. He even filed a complaint against the petitioner in the RTC,
docketed as Civil Case No. 01-851, for specific performance with damages
to compel petitioner to execute the said deed of absolute sale over the
property presumably on the strength of Articles 1357 and 1358 of the New
Civil Code. Certainly then, his claim that petitioner had given him the right
to repurchase the property is antithetical to an equitable mortgage.
An equitable mortgage is one that, although lacking in some formality, form
or words, or other requisites demanded by a statute, nevertheless reveals
the intention of the parties to change a real property as security for a debt
and contain nothing impossible or contrary to law. 49 A contract between the
11

parties is an equitable mortgage if the following requisites are present: (a)

the parties entered into a contract denominated as a contract of sale; and
(b) the intention was to secure an existing debt by way of mortgage. 50 The
decisive factor is the intention of the parties.
In an equitable mortgage, the mortgagor retains ownership over the
property but subject to foreclosure and sale at public auction upon failure of
the mortgagor to pay his obligation.51 In contrast, in a pacto de retro sale,
ownership of the property sold is immediately transferred to the vendee a
retro subject only to the right of the vendor a retro to repurchase the
property upon compliance with legal requirements for the repurchase. The
failure of the vendor a retro to exercise the right to repurchase within the
agreed time vests upon the vendee a retro, by operation of law, absolute
title over the property.52
One repurchases only what one has previously sold. The right to repurchase
presupposes a valid contract of sale between the same parties. 53 By
insisting that he had repurchased the property, respondent thereby
admitted that the deed of absolute sale executed by him and petitioner on
April 13, 1982 was, in fact and in law, a deed of absolute sale and not an
equitable mortgage; hence, he had acquired ownership over the property
based on said deed. Respondent is, thus, estopped from asserting that the
contract under the deed of absolute sale is an equitable mortgage unless
there is allegation and evidence of palpable mistake on the part of
respondent;54 or a fraud on the part of petitioner. Respondent made no such
allegation in his pleadings and affidavit. On the contrary, he maintained that
petitioner had sold the property to him in July 1985 and acknowledged
receipt of the purchase price thereof except the amount of P39,000.00
retained by Perlita Ventura. Respondent is thus bound by his admission of
petitioners ownership of the property and is barred from claiming
otherwise.55
Respondents admission that petitioner acquired ownership over the
property under the April 13, 1982 deed of absolute sale is buttressed by his
admission in the Contract of Lease dated April 15, 1982 that petitioner was
the owner of the property, and that he had paid the rentals for the duration
of the contract of lease and even until 1985 upon its extension. Respondent
was obliged to prove his defense that petitioner had given him the right to
repurchase, and that petitioner obliged herself to resell the property
for P250,000.00 when they executed the April 13, 1982 deed of absolute
sale.
We have carefully reviewed the case and find that respondent failed to
adduce competent and credible evidence to prove his claim.
12

As gleaned from the April 13, 1982 deed, the right of respondent to
repurchase the property is not incorporated therein. The contract is one of
absolute sale and not one with right to repurchase. The law states 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.56 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. 57 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 to assume simply or
merely to avoid seeming hardships.58Their true meaning must be enforced,
as it is to be presumed that the contracting parties know their scope and
effects.59 As the Court held in Villarica, et al. v. Court of Appeals: 60
The right of repurchase is not a right granted the vendor by the vendee in a
subsequent instrument, but is a right reserved by the vendor in the same
instrument of sale as one of the stipulations of the contract. Once the
instrument of absolute sale is executed, the vendor can no longer reserve
the right to repurchase, and any right thereafter granted the vendor by the
vendee in a separate instrument cannot be a right of repurchase but some
other right like the option to buy in the instant case. 61
In Ramos v. Icasiano,62 we also held that an agreement to repurchase
becomes a promise to sell when made after the sale because when the sale
is made without such agreement the purchaser acquires the thing sold
absolutely; and, if he afterwards grants the vendor the right to repurchase,
it is a new contract entered into by the purchaser as absolute owner. An
option to buy or a promise to sell is different and distinct from the right of
repurchase that must be reserved by means of stipulations to that effect in
the contract of sale.63
There is no evidence on record that, on or before July 1985, petitioner
agreed to sell her property to the respondent for P250,000.00. Neither is
there any documentary evidence showing that Ventura was authorized to
offer for sale or sell the property for and in behalf of petitioner
for P250,000.00, or to receive the said amount from respondent as purchase
price of the property. The rule is that when a sale of a piece of land or any
interest therein is through an agent, the authority of the latter shall be in
writing; otherwise, the sale shall be void 64 and cannot produce any legal
effect as to transfer the property from its lawful owner. 65 Being inexistent
and void from the very beginning, said contract cannot be ratified. 66 Any
13

contract entered into by Ventura for and in behalf of petitioner relative to

the sale of the property is void and cannot be ratified by the latter. A void
contract produces no effect either against or in favor of anyone. 67
Respondent also failed to prove that the negotiations between him and
petitioner has culminated in his offer to buy the property for P250,000.00,
and that they later on agreed to the sale of the property for the same
amount. He likewise failed to prove that he purchased and reacquired the
property in July 1985. The evidence on record shows that petitioner had
offered to sell the property for US$15,000 on a "take it or leave it" basis in
May 1984 upon the expiration of the Contract of Lease 68 an offer that was
rejected by respondentwhich is why on December 30, 1997, petitioner and
her husband offered again to sell the property to respondent
for P670,000.00 inclusive of back rentals and the purchase price of the
property under the April 13, 1982 Deed of absolute Sale. 69The offer was
again rejected by respondent. The final offer appears to have been made on
January 11, 199870but again, like the previous negotiations, no contract was
perfected between the parties.
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.71 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 manifested by the meeting of the
offer and the acceptance upon the thing and the cause which are to
constitute the contract.72 Once perfected, they bind the contracting parties
and the obligations arising therefrom have the form of law between the
parties which must 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.73
There was no contract of sale entered into by the parties based on the
Receipts dated July 1985 and June 16, 1986, signed by Perlita Ventura and
the letter of petitioner to respondent dated July 25, 1986.
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. 74 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: 75
14

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.76
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. 77 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. 78
Respondents reliance on petitioners letter to him dated July 25, 1986 is
misplaced. The letter reads in full:
7-25-86
Dear Martin & Ising,
Enclosed for your information is the letter written by my husband to Perlita. I
hope that you will be able to convince your cousin that its to her best
interest to deposit the balance of your payment to me of P39,000.00 in my
bank acct. per our agreement and send me my bank book right away so
that we can transfer the title of the property.
Regards,
Amie 79
We have carefully considered the letter of Perlita Ventura, dated July 18,
1986, and the letter of Eugene Roberts, dated July 25, 1986, where Ventura
admitted having used the money of petitioner amounting to P39,000.00
without the latters knowledge for the plane fare of Venturas parents.
Ventura promised to refund the amount ofP39,000.00, inclusive of interests,
within one year.80 Eugene Roberts berated Ventura and called her a thief for
stealing his and petitioners money and that of respondents wife, Ising, who
allegedly told petitioner that she, Ising, loaned the money to her parents for
their plane fare to the USA. Neither Ventura nor Eugene Roberts declared in
their letters that Ventura had used the P250,000.00 which respondent gave
to her.
Petitioner in her letter to respondent did not admit, either expressly or
impliedly, having received P211,000.00 from Ventura. Moreover, in her
letter to petitioner, only a week earlier, or on July 18, 1986, Ventura
admitted having spent the P39,000.00 and pleaded that she be allowed to
refund the amount within one (1) year, including interests.
15

Naririto ang total ng pera mo sa bankbook mo, P55,000.00 pati na yong

deposit na sarili mo at bale ang nagalaw ko diyan ay P39,000.00. Huwag
kang mag-alala ibabalik ko rin sa iyo sa loob ng isang taon pati interest.
Ate Per81 1awphi1.net
It is incredible that Ventura was able to remit to petitioner P211,000.00
before July 25, 1986 when only a week earlier, she was pleading to
petitioner for a period of one year within which to refund the P39,000.00 to
petitioner.
It would have bolstered his cause if respondent had submitted an affidavit of
Ventura stating that she had remittedP211,000.00 out of the P250,000.00
she received from respondent in July 1985 and June 20, 1986.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed
Decision of the Court of Appeals in CA-G.R. CV No. 69034 is REVERSED and
SET ASIDE. The Decision of the Metropolitan Trial Court, affirmed with
modification by the Regional Trial Court, is AFFIRMED.
SO ORDERED.

16

BOSTON BANK OF THE G. R. No. 158149

PHILIPPINES, (formerly BANK
OF COMMERCE),
Petitioner, Present:
PANGANIBAN, J., Chairperson,
YNARES-SANTIAGO,
AUSTRIA-MARTINEZ,
- versus - CALLEJO, SR., and
CHICO-NAZARIO, JJ.
PERLA P. MANALO and CARLOS
MANALO, JR.,
Promulgated:
Before us is a Petition for Review on Certiorari of the Decision[1] of the Court
of Appeals (CA) in CA-G.R. CV No. 47458 affirming, on appeal, the
Decision[2] of the Regional Trial Court (RTC) of Quezon City, Branch 98, in
Civil Case No. Q-89-3905.
The Antecedents
The Xavierville Estate, Inc. (XEI) was the owner of parcels of land in Quezon
City, known as the Xavierville Estate Subdivision, with an area of 42
hectares. XEI caused the subdivision of the property into residential lots,
which was then offered for sale to individual lot buyers. [3]
On September 8, 1967, XEI, through its General Manager, Antonio
Ramos, as vendor, and The Overseas Bank of Manila (OBM), as vendee,
executed a Deed of Sale of Real Estate over some residential lots in the
subdivision, including Lot 1, Block 2, with an area of 907.5 square meters,
and Lot 2, Block 2, with an area of 832.80 square meters. The transaction
was subject to the approval of the Board of Directors of OBM, and was
covered by real estate mortgages in favor of the Philippine National Bank as
security for its account amounting to P5,187,000.00, and the Central Bank
of the Philippines as security for advances amounting to P22,185,193.74.
[4]
Nevertheless, XEI continued selling the residential lots in the subdivision
as agent of OBM.[5]
Sometime in 1972, then XEI president Emerito Ramos, Jr. contracted
the services of Engr. Carlos Manalo, Jr. who was in business of drilling deep
water wells and installing pumps under the business name Hurricane
Commercial, Inc. For P34,887.66, Manalo, Jr. installed a water pump at
17

Ramos residence at the corner of Aurora Boulevardand Katipunan

Avenue, Quezon City. Manalo, Jr. then proposed to XEI, through Ramos, to
purchase a lot in the Xavierville subdivision, and offered as part of the
downpayment the P34,887.66 Ramos owed him. XEI, through Ramos,
agreed. In a letter dated February 8, 1972, Ramos requested Manalo, Jr. to
choose which lots he wanted to buy so that the price of the lots and the
terms of payment could be fixed and incorporated in the conditional sale.
[6]
Manalo, Jr. met with Ramos and informed him that he and his wife Perla
had chosen Lots 1 and 2 of Block 2 with a total area of 1,740.3 square
meters.
In a letter dated August 22, 1972 to Perla Manalo, Ramos confirmed
the reservation of the lots. He also pegged the price of the lots at P200.00
per square meter, or a total of P348,060.00, with a 20% down payment of
the purchase price amounting to P69,612.00 less the P34,887.66 owing
from Ramos, payable on or before December 31, 1972; the corresponding
Contract of Conditional Sale would then be signed on or before the same
date, but if the selling operations of XEI resumed after December 31, 1972,
the balance of the downpayment would fall due then, and the spouses
would sign the aforesaid contract within five (5) days from receipt of the
notice of resumption of such selling operations. It was also stated in the
letter that, in the meantime, the spouses may introduce improvements
thereon subject to the rules and regulations imposed by XEI in the
subdivision. Perla Manalo conformed to the letter agreement. [7]
The spouses Manalo took possession of the property on September 2,
1972, constructed a house thereon, and installed a fence around the
perimeter of the lots.
In the meantime, many of the lot buyers refused to pay their monthly
installments until they were assured that they would be issued Torrens titles
over the lots they had purchased.[8] The spouses Manalo were notified of the
resumption of the selling operations of XEI. [9] However, they did not pay the
balance of the downpayment on the lots because Ramos failed to prepare a
contract of conditional sale and transmit the same to Manalo for their
signature. On August 14, 1973, Perla Manalo went to the XEI office and
requested that the payment of the amount representing the balance of the
downpayment be deferred, which, however, XEI rejected. On August
10, 1973, XEI furnished her with a statement of their account as of July 31,
1973, showing that they had a balance of P34,724.34 on the downpayment
of
the
two
lots
after
deducting
the
account
of
Ramos,
[10]
plus P3,819.68
interest thereon from September 1, 1972 to July 31, 1973,
18

and that the interests on the unpaid balance of the purchase price
ofP278,448.00 from September 1, 1972 to July 31, 1973 amounted
to P30,629.28.[11] The spouses were informed that they were being billed for
said unpaid interests.[12]
On January 25, 1974, the spouses Manalo received another statement
of account from XEI, inclusive of interests on the purchase price of the lots.
[13]
In a letter dated April 6, 1974 to XEI, Manalo, Jr. stated they had not yet
received the notice of resumption of Leis selling operations, and that there
had been no arrangement on the payment of interests; hence, they should
not be charged with interest on the balance of the downpayment on the
property.[14] Further, they demanded that a deed of conditional sale over the
two lots be transmitted to them for their signatures. However, XEI ignored
the demands. Consequently, the spouses refused to pay the balance of the
downpayment of the purchase price.[15]
Sometime in June 1976, Manalo, Jr. constructed a business sign in the
sidewalk near his house. In a letter dated June 17, 1976, XEI informed
Manalo, Jr. that business signs were not allowed along the sidewalk.
It demanded that he remove the same, on the ground, among others, that
the sidewalk was not part of the land which he had purchased on
installment basis from XEI.[16] Manalo, Jr. did not respond. XEI reiterated its
demand on September 15, 1977.[17]
Subsequently, XEI turned over its selling operations to OBM, including
the receivables for lots already contracted and those yet to be sold.
[18]
On December 8, 1977, OBM warned Manalo, Jr., that putting up of a
business sign is specifically prohibited by their contract of conditional sale
and that his failure to comply with its demand would impel it to avail of the
remedies as provided in their contract of conditional sale. [19]
Meanwhile, on December 5, 1979, the Register of Deeds issued
Transfer Certificate of Title (TCT) No. T-265822 over Lot 1, Block 2, and TCT
No. T-265823 over Lot 2, Block 2, in favor of the OBM. [20] The lien in favor of
the Central Bank of the Philippines was annotated at the dorsal portion of
said title, which was later cancelled on August 4, 1980.[21]
Subsequently, the Commercial Bank of Manila (CBM) acquired the
Xavierville Estate from OBM. CBM wrote Edilberto Ng, the president of
Xavierville Homeowners Association that, as of January 31, 1983, Manalo, Jr.
was one of the lot buyers in the subdivision. [22] CBM reiterated in its letter to
19

Ng that, as of January 24, 1984, Manalo was a homeowner in the

subdivision.[23]
In a letter dated August 5, 1986, the CBM requested Perla Manalo to
stop any on-going construction on the property since it (CBM) was the
owner of the lot and she had no permission for such construction. [24] She
agreed to have a conference meeting with CBM officers where she informed
them that her husband had a contract with OBM, through XEI, to purchase
the property. When asked to prove her claim, she promised to send the
documents to CBM. However, she failed to do so. [25] On September 5, 1986,
CBM reiterated its demand that it be furnished with the documents
promised,[26] but Perla Manalo did not respond.
On July 27, 1987, CBM filed a complaint[27] for unlawful detainer against
the spouses with the Metropolitan Trial Court of Quezon City. The case was
docketed as Civil Case No. 51618. CBM claimed that the spouses had been
unlawfully occupying the property without its consent and that despite its
demands, they refused to vacate the property.The latter alleged that they,
as vendors, and XEI, as vendee, had a contract of sale over the lots which
had not yet been rescinded.[28]
While the case was pending, the spouses Manalo wrote CBM to offer an
amicable settlement, promising to abide by the purchase price of the
property (P313,172.34), per agreement with XEI, through Ramos. However,
on July 28, 1988, CBM wrote the spouses, through counsel, proposing that
the price of P1,500.00 per square meter of the property was a
reasonable starting point for negotiation of the settlement. [29] The spouses
rejected the counter proposal,[30] emphasizing that they would abide by their
original
agreement
with
XEI.
CBM
moved
to
withdraw
its
[31]
[32]
complaint
because of the issues raised.
In the meantime, the CBM was renamed the Boston Bank of
the Philippines. After CBM filed its complaint against the spouses Manalo,
the latter filed a complaint for specific performance and damages against
the bank before the Regional Trial Court (RTC) of Quezon City on October 31,
1989.
The plaintiffs alleged therein that they had always been ready, able
and willing to pay the installments on the lots sold to them by the
defendants remote predecessor-in-interest, as might be or stipulated in the
contract of sale, but no contract was forthcoming; they constructed their
house worth P2,000,000.00 on the property in good faith; Manalo, Jr.,
20

informed the defendant, through its counsel, on October 15, 1988 that he
would abide by the terms and conditions of his original agreement with the
defendants predecessor-in-interest; during the hearing of the ejectment
case on October 16, 1988, they offered to pay P313,172.34 representing the
balance on the purchase price of said lots; such tender of payment was
rejected, so that the subject lots could be sold at considerably higher prices
to third parties.
Plaintiffs further alleged that upon payment of the P313,172.34, they
were entitled to the execution and delivery of a Deed of Absolute Sale
covering the subject lots, sufficient in form and substance to transfer title
thereto free and clear of any and all liens and encumbrances of whatever
kind and nature.[33] The plaintiffs prayed that, after due hearing, judgment
be rendered in their favor, to wit:
WHEREFORE, it is respectfully prayed that after due hearing:
(a) The defendant should be ordered to execute and deliver
a Deed of Absolute Sale over subject lots in favor of the plaintiffs
after payment of the sum of P313,172.34, sufficient in form and
substance to transfer to them titles thereto free and clear of any
and all liens and encumbrances of whatever kind or nature;
(b) The defendant should be held liable for moral and
exemplary
damages
in
the
amounts
of P300,000.00
and P30,000.00, respectively, for not promptly executing and
delivering to plaintiff the necessary Contract of Sale,
notwithstanding repeated demands therefor and for having been
constrained to engage the services of undersigned counsel for
which they agreed to pay attorneys fees in the sum of P50,000.00
to enforce their rights in the premises and appearance fee
of P500.00;
(c) And for such other and further relief as may be just and
equitable in the premises.[34]
In its Answer to the complaint, the defendant interposed the following
affirmative defenses: (a) plaintiffs had no cause of action against it because
the August 22, 1972 letter agreement between XEI and the plaintiffs was
not binding on it; and (b) it had no record of any contract to sell executed by
it or its predecessor, or of any statement of accounts from its predecessors,
21

or records of payments of the plaintiffs or of any documents which entitled

them to the possession of the lots. [35] The defendant, likewise, interposed
counterclaims for damages and attorneys fees and prayed for the eviction
of the plaintiffs from the property.[36]
Meanwhile, in a letter dated January 25, 1993, plaintiffs, through
counsel,
proposed
an
amicable
settlement
of
the
case
by
paying P942,648.70, representing the balance of the purchase price of the
two lots based on the current market value. [37] However, the defendant
rejected the same and insisted that for the smaller lot, they
pay P4,500,000.00, the current market value of the property. [38] The
defendant insisted that it owned the property since there was no contract or
agreement between it and the plaintiffs relative thereto.
During the trial, the plaintiffs adduced in evidence the separate
Contracts of Conditional Sale executed between XEI and Alberto Soller;
[39]
Alfredo Aguila,[40] and Dra. Elena Santos-Roque[41] to prove that XEI
continued selling residential lots in the subdivision as agent of OBM after
the latter had acquired the said lots.
For its part, defendant presented in evidence the letter dated August
22, 1972, where XEI proposed to sell the two lots subject to two suspensive
conditions: the payment of the balance of the downpayment of the
property, and the execution of the corresponding contract of conditional
sale. Since plaintiffs failed to pay, OBM consequently refused to execute the
corresponding contract of conditional sale and forfeited the P34,877.66
downpayment for the two lots, but did not notify them of said forfeiture. [42] It
alleged that OBM considered the lots unsold because the titles thereto bore
no annotation that they had been sold under a contract of conditional sale,
and the plaintiffs were not notified of XEIs resumption of its selling
operations.
On May 2, 1994, the RTC rendered judgment in favor of the plaintiffs
and against the defendant. The fallo of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiffs and against the defendant
(a) Ordering the latter to execute and deliver a Deed of
Absolute Sale over Lot 1 and 2, Block 2 of the Xavierville Estate
Subdivision after payment of the sum of P942,978.70 sufficient in
22

form and substance to transfer to them titles thereto free from

any and all liens and encumbrances of whatever kind and nature.
(b) Ordering the defendant to pay moral and exemplary
damages in the amount of P150,000.00; and
(c) To pay attorneys fees in the sum of P50,000.00 and to
pay the costs.
SO ORDERED.[43]
The trial court ruled that under the August 22, 1972 letter agreement of
XEI and the plaintiffs, the parties had a complete contract to sell over the
lots, and that they had already partially consummated the same. It declared
that the failure of the defendant to notify the plaintiffs of the resumption of
its selling operations and to execute a deed of conditional sale did not
prevent the defendants obligation to convey titles to the lots from acquiring
binding effect. Consequently, the plaintiffs had a cause of action to compel
the defendant to execute a deed of sale over the lots in their favor.
Boston Bank appealed the decision to the CA, alleging that the lower
court erred in (a) not concluding that the letter of XEI to the spouses
Manalo, was at most a mere contract to sell subject to suspensive
conditions, i.e., the payment of the balance of the downpayment on the
property and the execution of a deed of conditional sale (which were not
complied with); and (b) in awarding moral and exemplary damages to the
spouses Manalo despite the absence of testimony providing facts to justify
such awards.[44]
On September 30, 2002, the CA rendered a decision affirming that of
the RTC with modification. The fallo reads:
WHEREFORE, the appealed decision is AFFIRMED with
MODIFICATIONS that (a) the figure P942,978.70 appearing [in]
par. (a) of the dispositive portion thereof is changed
toP313,172.34 plus interest thereon at the rate of 12% per annum
from September 1, 1972 until fully paid and (b) the award of
moral and exemplary damages and attorneys fees in favor of
plaintiffs-appellees is DELETED.
SO ORDERED.[45]
23

The appellate court sustained the ruling of the RTC that the appellant
and the appellees had executed a Contract to Sell over the two lots but
declared that the balance of the purchase price of the property amounting
to P278,448.00 was payable in fixed amounts, inclusive of pre-computed
interests, from delivery of the possession of the property to the appellees on
a monthly basis for 120 months, based on the deeds of conditional sale
executed by XEI in favor of other lot buyers. [46] The CA also declared that,
while XEI must have resumed its selling operations before the end of 1972
and the downpayment on the property remained unpaid as of December 31,
1972, absent a written notice of cancellation of the contract to sell from the
bank or notarial demand therefor as required by Republic Act No. 6552, the
spouses had, at the very least, a 60-day grace period from January 1, 1973
within which to pay the same.
Boston Bank filed a motion for the reconsideration of the decision
alleging that there was no perfected contract to sell the two lots, as there
was no agreement between XEI and the respondents on the manner of
payment as well as the other terms and conditions of the sale. It further
averred that its claim for recovery of possession of the aforesaid lots in its
Memorandum dated February 28, 1994 filed before the trial court
constituted a judicial demand for rescission that satisfied the requirements
of the New Civil Code.However, the appellate court denied the motion.
Boston Bank, now petitioner, filed the instant petition for review
on certiorari assailing the CA rulings. It maintains that, as held by the CA,
the records do not reflect any schedule of payment of the 80% balance of
the purchase price, or P278,448.00. Petitioner insists that unless the parties
had agreed on the manner of payment of the principal amount, including
the other terms and conditions of the contract, there would be no existing
contract of sale or contract to sell. [47] Petitioner avers that the letter
agreement to respondent spouses dated August 22, 1972 merely confirmed
their reservation for the purchase of Lot Nos. 1 and 2, consisting of 1,740.3
square meters, more or less, at the price of P200.00 per square meter
(or P348,060.00), the amount of the downpayment thereon and the
application of the P34,887.00 due from Ramos as part of such
downpayment.
Petitioner asserts that there is no factual basis for the CA ruling that
the terms and conditions relating to the payment of the balance of the
purchase price of the property (as agreed upon by XEI and other lot buyers
24

in the same subdivision) were also applicable to the contract entered into
between the petitioner and the respondents. It insists that such a ruling is
contrary to law, as it is tantamount to compelling the parties to agree to
something that was not even discussed, thus, violating their freedom to
contract. Besides, the situation of the respondents cannot be equated with
those of the other lot buyers, as, for one thing, the respondents made a
partial payment on the downpayment for the two lots even before the
execution of any contract of conditional sale.
Petitioner posits that, even on the assumption that there was a
perfected contract to sell between the parties, nevertheless, it cannot be
compelled to convey the property to the respondents because the latter
failed to pay the balance of the downpayment of the property, as well as the
balance of 80% of the purchase price, thus resulting in the extinction of its
obligation to convey title to the lots to the respondents.
Another egregious error of the CA, petitioner avers, is the application of
Republic Act No. 6552. It insists that such law applies only to a perfected
agreement or perfected contract to sell, not in this case where the
downpayment on the purchase price of the property was not completely
paid, and no installment payments were made by the buyers.
Petitioner also faults the CA for declaring that petitioner failed to serve
a notice on the respondents of cancellation or rescission of the contract to
sell, or notarial demand therefor. Petitioner insists that its August 5,
1986 letter requiring respondents to vacate the property and its complaint
for ejectment in Civil Case No. 51618 filed in the Metropolitan Trial Court
amounted to the requisite demand for a rescission of the contract to sell.
Moreover, the action of the respondents below was barred by laches
because despite demands, they failed to pay the balance of the purchase
price of the lots (let alone the downpayment) for a considerable number of
years.
For their part, respondents assert that as long as there is a meeting of
the minds of the parties to a contract of sale as to the price, the contract is
valid despite the parties failure to agree on the manner of payment. In such
a situation, the balance of the purchase price would be payable on demand,
conformably to Article 1169 of the New Civil Code. They insist that the law
does not require a party to agree on the manner of payment of the purchase
price as a prerequisite to a valid contract to sell. The respondents cite the
ruling of this Court in Buenaventura v. Court of Appeals [48] to support their
submission.
25

They argue that even if the manner and timeline for the payment of
the balance of the purchase price of the property is an essential requisite of
a contract to sell, nevertheless, as shown by their letter agreement of
August 22, 1972 with the OBM, through XEI and the other letters to them,
an agreement was reached as to the manner of payment of the balance of
the purchase price. They point out that such letters referred to the terms of
the terms of the deeds of conditional sale executed by XEI in favor of the
other lot buyers in the subdivision, which contained uniform terms of 120
equal monthly installments (excluding the downpayment, but inclusive of
pre-computed interests). The respondents assert that XEI was a real estate
broker and knew that the contracts involving residential lots in the
subdivision contained uniform terms as to the manner and timeline of the
payment of the purchase price of said lots.
Respondents further posit that the terms and conditions to be
incorporated in the corresponding contract of conditional sale to be
executed by the parties would be the same as those contained in the
contracts of conditional sale executed by lot buyers in the subdivision. After
all, they maintain, the contents of the corresponding contract of conditional
sale referred to in the August 22, 1972 letter agreement envisaged those
contained in the contracts of conditional sale that XEI and other lot buyers
executed. Respondents cite the ruling of this Court in Mitsui Bussan Kaisha
v. Manila E.R.R. & L. Co.[49]
The respondents aver that the issues raised by the petitioner are
factual, inappropriate in a petition for review on certiorari under Rule 45 of
the Rules of Court. They assert that petitioner adopted a theory in litigating
the case in the trial court, but changed the same on appeal before the CA,
and again in this Court. They argue that the petitioner is estopped from
adopting a new theory contrary to those it had adopted in the trial and
appellate courts. Moreover, the existence of a contract of conditional sale
was admitted in the letters of XEI and OBM. They aver that they became
owners of the lots upon delivery to them by XEI.
The issues for resolution are the following: (1) whether the factual
issues raised by the petitioner are proper; (2) whether petitioner or its
predecessors-in-interest, the XEI or the OBM, as seller, and the respondents,
as buyers, forged a perfect contract to sell over the property; (3)
whether petitioner is estopped from contending that no such contract was
forged by the parties; and (4) whether respondents has a cause of action
against the petitioner for specific performance.
26

The rule is that before this Court, only legal issues may be raised in a
petition for review on certiorari. The reason is that this Court is not a trier of
facts, and is not to review and calibrate the evidence on record. Moreover,
the findings of facts of the trial court, as affirmed on appeal by the Court of
Appeals, are conclusive on this Court unless the case falls under any of the
following exceptions:
(1) when the conclusion is a finding grounded entirely on
speculations, surmises and conjectures; (2) when the inference
made is manifestly mistaken, absurd or impossible; (3) where
there is a grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact
are conflicting; (6) when the Court of Appeals, in making its
findings went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee; (7)
when the findings are contrary to those of the trial court; (8) when
the findings of fact 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 petitioners main and reply briefs are
not disputed by the respondents; and (10) when the findings of
fact of the Court of Appeals are premised on the supposed
absence of evidence and contradicted by the evidence on record.
[50]

We have reviewed the records and we find that, indeed, the ruling of
the appellate court dismissing petitioners appeal is contrary to law and is
not supported by evidence. A careful examination of the factual backdrop of
the case, as well as the antecedental proceedings constrains us to hold that
petitioner is not barred from asserting that XEI or OBM, on one hand, and
the respondents, on the other, failed to forge a perfected contract to sell the
subject lots.
It must be stressed that the Court may consider an issue not raised
during the trial when there is plain error. [51] Although a factual issue was not
raised in the trial court, such issue may still be considered and resolved by
the Court in the interest of substantial justice, if it finds that to do so is
necessary to arrive at a just decision, [52] or when an issue is closely related
to an issue raised in the trial court and the Court of Appeals and is
necessary for a just and complete resolution of the case. [53] When the trial
court decides a case in favor of a party on certain grounds, the Court may
27

base its decision upon some other points, which the trial court or appellate
court ignored or erroneously decided in favor of a party. [54]
In this case, the issue of whether XEI had agreed to allow the
respondents to pay the purchase price of the property was raised by the
parties. The trial court ruled that the parties had perfected a contract to sell,
as against petitioners claim that no such contract existed. However, in
resolving the issue of whether the petitioner was obliged to sell the property
to the respondents, while the CA declared that XEI or OBM and the
respondents failed to agree on the schedule of payment of the balance of
the purchase price of the property, it ruled that XEI and the respondents had
forged a contract to sell; hence, petitioner is entitled to ventilate the issue
before this Court.
We agree with petitioners contention that, for a perfected contract of
sale or contract to sell to exist in law, there must be an agreement of the
parties, not only on the price of the property sold, but also on the manner
the price is to be paid by the vendee.
Under Article 1458 of the New Civil Code, in a contract of sale, whether
absolute or conditional, one of the contracting parties obliges 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. A contract of sale is
perfected at the moment there is a meeting of the minds upon the thing
which is the object of the contract and the price. From the averment of
perfection, the parties are bound, not only to the fulfillment of what has
been expressly stipulated, but also to all the consequences which, according
to their nature, may be in keeping with good faith, usage and law. [55] On the
other hand, when the contract of sale or to sell is not perfected, it cannot,
as an independent source of obligation, serve as a binding juridical relation
between the parties.[56]
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.[57]
It is not enough for the parties to agree on the price of the property.
The parties must also agree on the manner of payment of the price of the
28

property to give rise to a binding and enforceable contract of sale or

contract to sell. This is so because the agreement as to the manner of
payment goes into the price, such that a disagreement on the manner of
payment is tantamount to a failure to agree on the price. [58]
In a contract to sell property by installments, it is not enough that the
parties agree on the price as well as the amount of downpayment. The
parties must, likewise, agree on the manner of payment of the balance of
the purchase price and on the other terms and conditions relative to the
sale. Even if the buyer makes a downpayment or portion thereof, such
payment cannot be considered as sufficient proof of the perfection of any
purchase and sale between the parties. Indeed, this Court ruled in Velasco
v. Court of Appeals[59]that:
It is not difficult to glean from the aforequoted averments
that the petitioners themselves admit that they and the
respondent still had to meet and agree on how and when the
down-payment and the installment payments were to be paid.
Such being the situation, it cannot, therefore, be said that a
definite and firm sales agreement between the parties had been
perfected over the lot in question. Indeed, this Court has already
ruled before that a definite agreement on the manner of payment
of the purchase price is an essential element in the formation of a
binding and enforceable contract of sale. The fact, therefore, that
the petitioners delivered to the respondent the sum of P10,000.00
as part of the downpayment that they had to pay cannot be
considered as sufficient proof of the perfection of any purchase
and sale agreement between the parties herein under article
1482 of the New Civil Code, as the petitioners themselves admit
that some essential matter the terms of payment still had to be
mutually covenanted.[60]
We agree with the contention of the petitioner that, as held by the CA,
there is no showing, in the records, of the schedule of payment of the
balance
of
the
purchase
price
on
the
property
amounting
to P278,448.00. We have meticulously reviewed the records, including
Ramos February 8, 1972 and August 22, 1972 letters to respondents, [61] and
find that said parties confined themselves to agreeing on the price of the
property (P348,060.00), the 20% downpayment of the purchase price
(P69,612.00), and credited respondents for the P34,887.00 owing from
Ramos as part of the 20% downpayment. The timeline for the payment of
the balance of the downpayment (P34,724.34) was also agreed upon, that
29

is, on or before XEI resumed its selling operations, on or before December

31, 1972, or within five (5) days from written notice of such resumption of
selling operations. The parties had also agreed to incorporate all the terms
and conditions relating to the sale, inclusive of the terms of payment of the
balance of the purchase price and the other substantial terms and
conditions in the corresponding contract of conditional sale, to be later
signed by the parties, simultaneously with respondents settlement of the
balance of the downpayment.
The February 8, 1972 letter of XEI reads:
Mr. Carlos T. Manalo, Jr.
Hurricane Rotary Well Drilling
Rizal Avenue Ext.,Caloocan City
Dear Mr. Manalo:
We agree with your verbal offer to exchange the proceeds of
your contract with us to form as a down payment for a lot in our
Xavierville Estate Subdivision.
Please let us know your choice lot so that we can fix the
price and terms of payment in our conditional sale.
Sincerely yours,
XAVIERVILLE ESTATE, INC.
(Signed)
EMERITO B. RAMOS, JR.
President
CONFORME:
(Signed)
CARLOS T. MANALO, JR.
Hurricane Rotary Well Drilling[62]
The August 22, 1972 letter agreement of XEI and the respondents
reads:
Mrs. Perla P. Manalo
1548 Rizal Avenue Extension
30

Caloocan City
Dear Mrs. Manalo:
This is to confirm your reservation of Lot Nos. 1 and 2; Block 2 of
our consolidation-subdivision plan as amended, consisting of
1,740.3 square meters more or less, at the price of P200.00 per
square meter or a total price of P348,060.00.
It is agreed that as soon as we resume selling operations, you
must pay a down payment of 20% of the purchase price of the
said lots and sign the corresponding Contract of Conditional Sale,
on or before December 31, 1972, provided, however, that if we
resume selling after December 31, 1972, then you must pay the
aforementioned
down
payment
and sign
the
aforesaid
contractwithin five (5) days from your receipt of our notice of
resumption of selling operations.
In the meanwhile, you may introduce such improvements on the
said lots as you may desire, subject to the rules and regulations of
the subdivision.
If the above terms and conditions are acceptable to you, please
signify your conformity by signing on the space herein below
provided.
Thank you.
Very truly yours,
XAVIERVILLE ESTATE, INC. CONFORME:
By:
(Signed) (Signed)
EMERITO B. RAMOS, JR. PERLA P. MANALO
President Buyer[63]
Based on these two letters, the determination of the terms of payment
of the P278,448.00 had yet to be agreed upon on or before December 31,
1972, or even afterwards, when the parties sign the corresponding contract
of conditional sale.
31

Jurisprudence is that if a material element of a contemplated contract

is left for future negotiations, the same is too indefinite to be enforceable.
[64]
And when an essential element of a contract is reserved for future
agreement of the parties, no legal obligation arises until such future
agreement is concluded.[65]
So long as an essential element entering into the proposed obligation
of either of the parties remains to be determined by an agreement which
they are to make, the contract is incomplete and unenforceable. [66] The
reason is that such a contract is lacking in the necessary qualities of
definiteness, certainty and mutuality.[67]
There is no evidence on record to prove that XEI or OBM and the
respondents had agreed, after December 31, 1972, on the terms of
payment of the balance of the purchase price of the property and the other
substantial terms and conditions relative to the sale. Indeed, the parties are
in agreement that there had been no contract of conditional sale ever
executed by XEI, OBM or petitioner, as vendor, and the respondents, as
vendees.[68]
The ruling of this Court in Buenaventura v. Court of Appeals has no
bearing in this case because the issue of the manner of payment of the
purchase price of the property was not raised therein.
We reject the submission of respondents that they and Ramos had
intended to incorporate the terms of payment contained in the three
contracts of conditional sale executed by XEI and other lot buyers in the
corresponding contract of conditional sale, which would later be signed by
them.[69] We have meticulously reviewed the respondents complaint and find
no such allegation therein.[70] Indeed, respondents merely alleged in their
complaint that they were bound to pay the balance of the purchase price of
the property in installments. When respondent Manalo, Jr. testified, he was
never asked, on direct examination or even on cross-examination, whether
the terms of payment of the balance of the purchase price of the lots under
the contracts of conditional sale executed by XEI and other lot buyers would
form part of the corresponding contract of conditional sale to be signed by
them simultaneously with the payment of the balance of the downpayment
on the purchase price.
We note that, in its letter to the respondents dated June 17, 1976, or
almost three years from the execution by the parties of their August 22,
1972 letter agreement, XEI stated, in part, that respondents had purchased
32

the property on installment basis. [71] However, in the said letter, XEI failed to
state a specific amount for each installment, and whether such payments
were to be made monthly, semi-annually, or annually. Also, respondents, as
plaintiffs below, failed to adduce a shred of evidence to prove that they
were obliged to pay the P278,448.00 monthly, semi-annually or annually.
The allegation that the payment of the P278,448.00 was to be paid in
installments is, thus, vague and indefinite. Case law is that, for a contract to
be enforceable, its terms must be certain and explicit, not vague or
indefinite.[72]
There is no factual and legal basis for the CA ruling that, based on the
terms of payment of the balance of the purchase price of the lots under the
contracts of conditional sale executed by XEI and the other lot buyers,
respondents were obliged to pay the P278,448.00 with pre-computed
interest of 12% per annum in 120-month installments. As gleaned from the
ruling of the appellate court, it failed to justify its use of the terms of
payment under the three contracts of conditional sale as basis for such
ruling, to wit:
On the other hand, the records do not disclose the schedule
of payment of the purchase price, net of the downpayment.
Considering, however, the Contracts of Conditional Sale (Exhs. N,
O and P) entered into by XEI with other lot buyers, it would appear
that the subdivision lots sold by XEI, under contracts to sell, were
payable in 120 equal monthly installments (exclusive of the
downpayment but including pre-computed interests) commencing
on delivery of the lot to the buyer.[73]
By its ruling, the CA unilaterally supplied an essential element to the
letter agreement of XEI and the respondents. Courts should not undertake
to make a contract for the parties, nor can it enforce one, the terms of
which are in doubt.[74] Indeed, the Court emphasized in Chua v. Court of
Appeals[75] that it is not the province of a court to alter a contract by
construction or to make a new contract for the parties; its duty is confined
to the interpretation of the one which they have made for themselves,
without regard to its wisdom or folly, as the court cannot supply material
stipulations or read into contract words which it does not contain.
Respondents, as plaintiffs below, failed to allege in their complaint that
the terms of payment of the P278,448.00 to be incorporated in the
corresponding contract of conditional sale were those contained in the
33

contracts of conditional sale executed by XEI and Soller, Aguila and Roque.
[76]
They likewise failed to prove such allegation in this Court.
The bare fact that other lot buyers were allowed to pay the balance of
the purchase price of lots purchased by them in 120 or 180 monthly
installments does not constitute evidence that XEI also agreed to give the
respondents the same mode and timeline of payment of the P278,448.00.
Under Section 34, Rule 130 of the Revised Rules of Court, evidence
that one did a certain thing at one time is not admissible to prove that he
did the same or similar thing at another time, although such evidence may
be received to prove habit, usage, pattern of conduct or the intent of the
parties.
Similar acts as evidence. Evidence that one did or did not do
a certain thing at one time is not admissible to prove that he did
or did not do the same or a similar thing at another time; but it
may be received to prove a specific intent or knowledge, identity,
plan, system, scheme, habit, custom or usage, and the like.
However, respondents failed to allege and prove, in the trial court,
that, as a matter of business usage, habit or pattern of conduct, XEI granted
all lot buyers the right to pay the balance of the purchase price in
installments of 120 months of fixed amounts with pre-computed interests,
and that XEI and the respondents had intended to adopt such terms of
payment relative to the sale of the two lots in question. Indeed, respondents
adduced in evidence the three contracts of conditional sale executed by XEI
and other lot buyersmerely to prove that XEI continued to sell lots in the
subdivision as sales agent of OBM after it acquired said lots, not to prove
usage, habit or pattern of conduct on the part of XEI to require all lot buyers
in the subdivision to pay the balance of the purchase price of said lots in
120 months. It further failed to prive that the trial court admitted the said
deeds[77] as part of the testimony of respondent Manalo, Jr. [78]
Habit, custom, usage or pattern of conduct must be proved like any
other facts. Courts must contend with the caveat that, before they admit
evidence of usage, of habit or pattern of conduct, the offering party must
establish the degree of specificity and frequency of uniform response that
ensures more than a mere tendency to act in a given manner but rather,
conduct that is semi-automatic in nature. The offering party must allege and
prove specific, repetitive conduct that might constitute evidence of
habit. The examples offered in evidence to prove habit, or pattern of
evidence must be numerous enough to base on inference of systematic
34

conduct. Mere similarity of contracts does not present the kind of

sufficiently similar circumstances to outweigh the danger of prejudice and
confusion.
In determining whether the examples are numerous enough, and
sufficiently regular, the key criteria are adequacy of sampling and uniformity
of response. After all, habit means a course of behavior of a person regularly
represented in like circumstances.[79] It is only when examples offered to
establish pattern of conduct or habit are numerous enough to lose an
inference of systematic conduct that examples are admissible. The key
criteria are adequacy of sampling and uniformity of response or ratio of
reaction to situations.[80]
There are cases where the course of dealings to be followed is defined
by the usage of a particular trade or market or profession. As expostulated
by Justice Benjamin Cardozo of the United States Supreme Court: Life casts
the moulds of conduct, which will someday become fixed as law. Law
preserves the moulds which have taken form and shape from life. [81] Usage
furnishes a standard for the measurement of many of the rights and acts of
men.[82] It is also well-settled that parties who contract on a subject matter
concerning which known usage prevail, incorporate such usage by
implication into their agreement, if nothing is said to be contrary. [83]
However, the respondents inexplicably failed to adduce sufficient
competent evidence to prove usage, habit or pattern of conduct of XEI to
justify the use of the terms of payment in the contracts of the other lot
buyers, and thus grant respondents the right to pay the P278,448.00 in 120
months, presumably because of respondents belief that the manner of
payment of the said amount is not an essential element of a contract to
sell. There is no evidence that XEI or OBM and all the lot buyers in the
subdivision, including lot buyers who pay part of the downpayment of the
property purchased by them in the form of service, had executed contracts
of conditional sale containing uniform terms and conditions. Moreover,
under the terms of the contracts of conditional sale executed by XEI and
three lot buyers in the subdivision, XEI agreed to grant 120 months within
which to pay the balance of the purchase price to two of them, but granted
one 180 months to do so.[84] There is no evidence on record that XEI granted
the same right to buyers of two or more lots.
Irrefragably, under Article 1469 of the New Civil Code, the price of the
property sold may be considered certain if it be so with reference to another
thing certain. It is sufficient if it can be determined by the stipulations of the
35

contract made by the parties thereto [85] or by reference to an agreement

incorporated in the contract of sale or contract to sell or if it is capable of
being ascertained with certainty in said contract; [86] or if the contract
contains express or implied provisions by which it may be rendered certain;
[87]
or if it provides some method or criterion by which it can be definitely
ascertained.[88] As this Court held in Villaraza v. Court of Appeals,[89] the price
is considered certain if, by its terms, the contract furnishes a basis or
measure for ascertaining the amount agreed upon.
We have carefully reviewed the August 22, 1972 letter agreement of
the parties and find no direct or implied reference to the manner and
schedule of payment of the balance of the purchase price of the lots
covered by the deeds of conditional sale executed by XEI and that of the
other lot buyers[90] as basis for or mode of determination of the schedule of
the payment by the respondents of the P278,448.00.
The ruling of this Court in Mitsui Bussan Kaisha v. Manila Electric
Railroad and Light Company[91] is not applicable in this case because the
basic price fixed in the contract was P9.45 per long ton, but it was stipulated
that the price was subject to modification in proportion to variations in
calories and ash content, and not otherwise. In this case, the parties did not
fix in their letters-agreement, any method or mode of determining the terms
of payment of the balance of the purchase price of the property amounting
toP278,448.00.
It bears stressing that the respondents failed and refused to pay the
balance of the downpayment and of the purchase price of the property
amounting to P278,448.00 despite notice to them of the resumption by XEI
of its selling operations. The respondents enjoyed possession of the
property without paying a centavo. On the other hand, XEI and OBM failed
and refused to transmit a contract of conditional sale to the respondents.
The respondents could have at least consigned the balance of the
downpayment after notice of the resumption of the selling operations of XEI
and filed an action to compel XEI or OBM to transmit to them the said
contract; however, they failed to do so.
As a consequence, respondents and XEI (or OBM for that matter) failed
to forge a perfected contract to sell the two lots; hence, respondents have
no cause of action for specific performance against petitioner. Republic Act
No. 6552 applies only to a perfected contract to sell and not to a contract
with no binding and enforceable effect.
36

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The

Decision of the Court of Appeals in CA-G.R. CV No. 47458
is REVERSED and SET ASIDE. The Regional Trial Court of Quezon City,
Branch 98 is ordered to dismiss the complaint. Costs against the
respondents.
SO ORDERED.

37

SPS. LUIS V. CRUZ and G.R. NO. 145470

AIDA CRUZ,
Petitioners, Present:
PUNO, Chairman,
AUSTRIA-MARTINEZ,
- versus - CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.
SPS. ALEJANDRO FERNANDO,
SR., and RITA FERNANDO, Promulgated:
Respondents. December 9, 2005
x------------------------------------------------- -x
DECISION
AUSTRIA-MARTINEZ, J.:
For resolution is a petition for review on certiorari under Rule 45 of the
Rules of Court, assailing the Decision [1] dated October 3, 2000 of the Court
of Appeals (CA) in CA-G.R. CV No. 61247, dismissing petitioners appeal and
affirming the decision of the Regional Trial Court (RTC) of Malolos, Bulacan,
Branch 79, in Civil Case No. 877-M-94.
The antecedent facts are as follows:
Luis V. Cruz and Aida Cruz (petitioners) are occupants of the front portion of
a 710-square meter property located in Sto. Cristo, Baliuag, Bulacan. On
October 21, 1994, spouses Alejandro Fernando, Sr. and Rita Fernando
(respondents) filed before the RTC a complaint for accion publiciana against
petitioners, demanding the latter to vacate the premises and to pay the
amount of P500.00 a month as reasonable rental for the use thereof.
Respondents alleged in their complaint that: (1) they are owners of the
property, having bought the same from the spouses Clodualdo and Teresita
Glorioso (Gloriosos) per Deed of Sale dated March 9, 1987; (2) prior to their
acquisition of the property, the Gloriosos offered to sell to petitioners the
rear portion of the property but the transaction did not materialize due to
petitioners failure to exercise their option; (3) the offer to sell is embodied in
aKasunduan dated August 6, 1983 executed before the Barangay Captain;
(4) due to petitioners failure to buy the allotted portion, respondents bought
38

the whole property from the Gloriosos; and (5) despite repeated demands,
petitioners refused to vacate the property. [2]
Petitioners filed a Motion to Dismiss but the RTC dismissed it for lack of
merit in its Order dated March 6, 1995. [3] Petitioners then filed their Answer
setting forth the affirmative defenses that: (1) the Kasunduan is a perfected
contract of sale; (2) the agreement has already been partially consummated
as they already relocated their house from the rear portion of the lot to the
front portion that was sold to them; (3) Mrs. Glorioso prevented the
complete consummation of the sale when she refused to have the exact
boundaries of the lot bought by petitioners surveyed, and the existing
survey was made without their knowledge and participation; and (4)
respondents are buyers in bad faith having bought that portion of the lot
occupied by them (petitioners) with full knowledge of the prior sale to them
by the Gloriosos.[4]
After due proceedings, the RTC rendered a Decision on April 3, 1998 in favor
of respondents. The decretal portion of the decision provides:
PREMISES CONSIDERED, the herein plaintiffs was able to
prove by preponderance of evidence the case of accion
publiciana, against the defendants and judgment is hereby
rendered as follows:
1. Ordering defendants and all persons claiming under them
to vacate placefully (sic) the premises in question and to remove
their house therefore (sic);
2. Ordering defendants to pay plaintiff the sum of P500.00 as
reasonable rental per month beginning October 21, 1994 when
the case was filed before this Court and every month thereafter
until they vacate the subject premises and to pay the costs of
suit.
The counter claim is hereby DISMISSED for lack of merit.
SO ORDERED.[5]
Petitioners appealed the RTC decision but it was affirmed by the CA per its
Decision dated October 3, 2000.
Hence, the present petition raising the following issues:
39

1. Whether the Honorable Court of Appeals committed an

error of law in holding that the Agreement (Kasunduan) between
the parties was a mere offer to sell, and not a perfected Contract
of Purchase and Sale?
2. Whether the Honorable Court of Appeals committed an
error of law in not holding that where the parties clearly gave the
petitioners a period of time within which to pay the price, but did
not fix said period, the remedy of the vendors is to ask the Court
to fix the period for the payment of the price, and not an accion
publiciana?
3. Whether the Honorable Court of Appeals committed an
error of law in not ordering respondents to at least deliver the
back portion of the lot in question upon payment of the agreed
price thereof by petitioners, assuming that the Regional Trial
Court was correct in finding that the subject matter of the sale
was said back portion, and not the front portion of the property?
4. Whether the Honorable Court of Appeals committed an
error of law in affirming the decision of the trial court ordering the
petitioners, who are possessors in good faith, to pay rentals for
the portion of the lot possessed by them? [6]
The RTC dwelt on the issue of which portion was being sold by the
Gloriosos to petitioners, finding that it was the rear portion and not the front
portion that was being sold; while the CA construed the Kasunduan as a
mere contract to sell and due to petitioners failure to pay the purchase
price, the Gloriosos were not obliged to deliver to them (petitioners) the
portion being sold.
Petitioners, however, insist that the agreement was a perfected
contract of sale, and their failure to pay the purchase price is immaterial.
They also contend that respondents have no cause of action against them,
as the obligation set in the Kasunduan did not set a period, consequently,
there is no breach of any obligation by petitioners.
The resolution of the issues in this case principally is dependent on the
interpretation of the Kasunduan dated August 6, 1983 executed by
40

petitioners and the

pertinent stipulations:

Gloriosos.

TheKasunduan provided

the

following

a. Na pumayag ang mga maysumbong (referring to the Gloriosos)

na pagbilhan ang mga ipinagsumbong (referring to
petitioners) na bahagi ng lupa at ang ipagbibili ay may sukat
na 213 metrong parisukat humigit kumulang sa
halagang P40.00 bawat metrong parisukat;
b. Na sa titulong papapanaugin ang magiging kabuuang sukat na
mauukol sa mga ipinagsusumbong ay 223 metrong parisukat
at ang 10 metro nito ay bilang kaloob ng mga maysumbong
sa mga Ipinagsusumbong na bahagi ng right of way;
c. Na ang right of way ay may luwang na 1.75 meters magmula
sa daang Lopez Jaena patungo sa likuran ng lote na
pagtatayuan ng bahay ng mga Ipinagsusumbong na
kanyang bibilhin;
d. Na ang gugol sa pagpapasukat at pagpapanaog ng titulo ay
paghahatian ng magkabilang panig na ang panig ay
magbibigay ng halagang hindi kukulanging sa halagang tigAAPAT NA DAANG PISO (P400.00);
e. Na ang ipinagsusumbong ay tiyakang ililipat ang bahay sa
bahaging kanilang nabili o mabibili sa buwan ng Enero 31,
1984;[7] (Emphasis supplied)
Under Article 1458 of the Civil Code, a contract of sale is a contract by
which one of the contracting parties obligates himself to transfer the
ownership and to deliver a determinate thing, and the other to pay therefor
a price certain in money or its equivalent. Article 1475 of the Code further
provides that the contract of sale is perfected at the moment there is
meeting of the minds upon the thing which is the object of the contract and
upon the price. From that moment the parties may reciprocally demand
performance subject to the provisions of the law governing the form of
contracts.
In a contract of sale, the title to the property passes to the vendee
upon the delivery of the thing sold, as distinguished from a contract to sell
where ownership is, by agreement, reserved in the vendor and is not to pass
to the vendee until full payment of the purchase price. [8] Otherwise stated,
41

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.
The Kasunduan provides for the following terms and conditions: (a)
that the Gloriosos agreed to sell to petitioners a portion of the property with
an area of 213 meters at the price of P40.00 per square meter; (b) that in
the title that will be caused to be issued, the aggregate area is 223 square
meters with 10 meters thereof serving as right of way; (c) that the right of
way shall have a width of 1.75 meters from Lopez Jaena road going towards
the back of the lot where petitioners will build their house on the portion of
the lot that they will buy; (d) that the expenses for the survey and for the
issuance of the title will be divided between the parties with each party
giving an amount of no less thanP400.00; and (e) that petitioners will
definitely relocate their house to the portion they bought or will buy by
January 31, 1984.
The foregoing terms and conditions show that it is a contract to sell
and not a contract of sale. For one, the conspicuous absence of a definite
manner of payment of the purchase price in the agreement confirms the
conclusion that it is a contract to sell. This is because the manner of
payment of the purchase price is an essential element before a
valid and binding contract of sale can exist.[9] Although the Civil Code
does not expressly state that the minds of the parties must also meet on the
terms or manner of payment of the price, the same is needed, otherwise
there is no sale.[10] As held in Toyota Shaw, Inc. vs. Court of Appeals,[11] a
definite agreement on the manner of payment of the price is an essential
element in the formation of a binding and enforceable contract of sale.
The Kasunduan does not establish any definite agreement between the
parties concerning the terms of payment. What it merely provides is the
purchase price for the 213-square meter property at P40.00 per square
meter.
For another, the telltale provision in the Kasunduan that: Na pumayag
ang mga maysumbong na pagbilhan ang mga ipinagsumbong na bahagi ng
lupa at ang ipagbibili ay may sukat na 213 metrong parisukat humigit
kumulang sa halagang P40.00 bawat metrong parisukat, simply means that
42

the Gloriosos only agreed to sell a portion of the property and that the
portion to be sold measures 213 square meters.
Another significant provision is that which reads: Na ang
ipinagsusumbong ay tiyakang ililipat ang bahay sa bahaging kanilang nabili
o mabibili sa buwan ng Enero 31, 1984. The foregoing indicates that a
contract of sale is yet to be consummated and ownership of the property
remained in the Gloriosos. Otherwise, why would the alternative
term mabibili be used if indeed the property had already been sold to
petitioners.
In addition, the absence of any formal deed of conveyance is a strong
indication that the parties did not intend immediate transfer of ownership. [12]
Normally, in a contract to sell, the payment of the purchase price is the
positive suspensive condition upon which the transfer of ownership
depends.[13] The parties, however, are not prohibited from stipulating other
lawful conditions that must be fulfilled in order for the contract to be
converted from a contract to sell or at the most an executory sale into an
executed one.[14]
In the present case, aside from the payment of the purchase price,
there existed another suspensive condition, i.e.: that petitioners will relocate
their house to the portion they bought or will buy by January 31, 1984.
Petitioners failed to abide by the express condition that they should
relocate to the rear portion of the property being bought by January 31,
1984. Indeed, the Kasunduandiscloses that it is the rear portion that was
being sold by the Gloriosos, and not the front portion as petitioners
stubbornly claim. This is evident from the provisions establishing a right of
way from Lopez Jaena road going towards the back of the lot, and requiring
them to relocate their house to the portion being sold by January 31, 1984.
Petitioners are presently occupying the front portion of the property. Why
the need for a right of way and for petitioners to relocate if the front portion
on which their house stands is the portion being sold?
This condition is a suspensive condition noncompliance of which
prevented the Gloriosos from proceeding with the sale and ultimately
transferring title to petitioners; and the Kasunduan from having obligatory
force.[15] It is established by evidence that the petitioners did not transfer
their house located in the front portion of the subject property to the rear
portion which, under the Kasunduan, they intended to buy. Thus, no
43

obligation arose on the part of the Gloriosos to consider the subject property
as having been sold to petitioners because the latters non-fulfillment of the
suspensive condition rendered the contract to sell ineffective and
unperfected.
Petitioners admit that they have not paid a single centavo to the
Gloriosos. However, petitioners argue that their nonpayment of the
purchase price was due to the fact that there is yet to be a survey made of
the property. But evidence shows, and petitioners do not dispute, that as
early as August 12, 1983, or six days after the execution of theKasunduan, a
survey has already been made and the property was subdivided into Lot
Nos. 565-B-1 (front portion) and 565-B-2 (rear portion), with Lot No. 565-B-2
measuring 223 square meters as the portion to be bought by petitioners.
Petitioners question the survey made, asserting that it is a table survey
made without their knowledge and participation. It should be pointed out
that the Kasunduan merely provides that the expenses for the survey will be
divided between them and that each party should give an amount of no less
than P400.00. Nowhere is it stated that the survey is a condition precedent
for the payment of the purchase price.
Petitioners further claim that respondents have no cause of action
against them because their obligation to pay the purchase price did not yet
arise, as the agreement did not provide for a period within which to pay the
purchase price. They argue that respondents should have filed an action for
specific performance or judicial rescission before they can avail of accion
publiciana.
Notably, petitioners never raised these arguments during the
proceedings before the RTC. Suffice it to say that issues raised for the first
time on appeal and not raised timely in the proceedings in the lower court
are barred by estoppel.[16] Matters, theories or arguments not brought out in
the original proceedings cannot be considered on review or appeal where
they are raised for the first time. To consider the alleged facts and
arguments raised belatedly would amount to trampling on the basic
principles of fair play, justice and due process. [17]
Moreover, it would be inutile for respondents to first petition the court
to fix a period for the performance of the contract. In the first place,
respondents are not parties to the Kasunduan between petitioners and the
Gloriosos, and they have no standing whatsoever to seek such recourse. In
the second place, such recourse properly pertains to petitioners. It was they
44

who should have sought the courts intercession. If petitioners believed that
they have an actionable contract for the sale of the property, prudence and
common sense dictate that they should have sought its enforcement
forthwith. Instead, petitioners whiled away their time.
Furthermore, there is no need for a judicial rescission of
the Kasunduan for the simple reason that the obligation of the Gloriosos to
transfer the property to petitioners has not yet arisen. There can be no
rescission of an obligation that is nonexistent, considering that the
suspensive conditions therefor have not yet happened. [18]
Hence, petitioners have no superior right of ownership or possession to
speak of. Their occupation of the property was merely through the tolerance
of the owners. Evidence on record shows that petitioners and their
predecessors were able to live and build their house on the property
through the permission and kindness of the previous owner, Pedro Hipolito,
who was their relative,[19] and subsequently, Teresita Glorioso, who is also
their relative. They have no title or, at the very least, a contract of lease
over the property. Based as it was on mere tolerance, petitioners possession
could neither ripen into ownership nor operate to bar any action by
respondents to recover absolute possession thereof. [20]
There is also no merit to petitioners contention that respondents are
buyers in bad faith. As explained in Coronel vs. Court of Appeals:
In a contract to sell, there being no previous sale of the
property, a third person buying such property despite the
fulfillment of the suspensive condition such as the full
payment of the purchase price, for instance, cannot be
deemed a buyer in bad faith and the prospective buyer cannot
seek the relief of reconveyance of the property. There is no
double sale in such case. Title to the property will transfer to
the buyer after registration because there is no defect in the
owner-sellers title per se, but the latter, of course, may be sued
for damages by the intending buyer.[21] (Emphasis supplied)
A person who occupies the land of another at the latter's forbearance
or permission without any contract between them is necessarily bound by
an implied promise that he will vacate upon demand. [22]
Considering that petitioners continued possession of the property has
already been rendered unlawful, they are bound to pay reasonable rental for
45

the use and occupation thereof, which in this case was appropriately
pegged by the RTC at P500.00 per month beginning October 21, 1994 when
respondents filed the case against them until they vacate the premises.
Finally, petitioners seek compensation for the value of the
improvements introduced on the property. Again, this is the first time that
they are raising this point. As such, petitioners are now barred from seeking
such relief.[23]

WHEREFORE, the petition is DENIED. The Decision of the Court of

Appeals dated October 3, 2000 in CA-G.R. CV No. 61247 is AFFIRMED.
SO ORDERED.

46

[G.R. No. 146997. April 26, 2005]

SPOUSES GODOFREDO & DOMINICA FLANCIA, petitioners, vs.
COURT OF APPEALS & WILLIAM ONG GENATO, respondents.
DECISION
CORONA, J.:
Before us is a petition for review under Rule 45 of the Rules of Court,
seeking to set aside the October 6, 2000 decision [1] of the Court of Appeals
in CA-G.R. CV No. 56035.
The facts as outlined by the trial court[2] follow.
This is an action to declare null and void the mortgage executed by
defendant Oakland Development Resources Corp. xxx in favor of defendant
William Ong Genato over the house and lot plaintiffs spouses Godofredo and
Dominica Flancia purchased from defendant corporation.
In the complaint, plaintiffs allege that they purchased from defendant
corporation a parcel of land known as Lot 12, Blk. 3, Phase III-A containing
an area of 128.75 square meters situated in Prater Village Subd. II located at
Brgy. Old Balara, Quezon City; that by virtue of the contract of sale,
defendant corporation authorized plaintiffs to transport all their personal
belongings to their house at the aforesaid lot; that on December 24, 1992,
plaintiffs received a copy of the execution foreclosing [the] mortgage issued
by the RTC, Branch 98 ordering defendant Sheriff Sula to sell at public
auction several lots formerly owned by defendant corporation including
subject lot of plaintiffs; that the alleged mortgage of subject lot is null and
void as it is not authorized by plaintiffs pursuant to Art. 2085 of the Civil
Code which requires that the mortgagor must be the absolute owner of the
mortgaged property; that as a consequence of the nullity of said mortgage,
the execution foreclosing [the] mortgage is likewise null and void; that
plaintiffs advised defendants to exclude subject lot from the auction sale but
the latter refused. Plaintiffs likewise prayed for damages in the sum
of P50,000.00.
Defendant William Ong Genato filed a motion to dismiss the complaint
which was opposed by the plaintiffs and denied by the Court in its Order
dated February 16, 1993.
Defendant Genato, then filed his answer averring that on May 19, 1989 codefendant Oakland Development Resources Corporation mortgaged to
47

Genato two (2) parcels of land covered by TCT Nos. 356315 and 366380 as
security and guaranty for the payment of a loan in the sum
of P2,000,000.00; that it appears in the complaint that the subject parcel of
land is an unsubdivided portion of the aforesaid TCT No. 366380 which
covers an area of 4,334 square meters more or less; that said real estate
mortgage has been duly annotated at the back of TCT No. 366380 on May
22, 1989; that for non-payment of the loan ofP2,000,000.00 defendant
Genato filed an action for foreclosure of real estate mortgage against codefendant corporation; that after [trial], a decision was rendered by the
Regional Trial Court of Quezon City, Branch 98 against defendant
corporation which decision was affirmed by the Honorable Court of Appeals;
that the decision of the Court of Appeals has long become final and thus,
the Regional Trial Court, Brach 98 of Quezon City issued an Order dated
December 7, 1992 ordering defendant Sheriff Ernesto Sula to cause the sale
at public auction of the properties covered by TCT No. 366380 for failure of
defendant corporation to deposit in Court the money judgment within ninety
(90) days from receipt of the decision of the Court of Appeals; that plaintiffs
have no cause of action against defendant Genato; that the alleged
plaintiffs Contract to Sell does not appear to have been registered with the
Register of Deeds of Quezon City to affect defendant Genato and the latter
is thus not bound by the plaintiffs Contract to Sell; that the registered
mortgage is superior to plaintiffs alleged Contract to Sell and it is sufficient
for defendant Genato as mortgagee to know that the subject TCT No.
366380 was clean at the time of the execution of the mortgage contract
with defendant corporation and defendant Genato is not bound to go
beyond the title to look for flaws in the mortgagors title; that plaintiffs
alleged Contract to Sell is neither a mutual promise to buy and sell nor a
Contract of Sale. Ownership is retained by the seller, regardless of delivery
and is not to pass until full payment of the price; that defendant Genato has
not received any advice from plaintiffs to exclude the subject lot from the
auction sale, and by way of counterclaim, defendant Genato prays
for P150,000.00 moral damages and P20,000.00 for attorneys fees.
On the other hand, defendant Oakland Development Resources Corporation
likewise filed its answer and alleged that the complaint states no cause of
action; xxx Defendant corporation also prays for attorneys fees
of P20,000.00 in its counterclaim.[3]
After trial, the assisting judge[4] of the trial court rendered a decision
dated August 16, 1996, the decretal portion of which provided:
48

Wherefore, premises considered, judgment is hereby rendered.

1) Ordering defendant Oakland Devt. Resources Corporation to pay
plaintiffs:
a) the amount of P10,000.00 representing payment for the option to
purchase lot;
b) the amount of P140,000.00 representing the first downpayment
of the contract price;
c) the amount of P20,520.80 representing five monthly
amortizations for February, March, April, May and June 1990;
d) the amount of P3,000.00 representing amortization for November
1990; all plus legal interest from the constitution of the mortgage
up to the time the instant case was filed.
2) Ordering said defendant corporation to pay further to plaintiffs the
sum of P30,000.00 for moral damages, P10,000.00 for exemplary
damages and P20,000.00 for and as reasonable attorneys fees plus
cost;
3) Dismissing defendant corporations counterclaim;
4) Dismissing defendant Genatos counterclaim. [5]
On motion for reconsideration, the regular presiding judge set aside the
judgment of the assisting judge and rendered a new one on November 27,
1996, the decretal portion of which read:
WHEREFORE, premises considered, the Motion for Reconsideration is hereby
GRANTED. The decision dated August 16, 1996 is hereby set aside and a
new one entered in favor of the plaintiffs, declaring the subject mortgage
and the foreclosure proceedings held thereunder as null and void insofar as
they affect the superior right of the plaintiffs over the subject lot, and
ordering as follows:
1. Defendant Oakland Development Resources to pay to plaintiffs
the amount of P20,000.00 for litigation-related expenses;
2. Ordering defendant Sheriff Ernesto L. Sula to desist from
conducting further proceedings in the extra-judicial foreclosure
insofar as they affect the plaintiffs, or, in the event that title has
been consolidated in the name of defendant William O. Genato,
ordering said defendant to reconvey to plaintiffs the title
corresponding to Lot 12, Blk. 3, Phase III-A of Prater Village
[Subd. II], located in Old Balara, Quezon City, containing an area
of 128.75 square meters; and
49

3. Dismissing the counterclaims of defendants Oakland and

Genato and with costs against them. [6]
On appeal, the Court of Appeals issued the assailed order:
Wherefore, foregoing premises considered, the appeal having merit in fact
and in law is hereby GRANTED and the decision of the Trial Court dated 27
November 1996 hereby SET ASIDE andREVERSED, and its judgment dated
August 16, 1996 REINSTATED and AFFIRMED IN TOTO. No Costs.
SO ORDERED.[7]
Hence, this petition.
For resolution before us now are the following issues:
(1) whether or not the registered mortgage constituted over the property
was valid;
(2) whether or not the registered mortgage was superior to the contract
to sell; and
(3) whether or not the mortgagee was in good faith.
Under the Art. 2085 of the Civil Code, the essential requisites of a
contract of mortgage are: (a) that it be constituted to secure the fulfillment
of a principal obligation; (b) that the mortgagor be the absolute owner of
the thing mortgaged; and (c) that the persons constituting the mortgage
have the free disposal of their property, and in the absence thereof, that
they be legally authorized for the purpose.
All these requirements are present in this case.
FIRST ISSUE: WAS THE REGISTERED MORTGAGE VALID?
As to the first essential requisite of a mortgage, it is undisputed that the
mortgage was executed on May 15, 1989 as security for a loan obtained by
Oakland from Genato.
As to the second and third requisites, we need to discuss the difference
between a contract of sale and a contract to sell.
In a contract of sale, 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 by 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 unless and until the contract is resolved
or rescinded; in a contract to sell, title is retained by the vendor until full
payment of the price.[8]
50

In the contract between petitioners and Oakland, aside from the fact that
it was denominated as a contract to sell, the intention of Oakland not to
transfer ownership to petitioners until full payment of the purchase price
was very clear. Acts of ownership over the property were expressly withheld
by Oakland from petitioner. All that was granted to them by the occupancy
permit was the right to possess it.
Specifically, the contract between Oakland and petitioners stated:
xxx xxx xxx
7.

That the BUYER/S may be allowed to enter into and

take possession of the property upon issuance of Occupancy
Permit by the OWNER/DEVELOPER exclusively, although title has
not yet passed to the BUYER/S, in which case his possession
shall be that of a possessor by mere tolerance Lessee, subject to
certain restrictions contained in this deed.
xxx xxx xxx

13. That the BUYER/S cannot sell, mortgage, cede, transfer,

assign or in any manner alienate or dispose of, in whole or in
part, the rights acquired by and the obligations imposed on the
BUYER/S by virtue of this contract, without the express written
consent of the OWNER/DEVELOPER.
xxx xxx xxx
24. That this Contract to Sell shall not in any way [authorize] the
BUYER/S to occupy the assigned house and lot to them. [9]
xxx xxx xxx
Clearly, when the property was mortgaged to Genato in May 1989, what
was in effect between Oakland and petitioners was a contract to sell, not a
contract of sale. Oakland retained absolute ownership over the property.
Ownership is the independent and general power of a person over a
thing for purposes recognized by law and within the limits established
thereby.[10] According to Art. 428 of the Civil Code, this means that:
The owner has the right to enjoy and dispose of a thing, without other
limitations than those established by law.
51

xxx xxx xxx

Aside from the jus utendi and the jus abutendi [11] inherent in the right to
enjoy the thing, the right to dispose, or the jus disponendi, is the power of
the owner to alienate, encumber, transform and even destroy the thing
owned.[12]
Because Oakland retained all the foregoing rights as owner of the
property, it was entitled absolutely to mortgage it to Genato. Hence, the
mortgage was valid.
SECOND ISSUE: WAS THE REGISTERED MORTGAGE SUPERIOR TO
THE CONTRACT TO SELL?
In their memorandum, petitioners cite our ruling in State
Investment House, Inc. v. Court of Appeals [13] to the effect that
an unregistered sale is preferred over a registered mortgage over the
same property. The citation is misplaced.
This Court in that case explained the rationale behind the rule:
The unrecorded sale between respondents-spouses and SOLID is preferred
for the reason that if the original owner xxx had parted with his ownership
of the thing sold then he no longer had ownership and free disposal of that
thing as to be able to mortgage it again.
State Investment House is completely inapplicable to the case at bar. A
contract of sale and a contract to sell are worlds apart. State Investment
House clearly pertained to a contract of sale, not to a contract to sell which
was what Oakland and petitioners had. In State Investment House,
ownership had passed completely to the buyers and therefore, the former
owner no longer had any legal right to mortgage the property,
notwithstanding the fact that the new owner-buyers had not registered the
sale. In the case before us, Oakland retained absolute ownership over the
property under the contract to sell and therefore had every right to
mortgage it.
In sum, we rule that Genatos registered mortgage was superior to
petitioners contract to sell, subject to any liabilities Oakland may have
incurred in favor of petitioners by irresponsibly mortgaging the property to
Genato despite its commitments to petitioners under their contract to sell.
THIRD ISSUE: WAS THE MORTGAGE IN GOOD FAITH?
52

The third issue involves a factual matter which should not be raised in
this petition. Only questions of law may be raised in a Rule 45 petition. This
Court is not a trier of facts. The resolution of factual issues is the function of
the lower courts. We therefore adopt the factual findings of the Court of
Appeals and uphold the good faith of the mortgagee Genato.
RELIANCE ON WHAT APPEARS IN THE TITLE
Just as an innocent purchaser for value may rightfully rely on what
appears in the certificate of title, a mortgagee has the right to rely on what
appears in the title presented to him. In the absence of anything to arouse
suspicion, he is under no obligation to look beyond the certificate and
investigate the title of the mortgagor appearing on the face of the said
certificate. [14]
We agree with the findings and conclusions of the trial court regarding
the liabilities of Oakland in its August 16, 1996 decision, as affirmed by the
Court of Appeals:
Anent [plaintiffs] prayer for damages, the Court finds that defendant
corporation is liable to return to plaintiffs all the installments/payments
made by plaintiffs consisting of the amount of P10,000.00 representing
payment for the option to purchase lot; the amount of P140,000.00 which
was the first downpayment; the sum of P20,520.80 representing five
monthly amortizations for February, March, April, May and June 1990 and
the amount of P3,000.00 representing amortization for November 1990 plus
legal interest from the time of the mortgage up to the time this instant case
was filed. Further, considering that defendant corporation wantonly and
fraudulently mortgaged the subject property without regard to [plaintiffs]
rights over the same, said defendant should pay plaintiffs moral damages in
the reasonable amount of P30,000.00. xxx Furthermore, since defendant
[corporations] acts have compelled the plaintiffs to litigate and incur
expenses to protect their interest, it should likewise be adjudged to pay
plaintiffs attorneys fees of P20,000.00 under Article 2208 paragraph two (2)
of the Civil Code.[15]
WHEREFORE, the petition for review is hereby DENIED. The decision of
the Court of Appeals reinstating the August 16, 1996 decision of the trial
court is hereby AFFIRMED.
SO ORDERED.
53

54

[G.R. No. 103577. October 7, 1996]

ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL,
ANNABELLE C. GONZALES (for herself and on behalf of Floraida
C. Tupper, as attorney-in-fact), CIELITO A. CORONEL, FLORAIDA
A. ALMONTE, and CATALINA BALAIS MABANAG, petitioners, vs.
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ and
RAMONA PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as
attorney-in-fact, respondents.
DECISION
MELO, J.:
The petition before us has its roots in a complaint for specific
performance to compel herein petitioners (except the last named, Catalina
Balais Mabanag) to consummate the sale of a parcel of land with its
improvements located along Roosevelt Avenue in Quezon City entered into
by the parties sometime in January 1985 for the price of P1,240,000.00.
The undisputed facts of the case were summarized by respondent court
in this wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et. al.
(hereinafter referred to as Coronels) executed a document entitled Receipt
of Down Payment (Exh. A) in favor of plaintiff Ramona Patricia Alcaraz
(hereinafter referred to as Ramona) which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 - Total amount
50,000.00 - Down payment
-----------------------------------------P1,190,000.00 - Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the
sum of Fifty Thousand Pesos purchase price of our inherited house and lot,
covered by TCT No. 119627 of the Registry of Deeds of Quezon City, in the
total amount of P1,240,000.00.
We bind ourselves to effect the transfer in our names from our deceased
father, Constancio P. Coronel, the transfer certificate of title immediately
upon receipt of the down payment above-stated.
55

On our presentation of the TCT already in or name, We will immediately

execute the deed of absolute sale of said property and Miss Ramona
Patricia Alcaraz shall immediately pay the balance of theP1,190,000.00.
Clearly, the conditions appurtenant to the sale are the following:
1. Ramona will make a down payment of Fifty Thousand (P50,000.00) pesos
upon execution of the document aforestated;
2. The Coronels will cause the transfer in their names of the title of the
property registered in the name of their deceased father upon receipt of the
Fifty Thousand (P50,000.00) Pesos down payment;
3. Upon the transfer in their names of the subject property, the Coronels will
execute the deed of absolute sale in favor of Ramona and the latter will pay
the former the whole balance of One Million One Hundred Ninety Thousand
(P1,190,000.00) Pesos.
On the same date (January 15, 1985), plaintiff-appellee Concepcion D.
Alcaraz (hereinafter referred to as Concepcion), mother of Ramona, paid the
down payment of Fifty Thousand (P50,000.00) Pesos (Exh. B, Exh. 2).
On February 6, 1985, the property originally registered in the name of the
Coronels father was transferred in their names under TCT No. 327043 (Exh.
D; Exh 4)
On February 18, 1985, the Coronels sold the property covered by TCT No.
327043 to intervenor-appellant Catalina B. Mabanag (hereinafter referred to
as Catalina) for One Million Five Hundred Eighty Thousand (P1,580,000.00)
Pesos after the latter has paid Three Hundred Thousand (P300,000.00)
Pesos (Exhs. F-3; Exh. 6-C)
For this reason, Coronels canceled and rescinded the contract (Exh. A) with
Ramona by depositing the down payment paid by Concepcion in the bank in
trust for Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et. al., filed a complaint for a specific
performance against the Coronels and caused the annotation of a notice
of lis pendens at the back of TCT No. 327403 (Exh. E; Exh. 5).
On April 2, 1985, Catalina caused the annotation of a notice of adverse
claim covering the same property with the Registry of Deeds of Quezon City
(Exh. F; Exh. 6).
On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the
subject property in favor of Catalina (Exh. G; Exh. 7).
On June 5, 1985, a new title over the subject property was issued in the
name of Catalina under TCT No. 351582 (Exh. H; Exh. 8).
(Rollo, pp. 134-136)

56

In the course of the proceedings before the trial court (Branch 83,
RTC, Quezon City) the parties agreed to submit the case for decision solely
on the basis of documentary exhibits.Thus, plaintiffs therein (now private
respondents) proffered their documentary evidence accordingly marked as
Exhibits A through J, inclusive of their corresponding submarkings. Adopting
these same exhibits as their own, then defendants (now petitioners)
accordingly offered and marked them as Exhibits 1 through 10, likewise
inclusive of their corresponding submarkings.Upon motion of the parties,
the trial court gave them thirty (30) days within which to simultaneously
submit their respective memoranda, and an additional 15 days within which
to submit their corresponding comment or reply thereto, after which, the
case would be deemed submitted for resolution.
On April 14, 1988, the case was submitted for resolution before Judge
Reynaldo Roura, who was then temporarily detailed to preside over Branch
82 of the RTC of Quezon City. OnMarch 1, 1989, judgment was handed down
by Judge Roura from his regular bench at Macabebe, Pampanga for
the Quezon City branch, disposing as follows:
WHEREFORE, judgment for specific performance is hereby rendered
ordering defendant to execute in favor of plaintiffs a deed of absolute sale
covering that parcel of land embraced in and covered by Transfer Certificate
of Title No. 327403 (now TCT No. 331582) of the Registry of Deeds for
Quezon City, together with all the improvements existing thereon free from
all liens and encumbrances, and once accomplished, to immediately deliver
the said document of sale to plaintiffs and upon receipt thereof, the
plaintiffs are ordered to pay defendants the whole balance of the purchase
price amounting toP1,190,000.00 in cash. Transfer Certificate of Title No.
331582 of the Registry of Deeds for Quezon City in the name of intervenor
is hereby canceled and declared to be without force and effect. Defendants
and intervenor and all other persons claiming under them are hereby
ordered to vacate the subject property and deliver possession thereof to
plaintiffs. Plaintiffs claim for damages and attorneys fees, as well as the
counterclaims of defendants and intervenors are hereby dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)

57

A motion for reconsideration was filed by petitioners before the new

presiding judge of the Quezon City RTC but the same was denied by Judge
Estrella T. Estrada, thusly:
The prayer contained in the instant motion, i.e., to annul the decision and to
render anew decision by the undersigned Presiding Judge should be denied
for the following reasons: (1) The instant case became submitted for
decision as of April 14, 1988 when the parties terminated the presentation
of their respective documentary evidence and when the Presiding Judge at
that time was Judge Reynaldo Roura. The fact that they were allowed to file
memoranda at some future date did not change the fact that the hearing of
the case was terminated before Judge Roura and therefore the same should
be submitted to him for decision; (2) When the defendants and intervenor
did not object to the authority of Judge Reynaldo Roura to decide the case
prior to the rendition of the decision, when they met for the first time before
the undersigned Presiding Judge at the hearing of a pending incident in Civil
Case No. Q-46145 on November 11, 1988, they were deemed to have
acquiesced thereto and they are now estopped from questioning said
authority of Judge Roura after they received the decision in question which
happens to be adverse to them; (3) While it is true that Judge Reynaldo
Roura was merely a Judge-on-detail at this Branch of the Court, he was in all
respects the Presiding Judge with full authority to act on any pending
incident submitted before this Court during his incumbency. When he
returned to his Official Station at Macabebe, Pampanga, he did not lose his
authority to decide or resolve cases submitted to him for decision or
resolution because he continued as Judge of the Regional Trial Court and is
of co-equal rank with the undersigned Presiding Judge. The standing rule
and supported by jurisprudence is that a Judge to whom a case is submitted
for decision has the authority to decide the case notwithstanding his
transfer to another branch or region of the same court (Sec. 9, Rule 135,
Rule of Court).
Coming now to the twin prayer for reconsideration of the Decision dated
March 1, 1989 rendered in the instant case, resolution of which now pertains
to the undersigned Presiding Judge, after a meticulous examination of the
documentary evidence presented by the parties, she is convinced that the
Decision of March 1, 1989 is supported by evidence and, therefore, should
not be disturbed.
IN VIEW OF THE FOREGOING, the Motion for Reconsideration and/or to Annul
Decision and Render Anew Decision by the Incumbent Presiding Judge
dated March 20, 1989 is hereby DENIED.
58

SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December 16, 1991,
the Court of Appeals (Buena, Gonzaga-Reyes, Abad-Santos (P), JJ.) rendered
its decision fully agreeing with the trial court.
Hence, the instant petition which was filed on March 5, 1992. The last
pleading, private respondents Reply Memorandum, was filed on September
15, 1993. The case was, however, re-raffled to undersigned ponente only
on August 28, 1996, due to the voluntary inhibition of the Justice to whom
the case was last assigned.
While we deem it necessary to introduce certain refinements in the
disquisition of respondent court in the affirmance of the trial courts decision,
we definitely find the instant petition bereft of merit.
The heart of the controversy which is the ultimate key in the resolution of
the other issues in the case at bar is the precise determination of the legal
significance of the document entitled Receipt of Down Payment which was
offered in evidence by both parties. There is no dispute as to the fact that
the said document embodied the binding contract between Ramona Patricia
Alcaraz on the one hand, and the heirs of Constancio P. Coronel on the
other, pertaining to a particular house and lot covered by TCT No. 119627,
as defined in Article 1305 of the Civil Code of the Philippines which reads as
follows:
Art. 1305. 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.
While, it is the position of private respondents that the Receipt of Down
Payment embodied a perfected contract of sale, which perforce, they seek
to enforce by means of an action for specific performance, petitioners on
their part insist that what the document signified was a mere executory
contract to sell, subject to certain suspensive conditions, and because of the
absence of Ramona P. Alcaraz, who left for the United States of America,
said contract could not possibly ripen into a contract of absolute sale.
Plainly, such variance in the contending parties contention is brought
about by the way each interprets the terms and/or conditions set forth in
said private instrument. Withal, based on whatever relevant and admissible
evidence may be available on record, this Court, as were the courts below,
59

is now called upon to adjudge what the real intent of the parties was at the
time the said document was executed.
The Civil Code defines a contract of sale, thus:
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.
Sale, by its very nature, is a consensual contract because it is perfected
by mere consent. The essential elements of a contract of sale are the
following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in
exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a
Contract of Sale because the first essential element is lacking. In a contract
to sell, the prospective seller explicitly reserves the transfer of title to the
prospective buyer, meaning, the prospective seller does not as yet agree or
consent to transfer ownership of the property subject of the contract to sell
until the happening of an event, which for present purposes we shall take as
the full payment of the purchase price. What the seller agrees or obliges
himself to do is to fulfill his promise to sell the subject property when the
entire amount of the purchase price is delivered to him. In other words the
full payment of the purchase price partakes of a suspensive condition, the
non-fulfillment of which prevents the obligation to sell from arising and thus,
ownership is retained by the prospective seller without further remedies by
the prospective buyer. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court
had occasion to rule:
Hence, We hold that the contract between the petitioner and the respondent
was a contract to sell where the ownership or title is retained by the seller
and is not to pass until the full payment of the price, such payment being a
positive suspensive condition and failure of which is not a breach, casual or
serious, but simply an event that prevented the obligation of the vendor to
convey title from acquiring binding force.
Stated positively, upon the fulfillment of the suspensive condition which
is the full payment of the purchase price, the prospective sellers obligation
60

to sell the subject property by entering into a contract of sale with the
prospective buyer becomes demandable as provided in Article 1479 of the
Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price certain
is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor of the promise is supported by a
consideration distinct from the price.
A contract to sell may thus be defined as a bilateral contract whereby the
prospective seller, while expressly reserving the ownership of the subject
property despite delivery thereof to the prospective buyer, binds himself to
sell the said property exclusively to the prospective buyer upon fulfillment
of the condition agreed upon, that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be considered as
a conditional contract of sale where the seller may likewise reserve title to
the property subject of the sale until the fulfillment of a suspensive
condition, because in a conditional contract of sale, the first element of
consent is present, although it is conditioned upon the happening of a
contingent event which may or may not occur. If the suspensive condition is
not fulfilled, the perfection of the contract of sale is completely abated
(cf. Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA 777
[1984]). However, if the suspensive condition is fulfilled, the contract of sale
is thereby perfected, such that if there had already been previous delivery
of the property subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law without any further
act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition
which is the full payment of the purchase price, ownership will not
automatically transfer to the buyer although the property may have been
previously delivered to him. The prospective seller still has to convey title to
the prospective buyer by entering into a contract of absolute sale.
It is essential to distinguish between a contract to sell and a conditional
contract of sale specially in cases where the subject property is sold by the
owner not to the party the seller contracted with, but to a third person, as in
the case at bench. In a contract to sell, there being no previous sale of the
property, a third person buying such property despite the fulfillment of the
suspensive condition such as the full payment of the purchase price, for
instance, cannot be deemed a buyer in bad faith and the prospective buyer
61

cannot seek the relief of reconveyance of the property. There is no double

sale in such case. Title to the property will transfer to the buyer after
registration because there is no defect in the owner-sellers title per se, but
the latter, of course, may be sued for damages by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment of the
suspensive condition, the sale becomes absolute and this will definitely
affect the sellers title thereto. In fact, if there had been previous delivery of
the subject property, the sellers ownership or title to the property is
automatically transferred to the buyer such that, the seller will no longer
have any title to transfer to any third person. Applying Article 1544 of the
Civil Code, such second buyer of the property who may have had actual or
constructive knowledge of such defect in the sellers title, or at least was
charged with the obligation to discover such defect, cannot be a registrant
in good faith. Such second buyer cannot defeat the first buyers title. In case
a title is issued to the second buyer, the first buyer may seek reconveyance
of the property subject of the sale.
With the above postulates as guidelines, we now proceed to the task of
deciphering the real nature of the contract entered into by petitioners and
private respondents.
It is a canon in the interpretation of contracts that the words used therein
should be given their natural and ordinary meaning unless a technical
meaning was intended (Tan vs. Court of Appeals, 212 SCRA 586
[1992]). Thus, when petitioners declared in the said Receipt of Down
Payment that they -Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the
sum of Fifty Thousand Pesos purchase price of our inherited house and
lot, covered by TCT No. 1199627 of the Registry of Deeds of Quezon City, in
the total amount of P1,240,000.00.
without any reservation of title until full payment of the entire purchase
price, the natural and ordinary idea conveyed is that they sold their
property.
When the Receipt of Down payment is considered in its entirety, it
becomes more manifest that there was a clear intent on the part of
petitioners to transfer title to the buyer, but since the transfer certificate of
title was still in the name of petitioners father, they could not fully effect
such transfer although the buyer was then willing and able to immediately
pay the purchase price. Therefore, petitioners-sellers undertook upon
receipt of the down payment from private respondent Ramona P. Alcaraz, to
62

cause the issuance of a new certificate of title in their names from that of
their father, after which, they promised to present said title, now in their
names, to the latter and to execute the deed of absolute sale whereupon,
the latter shall, in turn, pay the entire balance of the purchase price.
The agreement could not have been a contract to sell because the sellers
herein made no express reservation of ownership or title to the subject
parcel of land. Furthermore, the circumstance which prevented the parties
from entering into an absolute contract of sale pertained to the sellers
themselves (the certificate of title was not in their names) and not the full
payment of the purchase price. Under the established facts and
circumstances of the case, the Court may safely presume that, had the
certificate of title been in the names of petitioners-sellers at that time, there
would have been no reason why an absolute contract of sale could not have
been executed and consummated right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at bar did
not merely promise to sell the property to private respondent upon the
fulfillment of the suspensive condition. On the contrary, having already
agreed to sell the subject property, they undertook to have the certificate of
title change to their names and immediately thereafter, to execute the
written deed of absolute sale.
Thus, the parties did not merely enter into a contract to sell where the
sellers, after compliance by the buyer with certain terms and conditions,
promised to sell the property to the latter.What may be perceived from the
respective undertakings of the parties to the contract is that petitioners had
already agreed to sell the house and lot they inherited from their father,
completely willing to transfer ownership of the subject house and lot to the
buyer if the documents were then in order. It just so happened, however,
that the transfer certificate of title was then still in the name of their
father. It was more expedient to first effect the change in the certificate of
title so as to bear their names. That is why they undertook to cause the
issuance of a new transfer of the certificate of title in their names upon
receipt of the down payment in the amount of P50,000.00. As soon as the
new certificate of title is issued in their names, petitioners were committed
to immediately execute the deed of absolute sale. Only then will the
obligation of the buyer to pay the remainder of the purchase price arise.
There is no doubt that unlike in a contract to sell which is most
commonly entered into so as to protect the seller against a buyer who
intends to buy the property in installment by withholding ownership over
the property until the buyer effects full payment therefor, in the contract
entered into in the case at bar, the sellers were the ones who were unable
63

to enter into a contract of absolute sale by reason of the fact that the
certificate of title to the property was still in the name of their father. It was
the sellers in this case who, as it were, had the impediment which
prevented, so to speak, the execution of an contract of absolute sale.
What is clearly established by the plain language of the subject
document is that when the said Receipt of Down Payment was prepared and
signed by petitioners Romulo A. Coronel,et. al., the parties had agreed to a
conditional contract of sale, consummation of which is subject only to the
successful transfer of the certificate of title from the name of petitioners
father, Constancio P. Coronel, to their names.
The Court significantly notes that this suspensive condition was, in fact,
fulfilled on February 6, 1985 (Exh. D; Exh. 4). Thus, on said date, the
conditional contract of sale between petitioners and private respondent
Ramona P. Alcaraz became obligatory, the only act required for the
consummation thereof being the delivery of the property by means of the
execution of the deed of absolute sale in a public instrument, which
petitioners unequivocally committed themselves to do as evidenced by the
Receipt of Down Payment.
Article 1475, in correlation with Article 1181, both of the Civil Code,
plainly applies to the case at bench. Thus,
Art. 1475. The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and
upon the price.
From that moment, the parties may reciprocally demand performance,
subject to the provisions of the law governing the form of contracts.
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.
Since the condition contemplated by the parties which is the issuance of
a certificate of title in petitioners names was fulfilled on February 6, 1985,
the respective obligations of the parties under the contract of sale became
mutually demandable, that is, petitioners, as sellers, were obliged to
present the transfer certificate of title already in their names to private
respondent Ramona P. Alcaraz, the buyer, and to immediately execute the
deed of absolute sale, while the buyer on her part, was obliged to forthwith
pay the balance of the purchase price amounting to P1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of their
petition, petitioners conclusively admitted that:
64

3. The petitioners-sellers Coronel bound themselves to effect the

transfer in our names from our deceased father Constancio P.
Coronel, the transfer certificate of title immediately upon receipt of
the downpayment above-stated". The sale was still subject to
this suspensive condition. (Emphasis supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a contract of
sale subject to a suspensive condition. Only, they contend, continuing in the
same paragraph, that:
. . . Had petitioners-sellers not complied with this condition of first
transferring the title to the property under their names, there could be no
perfected contract of sale. (Emphasis supplied.)
(Ibid.)
not aware that they have set their own trap for themselves, for Article 1186
of the Civil Code expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment.
Besides, it should be stressed and emphasized that what is more
controlling than these mere hypothetical arguments is the fact that
the condition herein referred to was actually and indisputably
fulfilled on February 6, 1985, when a new title was issued in the names
of petitioners as evidenced by TCT No. 327403 (Exh. D; Exh. 4).
The inevitable conclusion is that on January 19, 1985, as evidenced by
the document denominated as Receipt of Down Payment (Exh. A; Exh. 1),
the parties entered into a contract of sale subject to the suspensive
condition that the sellers shall effect the issuance of new certificate title
from that of their fathers name to their names and that, on February 6,
1985, this condition was fulfilled (Exh. D; Exh. 4).
We, therefore, hold that, in accordance with Article 1187 which
pertinently provides Art. 1187. The effects of conditional obligation to give, once the condition
has been fulfilled, shall retroact to the day of the constitution of the
obligation . . .
65

In obligations to do or not to do, the courts shall determine, in each case,

the retroactive effect of the condition that has been complied with.
the rights and obligations of the parties with respect to the perfected
contract of sale became mutually due and demandable as of the time of
fulfillment or occurrence of the suspensive condition on February 6,
1985. As of that point in time, reciprocal obligations of both seller and buyer
arose.
Petitioners also argue there could been no perfected contract on January
19, 1985 because they were then not yet the absolute owners of the
inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of transferring
ownership as follows:
Art. 774. Succession is a mode of acquisition by virtue of which the
property, rights and obligations to the extent and value of the inheritance of
a person are transmitted through his death to another or others by his will
or by operation of law.
Petitioners-sellers in the case at bar being the sons and daughters of the
decedent Constancio P. Coronel are compulsory heirs who were called to
succession by operation of law.Thus, at the point their father drew his last
breath, petitioners stepped into his shoes insofar as the subject property is
concerned, such that any rights or obligations pertaining thereto became
binding and enforceable upon them. It is expressly provided that rights to
the succession are transmitted from the moment of death of the decedent
(Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).
Be it also noted that petitioners claim that succession may not be
declared unless the creditors have been paid is rendered moot by the fact
that they were able to effect the transfer of the title to the property from the
decedents name to their names on February 6, 1985.
Aside from this, petitioners are precluded from raising their supposed
lack of capacity to enter into an agreement at that time and they cannot be
allowed to now take a posture contrary to that which they took when they
entered into the agreement with private respondent Ramona P. Alcaraz. The
Civil Code expressly states that:
Art. 1431. Through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as
against the person relying thereon.
66

Having represented themselves as the true owners of the subject property

at the time of sale, petitioners cannot claim now that they were not yet the
absolute owners thereof at that time.
Petitioners also contend that although there was in fact a perfected
contract of sale between them and Ramona P. Alcaraz, the latter breach her
reciprocal obligation when she rendered impossible the consummation
thereof by going to the United States of America, without leaving her
address, telephone number, and Special Power of Attorney (Paragraphs 14
and 15, Answer with Compulsory Counterclaim to the Amended Complaint,
p. 2; Rollo, p. 43), for which reason, so petitioners conclude, they were
correct in unilaterally rescinding the contract of sale.
We do not agree with petitioners that there was a valid rescission of the
contract of sale in the instant case. We note that these supposed grounds
for petitioners rescission, are mere allegations found only in their responsive
pleadings, which by express provision of the rules, are deemed controverted
even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of
Court). The records are absolutely bereft of any supporting evidence to
substantiate petitioners allegations. We have stressed time and again that
allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong,
110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]). Mere
allegation is not an evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the United
States of America on February 6, 1985, we cannot justify petitioners-sellers
act of unilaterally and extrajudicially rescinding the contract of sale, there
being no express stipulation authorizing the sellers to extrajudicially rescind
the contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs.
Vda. De Leon, 132 SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged absence of
Ramona P. Alcaraz because although the evidence on record shows that the
sale was in the name of Ramona P. Alcaraz as the buyer, the sellers had
been dealing with Concepcion D. Alcaraz, Ramonas mother, who had acted
for and in behalf of her daughter, if not also in her own behalf. Indeed, the
down payment was made by Concepcion D. Alcaraz with her own personal
Check (Exh. B; Exh. 2) for and in behalf of Ramona P. Alcaraz. There is no
evidence showing that petitioners ever questioned Concepcions authority to
represent Ramona P. Alcaraz when they accepted her personal
check. Neither did they raise any objection as regards payment being
effected by a third person. Accordingly, as far as petitioners are concerned,
the physical absence of Ramona P. Alcaraz is not a ground to rescind the
contract of sale.
67

Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default,

insofar as her obligation to pay the full purchase price is
concerned. Petitioners who are precluded from setting up the defense of the
physical absence of Ramona P. Alcaraz as above-explained offered no proof
whatsoever to show that they actually presented the new transfer certificate
of title in their names and signified their willingness and readiness to
execute the deed of absolute sale in accordance with their
agreement. Ramonas corresponding obligation to pay the balance of the
purchase price in the amount of P1,190,000.00 (as buyer) never became
due and demandable and, therefore, she cannot be deemed to have been in
default.
Article 1169 of the Civil Code defines when a party in a contract involving
reciprocal obligations may be considered in default, to wit:
Art. 1169. Those obliged to deliver or to do something, incur in delay from
the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.
xxx
In reciprocal obligations, neither party incurs in delay if the other does
not comply or is not ready to comply in a proper manner with what
is incumbent upon him. From the moment one of the parties fulfill his
obligation, delay by the other begins. (Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the contract of
sale between petitioners and respondents.
With the foregoing conclusions, the sale to the other petitioner, Catalina
B. Mabanag, gave rise to a case of double sale where Article 1544 of the
Civil Code will apply, to wit:
Art. 1544. If the same thing should have been sold to different vendees,
the ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person
who in good faith was first in the possession; and, in the absence thereof to
the person who presents the oldest title, provided there is good faith.

68

The record of the case shows that the Deed of Absolute Sale dated April
25, 1985 as proof of the second contract of sale was registered with the
Registry of Deeds of Quezon City giving rise to the issuance of a new
certificate of title in the name of Catalina B. Mabanag on June 5, 1985. Thus,
the second paragraph of Article 1544 shall apply.
The above-cited provision on double sale presumes title or ownership to
pass to the buyer, the exceptions being: (a) when the second buyer, in good
faith, registers the sale ahead of the first buyer, and (b) should there be no
inscription by either of the two buyers, when the second buyer, in good
faith, acquires possession of the property ahead of the first buyer. Unless,
the second buyer satisfies these requirements, title or ownership will not
transfer to him to the prejudice of the first buyer.
In his commentaries on the Civil Code, an accepted authority on the
subject, now a distinguished member of the Court, Justice Jose C. Vitug,
explains:
The governing principle is prius tempore, potior jure (first in time, stronger
in right). Knowledge by the first buyer of the second sale cannot defeat the
first buyers rights except when the second buyer first registers in good faith
the second sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely,
knowledge gained by the second buyer of the first sale defeats his rights
even if he is first to register, since knowledge taints his registration with bad
faith (see also Astorga vs. Court of Appeals, G.R. No. 58530, 26 December
1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129 SCRA 656), it
was held that it is essential, to merit the protection of Art. 1544, second
paragraph, that the second realty buyer must act in good faith in registering
his deed of sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99,
Crisostomo vs. CA, G.R. No. 95843, 02 September 1992).
(J. Vitug, Compendium of Civil Law and Jurisprudence, 1993 Edition, p.
604).
Petitioners point out that the notice of lis pendens in the case at bar was
annotated on the title of the subject property only on February 22, 1985,
whereas, the second sale between petitioners Coronels and petitioner
Mabanag was supposedly perfected prior thereto or on February 18,
1985. The idea conveyed is that at the time petitioner Mabanag, the second
buyer, bought the property under a clean title, she was unaware of any
adverse claim or previous sale, for which reason she is a buyer in good faith.
We are not persuaded by such argument.
69

In a case of double sale, what finds relevance and materiality is not

whether or not the second buyer in good faith but whether or not said
second buyer registers such second sale in good faith, that is, without
knowledge of any defect in the title of the property sold.
As clearly borne out by the evidence in this case, petitioner Mabanag
could not have in good faith, registered the sale entered into on February
18, 1985 because as early as February 22, 1985, a notice of lis pendens had
been annotated on the transfer certificate of title in the names of
petitioners, whereas petitioner Mabanag registered the said sale sometime
in April, 1985. At the time of registration, therefore, petitioner Mabanag
knew that the same property had already been previously sold to private
respondents, or, at least, she was charged with knowledge that a previous
buyer is claiming title to the same property. Petitioner Mabanag cannot
close her eyes to the defect in petitioners title to the property at the time of
the registration of the property.
This Court had occasions to rule that:
If a vendee in a double sale registers the sale after he has acquired
knowledge that there was a previous sale of the same property to a third
party or that another person claims said property in a previous sale, the
registration will constitute a registration in bad faith and will not confer upon
him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing Palarca vs.
Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil. 554;
Fernandez vs. Mercader, 43 Phil. 581.)
Thus, the sale of the subject parcel of land between petitioners and
Ramona P. Alcaraz, perfected on February 6, 1985, prior to that between
petitioners and Catalina B. Mabanag on February 18, 1985, was correctly
upheld by both the courts below.
Although there may be ample indications that there was in fact an
agency between Ramona as principal and Concepcion, her mother, as agent
insofar as the subject contract of sale is concerned, the issue of whether or
not Concepcion was also acting in her own behalf as a co-buyer is not
squarely raised in the instant petition, nor in such assumption disputed
between mother and daughter. Thus, We will not touch this issue and no
longer disturb the lower courts ruling on this point.
WHEREFORE, premises considered, the instant petition is hereby
DISMISSED and the appealed judgment AFFIRMED.
SO ORDERED.
70

Narvasa, C.J. (Chairman), Davide, Jr., and Francisco, JJ., concur.

Panganiban, J., no part.

JOVAN LAND, petitioner, vs. COURT OF APPEALS and EUGENIO

QUESADA, INC., respondents.
DECISION
71

HERMOSISIMA, JR. J.:

This is a petition for review on certiorari to reverse and set aside the
decision of the Court of Appeals in C.A.-G.R. CV No. 47515.
Petitioner Jovan Land, Inc. is a corporation engaged in the real estate
business. Its President and Chairman of the Board of Directors is one Joseph
Sy.
Private respondent Eugenio Quesada is the owner of the Q Building
located on an 801 sq. m. lot at the corner of Mayhaligue Street and Rizal
Avenue, Sta. Cruz, Manila. The property is covered by TCT No. 77796 of the
Registry of Deeds of Manila.
Petitioner learned from co-petitioner Consolacion P. Mendoza that private
respondent was selling the aforesaid Mayhaligue property. Thus, petitioner
through Joseph Sy made a written offer, dated July 27, 1987 for P10.25
million. This first offer was not accepted by Conrado Quesada, the General
Manager of private respondent. Joseph Sy sent a second written offer dated
July 31, 1989 for the same price but inclusive of an undertaking to pay the
documentary stamp tax, transfer tax, registration fees and notarial
charges. Check No. 247048, dated July 31, 1989, for one million pesos
drawn against the Philippine Commercial and Industrial Bank (PCIB) was
enclosed therewith as earnest money. This second offer, with earnest
money, was again rejected by Conrado Quesada. Undaunted, Joseph Sy, on
August 10, 1989, sent a third written offer for twelve million pesos with a
similar check for one million pesos as earnest money. Annotated on this
third letter-offer was the phrase "Received original, 9-4-89" beside which
appears the signature of Conrado Quesada.
On the basis of this annotation which petitioner insists is the proof that
there already exists a valid, perfected agreement to sell the Mayhaligue
property, petitioner filed with the trial court, a complaint for specific
performance and collection of sum of money with damages. However, the
trial court held that:
"x x x the business encounters between Joseph Sy and Conrado
Quesada had not passed the negotiation stage relating to the
intended sale by the defendant corporation of the property in
question. x x x As the court finds, there is nothing in the record to
point that a contract was ever perfected. In fact, there is nothing in
writing which is indispensably necessary in order that the perfected
contract could be enforced under the Statute of Frauds." [1]
72

Since the trial court dismissed petitioner's complaint for lack of cause of
action, petitioner appealed[2] to respondent Court of Appeals before which it
assigned the following errors:
"1. The Court a quo failed to appreciate that there was already a
perfected contract of sale between Jovan Land, Inc. and the private
respondent];
2. The Court a quo erred in its conclusion that there was no implied
acceptance of the offer by appellants to appellee [private respondent];
3. The Court a quo was in error where it concluded that the contract of
sale was unenforceable;
4.The Court a quo failed to rule that appellant [petitioner] Mendoza is
entitled to her broker's commission."[3]
Respondent court placed petitioner to task on their assignment of errors
and concluded that not any of them justifies a reversal of the trial court
decision.
We agree.
In the case of Ang Yu Asuncion v. Court of Appeals,[4] we held that:
"xxx [A] contract (Art. 1157, Civil Code), x x x 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 xxx. A contract
undergoes various stages that include its negotiation or preparation,
its perfection and, finally, its consummation. Negotiation covers the
period from the time the prospective contracting parties indicate
interest in the contract to the time the contract is concluded xxx. The
perfection of the contract takes place upon the concurrence of the
essential elements thereof."
Moreover, it is a fundamental principle that before contract of sale can
be valid, the following elements must be present, viz: (a) consent or
meeting of the minds; (b) determinate subject matter; (3) price certain in
money or its equivalent. Until the contract of sale is perfected, it cannot, as
an independent source of obligation, serve as a binding juridical relation
between the parties.
In the case at bench, petitioner, anchors its main argument on the
annotation on its third letter-offer of the phrase "Received original, 9-4-89,"
beside which appears the signature of Conrado Quesada. It also contends
that the said annotation is evidence to show that there was already a
perfected agreement to sell as respondent can be said to have accepted
73

petitioner's payment in the form of a check which was enclosed in the third
letter.
However, as correctly elucidated by the Court of Appeals:
"Sy insisted in his testimony that this offer of P12M was accepted by
Conrado Quesada but there is nothing written or documentary to show
that such offer was accepted by Conrado Quesada. While Sy claimed
that the acceptance could be gleaned from the notation in the third
written offer, the court is not impressed thereon however because the
notation merely states as follows: "Received Original, (S)-Conrado
Quesada" and below this signature is "9-4-89". As explained by
Conrado Quesada in his testimony what was received by him was the
original of the written offer.
The court cannot believe that this notation marked as Exhibit D-2
would signify the acceptance of the offer. Neither does it signify, as Sy
had testified that the check was duly received on said date. If this
were true Sy, who appears to be an intelligent businessman could
have easily asked Conrado Quesada to indicate on Exhibit D the
alleged fact of acceptance of said check. And better still, Sy could
have asked Quesada the acceptance in writing separate of the written
offer if indeed there was an agreement as to the price of the proposed
sale of the property in question."[5]
Clearly then, a punctilious examination of the receipt reveals that the
same can neither be regarded as a contract of sale nor a promise to
sell. Such an annotation by Conrado Quesada amounts to neither a written
nor an implied acceptance of the offer of Joseph Sy. It is merely a
memorandum of the receipt by the former of the latter's offer. The
requisites of a valid contract of sale are lacking in said receipt and therefore
the "sale" is neither valid nor enforceable.
Although there was a series of communications through letter-offers and
rejections as evident from the facts of this case, still it is undeniable that no
written agreement was reached between petitioner and private respondent
with regard to the sale of the realty. Hence, the alleged transaction is
unenforceable as the requirements under the Statute of Frauds have not
been complied with. Under the said provision, an agreement for the sale of
real property or of an interest therein, to be enforceable, must be in writing
and subscribed by the party charged or by an agent thereof
Petitioner also asseverates that the failure of Conrado Quesada to return
the check for one million pesos, translates to implied acceptance of its third
74

letter-offer. It, however, does not rebut the finding of the trial court that
private respondent was returning the check but petitioner refused to accept
the same and that when Conrado Quesada subsequently sent it back to
petitioner through registered mail, the latter failed to claim its mail from the
post office.
Finally, we fittingly apply here the oft-repeated doctrine that the factual
findings of the trial court, especially as regards the credibility of witnesses,
are conclusive upon this court, unless the case falls under the
jurisprudentially established exceptions. But this is a case that tenders no
exceptional circumstance; rather, we find the observations of the trial court
to be legally sound and valid:
"x x x Joseph Sy's testimony is not impressive because of several
inconsistencies herein pointed out. On the matter of earnest money,
the same appears to be the idea solely of the [petitioner], assuming
that he had intended to bind the [petitioner] corporation. In the
written second offer x x x he had stated that the check of P1M had
been enclosed (attached) therewith. The same check x x x was again
mentioned to be enclosed (attached) in the third written offer under
date August 10, 1989 x x x. Sy testified in his direct examination that
he had personally given this check to Conrado Quesada. But on cross
examination, he reversed himself by saying that the check was given
thru his [co-petitioner] Mendoza. Examining the third written offer, it
appears that when it was first typewritten, this P11M was noted to
have been corrected, and that as per his testimony, Sy had increased
it to P12M. This is the reason according to Sy why there was a
superimposition of the number '12' over the number '11' to
mean P12M as the revised consideration for the sale of the property in
question."[6]
Respondent court thus concluded that:
"x x x [since] the matter of evaluation of the credibility of witness[es]
is addressed to the trial court and unless clearly contrary to the
records before Us, the findings of the said court are entitled to great
respondent on appeal, x x x it was Joseph Sy's idea to offer the
earnest money, and the evidence to show that Joseph Sy accepted the
same, is wanting. x x x"[7]
and accordingly affirmed the trial court judgment appealed from.
75

As shown elucidated above, we agree with the findings and conclusions

of the trial court and the respondent court. Neither has petitioner posited
any new issues in the instant petition that warrant the further exercise by
this court of its review powers.
WHEREFORE, premises considered, this petition is DENIED.
Costs against petitioner.
SO ORDERED.

76

[G. R. No. 136773. June 25, 2003]

MILAGROS MANONGSONG, joined by her husband, CARLITO
MANONGSONG, petitioners, vs. FELOMENA JUMAQUIO ESTIMO,
EMILIANA JUMAQUIO, NARCISO ORTIZ, CELESTINO ORTIZ,
RODOLFO ORTIZ, ERLINDA O. OCAMPO, PASTOR ORTIZ, JR.,
ROMEO ORTIZ BENJAMIN DELA CRUZ, SR., BENJAMIN DELA
CRUZ, JR., AURORA NICOLAS, GLORIA RACADIO, ROBERTO DELA
CRUZ,
JOSELITO
DELA
CRUZ
and
LEONCIA
S.
LOPEZ, respondents.
DECISION
CARPIO, J.:
The Case
Before this Court is a petition for review [1] assailing the Decision[2] of 26
June 1998 and the Resolution of 21 December 1998 of the Court of Appeals
in CA-G.R. CV No. 51643. The Court of Appeals reversed the Decision dated
10 April 1995 of the Regional Trial Court of Makati City, Branch 135, in Civil
Case No. 92-1685, partitioning the property in controversy and awarding to
petitioners a portion of the property.
Antecedent Facts
Spouses Agatona Guevarra (Guevarra) and Ciriaco Lopez had six (6)
children, namely: (1) Dominador Lopez; (2) Enriqueta Lopez-Jumaquio, the
mother of respondents Emiliana Jumaquio Rodriguez and Felomena
Jumaquio Estimo (Jumaquio sisters); (3) Victor Lopez, married to respondent
Leoncia Lopez; (4) Benigna Lopez-Ortiz, the mother of respondents Narciso,
Celestino, Rodolfo, Pastor Jr. and Romeo Ortiz, and Erlinda Ortiz Ocampo; (5)
Rosario Lopez-dela Cruz, married to respondent Benjamin dela Cruz, Sr. and
the mother of respondents Benjamin Jr., Roberto, and Joselito, all surnamed
dela Cruz, and of Gloria dela Cruz Racadio and Aurora dela Cruz Nicolas; and
(6) Vicente Lopez, the father of petitioner Milagros Lopez Manongsong
(Manongsong).
The contested property is a parcel of land on San Jose Street, Manuyo
Uno, Las Pias, Metro Manila with an area of approximately 152 square
meters (Property). The records do not show that the Property is registered
77

under the Torrens system. The Property is particularly described in Tax

Declaration No. B-001-00390[3] as bounded in the north by Juan Gallardo,
south by Calle Velay, east by Domingo Lavana and west by San Jose
Street. Tax Declaration No. B-001-00390 was registered with the Office of
the Municipal Assessor of Las Pias on 30 September 1984 in the name of
Benigna Lopez, et al.[4] However, the improvements on the portion of the
Property denominated as No. 831 San Jose St., Manuyo Uno, Las Pias were
separately declared in the name of Filomena J. Estimo under Tax Declaration
No. 90-001-02145 dated 14 October 1991.[5]
Milagros and Carlito Manongsong (petitioners) filed a Complaint [6] on 19
June 1992, alleging that Manongsong and respondents are the owners pro
indiviso of the Property. Invoking Article 494 of the Civil Code, [7] petitioners
prayed for the partition and award to them of an area equivalent to one-fifth
(1/5) of the Property or its prevailing market value, and for damages.
Petitioners alleged that Guevarra was the original owner of the
Property. Upon Guevarras death, her children inherited the Property. Since
Dominador Lopez died without offspring, there were only five children left as
heirs of Guevarra. Each of the five children, including Vicente Lopez, the
father of Manongsong, was entitled to a fifth of the Property. As Vicente
Lopez sole surviving heir, Manongsong claims her fathers 1/5 share in the
Property by right of representation.
There is no dispute that respondents, who are the surviving spouses of
Guevarras children and their offspring, have been in possession of the
Property for as long as they can remember. The area actually occupied by
each respondent family differs, ranging in size from approximately 25 to 50
square meters. Petitioners are the only descendants not occupying any
portion of the Property.
Most respondents, specifically Narciso, Rodolfo, Pastor Jr., and Celestino
Ortiz, and Erlinda Ortiz Ocampo (Ortiz family), as well as Benjamin Sr.,
Benjamin Jr., and Roberto dela Cruz, Aurora dela Cruz Nicolas and Gloria
Dela Cruz Racadio (Dela Cruz family), entered into a compromise agreement
with petitioners. Under the Stipulation of Facts and Compromise
Agreement[8] dated 12 September 1992 (Agreement), petitioners and the
Ortiz and Dela Cruz families agreed that each group of heirs would receive
an equal share in the Property. The signatories to the Agreement asked the
trial court to issue an order of partition to this effect and prayed further that
those who have exceeded said one-fifth (1/5) must be reduced so that those
who have less and those who have none shall get the correct and proper
portion.[9]
78

Among the respondents, the Jumaquio sisters and Leoncia Lopez who
each occupy 50 square meter portions of the Property and Joselito dela
Cruz, did not sign the Agreement. [10]However, only the Jumaquio sisters
actively opposed petitioners claim. The Jumaquio sisters contended that
Justina Navarro (Navarro), supposedly the mother of Guevarra, sold the
Property to Guevarras daughter Enriqueta Lopez Jumaquio.
The Jumaquio sisters presented provincial Tax Declaration No. 911 [11] for
the year 1949 in the sole name of Navarro. Tax Declaration No. 911
described a residential parcel of land with an area of 172.51 square meters,
located on San Jose St., Manuyo, Las Pias, Rizal with the following
boundaries: Juan Gallardo to the north, I. Guevarra Street to the south, Rizal
Street to the east and San Jose Street to the west. In addition, Tax
Declaration No. 911 stated that the houses of "Agatona Lopez" and
"Enriquita Lopez" stood on the Property as improvements.
The Jumaquio sisters also presented a notarized KASULATAN SA BILIHAN
NG LUPA[12] (Kasulatan) dated 11 October 1957, the relevant portion of
which states:
AKO SI JUSTINA NAVARRO, sapat ang gulang, may asawa, Pilipino at
naninirahan sa LAS PIAS, ay siyang nagma-may-ari at nagtatangkilik ng
isang lagay na lupa na matatagpuan sa Manuyo, Las Pias, Rizal, lihis sa
anomang pagkakautang lalong napagkikilala sa pamamagitan ng mga
sumusunod na palatandaan:
BOUNDARIES:
NORTH: JUAN GALLARDO SOUTH: I. GUEVARRA ST. EAST: RIZAL ST.,
WEST: SAN JOSE ST.,
na may sukat na 172.51 metros cuadrados na may TAX
DECLARATION BILANG 911.
NA DAHIL AT ALANG ALANG sa halagang DALAWANG DAAN LIMANGPUNG
PISO (P250.00), SALAPING PILIPINO, na sa akin ay kaliwang iniabot at
ibinayad ni ENRIQUETA LOPEZ, may sapat na gulang, Pilipino, may asawa at
naninirahan sa Las Pias, Rizal, at sa karapatang ito ay aking pinatutunayan
ng pagkakatanggap ng nasabing halaga na buong kasiyahan ng aking
kalooban ay aking IPINAGBILI, ISINALIN AT INILIPAT sa nasabing, ENRIQUETA
LOPEZ, sa kanyang mga tagapagmana at kahalili, ang kabuuang sukat ng
lupang nabanggit sa itaas nito sa pamamagitan ng bilihang walang
anomang pasubali. Ang lupang ito ay walang kasama at hindi taniman ng
palay o mais.
79

Simula sa araw na ito ay aking ililipat ang pagmamay-ari at pagtatangkilik

ng nasabing lupa kay ENRIQUETA LOPEZ sa kanilang/kanyang tagapagmana
at kahalili x x x.
The Clerk of Court of the Regional Trial Court of Manila certified on 1 June
1994 that the KASULATAN SA BILIHAN NG LUPA, between Justina Navarro
(Nagbili) and Enriqueta Lopez (Bumili), was notarized by Atty. Ruperto Q.
Andrada on 11 October 1957 and entered in his Notarial Register xxx. [13] The
certification further stated that Atty. Andrada was a duly appointed notary
public for the City of Manila in 1957.
Because the Jumaquio sisters were in peaceful possession of their portion
of the Property for more than thirty years, they also invoked the defense of
acquisitive prescription against petitioners, and charged that petitioners
were guilty of laches. The Jumaquio sisters argued that the present action
should have been filed years earlier, either by Vicente Lopez when he was
alive or by Manongsong when the latter reached legal age. Instead,
petitioners filed this action for partition only in 1992 when Manongsong was
already 33 years old.
The Ruling of the Trial Court
After trial on the merits, the trial court in its Decision [14] of 10 April 1995
ruled in favor of petitioners. The trial court held that the Kasulatan was void,
even absent evidence attacking its validity. The trial court declared:
It appears that the ownership of the estate in question is
controverted. According to defendants Jumaquios, it pertains to them
through conveyance by means of a Deed of Sale executed by their common
ancestor Justina Navarro to their mother Enriqueta, which deed was
presented in evidence as Exhs. 4 to 4-A. Plaintiff Milagros Manongsong
debunks the evidence as fake. The document of sale, in the observance of
the Court, is however duly authenticated by means of a certificate issued by
the RTC of the Manila Clerk of Court as duly notarized public document (Exh.
5). No countervailing proof was adduced by plaintiffs to overcome
or impugn the documents legality or its validity.
xxx The conveyance made by Justina Navarro is subject to nullity because
the property conveyed had a conjugal character. No positive evidence had
been introduced that it was solely a paraphernal property.The name of
Justina Navarros spouse/husband was not mentioned and/or whether the
husband was still alive at the time the conveyance was made to Justina
80

Navarro. Agatona Guevarra as her compulsory heir should have the legal
right to participate with the distribution of the estate under question to the
exclusion of others. She is entitled to her legitime. The Deed of Sale [Exhs 4
& 4-1(sic)] did not at all provide for the reserved legitime or the heirs, and,
therefore it has no force and effect against Agatona Guevarra and her six (6)
legitimate children including the grandchildren, by right of representation,
as described in the order of intestate succession. The same Deed of Sale
should be declared a nullity ab initio. The law on the matter is clear. The
compulsory heirs cannot be deprived of their legitime, except on (sic) cases
expressly specified by law like for instance disinheritance for cause.
xxx (Emphasis supplied)
Since the other respondents had entered into a compromise agreement
with petitioners, the dispositive portion of the trial courts decision was
directed against the Jumaquio sisters only, as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
plaintiffs and against the remaining active defendants, Emiliana
Jumaquio and Felomena J. Estimo, jointly and severally, ordering:
1. That the property consisting of 152 square meters referred to above be
immediately partitioned giving plaintiff Milagros Lopez-Manongsong her
lawful share of 1/5 of the area in square meters, or the prevailing market
value on the date of the decision;
2. Defendants to pay plaintiffs the sum of P10,000.00 as compensatory
damages for having deprived the latter the use and enjoyment of the fruits
of her 1/5 share;
3. Defendants to pay plaintiffs litigation expenses and attorneys fee in the
sum of P10,000.00; and
4. Defendants to pay the costs of suit.
SO ORDERED.[15] (Emphasis supplied)
When the trial court denied their motion for reconsideration, the
Jumaquio sisters appealed to the Court of Appeals.
The Ruling of the Court of Appeals
Petitioners, in their appellees brief before the Court of Appeals,
presented for the first time a supposed photocopy of the death
certificate[16] of Guevarra, which stated that Guevarras mother was a certain
Juliana Gallardo. Petitioner also attached an affidavit[17] from Benjamin dela
Cruz, Sr. attesting that he knew Justina Navarro only by name and had never
81

met her personally, although he had lived for some years with Agatona
Guevarra after his marriage with Rosario Lopez. On the basis of these
documents, petitioners assailed the genuineness and authenticity of
the Kasulatan.
The Court of Appeals refused to take cognizance of the death certificate
and affidavit presented by petitioners on the ground that petitioners never
formally offered these documents in evidence.
The appellate court further held that the petitioners were bound by their
admission that Navarro was the original owner of the Property, as follows:
Moreover, plaintiffs-appellees themselves admitted before the trial court
that Justina Navarro and not Juliana Gallardo was the original owner of the
subject property and was the mother of Agatona Navarro (sic). Plaintiffsappellees in their Reply-Memorandum averred:
As regards the existence of common ownership, the defendants clearly
admit as follows:
History of this case tells us that originally the property was owned by
JUSTINA NAVARRO who has a daughter by the name of AGATONA
GUEVARRA who on the other hand has six children namely:xxx xxx xxx.
which point-out that co-ownership exists on the property between the
parties. Since this is the admitted history, facts of the case, it follows that
there should have been proper document to extinguish this status of coownership between the common owners either by (1) Court action or proper
deed of tradition, xxx xxx xxx.
The trial court confirms these admissions of plaintiffs-appellees. The trial
court held:
With the parties admissions and their conformity to a factual common line of
relationship of the heirs with one another, it has been elicited ascendant
Justina Navarro is the common ancestor of the heirs herein mentioned,
however, it must be noted that the parties failed to amplify who was the
husband and the number of compulsory heirs of Justina
Navarro. xxx xxx xxx
Therefore, plaintiffs-appellees cannot now be heard contesting the fact that
Justina Navarro was their common ancestor and was the original owner of
the subject property.
82

The Court of Appeals further held that the trial court erred in assuming
that the Property was conjugal in nature when Navarro sold it. The appellate
court reasoned as follows:
However, it is a settled rule that the party who invokes the presumption that
all property of marriage belongs to the conjugal partnership, must first
prove that the property was acquired during the marriage.Proof of
acquisition during the coveture is a condition sine qua non for the operation
of the presumption in favor of conjugal ownership.
In this case, not a single iota of evidence was submitted to prove that the
subject property was acquired by Justina Navarro during her marriage. xxx
The findings of the trial court that the subject property is conjugal in nature
is not supported by any evidence.
To the contrary, records show that in 1949 the subject property was
declared, for taxation purposes under the name of Justina Navarro
alone. This indicates that the land is the paraphernal property of Justina
Navarro.
For these reasons, the Court of Appeals reversed the decision of the trial
court, thus:
WHEREFORE, foregoing considered, the appealed decision is hereby
REVERSED and SET ASIDE. A new one is hereby rendered DISMISSING
plaintiffs-appellees complaint in so far as defendants-appellants are
concerned.
Costs against plaintiffs-appellees.
SO ORDERED.[18]
Petitioners filed a motion for reconsideration, but the Court of Appeals
denied the same in its Resolution of 21 December 1998. [19]
On 28 January 1999, petitioners appealed the appellate courts decision
and resolution to this Court. The Court initially denied the petition for review
due to certain procedural defects.The Court, however, gave due course to
the petition in its Resolution of 31 January 2000. [20]
The Issues
Petitioners raise the following issues before this Court:
1. WHETHER PETITIONER HAS NO COUNTERVAILING EVIDENCE ON
THE ALLEGED SALE BY ONE JUSTINA NAVARRO;
83

2. WHETHER THERE IS PRETERITION AND THE ISSUES RAISED ARE

REVIEWABLE;
3. WHETHER THERE IS CO-OWNERSHIP PRO INDIVISO;
4. WHETHER THE RULE OF THE MAJORITY CO-OWNERS ON THE LAND
SHOULD PREVAIL;
5. WHETHER THE ALLEGED SALE IS VALID AND BINDS THE OTHER COHEIRS;
6. WHETHER PRESCRIPTION APPLIES AGAINST THE SHARE OF
PETITIONERS.[21]
The fundamental question for resolution is whether petitioners were able
to prove, by the requisite quantum of evidence, that Manongsong is a coowner of the Property and therefore entitled to demand for its partition.
The Ruling of the Court
The petition lacks merit.
The issues raised by petitioners are mainly factual in nature. In general,
only questions of law are appealable to this Court under Rule 45. However,
where the factual findings of the trial court and Court of Appeals conflict,
this Court has the authority to review and, if necessary, reverse the findings
of fact of the lower courts.[22] This is precisely the situation in this case.
We review the factual and legal issues of this case in light of the general
rules of evidence and the burden of proof in civil cases, as explained by this
Court in Jison v. Court of Appeals :[23]
xxx Simply put, he who alleges the affirmative of the issue has the burden
of proof, and upon the plaintiff in a civil case, the burden of proof never
parts. However, in the course of trial in a civil case, once plaintiff makes out
a prima facie case in his favor, the duty or the burden of evidence shifts to
defendant to controvert plaintiff's prima facie case, otherwise, a verdict
must be returned in favor of plaintiff. Moreover, in civil cases, the party
having the burden of proof must produce a preponderance of evidence
thereon, with plaintiff having to rely on the strength of his own evidence and
not upon the weakness of the defendants. The concept of preponderance of
evidence refers to evidence which is of greater weight, or more convincing,
that which is offered in opposition to it; at bottom, it means probability of
truth.
Whether the Court of Appeals erred in affirming the validity of the
Kasulatan sa Bilihan ng Lupa
84

Petitioners anchor their action for partition on the claim that Manongsong
is a co-owner or co-heir of the Property by inheritance, more specifically, as
the heir of her father, Vicente Lopez. Petitioners likewise allege that the
Property originally belonged to Guevarra, and that Vicente Lopez inherited
from Guevarra a 1/5 interest in the Property. As the parties claiming the
affirmative of these issues, petitioners had the burden of proof to establish
their case by preponderance of evidence.
To trace the ownership of the Property, both contending parties
presented tax declarations and the testimonies of witnesses. However, the
Jumaquio sisters also presented a notarizedKASULATAN SA BILIHAN NG
LUPA which controverted petitioners claim of co-ownership.
The Kasulatan, being a document acknowledged before a notary public,
is a public document and prima facie evidence of its authenticity and due
execution. To assail the authenticity and due execution of a notarized
document, the evidence must be clear, convincing and more than merely
preponderant.[24] Otherwise the authenticity and due execution of the
document should be upheld.[25] The trial court itself held that (n)o
countervailing proof was adduced by plaintiffs to overcome or impugn the
documents legality or its validity.[26]
Even if the Kasulatan was not notarized, it would be deemed an ancient
document and thus still presumed to be authentic. The Kasulatan is: (1)
more than 30 years old, (2) found in the proper custody, and (3)
unblemished by any alteration or by any circumstance of suspicion. It
appears, on its face, to be genuine. [27]
Nevertheless, the trial court held that the Kasulatan was void because
the Property was conjugal at the time Navarro sold it to Enriqueta Lopez
Jumaquio. We do not agree. The trial courts conclusion that the Property was
conjugal was not based on evidence, but rather on a misapprehension of
Article 160 of the Civil Code, which provides:
All property of the marriage is presumed to belong to the conjugal
partnership, unless it be proved that it pertains exclusively to the husband
or to the wife.
As the Court of Appeals correctly pointed out, the presumption under
Article 160 of the Civil Code applies only when there is proof that the
property was acquired during the marriage.Proof of acquisition during the
marriage is an essential condition for the operation of the presumption in
favor of the conjugal partnership.[28]
85

There was no evidence presented to establish that Navarro acquired the

Property during her marriage. There is no basis for applying the
presumption under Article 160 of the Civil Code to the present case. On the
contrary, Tax Declaration No. 911 showed that, as far back as in 1949, the
Property was declared solely in Navarros name. [29] This tends to support the
argument that the Property was not conjugal.
We likewise find no basis for the trial courts declaration that the sale
embodied in the Kasulatan deprived the compulsory heirs of Guevarra of
their legitimes. As opposed to a disposition inter vivos by lucrative or
gratuitous title, a valid sale for valuable consideration does not diminish the
estate of the seller. When the disposition is for valuable consideration, there
is no diminution of the estate but merely a substitution of values, [30] that is,
the property sold is replaced by the equivalent monetary consideration.
Under Article 1458 of the Civil Code, the elements of a valid contract of
sale are: (1) consent or meeting of the minds; (2) determinate subject
matter and (3) price certain in money or its equivalent. [31] The presence of
these elements is apparent on the face of the Kasulatan itself. The Property
was sold in 1957 for P250.00.[32]
Whether the Court of Appeals erred in not admitting the
documents presented by petitioners for the first time on appeal
We find no error in the Court of Appeals refusal to give any probative
value to the alleged birth certificate of Guevarra and the affidavit of
Benjamin dela Cruz, Sr. Petitioners belatedly attached these documents to
their appellees brief. Petitioners could easily have offered these documents
during the proceedings before the trial court. Instead, petitioners presented
these documents for the first time on appeal without any explanation. For
reasons of their own, petitioners did not formally offer in evidence these
documents before the trial court as required by Section 34, Rule 132 of the
Rules of Court.[33] To admit these documents now is contrary to due process,
as it deprives respondents of the opportunity to examine and controvert
them.
Moreover, even if these documents were admitted, they would not
controvert Navarros ownership of the Property. Benjamin dela Cruz, Sr.s
affidavit stated merely that, although he knew Navarro by name, he was not
personally acquainted with her. [34] Guevarras alleged birth certificate casts
doubt only as to whether Navarro was indeed the mother of
Guevarra. These documents do not prove that Guevarra owned the Property
or that Navarro did not own the Property.
86

Petitioners admitted before the trial court that Navarro was the mother of
Guevarra. However, petitioners denied before the Court of Appeals that
Navarro was the mother of Guevarra.We agree with the appellate court that
this constitutes an impermissible change of theory. When a party adopts a
certain theory in the court below, he cannot change his theory on appeal.To
allow him to do so is not only unfair to the other party, it is also offensive to
the basic rules of fair play, justice and due process. [35]
If Navarro were not the mother of Guevarra, it would only further
undermine petitioners case. Absent any hereditary relationship between
Guevarra and Navarro, the Property would not have passed from Navarro to
Guevarra, and then to the latters children, including petitioners, by
succession. There would then be no basis for petitioners claim of coownership by virtue of inheritance from Guevarra. On the other hand, this
would not undermine respondents position since they anchor their claim on
the sale under the Kasulatan and not on inheritance from Guevarra.
Since the notarized Kasulatan is evidence of greater weight which
petitioners failed to refute by clear and convincing evidence, this Court
holds that petitioners were not able to prove by preponderance of evidence
that the Property belonged to Guevarras estate. There is therefore no legal
basis for petitioners complaint for partition of the Property.
WHEREFORE, the Decision of 26 June 1998 of the Court of Appeals in
CA-G.R. CV No. 51643, dismissing the complaint of petitioners against
Felomena Jumaquio Estimo and Emiliana Jumaquio, is AFFIRMED.SO
ORDERED.
[G.R. No. 124242. January 21, 2005]
SAN LORENZO DEVELOPMENT CORPORATION, petitioner, vs. COURT
OF APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU and
PACITA ZAVALLA LU, respondents.
DECISION
TINGA, J.:
From a coaptation of the records of this case, it appears that respondents
Miguel Lu and Pacita Zavalla, (hereinafter, the Spouses Lu) owned two (2)
parcels of land situated in Sta. Rosa, Laguna covered by TCT No. T-39022
and TCT No. T-39023 both measuring 15,808 square meters or a total of
3.1616 hectares.
87

On 20 August 1986, the Spouses Lu purportedly sold the two parcels of

land to respondent Pablo Babasanta, (hereinafter, Babasanta) for the price
of fifteen pesos (P15.00) per square meter. Babasanta made a
downpayment of fifty thousand pesos (P50,000.00) as evidenced by a
memorandum receipt issued by Pacita Lu of the same date. Several other
payments totaling two hundred thousand pesos (P200,000.00) were made
by Babasanta.
Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand
the execution of a final deed of sale in his favor so that he could effect full
payment of the purchase price. In the same letter, Babasanta notified the
spouses about having received information that the spouses sold the same
property to another without his knowledge and consent. He demanded that
the second sale be cancelled and that a final deed of sale be issued in his
favor.
In response, Pacita Lu wrote a letter to Babasanta wherein she
acknowledged having agreed to sell the property to him at fifteen pesos
(P15.00) per square meter. She, however, reminded Babasanta that when
the balance of the purchase price became due, he requested for a reduction
of the price and when she refused, Babasanta backed out of the sale. Pacita
added that she returned the sum of fifty thousand pesos (P50,000.00) to
Babasanta through Eugenio Oya.
On 2 June 1989, respondent Babasanta, as plaintiff, filed before the
Regional Trial Court (RTC), Branch 31, of San Pedro, Laguna, a Complaint for
Specific Performance and Damages[1] against his co-respondents herein, the
Spouses Lu. Babasanta alleged that the lands covered by TCT No. T- 39022
and T-39023 had been sold to him by the spouses at fifteen pesos (P15.00)
per square meter. Despite his repeated demands for the execution of a final
deed of sale in his favor, respondents allegedly refused.
In their Answer,[2] the Spouses Lu alleged that Pacita Lu obtained loans
from Babasanta and when the total advances of Pacita reached fifty
thousand pesos (P50,000.00), the latter and Babasanta, without the
knowledge and consent of Miguel Lu, had verbally agreed to transform the
transaction into a contract to sell the two parcels of land to Babasanta with
the fifty thousand pesos (P50,000.00) to be considered as the downpayment
for the property and the balance to be paid on or before 31 December 1987.
Respondents Lu added that as of November 1987, total payments made by
Babasanta amounted to only two hundred thousand pesos (P200,000.00)
and the latter allegedly failed to pay the balance of two hundred sixty
thousand pesos (P260,000.00) despite repeated demands. Babasanta had
purportedly asked Pacita for a reduction of the price from fifteen pesos
88

(P15.00) to twelve pesos (P12.00) per square meter and when the Spouses
Lu refused to grant Babasantas request, the latter rescinded the contract to
sell and declared that the original loan transaction just be carried out in that
the spouses would be indebted to him in the amount of two hundred
thousand pesos (P200,000.00). Accordingly, on 6 July 1989, they purchased
Interbank Managers Check No. 05020269 in the amount of two hundred
thousand pesos (P200,000.00) in the name of Babasanta to show that she
was able and willing to pay the balance of her loan obligation.
Babasanta later filed an Amended Complaint dated 17 January
1990[3] wherein he prayed for the issuance of a writ of preliminary injunction
with temporary restraining order and the inclusion of the Register of Deeds
of Calamba, Laguna as party defendant. He contended that the issuance of
a preliminary injunction was necessary to restrain the transfer or
conveyance by the Spouses Lu of the subject property to other persons.
The Spouses Lu filed their Opposition[4] to the amended complaint
contending that it raised new matters which seriously affect their
substantive rights under the original complaint. However, the trial court in
its Order dated 17 January 1990[5] admitted the amended complaint.
On 19 January 1990, herein petitioner San Lorenzo Development
Corporation (SLDC) filed a Motion for Intervention[6] before the trial court.
SLDC alleged that it had legal interest in the subject matter under litigation
because on 3 May 1989, the two parcels of land involved, namely Lot 1764A and 1764-B, had been sold to it in a Deed of Absolute Sale with Mortgage.
[7]
It alleged that it was a buyer in good faith and for value and therefore it
had a better right over the property in litigation.
In his Opposition to SLDCs motion for intervention, [8] respondent
Babasanta demurred and argued that the latter had no legal interest in the
case because the two parcels of land involved herein had already been
conveyed to him by the Spouses Lu and hence, the vendors were without
legal capacity to transfer or dispose of the two parcels of land to the
intervenor.
Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC
to intervene. SLDC filed its Complaint-in-Intervention on 19 April 1990.
[9]
Respondent Babasantas motion for the issuance of a preliminary
injunction was likewise granted by the trial court in its Order dated 11
January 1991[10] conditioned upon his filing of a bond in the amount of fifty
thousand pesos (P50,000.00).
SLDC in its Complaint-in-Intervention alleged that on 11 February 1989,
the Spouses Lu executed in its favor an Option to Buy the lots subject of the
complaint. Accordingly, it paid an option money in the amount of three
89

hundred sixteen thousand one hundred sixty pesos (P316,160.00) out of the
total consideration for the purchase of the two lots of one million two
hundred sixty-four thousand six hundred forty pesos (P1,264,640.00). After
the Spouses Lu received a total amount of six hundred thirty-two thousand
three hundred twenty pesos (P632,320.00) they executed on 3 May 1989
a Deed of Absolute Sale with Mortgage in its favor. SLDC added that the
certificates of title over the property were delivered to it by the spouses
clean and free from any adverse claims and/or notice of lis pendens. SLDC
further alleged that it only learned of the filing of the complaint sometime in
the early part of January 1990 which prompted it to file the motion to
intervene without delay. Claiming that it was a buyer in good faith, SLDC
argued that it had no obligation to look beyond the titles submitted to it by
the Spouses Lu particularly because Babasantas claims were not annotated
on the certificates of title at the time the lands were sold to it.
After a protracted trial, the RTC rendered its Decision on 30 July 1993
upholding the sale of the property to SLDC. It ordered the Spouses Lu to pay
Babasanta the sum of two hundred thousand pesos (P200,000.00) with legal
interest plus the further sum of fifty thousand pesos (P50,000.00) as and for
attorneys fees. On the complaint-in-intervention, the trial court ordered the
Register of Deeds of Laguna, Calamba Branch to cancel the notice of lis
pendens annotated on the original of the TCT No. T-39022 (T-7218) and No.
T-39023 (T-7219).
Applying Article 1544 of the Civil Code, the trial court ruled that since
both Babasanta and SLDC did not register the respective sales in their favor,
ownership of the property should pertain to the buyer who first acquired
possession of the property. The trial court equated the execution of a public
instrument in favor of SLDC as sufficient delivery of the property to the
latter. It concluded that symbolic possession could be considered to have
been first transferred to SLDC and consequently ownership of the property
pertained to SLDC who purchased the property in good faith.
Respondent Babasanta appealed the trial courts decision to the Court of
Appeals alleging in the main that the trial court erred in concluding that
SLDC is a purchaser in good faith and in upholding the validity of the sale
made by the Spouses Lu in favor of SLDC.
Respondent spouses likewise filed an appeal to the Court of Appeals.
They contended that the trial court erred in failing to consider that the
contract to sell between them and Babasanta had been novated when the
latter abandoned the verbal contract of sale and declared that the original
loan transaction just be carried out. The Spouses Lu argued that since the
properties involved were conjugal, the trial court should have declared the
90

verbal contract to sell between Pacita Lu and Pablo Babasanta null and
void ab initio for lack of knowledge and consent of Miguel Lu. They further
averred that the trial court erred in not dismissing the complaint filed by
Babasanta; in awarding damages in his favor and in refusing to grant the
reliefs prayed for in their answer.
On 4 October 1995, the Court of Appeals rendered its Decision[11] which
set aside the judgment of the trial court. It declared that the sale between
Babasanta and the Spouses Lu was valid and subsisting and ordered the
spouses to execute the necessary deed of conveyance in favor of
Babasanta, and the latter to pay the balance of the purchase price in the
amount of two hundred sixty thousand pesos (P260,000.00). The appellate
court ruled that the Absolute Deed of Sale with Mortgage in favor of SLDC
was null and void on the ground that SLDC was a purchaser in bad faith. The
Spouses Lu were further ordered to return all payments made by SLDC with
legal interest and to pay attorneys fees to Babasanta.
SLDC and the Spouses Lu filed separate motions for reconsideration with
the appellate court.[12] However, in a Manifestation dated 20 December
1995,[13] the Spouses Lu informed the appellate court that they are no
longer contesting the decision dated 4 October 1995.
In its Resolution dated 11 March 1996,[14] the appellate court considered
as withdrawn the motion for reconsideration filed by the Spouses Lu in view
of their manifestation of 20 December 1995. The appellate court denied
SLDCs motion for reconsideration on the ground that no new or substantial
arguments were raised therein which would warrant modification or reversal
of the courts decision dated 4 October 1995.
Hence, this petition.
SLDC assigns the following errors allegedly committed by the appellate
court:
THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT
A BUYER IN GOOD FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU
OBTAINED FROM IT THE CASH ADVANCE OF P200,000.00, SAN LORENZO
WAS PUT ON INQUIRY OF A PRIOR TRANSACTION ON THE PROPERTY.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE
ESTABLISHED FACT THAT THE ALLEGED FIRST BUYER, RESPONDENT
BABASANTA, WAS NOT IN POSSESSION OF THE DISPUTED PROPERTY WHEN
SAN LORENZO BOUGHT AND TOOK POSSESSION OF THE PROPERTY AND NO
ADVERSE CLAIM, LIEN, ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED
ON THE TITLES.
91

THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT

RESPONDENT BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT
SAN LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN THE DISPUTED
PROPERTY.
THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS
FULL CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT
REVERSED AND SET ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING
THE TITLE OF SAN LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD
FAITH. [15]
SLDC contended that the appellate court erred in concluding that it had
prior notice of Babasantas claim over the property merely on the basis of its
having advanced the amount of two hundred thousand pesos (P200,000.00)
to Pacita Lu upon the latters representation that she needed the money to
pay her obligation to Babasanta. It argued that it had no reason to suspect
that Pacita was not telling the truth that the money would be used to pay
her indebtedness to Babasanta. At any rate, SLDC averred that the amount
of two hundred thousand pesos (P200,000.00) which it advanced to Pacita
Lu would be deducted from the balance of the purchase price still due from
it and should not be construed as notice of the prior sale of the land to
Babasanta. It added that at no instance did Pacita Lu inform it that the lands
had been previously sold to Babasanta.
Moreover, SLDC stressed that after the execution of the sale in its favor it
immediately took possession of the property and asserted its rights as new
owner as opposed to Babasanta who has never exercised acts of ownership.
Since the titles bore no adverse claim, encumbrance, or lien at the time it
was sold to it, SLDC argued that it had every reason to rely on the
correctness of the certificate of title and it was not obliged to go beyond the
certificate to determine the condition of the property. Invoking the
presumption of good faith, it added that the burden rests on Babasanta to
prove that it was aware of the prior sale to him but the latter failed to do so.
SLDC pointed out that the notice of lis pendens was annotated only on 2
June 1989 long after the sale of the property to it was consummated on 3
May 1989.
Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999,
the Spouses Lu informed the Court that due to financial constraints they
have no more interest to pursue their rights in the instant case and submit
themselves to the decision of the Court of Appeals. [16]
On the other hand, respondent Babasanta argued that SLDC could not
have acquired ownership of the property because it failed to comply with
92

the requirement of registration of the sale in good faith. He emphasized that

at the time SLDC registered the sale in its favor on 30 June 1990, there was
already a notice of lis pendens annotated on the titles of the property made
as early as 2 June 1989. Hence, petitioners registration of the sale did not
confer upon it any right. Babasanta further asserted that petitioners bad
faith in the acquisition of the property is evident from the fact that it failed
to make necessary inquiry regarding the purpose of the issuance of the two
hundred thousand pesos (P200,000.00) managers check in his favor.
The core issue presented for resolution in the instant petition is who
between SLDC and Babasanta has a better right over the two parcels of land
subject of the instant case in view of the successive transactions executed
by the Spouses Lu.
To prove the perfection of the contract of sale in his favor, Babasanta
presented a document signed by Pacita Lu acknowledging receipt of the
sum of fifty thousand pesos (P50,000.00) as partial payment for 3.6
hectares of farm lot situated at Barangay Pulong, Sta. Cruz, Sta. Rosa,
Laguna.[17] While the receipt signed by Pacita did not mention the price for
which the property was being sold, this deficiency was supplied by Pacita
Lus letter dated 29 May 1989 [18] wherein she admitted that she agreed to
sell the 3.6 hectares of land to Babasanta for fifteen pesos (P15.00) per
square meter.
An analysis of the facts obtaining in this case, as well as the evidence
presented by the parties, irresistibly leads to the conclusion that the
agreement between Babasanta and the Spouses Lu is a contract to sell and
not a contract of sale.
Contracts, in general, are perfected by mere consent, [19] which is
manifested by the meeting of the offer and the acceptance upon the thing
which are to constitute the contract. The offer must be certain and the
acceptance absolute.[20] Moreover, contracts shall be obligatory in whatever
form they may have been entered into, provided all the essential requisites
for their validity are present.[21]
The receipt signed by Pacita Lu merely states that she accepted the sum
of fifty thousand pesos (P50,000.00) from Babasanta as partial payment of
3.6 hectares of farm lot situated in Sta. Rosa, Laguna. While there is no
stipulation that the seller reserves the ownership of the property until full
payment of the price which is a distinguishing feature of a contract to sell,
the subsequent acts of the parties convince us that the Spouses Lu never
intended to transfer ownership to Babasanta except upon full payment of
the purchase price.
93

Babasantas letter dated 22 May 1989 was quite telling. He stated therein
that despite his repeated requests for the execution of the final deed of sale
in his favor so that he could effect full payment of the price, Pacita Lu
allegedly refused to do so. In effect, Babasanta himself recognized that
ownership of the property would not be transferred to him until such time as
he shall have effected full payment of the price. Moreover, had the sellers
intended to transfer title, they could have easily executed the document of
sale in its required form simultaneously with their acceptance of the partial
payment, but they did not. Doubtlessly, the receipt signed by Pacita Lu
should legally be considered as a perfected contract to sell.
The distinction between a contract to sell and a contract of sale is quite
germane. In a contract of sale, title passes to the vendee upon the delivery
of the thing sold; whereas in a contract to sell, by agreement the ownership
is reserved in the vendor and is not to pass until the full payment of the
price.[22] In a contract of sale, the vendor has lost and cannot recover
ownership until and unless the contract is resolved or rescinded; whereas in
a contract to sell, title is retained by the vendor until the full payment of the
price, such payment being a positive suspensive condition and failure of
which is not a breach but an event that prevents the obligation of the
vendor to convey title from becoming effective. [23]
The perfected contract to sell imposed upon Babasanta the obligation to
pay the balance of the purchase price. There being an obligation to pay the
price, Babasanta should have made the proper tender of payment and
consignation of the price in court as required by law. Mere sending of a
letter by the vendee expressing the intention to pay without the
accompanying payment is not considered a valid tender of payment.
[24]
Consignation of the amounts due in court is essential in order to
extinguish Babasantas obligation to pay the balance of the purchase price.
Glaringly absent from the records is any indication that Babasanta even
attempted to make the proper consignation of the amounts due, thus, the
obligation on the part of the sellers to convey title never acquired obligatory
force.
On the assumption that the transaction between the parties is a contract
of sale and not a contract to sell, Babasantas claim of ownership should
nevertheless fail.
Sale, being a consensual contract, is perfected by mere consent [25] and
from that moment, the parties may reciprocally demand performance.
[26]
The essential elements of a contract of sale, to wit: (1) consent or
meeting of the minds, that is, to transfer ownership in exchange for the
94

price; (2) object certain which is the subject matter of the contract; (3)
cause of the obligation which is established. [27]
The perfection of a contract of sale should not, however, be confused
with its consummation. In relation to the acquisition and transfer of
ownership, it should be noted that sale is not a mode, but merely a title. A
mode is the legal means by which dominion or ownership is created,
transferred or destroyed, but title is only the legal basis by which to affect
dominion or ownership.[28] Under Article 712 of the Civil Code, ownership
and other real rights over property are acquired and transmitted by law, by
donation, by testate and intestate succession, and in consequence of
certain contracts, by tradition. Contracts only constitute titles or rights to
the transfer or acquisition of ownership, while delivery or tradition is the
mode of accomplishing the same. [29] Therefore, sale by itself does not
transfer or affect ownership; the most that sale does is to create the
obligation to transfer ownership. It is tradition or delivery, as a consequence
of sale, that actually transfers ownership.
Explicitly, the law provides that the ownership of the thing sold is
acquired by the vendee from the moment it is delivered to him in any of the
ways specified in Article 1497 to 1501. [30]The word delivered should not be
taken restrictively to mean transfer of actual physical possession of the
property. The law recognizes two principal modes of delivery, to wit: (1)
actual delivery; and (2) legal or constructive delivery.
Actual delivery consists in placing the thing sold in the control and
possession of the vendee. [31] Legal or constructive delivery, on the other
hand, may be had through any of the following ways: the execution of a
public instrument evidencing the sale; [32] symbolical tradition such as the
delivery of the keys of the place where the movable sold is being kept;
[33]
traditio longa manu or by mere consent or agreement if the movable sold
cannot yet be transferred to the possession of the buyer at the time of the
sale;[34] traditio brevi manu if the buyer already had possession of the object
even before the sale;[35] and traditio constitutum possessorium, where the
seller remains in possession of the property in a different capacity. [36]
Following the above disquisition, respondent Babasanta did not acquire
ownership by the mere execution of the receipt by Pacita Lu acknowledging
receipt of partial payment for the property. For one, the agreement between
Babasanta and the Spouses Lu, though valid, was not embodied in a public
instrument. Hence, no constructive delivery of the lands could have been
effected. For another, Babasanta had not taken possession of the property
at any time after the perfection of the sale in his favor or exercised acts of
dominion over it despite his assertions that he was the rightful owner of the
95

lands. Simply stated, there was no delivery to Babasanta, whether actual or

constructive, which is essential to transfer ownership of the property. Thus,
even on the assumption that the perfected contract between the parties
was a sale, ownership could not have passed to Babasanta in the absence of
delivery, since in a contract of sale ownership is transferred to the vendee
only upon the delivery of the thing sold. [37]
However, it must be stressed that the juridical relationship between the
parties in a double sale is primarily governed by Article 1544 which lays
down the rules of preference between the two purchasers of the same
property. It provides:
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person
who in good faith was first in the possession; and, in the absence thereof, to
the person who presents the oldest title, provided there is good faith.
The principle of primus tempore, potior jure (first in time, stronger in
right) gains greater significance in case of double sale of immovable
property. When the thing sold twice is an immovable, the one who acquires
it and first records it in the Registry of Property, both made in good faith,
shall be deemed the owner. [38] Verily, the act of registration must be coupled
with good faith that is, the registrant must have no knowledge of the defect
or lack of title of his vendor or must not have been aware of facts which
should have put him upon such inquiry and investigation as might be
necessary to acquaint him with the defects in the title of his vendor. [39]
Admittedly, SLDC registered the sale with the Registry of Deeds after it
had acquired knowledge of Babasantas claim. Babasanta, however, strongly
argues that the registration of the sale by SLDC was not sufficient to confer
upon the latter any title to the property since the registration was attended
by bad faith. Specifically, he points out that at the time SLDC registered the
sale on 30 June 1990, there was already a notice of lis pendens on the file
with the Register of Deeds, the same having been filed one year before on 2
June 1989.
Did the registration of the sale after the annotation of the notice of lis
pendens obliterate the effects of delivery and possession in good faith which
96

admittedly had occurred prior to SLDCs knowledge of the transaction in

favor of Babasanta?
We do not hold so.
It must be stressed that as early as 11 February 1989, the Spouses Lu
executed the Option to Buy in favor of SLDC upon receiving P316,160.00 as
option money from SLDC. After SLDC had paid more than one half of the
agreed purchase price of P1,264,640.00, the Spouses Lu subsequently
executed on 3 May 1989 a Deed of Absolute Sale in favor or SLDC. At the
time both deeds were executed, SLDC had no knowledge of the prior
transaction of the Spouses Lu with Babasanta. Simply stated, from the time
of execution of the first deed up to the moment of transfer and delivery of
possession of the lands to SLDC, it had acted in good faith and the
subsequent annotation of lis pendens has no effect at all on the
consummated sale between SLDC and the Spouses Lu.
A purchaser in good faith is one who buys property of
another without notice that some other person has a right to, or interest in,
such property and pays a full and fair price for the same at the time of such
purchase, or before he has notice of the claim or interest of some other
person in the property.[40] Following the foregoing definition, we rule that
SLDC qualifies as a buyer in good faith since there is no evidence extant in
the records that it had knowledge of the prior transaction in favor of
Babasanta. At the time of the sale of the property to SLDC, the vendors
were still the registered owners of the property and were in fact in
possession of the lands. Time and again, this Court has ruled that a person
dealing with the owner of registered land is not bound to go beyond the
certificate of title as he is charged with notice of burdens on the property
which are noted on the face of the register or on the certificate of title. [41] In
assailing knowledge of the transaction between him and the Spouses Lu,
Babasanta apparently relies on the principle of constructive notice
incorporated in Section 52 of the Property Registration Decree (P.D. No.
1529) which reads, thus:
Sec. 52. Constructive notice upon registration. Every conveyance,
mortgage, lease, lien, attachment, order, judgment, instrument or entry
affecting registered land shall, if registered, filed, or entered in the office of
the Register of Deeds for the province or city where the land to which it
relates lies, be constructive notice to all persons from the time of such
registering, filing, or entering.

97

However, the constructive notice operates as suchby the express wording of

Section 52from the time of the registration of the notice of lis
pendens which in this case was effected only on 2 June 1989, at which time
the sale in favor of SLDC had long been consummated insofar as the
obligation of the Spouses Lu to transfer ownership over the property to
SLDC is concerned.
More fundamentally, given the superiority of the right of SLDC to the
claim of Babasanta the annotation of the notice of lis pendens cannot help
Babasantas position a bit and it is irrelevant to the good or bad faith
characterization of SLDC as a purchaser. A notice of lis pendens, as the
Court held in Natao v. Esteban,[42] serves as a warning to a prospective
purchaser or incumbrancer that the particular property is in litigation; and
that he should keep his hands off the same, unless he intends to gamble on
the results of the litigation. Precisely, in this case SLDC has intervened in
the pending litigation to protect its rights. Obviously, SLDCs faith in the
merit of its cause has been vindicated with the Courts present decision
which is the ultimate denouement on the controversy.
The Court of Appeals has made capital [43] of SLDCs averment in
its Complaint-in-Intervention[44] that at the instance of Pacita Lu it issued a
check for P200,000.00 payable to Babasanta and the confirmatory
testimony of Pacita Lu herself on cross-examination. [45] However, there is
nothing in the said pleading and the testimony which explicitly relates the
amount to the transaction between the Spouses Lu and Babasanta for what
they attest to is that the amount was supposed to pay off the advances
made by Babasanta to Pacita Lu. In any event, the incident took place after
the Spouses Lu had already executed the Deed of Absolute Sale with
Mortgage in favor of SLDC and therefore, as previously explained, it has no
effect on the legal position of SLDC.
Assuming ex gratia argumenti that SLDCs registration of the sale had
been tainted by the prior notice of lis pendens and assuming further for the
same nonce that this is a case of double sale, still Babasantas claim could
not prevail over that of SLDCs. In Abarquez v. Court of Appeals,[46] this Court
had the occasion to rule that if a vendee in a double sale registers the sale
after he has acquired knowledge of a previous sale, the registration
constitutes a registration in bad faith and does not confer upon him any
right. If the registration is done in bad faith, it is as if there is no registration
at all, and the buyer who has taken possession first of the property in good
faith shall be preferred.
In Abarquez, the first sale to the spouses Israel was notarized and
registered only after the second vendee, Abarquez, registered their deed of
98

sale with the Registry of Deeds, but the Israels were first in possession. This
Court awarded the property to the Israels because registration of the
property by Abarquez lacked the element of good faith. While the facts in
the instant case substantially differ from that in Abarquez, we would not
hesitate to rule in favor of SLDC on the basis of its prior possession of the
property in good faith. Be it noted that delivery of the property to SLDC was
immediately effected after the execution of the deed in its favor, at which
time SLDC had no knowledge at all of the prior transaction by the Spouses
Lu in favor of Babasanta.
The law speaks not only of one criterion. The first criterion is priority of
entry in the registry of property; there being no priority of such entry, the
second is priority of possession; and, in the absence of the two priorities,
the third priority is of the date of title, with good faith as the common
critical element. Since SLDC acquired possession of the property in good
faith in contrast to Babasanta, who neither registered nor possessed the
property at any time, SLDCs right is definitely superior to that of
Babasantas.
At any rate, the above discussion on the rules on double sale would be
purely academic for as earlier stated in this decision, the contract between
Babasanta and the Spouses Lu is not a contract of sale but merely a
contract to sell. In Dichoso v. Roxas,[47] we had the occasion to rule that
Article 1544 does not apply to a case where there was a sale to one party of
the land itself while the other contract was a mere promise to sell the land
or at most an actual assignment of the right to repurchase the same land.
Accordingly, there was no double sale of the same land in that case.
WHEREFORE, the instant petition is hereby GRANTED. The decision of
the Court of Appeals appealed from is REVERSED and SET ASIDE and the
decision of the Regional Trial Court, Branch 31, of San Pedro, Laguna is
REINSTATED. No costs.
SO ORDERED.
Puno, (Chairman),
JJ., concur.

Austria-Martinez,

Callejo,

Sr., and Chico-Nazario,

99

[G.R. No. 137290. July 31, 2000]

SAN MIGUEL PROPERTIES PHILIPPINES, INC., petitioner,
vs. SPOUSES ALFREDO HUANG and GRACE HUANG, respondents.
DECISION
MENDOZA, J.:
This is a petition for review of the decision, [1] dated April 8, 1997, of the
Court of Appeals which reversed the decision of the Regional Trial Court,
Branch 153, Pasig City dismissing the complaint brought by respondents
against petitioner for enforcement of a contract of sale.
The facts are not in dispute.
Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation
engaged in the purchase and sale of real properties. Part of its inventory are
two parcels of land totalling 1, 738 square meters at the corner of Meralco
Avenue and General Capinpin Street, Barrio Oranbo, Pasig City, which are
covered by TCT Nos. PT-82395 and PT-82396 of the Register of Deeds of
Pasig City.
On February 21, 1994, the properties were offered for sale
for P52,140,000.00 in cash. The offer was made to Atty. Helena M. Dauz who
was acting for respondent spouses as undisclosed principals. In a
letter[2] dated March 24, 1994, Atty. Dauz signified her clients interest in
purchasing the properties for the amount for which they were offered by
petitioner, under the following terms: the sum of P500,000.00 would be
given as earnest money and the balance would be paid in eight equal
monthly installments from May to December, 1994. However, petitioner
refused the counter-offer.
On March 29, 1994, Atty. Dauz wrote another letter [3] proposing the following
terms for the purchase of the properties, viz:
This is to express our interest to buy your-above-mentioned
property with an area of 1, 738 sq. meters. For this purpose, we
are enclosing herewith the sum of P1,000,000.00 representing
earnest-deposit money, subject to the following conditions.
1. We will be given the exclusive option to purchase the property
within the 30 days from date of your acceptance of this offer.
2. During said period, we will negotiate on the terms and
conditions of the purchase; SMPPI will secure the necessary
Management and Board approvals; and we initiate the
documentation if there is mutual agreement between us.
3. In the event that we do not come to an agreement on this
transaction, the said amount of P1,000,000.00 shall be refundable
to us in full upon demand. . . .
100

Isidro A. Sobrecarey, petitioners vice-president and operations manager for

corporate real estate, indicated his conformity to the offer by affixing his
signature to the letter and accepted the "earnest-deposit" of P1 million.
Upon request of respondent spouses, Sobrecarey ordered the removal of the
"FOR SALE" sign from the properties.
Atty. Dauz and Sobrecarey then commenced negotiations. During their
meeting on April 8, 1994, Sobrecarey informed Atty. Dauz that petitioner
was willing to sell the subject properties on a 90-day term. Atty. Dauz
countered with an offer of six months within which to pay.
On April 14, 1994, the parties again met during which Sobrecarey informed
Atty. Dauz that petitioner had not yet acted on her counter-offer. This
prompted Atty. Dauz to propose a four-month period of amortization.
On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April
29, 1994 to June 13, 1994 within which to exercise her option to purchase
the property, adding that within that period, "[we] hope to finalize [our]
agreement on the matter."[4] Her request was granted.
On July 7, 1994, petitioner, through its president and chief executive officer,
Federico Gonzales, wrote Atty. Dauz informing her that because the parties
failed to agree on the terms and conditions of the sale despite the extension
granted by petitioner, the latter was returning the amount of P1 million
given as "earnest-deposit."[5]
On July 20, 1994, respondent spouses, through counsel, wrote petitioner
demanding the execution within five days of a deed of sale covering the
properties. Respondents attempted to return the "earnest-deposit" but
petitioner refused on the ground that respondents option to purchase had
already expired.
On August 16, 1994, respondent spouses filed a complaint for specific
performance against petitioner before the Regional Trial Court, Branch 133,
Pasig City where it was docketed as Civil Case No. 64660.
Within the period for filing a responsive pleading, petitioner filed a motion to
dismiss the complaint alleging that (1) the alleged "exclusive option" of
respondent spouses lacked a consideration separate and distinct from the
purchase price and was thus unenforceable and (2) the complaint did not
allege a cause of action because there was no "meeting of the minds"
between the parties and, therefore, no perfected contract of sale. The
motion was opposed by respondents.
On December 12, 1994, the trial court granted petitioners motion and
dismissed the action. Respondents filed a motion for reconsideration, but it
was denied by the trial court. They then appealed to the Court of Appeals
which, on April 8, 1997, rendered a decision[6] reversing the judgment of the
101

trial court. The appellate court held that all the requisites of a perfected
contract of sale had been complied with as the offer made on March 29,
1994, in connection with which the earnest money in the amount of P1
million was tendered by respondents, had already been accepted by
petitioner. The court cited Art. 1482 of the Civil Code which provides that
"[w]henever 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." The fact the parties had not agreed on the mode of payment did
not affect the contract as such is not an essential element for its validity. In
addition, the court found that Sobrecarey had authority to act in behalf of
petitioner for the sale of the properties. [7]
Petitioner moved for reconsideration of the trial courts decision, but its
motion was denied. Hence, this petition.
Petitioner contends that the Court of Appeals erred in finding that there was
a perfected contract of sale between the parties because the March 29,
1994 letter of respondents, which petitioner accepted, merely resulted in an
option contract, albeit it was unenforceable for lack of a distinct
consideration. Petitioner argues that the absence of agreement as to the
mode of payment was fatal to the perfection of the contract of sale.
Petitioner also disputes the appellate courts ruling that Isidro A. Sobrecarey
had authority to sell the subject real properties. [8]
Respondents were required to comment within ten (10) days from notice.
However, despite 13 extensions totalling 142 days which the Court had
given to them, respondents failed to file their comment. They were thus
considered to have waived the filing of a comment.
The petition is meritorious.
In holding that there is a perfected contract of sale, the Court of Appeals
relied on the following findings: (1) earnest money was allegedly given by
respondents and accepted by petitioner through its vice-president and
operations manager, Isidro A. Sobrecarey; and (2) the documentary
evidence in the records show that there was a perfected contract of sale.
With regard to the alleged payment and acceptance of earnest money, the
Court holds that respondents did not give the P1 million as "earnest money"
as provided by Art. 1482 of the Civil Code. They presented the amount
merely as a deposit of what would eventually become the earnest money or
downpayment should a contract of sale be made by them. The amount was
thus given not as a part of the purchase price and as proof of the perfection
of the contract of sale but only as a guarantee that respondents would not
back out of the sale. Respondents in fact described the amount as an
"earnest-deposit." In Spouses Doromal, Sr. v. Court of Appeals,[9] it was held:
102

. . . While the P5,000 might have indeed been paid to Carlos in

October, 1967, there is nothing to show that the same was in the
concept of the earnest money contemplated in Art. 1482 of the
Civil Code, invoked by petitioner, as signifying perfection of the
sale. Viewed in the backdrop of the factual milieu thereof extant
in the record, We are more inclined to believe that the
said P5,000.00 were paid in the concept of earnest money as the
term was understood under the Old Civil Code, that is, as a
guarantee that the buyer would not back out, considering that it
is not clear that there was already a definite agreement as to the
price then and that petitioners were decided to buy 6/7 only of
the property should respondent Javellana refuse to agree to part
with her 1/7 share.[10]
In the present case, the P1 million "earnest-deposit" could not have been
given as earnest money as contemplated in Art. 1482 because, at the time
when petitioner accepted the terms of respondents offer of March 29, 1994,
their contract had not yet been perfected. This is evident from the following
conditions attached by respondents to their letter, to wit: (1) that they be
given the exclusive option to purchase the property within 30 days from
acceptance of the offer; (2) that during the option period, the parties would
negotiate the terms and conditions of the purchase; and (3) petitioner would
secure the necessary approvals while respondents would handle the
documentation.
The first condition for an option period of 30 days sufficiently shows that a
sale was never perfected. As petitioner correctly points out, acceptance of
this condition did not give rise to a perfected sale but merely to an option or
an accepted unilateral promise on the part of respondents to buy the
subject properties within 30 days from the date of acceptance of the offer.
Such option giving respondents the exclusive right to buy the properties
within the period agreed upon is separate and distinct from the contract of
sale which the parties may enter.[11] All that respondents had was just the
option to buy the properties which privilege was not, however, exercised by
them because there was a failure to agree on the terms of payment. No
contract of sale may thus be enforced by respondents.
Furthermore, even the option secured by respondents from petitioner was
fatally defective. Under the second paragraph of Art. 1479, an accepted
unilateral promise to buy or sell a determinate thing for a price certain is
binding upon the promisor only if the promise is supported by a distinct
consideration. Consideration in an option contract may be anything of value,
unlike in sale where it must be the price certain in money or its equivalent.
103

There is no showing here of any consideration for the option. Lacking any
proof of such consideration, the option is unenforceable.
Equally compelling as proof of the absence of a perfected sale is the second
condition that, during the option period, the parties would negotiate the
terms and conditions of the purchase. 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.[12] In the present case, the parties never got past the negotiation
stage. The alleged "indubitable evidence" [13] of a perfected sale cited by the
appellate court was nothing more than offers and counter-offers which did
not amount to any final arrangement containing the essential elements of a
contract of sale. While the parties already agreed on the real properties
which were the objects of the sale and on the purchase price, the fact
remains that they failed to arrive at mutually acceptable terms of payment,
despite the 45-day extension given by petitioner.
The appellate court opined that the failure to agree on the terms of
payment was no bar to the perfection of the sale because Art. 1475 only
requires agreement by the parties as to the price of the object. This is error.
In Navarro v. Sugar Producers Cooperative Marketing Association, Inc.,[14] we
laid down the rule that the manner of payment of the purchase price is an
essential element before a valid and binding contract of sale can exist.
Although the Civil Code does not expressly state that the minds of the
parties must also meet on the terms or manner of payment of the price, the
same is needed, otherwise there is no sale. As held in Toyota Shaw, Inc. v.
Court of Appeals,[15] agreement on the manner of payment goes into the
price such that a disagreement on the manner of payment is tantamount to
a failure to agree on the price.[16] In Velasco v. Court of Appeals,[17] the
parties to a proposed sale had already agreed on the object of sale and on
the purchase price. By the buyers own admission, however, the parties still
had to agree on how and when the downpayment and the installments were
to be paid. It was held:
. . . Such being the situation, it can not, therefore, be said that a
definite and firm sales agreement between the parties had been
perfected over the lot in question. Indeed, this Court has already
ruled before that a definite agreement on the manner of payment
104

of the purchase price is an essential element in the formation of a

binding and enforceable contract of sale. The fact, therefore, that
the petitioners delivered to the respondent the sum of P10,000 as
part of the down-payment that they had to pay cannot be
considered as sufficient proof of the perfection of any purchase
and sale agreement between the parties herein under Art. 1482 of
the new Civil Code, as the petitioners themselves admit that
some essential matter - the terms of the payment - still had to be
mutually covenanted.[18]
Thus, it is not the giving of earnest money, but the proof of the concurrence
of all the essential elements of the contract of sale which establishes the
existence of a perfected sale.
In the absence of a perfected contract of sale, it is immaterial whether Isidro
A. Sobrecarey had the authority to enter into a contract of sale in behalf of
petitioner. This issue, therefore, needs no further discussion.
WHEREFORE, the decision of the Court of Appeals is REVERSED and
respondents complaint is DISMISSED.
SO ORDERED.
Quisumbing, Buena, and De Leon, Jr., JJ., concur.
Bellosillo, (Chairman), J., on leave.

105

[G.R. No. 119178. June 20, 1997]

LINA LIM LAO, petitioner, vs. COURT OF APPEALS and PEOPLE OF
THE PHILIPPINES, respondents.
DECISION
PANGANIBAN, J.:
May an employee who, as part of her regular duties, signs blank
corporate checks -- with the name of the payee and the amount drawn to be
filled later by another signatory -- and, therefore, does so without actual
knowledge of whether such checks are funded, be held criminally liable for
violation of Batas Pambansa Bilang 22 (B.P. 22), when checks so signed are
dishonored due to insufficiency of funds? Does a notice of dishonor sent to
the main office of the corporation constitute a valid notice to the said
employee who holds office in a separate branch and who had no actual
knowledge thereof? In other words, is constructive knowledge of the
corporation, but not of the signatory-employee, sufficient?
These are the questions raised in the petition filed on March 21, 1995
assailing the Decision[1] of Respondent Court of Appeals[2] promulgated on
December 9, 1994 in CA-G.R. CR No. 14240 dismissing the appeal of
petitioner and affirming the decision dated September 26, 1990 in Criminal
Case Nos. 84-26967 to 84-26969 of the Regional Trial Court of Manila,
Branch 33. The dispositive portion of the said RTC decision affirmed by the
respondent appellate court reads:[3]
WHEREFORE, after a careful consideration of the evidence presented by the
prosecution and that of the defense, the Court renders judgment as follows:
In Criminal Case No. 84-26969 where no evidence was presented by the
prosecution notwithstanding the fact that there was an agreement that the
cases be tried jointly and also the fact that the accused Lina Lim Lao was
already arraigned, for failure of the prosecution to adduce evidence against
the accused, the Court hereby declares her innocent of the crime charged
and she is hereby acquitted with cost de oficio.
For Criminal Case No. 84-26967, the Court finds the accused Lina Lim Lao
guilty beyond reasonable doubt of the crime charged and is hereby
sentenced to suffer the penalty of ONE (1) YEAR imprisonment and to pay a
fine of P150,000.00 without subsidiary imprisonment in case of insolvency.
106

For Criminal Case No. 84-26968, the Court finds the accused Lina Lim Lao
guilty beyond reasonable doubt of the crime charged and is hereby
sentenced to suffer the penalty of ONE (1) YEAR imprisonment and to pay a
fine of P150,000.00 without subsidiary imprisonment in case of of (sic)
insolvency.
For the two cases the accused is ordered to pay the cost of suit.
The cash bond put up by the accused for her provisional liberty in Criminal
Case No. 84-26969 where she is declared acquitted is hereby ordered
cancelled (sic).
With reference to the accused Teodulo Asprec who has remained at large, in
order that the cases as against him may not remain pending in the docket
for an indefinite period, let the same be archived without prejudice to its
subsequent prosecution as soon as said accused is finally apprehended.
Let a warrant issue for the arrest of the accused Teodulo Asprec which
warrant need not be returned to this Court until the accused is finally
arrested.
SO ORDERED.
The Facts
Version of the Prosecution
The facts are not disputed. We thus lift them from the assailed Decision,
as follows:
Appellant (and now Petitioner Lina Lim Lao) was a junior officer of Premiere
Investment House (Premiere) in its Binondo Branch. As such officer, she was
authorized to sign checks for and in behalf of the corporation (TSN, August
16, 1990, p. 6). In the course of the business, she met complainant Father
Artelijo Pelijo, the provincial treasurer of the Society of the Divine Word
through Mrs. Rosemarie Lachenal, a trader for Premiere. Father Palijo was
authorized to invest donations to the society and had been investing the
societys money with Premiere (TSN, June 23, 1987, pp. 5, 9-10). Father Palijo
had invested a total of P514,484.04, as evidenced by the Confirmation of
Sale No. 82-6994 (Exh A) dated July 8, 1993. Father Palijo was also issued
Traders Royal Bank (TRB) checks in payment of interest, as follows:
Check Date Amount
299961 Oct. 7, 1993 (sic) P150,000.00 (Exh. B)
299962 Oct. 7, 1983 P150,000.00 (Exh. C)
323835 Oct. 7, 1983 P 26,010.73
All the checks were issued in favor of Artelijo A. Palijo and signed by
appellant (herein petitioner) and Teodulo Asprec, who was the head of
107

operations. Further evidence of the transaction was the acknowledgment of

postdated checks dated July 8, 1983 (Exh . D) and the cash disbursement
voucher (Exh. F, TSN, supra, at pp. 11-16).
When Father Palijo presented the checks for encashment, the same were
dishonored for the reason Drawn Against Insufficient Funds (DAIF). Father
Palijo immediately made demands on premiere to pay him the necessary
amounts. He first went to the Binondo Branch but was referred to the Cubao
Main Branch where he was able to talk with the President, Mr. Cario. For his
efforts, he was paid P5,000.00. Since no other payments followed, Father
Palijo wrote Premiere a formal letter of demand. Subsequently, Premiere was
placed under receivership (TSN, supra, at pp. 16-19). [4]
Thereafter, on January 24, 1984, Private Complainant Palijo filed an
affidavit-complaint against Petitioner Lina Lim Lao and Teodulo Asprec for
violation of B.P. 22. After preliminary investigation,[5] three Informations
charging Lao and Asprec with the offense defined in the first paragraph of
Section 1, B.P. 22 were filed by Assistant Fiscal Felix S. Caballes before the
trial court on May 11, 1984,[6] worded as follows:
1. In Criminal Case No. 84-26967:
That on or about October 7, 1983 in the City of Manila, Philippines, the said
accused did then and there wilfully and unlawfully draw and issue to Artelijo
A. Palijo to apply on account or for value a Traders Royal Bank Check No.
299962 for P150,000.00 payable to Fr. Artelijo A. Palijo dated October 7,
1983 well knowing that at the time of issue he/she did not have sufficient
funds in or credit with the drawee bank for full payment of the said check
upon its presentment as in fact the said check, when presented within
ninety (90) days from the date thereof, was dishonored by the drawee bank
for the reason:Insufficient Funds; that despite notice of such dishonor, said
accused failed to pay said Artelijo A. Palijo the amount of the said check or
to make arrangement for full payment of the same within five (5) banking
days from receipt of said notice.
CONTRARY TO LAW.
2. In Criminal Case No. 84-26968:
That on or about October 7, 1983 in the City of Manila, Philippines, the said
accused did then and there wilfully and unlawfully draw and issue to Artelijo
A. Palijo to apply on account or for value a Traders Royal Bank Check No.
299961 for P150,000.00 payable to Fr. Artelijo A. Palijo dated October 7, 83
108

well knowing that at the time of issue he/she did not have sufficient funds in
or credit with the drawee bank for full payment of the said check upon its
presentment as in fact the said check, when presented within ninety (90)
days from the date thereof, was dishonored by the drawee bank for the
reason:Insuficient Funds; that despite notice of such dishonor, said accused
failed to pay said Artelijo A. Palijo the amount of the said check or to make
arrangement for full payment of the same within five (5) banking days from
receipt of said notice.
CONTRARY TO LAW.
3. And finally in Criminal Case No. 84-26969:
That on or about July 8, 1983 in the City of Manila, Philippines, the said
accused did then and there wilfully and unlawfully draw and issue to Artelijo
A. Palijo to apply on account for value a Traders Royal Bank Check No.
323835 for P26,010.03 payable to Fr. Artelijo A. Palijo dated October 7, 1983
well knowing that at the time of issue he/she did not have sufficient funds in
or credit with the drawee bank for full payment of the said check upon its
presentment as in fact the said check, when presented within ninety (90)
days from the date thereof, was dishonored by the drawee bank for the
reason: Insufficient Funds; that despite notice of such dishonor, said
accused failed to pay said Artelijo A. Palijo the amount of the said check or
to make arrangement for full payment of the same within five (5) banking
days from receipt of said notice.
CONTRARY TO LAW.
Upon being arraigned, petitioner assisted by counsel pleaded not
guilty. Asprec was not arrested; he has remained at large since the trial, and
even now on appeal.
After due trial, the Regional Trial Court convicted Petitioner Lina Lim Lao
in Criminal Case Nos. 84-26967 and 84-26968 but acquitted her in Criminal
Case No. 84-26969.[7] On appeal, the Court of Appeals affirmed the decision
of the trial court.
Version of the Defense
Petitioner aptly summarized her version of the facts of the case thus:
Petitioner Lina Lim Lao was, in 1983, an employee of Premiere Financing
Corporation (hereinafter referred to as the Corporation), a corporation
engaged in investment management, with principal business office at
109

Miami, Cubao, Quezon City. She was a junior officer at the corporation who
was, however, assigned not at its main branch but at the corporations
extension office in (Binondo) Manila. (Ocampo, T.S.N., 16 August 1990,
p. 14)
In the regular course of her duties as a junior officer, she was required to cosign checks drawn against the account of the corporation. The other cosignor was her head of office, Mr. Teodulo Asprec. Since part of her duties
required her to be mostly in the field and out of the office, it was normal
procedure for her to sign the checks in blank, that is, without the names of
the payees, the amounts and the dates of maturity. It was likewise Mr.
Asprec, as head of office, who alone decided to whom the checks were to be
ultimately issued and delivered. (Lao, T.S.N., 28 September 1989, pp.
9-11, 17, 19.)
In signing the checks as part of her duties as junior officer of the
corporation, petitioner had no knowledge of the actual funds available in the
corporate account. (Lao, T.S.N., 28 September 1989, p. 21) The power,
duty and responsibility of monitoring and assessing the balances against the
checks issued, and funding the checks thus issued, devolved on the
corporations Treasury Department in its main office in Cubao, Quezon City,
headed then by the Treasurer, Ms. Veronilyn Ocampo. (Ocampo, T.S.N., 19
July 1990, p. 4; Lao, T.S.N., 28 September 1989, pp. 21-23) All bank
statements regarding the corporate checking account were likewise sent to
the main branch in Cubao, Quezon City, and not in Binondo, Manila, where
petitioner was holding office. (Ocampo, T.S.N., 19 July 1990, p. 24;
Marqueses, T.S.N., 22 November 1988, p. 8)
The foregoing circumstances attended the issuance of the checks subject of
the instant prosecution.
The checks were issued to guarantee payment of investments placed by
private complainant Palijo with Premiere Financing Corporation. In his
transactions with the corporation, private complainant
dealtexclusively with one Rosemarie Lachenal, a trader connected with the
corporation, and he never knew nor in any way dealt with petitioner Lina
Lim Lao at any time before or during the issuance of the delivery of the
checks. (Palijo, T.S.N., 23 June 1987, pp. 28-29, 32-34; Lao, T.S.N., 15
May 1990, p. 6; Ocampo, T.S.N., p. 5) Petitioner Lina Lim Lao was not in
any way involved in the transaction which led to the issuance of the checks.
When the checks were co-signed by petitioner, they were signed in advance
and in blank, delivered to the Head of Operations, Mr. Teodulo Asprec, who
subsequently filled in the names of the payee, the amounts and the
corresponding dates of maturity. After Mr. Asprec signed the checks, they
110

were delivered to private complainant Palijo. (Lao, T.S.N., 28 September

1989, pp. 8-11, 17, 19; note also that the trial court in its decision
fully accepted the testimony of petitioner [Decision of the Regional
Trial Court, p. 12], and that the Court of Appeals affirmed said
decision in toto)
Petitioner Lina Lim Lao was not in any way involved in the completion, and
the subsequent delivery of the check to private complainant Palijo.
At the time petitioner signed the checks, she had no knowledge of the
sufficiency or insufficiency of the funds of the corporate account. (Lao,
T.S.N., 28 September 1989, p. 21) It was not within her powers, duties or
responsibilities to monitor and assess the balances against the issuance;
much less was it within her (duties and responsibilities) to make sure that
the checks were funded. Premiere Financing Corporation had a Treasury
Department headed by a Treasurer, Ms. Veronilyn Ocampo, which alone had
access to information as to account balances and which alone was
responsible for funding the issued checks. (Ocampo, T.S.N., 19 July 1990,
p. 4; Lao, T.S.N., 28 September 1990, p. 23) All statements of account
were sent to the Treasury Department located at the main office in Cubao,
Quezon City.Petitioner was holding office at the extension in Binondo
Manila. (Lao, T.S.N., 28 September 1989, p. 24-25) Petitioner Lina Lim
Lao did not have knowledge of the insufficiency of the funds in the
corporate account against which the checks were drawn.
When the checks were subsequently dishonored, private complainant sent a
notice of said dishonor to Premier Financing Corporation at its head office in
Cubao, Quezon City. (Please refer to Exh. E; Palijo, T.S.N., 23 June
1987, p. 51) Private complainant did not send notice of dishonor to
petitioner. (Palijo, T.S.N., 24 July 1987, p. 10) He did not follow up his
investment with petitioner. (Id.) Private complainant never contacted, never
informed, and never talked with, petitioner after the checks had
bounced. (Id., at p. 29) Petitioner never had notice of the dishonor of the
checks subject of the instant prosecution.
The Treasurer of Premiere Financing Corporation, Ms. Veronilyn Ocampo
testified that it was the head office in Cubao, Quezon City, which received
notice of dishonor of the bounced checks. (Ocampo, T.S.N., 19 July 1990,
pp. 7-8) The dishonor of the check came in the wake of the assassination of
the late Sen. Benigno Aquino, as a consequence of which event a majority of
the corporations clients pre-terminated their investments. A period of
extreme illiquidity and financial distress followed, which ultimately led to the
corporations being placed under receivership by the Securities and
Exchange Commission. (Ocampo, T.S.N., 16 August 1990, p. 8, 19;
111

Lao, T.S.N., 28 September 1989, pp. 25-26; Please refer also to

Exhibit 1, the order of receivership issued by the Securities and
Exchange Commission) Despite the Treasury Departments and (Ms.
Ocampos) knowledge of the dishonor of the checks, however, the main
office in Cubao, Quezon City never informed petitioner Lina Lim Lao or
anybody in the Binondo office for that matter. (Ocampo, T.S.N., 16
August 1990, pp. 9-10) In her testimony, she justified her omission by
saying that the checks were actually the responsibility of the main
office (Ocampo, T.S.N., 19 July 1990, p. 6) and that, at that time of panic
withdrawals and massive pre-termination of clients investments, it was
futile to inform the Binondo office since the main office was strapped for
cash and in deep financial distress. (Id., at pp. 7-9) Moreover, the
confusion which came in the wake of the Aquino assassination and the
consequent panic withdrawals caused them to lose direct communication
with the Binondo office. (Ocampo, T.S.N., 16 August 1990, p. 9-10)
As a result of the financial crisis and distress, the Securities and Exchange
Commission placed Premier Financing Corporation under receivership,
appointing a rehabilitation receiver for the purpose of settling claims against
the corporation. (Exh. 1) As he himself admits, private complainant filed a
claim for the payment of the bounced check before and even after the
corporation had been placed under receivership. (Palijo, T.S.N., 24 July
1987, p. 10-17) A check was prepared by the receiver in favor of the
private complainant but the same was not claimed by him. (Lao, T.S.N., 15
May 1990, p. 18)
Private complainant then filed the instant criminal action. On 26 September
1990, the Regional Trial Court of Manila, Branch 33, rendered a decision
convicting petitioner, and sentencing the latter to suffer the aggregate
penalty of two (2) years and to pay a fine in the total amount
of P300,000.00. On appeal, the Court of Appeals affirmed said
decision. Hence, this petition for review.[8]
The Issue
In the main, petitioner contends that the public respondent committed a
reversible error in concluding that lack of actual knowledge of insufficiency
of funds was not a defense in a prosecution for violation of B.P.
22. Additionally, the petitioner argues that the notice of dishonor sent to the
main office of the corporation, and not to petitioner herself who holds office
in that corporations branch office, does not constitute the notice mandated
112

in Section 2 of BP 22; thus, there can be no prima facie presumption that

she had knowledge of the insufficiency of funds.
The Courts Ruling
The petition is meritorious.
Strict Interpretation of Penal Statutes
It is well-settled in this jurisdiction that penal statutes are strictly
construed against the state and liberally for the accused, so much so that
the scope of a penal statute cannot be extended by good intention,
implication, or even equity consideration. Thus, for Petitioner Lina Lim Laos
acts to be penalized under the Bouncing Checks Law or B.P. 22, they must
come clearly within both the spirit and the letter of the statute. [9]
The salient portions of B.P. 22 read:
SECTION 1. Checks without sufficient funds. -- Any person who makes or
draws and issues any check to apply on account or for value, knowing at the
time of issue that he does not have sufficient funds in or credit with the
drawee bank for the payment of such check in full upon its presentment,
which check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit or would have been dishonored for the same
reason had not the drawer, without any valid reason, ordered the bank to
stop payment, shall be punished by imprisonment of not less than thirty
days but not more than one (1) year or by a fine of not less than but not
more than double the amount of the check which fine shall in no case
exceed Two hundred thousand pesos, or both such fine and imprisonment at
the discretion of the court.
The same penalty shall be imposed upon any person who having sufficient
funds in or credit with the drawee bank when he makes or draws and issues
a check, shall fail to keep sufficient funds or to maintain a credit or to cover
the full amount of the check if presented within a period of ninety (90) days
from the date appearing thereon, for which reason it is dishonored by the
drawee bank.
Where the check is drawn by a corporation, company or entity, the person
or persons who actually signed the check in behalf of such drawer shall be
liable under this Act.
SECTION 2. Evidence of knowledge of insufficient funds. -- The making,
drawing and issuance of a check payment of which is refused by the drawee
because of insufficient funds in or credit with such bank, when presented
113

within ninety (90) days from the date of the check, shall be prima
facie evidence of knowledge of such insufficiency of funds or credit unless
such maker or drawer pays the holder thereof the amount due thereon, or
makes arrangements for payment in full by the drawee of such check within
five (5) banking days after receiving notice that such check has not been
paid by the drawee.
This Court listed the elements of the offense penalized under B.P. 22, as
follows: (1) the making, drawing and issuance of any check to apply to
account or for value; (2) the knowledge of the maker, drawer or issuer that
at the time of issue he does not have sufficient funds in or credit with the
drawee bank for the payment of such check in full upon its presentment;
and (3) subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit or dishonor for the same reason had not the
drawer, without any valid cause, ordered the bank to stop payment. [10]
Justice Luis B. Reyes, an eminent authority in criminal law, also
enumerated the elements of the offense defined in the first paragraph of
Section 1 of B.P. 22, thus:
1. That a person makes or draws and issues any check.
2. That the check is made or drawn and issued to apply on account or
for value.
3. That the person who makes or draws and issues the check knows
at the time of issue that he does not have sufficient funds in or
credit with the drawee bank for the payment of such check in
fullupon its presentment.
4. That the check is subsequently dishonored by the drawee bank for
insufficiency of funds or credit, or would have been dishonored for
the same reason had not the drawer, without any valid reason,
ordered the bank to stop payment.[11]
Crux of the Petition
Petitioner raised as defense before the Court of Appeals her lack of
actual knowledge of the insufficiency of funds at the time of the issuance of
the checks, and lack of personal notice of dishonor to her. The respondent
appellate court, however, affirmed the RTC decision, reasoning that the
makers knowledge of the insufficiency of funds is legally presumed from the
dishonor of his checks for insufficiency of funds. (People vs. Laggui, 171
SCRA 305; Nieras vs. Hon. Auxencio C. Dacuycuy, 181 SCRA 1)[12] The Court
of Appeals also stated that her alleged lack of knowledge or intent to issue a
114

bum check would not exculpate her from any responsibility under B.P. Blg.
22, since the act of making and issuing a worthless check is amalum
prohibitum.[13] In the words of the Solicitor General, (s)uch alleged lack of
knowledge is not material for petitioners liability under B.P.Blg. 22. [14]
Lack of Actual Knowledge of Insufficiency of Funds
Knowledge of insufficiency of funds or credit in the drawee bank for the
payment of a check upon its presentment is an essential element of the
offense.[15] There is a prima faciepresumption of the existence of this
element from the fact of drawing, issuing or making a check, the payment
of which was subsequently refused for insufficiency of funds. It is important
to stress, however, that this is not a conclusive presumption that forecloses
or precludes the presentation of evidence to the contrary.
In the present case, the fact alone that petitioner was a signatory to the
checks that were subsequently dishonored merely engenders the prima
facie presumption that she knew of the insufficiency of funds, but it does
not render her automatically guilty under B.P. 22. The prosecution has a
duty to prove all the elements of the crime, including the acts that give rise
to theprima facie presumption; petitioner, on the other hand, has a right to
rebut the prima facie presumption.[16] Therefore, if such knowledge of
insufficiency of funds is proven to be actuallyabsent or non-existent, the
accused should not be held liable for the offense defined under the first
paragraph of Section 1 of B.P. 22. Although the offense charged is a malum
prohibitum, the prosecution is not thereby excused from its responsibility of
proving beyond reasonable doubt all the elements of the offense, one of
which is knowledge of the insufficiency of funds.
After a thorough review of the case at bar, the Court finds that Petitioner
Lina Lim Lao did not have actual knowledge of the insufficiency of funds in
the corporate accounts at the time she affixed her signature to the checks
involved in this case, at the time the same were issued, and even at the
time the checks were subsequently dishonored by the drawee bank.
The scope of petitioners duties and responsibilities did not encompass
the funding of the corporations checks; her duties were limited to the
marketing department of the Binondo branch. [17] Under the organizational
structure of Premiere Financing Corporation, funding of checks was the sole
responsibility of the Treasury Department. Veronilyn Ocampo, former
Treasurer of Premiere, testified thus:

115

Q Will you please tell us whose (sic) responsible for the funding of
checks in Premiere?
A The one in charge is the Treasury Division up to the Treasury
Disbursement and then they give it directly to Jose Cabacan,
President of Premiere.[18]
Furthermore, the Regional Trial Court itself found that, since Petitioner
Lina Lim Lao was often out in the field taking charge of the marketing
department of the Binondo branch, she signed the checks in blank as to
name of the payee and the amount to be drawn, and without knowledge of
the transaction for which they were issued.[19] As a matter of company
practice, her signature was required in addition to that of Teodulo Asprec,
who alone placed the name of the payee and the amount to be drawn
thereon. This is clear from her testimony:
Since Petitioner Lina Lim Lao signed the checks without knowledge of the
insufficiency of funds, knowledge she was not expected or obliged to
possess under the organizational structure of the corporation, she may not
be held liable under B.P. 22. For in the final analysis, penal statutes such as
B.P. 22 must be construed with such strictness as to carefully safeguard the
rights of the defendant x x x.[22] The element of knowledge of insufficiency of
funds having been proven to be absent, petitioner is therefore entitled to an
acquittal.
This position finds support in Dingle vs. Intermediate Appellate
Court[23] where we stressed that knowledge of insufficiency of funds at the
time of the issuance of the check was an essential requisite for the offense
penalized under B.P. 22. In that case, the spouses Paz and Nestor Dingle
owned a family business known as PMD Enterprises. Nestor transacted the
sale of 400 tons of silica sand to the buyer Ernesto Ang who paid for the
same. Nestor failed to deliver. Thus, he issued to Ernesto two checks, signed
by him and his wife as authorized signatories for PMD Enterprises, to
represent the value of the undelivered silica sand. These checks were
dishonored for having been drawn against insufficient funds. Nestor
thereafter issued to Ernesto another check, signed by him and his wife Paz,
which was likewise subsequently dishonored. No payment was ever made;
hence, the spouses were charged with a violation of B.P. 22 before the trial
court which found them both guilty. Paz appealed the judgment to the then
Intermediate Appellate Court which modified the same by reducing the
penalty of imprisonment to thirty days. Not satisfied, Paz filed an appeal to
this Court insisting on her innocence and contending that she did not incur
116

any criminal liability under B.P. 22 because she had no knowledge of the
dishonor of the checks issued by her husband and, for that matter, even the
transaction of her husband with Ang. The Court ruled in Dingle as follows:
The Solicitor General in his Memorandum recommended that petitioner be
acquitted of the instant charge because from the testimony of the sole
prosecution witness Ernesto Ang, it was established that he dealt
exclusively with Nestor Dingle. Nowhere in his testimony is the name of Paz
Dingle ever mentioned in connection with the transaction and with the
issuance of the check. In fact, Ang categorically stated that it was Nestor
Dingle who received his two (2) letters of demand. This lends credence to
the testimony of Paz Dingle that she signed the questioned checks in blank
together with her husband without any knowledge of its issuance, much less
of the transaction and the fact of dishonor.
In the case of Florentino Lozano vs. Hon. Martinez, promulgated December
18, 1986, it was held that an essential element of the offense
is knowledge on the part of the maker or drawer of the check of the
insufficiency of his funds.
WHEREFORE, on reasonable doubt, the assailed decision of the Intermediate
Appellate Court (now the Court of Appeals) is hereby SET ASIDE and a new
one is hereby rendered ACQUITTING petitioner on reasonable doubt." [24]
In rejecting the defense of herein petitioner and ruling that knowledge of
the insufficiency of funds is legally presumed from the dishonor of the
checks for insufficiency of funds,Respondent Court of Appeals cited People
vs. Laggui[25] and Nierras vs. Dacuycuy.[26] These, however, are inapplicable
here. The accused in both cases issued personal -- not corporate -- checks
and did not aver lack of knowledge of insufficiency of funds or absence of
personal notice of the checks dishonor. Furthermore, in People vs.
Laggui[27] the Court ruled mainly on the adequacy of an information which
alleged lack of knowledge of insufficiency of funds at the time the check
was issued and not at the time of its presentment. On the other hand, the
Court inNierras vs. Dacuycuy[28] held mainly that an accused may be
charged under B.P. 22 and Article 315 of the Revised Penal Code for the
same act of issuing a bouncing check.
The statement in the two cases -- that mere issuance of a dishonored
check gives rise to the presumption of knowledge on the part of the drawer
that he issued the same without funds -- does not support the CA
Decision. As observed earlier, there is here only a prima facie presumption
which does not preclude the presentation of contrary evidence. On the
117

contrary,People vs. Laggui clearly spells out as an element of the offense

the fact that the drawer must have knowledge of the insufficiency of funds
in, or of credit with, the drawee bank for the payment of the same in full on
presentment; hence, it even supports the petitioners position.
Lack of Adequate Notice of Dishonor
There is another equally cogent reason for the acquittal of the
accused. There can be no prima facie evidence of knowledge of insufficiency
of funds in the instant case because no notice of dishonor was actually sent
to or received by the petitioner.
The notice of dishonor may be sent by the offended party or the drawee
bank. The trial court itself found absent a personal notice of dishonor to
Petitioner Lina Lim Lao by the drawee bank based on the unrebutted
testimony of Ocampo (t)hat the checks bounced when presented with the
drawee bank but she did not inform anymore the Binondo branch and Lina
Lim Lao as there was no need to inform them as the corporation was in
distress.[29] The Court of Appeals affirmed this factual finding. Pursuant to
prevailing jurisprudence, this finding is binding on this Court. [30]
Indeed, this factual matter is borne by the records. The records show that
the notice of dishonor was addressed to Premiere Financing Corporation and
sent to its main office in Cubao, Quezon City. Furthermore, the same had not
been transmitted to Premieres Binondo Office where petitioner had been
holding office.
Likewise no notice of dishonor from the offended party was actually sent
to or received by Petitioner Lao. Her testimony on this point is as follows:
Atty. Gonzales
q Will you please tell us if Father Artelejo Palejo (sic) ever notified you
of the bouncing of the check or the two (2) checks marked as
Exhibit B or C for the prosecution?
Witness
a No, sir.
q What do you mean no, sir?
a I was never given a notice. I was never given notice from Father
Palejo (sic).
COURT
(to witness)
q Notice of what?
a Of the bouncing check, Your Honor.[31]
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Because no notice of dishonor was actually sent to and received by the

petitioner, the prima facie presumption that she knew about the
insufficiency of funds cannot apply. Section 2 of B.P. 22 clearly provides that
this presumption arises not from the mere fact of drawing, making and
issuing a bum check; there must also be a showing that, within five banking
days from receipt of the notice of dishonor, such maker or drawer failed to
pay the holder of the check the amount due thereon or to make
arrangement for its payment in full by the drawee of such check.
It has been observed that the State, under this statute, actually offers
the violator a compromise by allowing him to perform some act which
operates to preempt the criminal action, and if he opts to perform it the
action is abated. This was also compared to certain laws [32] allowing illegal
possessors of firearms a certain period of time to surrender the illegally
possessed firearms to the Government, without incurring any criminal
liability.[33] In this light, the full payment of the amount appearing in the
check within five banking days from notice of dishonor is a complete
defense.[34] The absence of a notice of dishonor necessarily deprives an
accused an opportunity to preclude a criminal prosecution. Accordingly,
procedural due process clearly enjoins that a notice of dishonor be actually
served on petitioner. Petitioner has a right to demand -- and the basic
postulates of fairness require -- that the notice of dishonor be actually sent
to and received by her to afford her the opportunity to avert prosecution
under B.P. 22.
In this light, the postulate of Respondent Court of Appeals that (d)emand
on the Corporation constitutes demand on appellant (herein petitioner), [35] is
erroneous. Premiere has no obligation to forward the notice addressed to it
to the employee concerned, especially because the corporation itself incurs
no criminal liability under B.P. 22 for the issuance of a bouncing
check. Responsibility under B.P. 22 is personal to the accused; hence,
personal knowledge of the notice of dishonor is necessary. Consequently,
constructive notice to the corporation is not enough to satisfy due
process. Moreover, it is petitioner, as an officer of the corporation, who is
the latters agent for purposes of receiving notices and other documents,
and not the other way around. It is but axiomatic that notice to the
corporation, which has a personality distinct and separate from the
petitioner, does not constitute notice to the latter.
Epilogue

119

In granting this appeal, the Court is not unaware of B.P. 22s intent to
inculcate public respect for and trust in checks which, although not legal
tender, are deemed convenient substitutes for currency. B.P. 22 was
intended by the legislature to enhance commercial and financial
transactions in the Philippines by penalizing makers and issuers of worthless
checks. The public interest behind B.P. 22 is thus clearly palpable from its
intended purpose.[36]
At the same time, this Court deeply cherishes and is in fact bound by
duty to protect our peoples constitutional rights to due process and to be
presumed innocent until the contrary is proven. [37] These rights must be
read into any interpretation and application of B.P. 22. Verily, the public
policy to uphold civil liberties embodied in the Bill of Rights necessarily
outweighs the public policy to build confidence in the issuance of
checks. The first is a basic human right while the second is only proprietary
in nature.[38] Important to remember also is B.P. 22s requirements that the
check issuer must know at the time of issue that he does not have sufficient
funds in or credit with the drawee bank and that he must receive notice that
such check has not been paid by the drawee. Hence, B.P. 22 must not be
applied in a manner which contravenes an accuseds constitutional and
statutory rights.
There is also a social justice dimension in this case. Lina Lim Lao is only a
minor employee who had nothing to do with the issuance, funding and
delivery of checks. Why she was required by her employer to countersign
checks escapes us. Her signature is completely unnecessary for it serves no
fathomable purpose at all in protecting the employer from unauthorized
disbursements. Because of the pendency of this case, Lina Lim Lao stood in
jeopardy -- for over a decade -- of losing her liberty and suffering the
wrenching pain and loneliness of imprisonment, not to mention the stigma
of prosecution on her career and family life as a young mother, as well as
the expenses, effort and aches in defending her innocence.Upon the other
hand, the senior official -- Teodulo Asprec -- who appears responsible for the
issuance, funding and delivery of the worthless checks has escaped criminal
prosecution simply because he could not be located by the authorities. The
case against him has been archived while the awesome prosecutory might
of the government and the knuckled ire of the private complainant were all
focused on poor petitioner. Thus, this Court exhorts the prosecutors and the
police authorities concerned to exert their best to arrest and prosecute
Asprec so that justice in its pristine essence can be achieved in all fairness
to the complainant, Fr. Artelijo Palijo, and the People of the Philippines. By
this Decision, the Court enjoins the Secretary of Justice and the Secretary of
120

Interior and Local Government to see that essential justice is done and the
real culprit(s) duly-prosecuted and punished.
WHEREFORE, the questioned Decision of the Court of Appeals affirming
that of the Regional Trial Court, is hereby REVERSED and SET
ASIDE. Petitioner Lina Lim Lao isACQUITTED. The Clerk of Court is
hereby ORDERED to furnish the Secretary of Justice and the Secretary of
Interior and Local Government with copies of this Decision. No costs.
SO ORDERED.
Narvasa, C.J., (Chairman), Davide, Jr., and Melo, JJ., concur.
Francisco, J., on leave.

121

[G.R. No. 112212. March 2, 1998]

GREGORIO
FULE, petitioner,
vs. COURT
OF
APPEALS,
NINEVETCH CRUZ and JUAN BELARMINO, respondents.
DECISION
ROMERO, J.:
This petition for review on certiorari questions the affirmance by the
Court of Appeals of the decision [1] of the Regional Trial Court of San Pablo
City, Branch 30, dismissing the complaint that prayed for the nullification of
a contract of sale of a 10-hectare property in Tanay, Rizal in consideration of
the amount of P40,000.00 and a 2.5 carat emerald-cut diamond (Civil Case
No. SP-2455). The lower courts decision disposed of the case as follows:
WHEREFORE, premises considered, the Court hereby renders judgment
dismissing the complaint for lack of merit and ordering plaintiff to pay:
1. Defendant Dra. Ninevetch M. Cruz the sum of P300,000.00 as and for
moral damages and the sum of P100,000.00 as and for exemplary damages;
2. Defendant Atty. Juan Belarmino the sum of P250,000.00 as and for moral
damages and the sum of P150,000.00 as and for exemplary damages;
3. Defendant Dra. Cruz and Atty. Belarmino the sum of P25,000.00 each as
and for attorneys fees and litigation expenses; and
4. The costs of suit.
SO ORDERED.
As found by the Court of Appeals and the lower court, the antecedent
facts of this case are as follows:
Petitioner Gregorio Fule, a banker by profession and a jeweler at the same
time, acquired a 10-hectare property in Tanay, Rizal (hereinafter Tanay
property), covered by Transfer Certificate of Title No. 320725 which used to
be under the name of Fr. Antonio Jacobe. The latter had mortgaged it earlier
to the Rural Bank of Alaminos (the Bank), Laguna, Inc. to secure a loan in
the amount of P10,000.00, but the mortgage was later foreclosed and the
property offered for public auction upon his default.

122

In July 1984, petitioner, as corporate secretary of the bank, asked

Remelia Dichoso and Oliva Mendoza to look for a buyer who might be
interested in the Tanay property. The two found one in the person of herein
private respondent Dr. Ninevetch Cruz. It so happened that at the time,
petitioner had shown interest in buying a pair of emerald-cut diamond
earrings owned by Dr. Cruz which he had seen in January of the same year
when his mother examined and appraised them as genuine. Dr. Cruz,
however,
declined
petitioners
offer
to
buy
the
jewelry
for P100,000.00. Petitioner then made another bid to buy them for
US$6,000.00 at the exchange rate of $1.00 to P25.00. At this point,
petitioner inspected said jewelry at the lobby of the Prudential Bank branch
in San Pablo City and then made a sketch thereof. Having sketched the
jewelry for twenty to thirty minutes, petitioner gave them back to Dr. Cruz
who again refused to sell them since the exchange rate of the peso at the
time appreciated to P19.00 to a dollar.
Subsequently, however, negotiations for the barter of the jewelry and the
Tanay property ensued. Dr. Cruz requested herein private respondent Atty.
Juan Belarmino to check the property who, in turn, found out that no sale or
barter was feasible because the one-year period for redemption of the said
property had not yet expired at the time.
In an effort to cut through any legal impediment, petitioner executed on
October 19, 1984, a deed of redemption on behalf of Fr. Jacobe purportedly
in the amount of P15,987.78, and on even date, Fr. Jacobe sold the property
to petitioner for P75,000.00. The haste with which the two deeds were
executed is shown by the fact that the deed of sale was notarized ahead of
the deed of redemption. As Dr. Cruz had already agreed to the proposed
barter, petitioner went to Prudential Bank once again to take a look at the
jewelry.
In the afternoon of October 23, 1984, petitioner met Atty. Belarmino at
the latters residence to prepare the documents of sale. [2] Dr. Cruz herself
was not around but Atty. Belarmino was aware that she and petitioner had
previously agreed to exchange a pair of emerald-cut diamond earrings for
the Tanay property. Atty. Belarmino accordingly caused the preparation of a
deed of absolute sale while petitioner and Dr. Cruz attended to the
safekeeping of the jewelry.
The following day, petitioner, together with Dichoso and Mendoza,
arrived at the residence of Atty. Belarmino to finally execute a deed of
absolute sale. Petitioner signed the deed and gave Atty. Belarmino the
amount of P13,700.00 for necessary expenses in the transfer of title over
the Tanay property. Petitioner also issued a certification to the effect that
123

the actual consideration of the sale was P200,000.00 and not P80,000.00 as
indicated in the deed of absolute sale. The disparity between the actual
contract price and the one indicated on the deed of absolute sale was
purportedly aimed at minimizing the amount of the capital gains tax that
petitioner would have to shoulder. Since the jewelry was appraised only
at P160,000.00, the parties agreed that the balance of P40,000.00 would
just be paid later in cash.
As pre-arranged, petitioner left Atty. Belarminos residence with Dichoso
and Mendoza and headed for the bank, arriving there at past 5:00 p.m. Dr.
Cruz also arrived shortly thereafter, but the cashier who kept the other key
to the deposit box had already left the bank. Dr. Cruz and Dichoso,
therefore, looked for said cashier and found him having a haircut. As soon as
his haircut was finished, the cashier returned to the bank and arrived there
at 5:48 p.m., ahead of Dr. Cruz and Dichoso who arrived at 5:55 p.m. Dr.
Cruz and the cashier then opened the safety deposit box, the former
retrieving a transparent plastic or cellophane bag with the jewelry inside
and handing over the same to petitioner. The latter took the jewelry from
the bag, went near the electric light at the banks lobby, held the jewelry
against the light and examined it for ten to fifteen minutes. After a while, Dr.
Cruz asked, Okay na ba iyan? Petitioner expressed his satisfaction by
nodding his head.
For services rendered, petitioner paid the agents, Dichoso and Mendoza,
the amount of US$300.00 and some pieces of jewelry. He did not, however,
give them half of the pair of earrings in question which he had earlier
promised.
Later, at about 8:00 oclock in the evening of the same day, petitioner
arrived at the residence of Atty. Belarmino complaining that the jewelry
given to him was fake. He then used a tester to prove the alleged
fakery. Meanwhile, at 8:30 p.m., Dichoso and Mendoza went to the
residence of Dr. Cruz to borrow her car so that, with Atty. Belarmino, they
could register the Tanay property. After Dr. Cruz had agreed to lend her car,
Dichoso called up Atty. Belarmino. The latter, however, instructed Dichoso to
proceed immediately to his residence because petitioner was there.
Believing that petitioner had finally agreed to give them half of the pair of
earrings, Dichoso went posthaste to the residence of Atty. Belarmino only to
find petitioner already demonstrating with a tester that the earrings were
fake. Petitioner then accused Dichoso and Mendoza of deceiving him which
they, however, denied. They countered that petitioner could not have been
fooled because he had vast experience regarding jewelry. Petitioner
nonetheless took back the US$300.00 and jewelry he had given them.
124

Thereafter, the group decided to go to the house of a certain Macario

Dimayuga, a jeweler, to have the earrings tested. Dimayuga, after taking
one look at the earrings, immediately declared them counterfeit. At around
9:30 p.m., petitioner went to one Atty. Reynaldo Alcantara residing at
Lakeside Subdivision in San Pablo City, complaining about the fake
jewelry.Upon being advised by the latter, petitioner reported the matter to
the police station where Dichoso and Mendoza likewise executed sworn
statements.
On October 26, 1984, petitioner filed a complaint before the Regional
Trial Court of San Pablo City against private respondents praying, among
other things, that the contract of sale over the Tanay property be declared
null and void on the ground of fraud and deceit.
On October 30, 1984, the lower court issued a temporary restraining
order directing the Register of Deeds of Rizal to refrain from acting on the
pertinent documents involved in the transaction. On November 20, 1984,
however, the same court lifted its previous order and denied the prayer for
a writ of preliminary injunction.
After trial, the lower court rendered its decision on March 7, 1989.
Confronting the issue of whether or not the genuine pair of earrings used as
consideration for the sale was delivered by Dr. Cruz to petitioner, the lower
court said:
The Court finds that the answer is definitely in the affirmative. Indeed, Dra.
Cruz delivered (the) subject jewelries (sic) into the hands of plaintiff who
even raised the same nearer to the lights of the lobby of the bank near the
door. When asked by Dra. Cruz if everything was in order, plaintiff even
nodded his satisfaction (Hearing of Feb. 24, 1988). At that instance, plaintiff
did not protest, complain or beg for additional time to examine further the
jewelries (sic). Being a professional banker and engaged in the jewelry
business plaintiff is conversant and competent to detect a fake diamond
from the real thing. Plaintiff was accorded the reasonable time and
opportunity to ascertain and inspect the jewelries (sic) in accordance with
Article 1584 of the Civil Code. Plaintiff took delivery of the subject jewelries
(sic) before 6:00 p.m. of October 24, 1984. When he went at 8:00 p.m. that
same day to the residence of Atty. Belarmino already with a tester
complaining about some fake jewelries (sic), there was already undue delay
because of the lapse of a considerable length of time since he got hold of
subject jewelries (sic). The lapse of two (2) hours more or less before
plaintiff complained is considered by the Court as unreasonable delay. [3]
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The lower court further ruled that all the elements of a valid contract
under Article 1458 of the Civil Code were present, namely: (a) consent or
meeting of the minds; (b) determinate subject matter, and (c) price certain
in money or its equivalent. The same elements, according to the lower
court, were present despite the fact that the agreement between petitioner
and Dr. Cruz was principally a barter contract. The lower court explained
thus:
x x x. Plaintiffs ownership over the Tanay property passed unto Dra. Cruz
upon the constructive delivery thereof by virtue of the Deed of Absolute
Sale (Exh. D). On the other hand, the ownership of Dra. Cruz over the
subject jewelries (sic) transferred to the plaintiff upon her actual personal
delivery to him at the lobby of the Prudential Bank. It is expressly provided
by law that the thing sold shall be understood as delivered, when it is placed
in the control and possession of the vendee (Art. 1497, Civil Code; Kuenzle
& Straff vs. Watson & Co. 13 Phil. 26). The ownership and/or title over the
jewelries (sic) was transmitted immediately before 6:00 p.m. of October 24,
1984. Plaintiff signified his approval by nodding his head. Delivery or
tradition, is one of the modes of acquiring ownership (Art. 712, Civil Code).
Similarly, when Exhibit D was executed, it was equivalent to the delivery
of the Tanay property in favor of Dra. Cruz. The execution of the public
instrument (Exh. D) operates as a formal or symbolic delivery of the Tanay
property and authorizes the buyer, Dra. Cruz to use the document as proof
of ownership (Florendo v. Foz, 20 Phil. 399). More so, since Exhibit D does
not contain any proviso or stipulation to the effect that title to the property
is reserved with the vendor until full payment of the purchase price, nor is
there a stipulation giving the vendor the right to unilaterally rescind the
contract the moment the vendee fails to pay within a fixed period (Taguba v.
Vda. De Leon, 132 SCRA 722; Luzon Brokerage Co. Inc. vs. Maritime Building
Co. Inc. 86 SCRA 305; Froilan v. Pan Oriental Shipping Co. et al. 12 SCRA
276).[4]
Aside from concluding that the contract of barter or sale had in fact been
consummated when petitioner and Dr. Cruz parted ways at the bank, the
trial court likewise dwelt on the unexplained delay with which petitioner
complained about the alleged fakery. Thus:
x x x. Verily, plaintiff is already estopped to come back after the lapse of
considerable length of time to claim that what he got was fake. He is a
Business Management graduate of La Salle University, Class 1978-79, a
professional banker as well as a jeweler in his own right. Two hours is more
126

than enough time to make a switch of a Russian diamond with the real
diamond. It must be remembered that in July 1984 plaintiff made a sketch of
the subject jewelries (sic) at the Prudential Bank. Plaintiff had a tester at
8:00 p.m. at the residence of Atty. Belarmino. Why then did he not bring it
out when he was examining the subject jewelries (sic) at about 6:00 p.m. in
the banks lobby? Obviously, he had no need for it after being satisfied of the
genuineness of the subject jewelries (sic). When Dra. Cruz and plaintiff left
the bank both of them had fully performed their respective
prestations. Once a contract is shown to have been consummated or fully
performed by the parties thereto, its existence and binding effect can no
longer be disputed. It is irrelevant and immaterial to dispute the due
execution of a contract if both of them have in fact performed their
obligations thereunder and their respective signatures and those of their
witnesses appear upon the face of the document (Weldon Construction v. CA
G.R. No. L-35721, Oct. 12, 1987).[5]
Finally, in awarding damages to the defendants, the lower court
remarked:
The Court finds that plaintiff acted in wanton bad faith. Exhibit 2-Belarmino
purports to show that the Tanay property is worth P25,000.00. However,
also on that same day it was executed, the propertys worth was magnified
at P75,000.00 (Exh. 3-Belarmino). How could in less than a day (Oct. 19,
1984) the value would (sic) triple under normal circumstances? Plaintiff,
with the assistance of his agents, was able to exchange the Tanay property
which his bank valued only at P25,000.00 in exchange for a genuine pair of
emerald cut diamond worth P200,000.00 belonging to Dra. Cruz. He also
retrieved the US$300.00 and jewelries (sic) from his agents. But he was not
satisfied in being able to get subject jewelries for a song. He had to file a
malicious and unfounded case against Dra. Cruz and Atty. Belarmino who
are well known, respected and held in high esteem in San Pablo City where
everybody practically knows everybody. Plaintiff came to Court with unclean
hands dragging the defendants and soiling their clean and good name in the
process. Both of them are near the twilight of their lives after maintaining
and nurturing their good reputation in the community only to be stunned
with a court case. Since the filing of this case on October 26, 1984 up to the
present they were living under a pall of doubt. Surely, this affected not only
their earning capacity in their practice of their respective professions, but
also they suffered besmirched reputations. Dra. Cruz runs her own hospital
and defendant Belarmino is a well respected legal practitioner.
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The length of time this case dragged on during which period their
reputation were (sic) tarnished and their names maligned by the pendency
of the case, the Court is of the belief that some of the damages they prayed
for in their answers to the complaint are reasonably proportionate to the
sufferings they underwent (Art. 2219, New Civil Code). Moreover, because of
the falsity, malice and baseless nature of the complaint defendants were
compelled to litigate. Hence, the award of attorneys fees is warranted under
the circumstances (Art. 2208, New Civil Code). [6]
From the trial courts adverse decision, petitioner elevated the matter to
the Court of Appeals. On October 20, 1992, the Court of Appeals, however,
rendered a decision[7]affirming in toto the lower courts decision. His motion
for reconsideration having been denied on October 19, 1993, petitioner now
files the instant petition alleging that:
I. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS COMPLAINT
AND IN HOLDING THAT THE PLAINTIFF ACTUALLY RECEIVED A
GENUINE PAIR OF EMERALD CUT DIAMOND EARRING(S) FROM
DEFENDANT CRUZ x x x;
II. THE TRIAL COURT ERRED IN AWARDING MORAL AND EXEMPLARY
DAMAGES AND ATTORNEYS FEES IN FAVOR OF DEFENDANTS AND
AGAINST THE PLAINTIFF IN THIS CASE; and
III.THE TRIAL COURT ERRED IN NOT DECLARING THE DEED OF SALE
OF THE TANAY PROPERTY (EXH. `D) AS NULL AND VOID OR IN NOT
ANNULLING THE SAME, AND IN FAILING TO GRANT REASONABLE
DAMAGES IN FAVOR OF THE PLAINTIFF.[8]
As to the first allegation, the Court observes that petitioner is essentially
raising a factual issue as it invites us to examine and weigh anew the facts
regarding the genuineness of the earrings bartered in exchange for the
Tanay property. This, of course, we cannot do without unduly transcending
the limits of our review power in petitions of this nature which are confined
merely to pure questions of law. We accord, as a general rule,
conclusiveness to a lower courts findings of fact unless it is shown, inter
alia, that: (1) the conclusion is a finding grounded on speculations, surmises
or conjectures; (2) the inference is manifestly mistaken, absurd and
impossible; (3) when there is a grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings of
fact are conflicting; and (6) when the Court of Appeals, in making its
findings, went beyond the issues of the case and the same is contrary to the
128

admission of both parties.[9] We find nothing, however, that warrants the

application of any of these exceptions.
Consequently, this Court upholds the appellate courts findings of fact
especially because these concur with those of the trial court which, upon a
thorough scrutiny of the records, are firmly grounded on evidence presented
at the trial.[10] To reiterate, this Courts jurisdiction is only limited to reviewing
errors of law in the absence of any showing that the findings complained of
are totally devoid of support in the record or that they are glaringly
erroneous as to constitute serious abuse of discretion. [11]
Nonetheless, this Court has to closely delve into petitioners allegation
that the lower courts decision of March 7, 1989 is a ready-made one
because it was handed down a day after the last date of the trial of the
case.[12] Petitioner, in this regard, finds it incredible that Judge J. Ausberto
Jaramillo was able to write a 12-page single-spaced decision, type it and
release it on March 7, 1989, less than a day after the last hearing on March
6, 1989. He stressed that Judge Jaramillo replaced Judge Salvador de
Guzman and heard only his rebuttal testimony.
This allegation is obviously no more than a desperate effort on the part
of petitioner to disparage the lower courts findings of fact in order to
convince this Court to review the same. It is noteworthy that Atty. Belarmino
clarified that Judge Jaramillo had issued the first order in the case as early
as March 9, 1987 or two years before the rendition of the decision. In fact,
Atty. Belarmino terminated presentation of evidence on October 13, 1987,
while Dr. Cruz finished hers on February 4, 1989, or more than a month prior
to the rendition of the judgment. The March 6, 1989 hearing was conducted
solely for the presentation of petitioner's rebuttal testimony. [13] In other
words, Judge Jaramillo had ample time to study the case and write the
decision because the rebuttal evidence would only serve to confirm or verify
the facts already presented by the parties.
The Court finds nothing anomalous in the said situation. No proof has
been adduced that Judge Jaramillo was motivated by a malicious or sinister
intent in disposing of the case with dispatch. Neither is there proof that
someone else wrote the decision for him. The immediate rendition of the
decision was no more than Judge Jaramillos compliance with his duty as a
judge to dispose of the courts business promptly and decide cases within
the required periods.[14] The two-year period within which Judge Jaramillo
handled the case provided him with all the time to study it and even write
down its facts as soon as these were presented to court. In fact, this Court
does not see anything wrong in the practice of writing a decision days
before the scheduled promulgation of judgment and leaving the dispositive
129

portion for typing at a time close to the date of promulgation, provided that
no malice or any wrongful conduct attends its adoption. [15] The practice
serves the dual purposes of safeguarding the confidentiality of draft
decisions and rendering decisions with promptness. Neither can Judge
Jaramillo be made administratively answerable for the immediate rendition
of the decision. The acts of a judge which pertain to his judicial functions are
not subject to disciplinary power unless they are committed with fraud,
dishonesty, corruption or bad faith.[16] Hence, in the absence of sufficient
proof to the contrary, Judge Jaramillo is presumed to have performed his job
in accordance with law and should instead be commended for his close
attention to duty.
Having disposed of petitioners first contention, we now come to the core
issue of this petition which is whether the Court of Appeals erred in
upholding the validity of the contract of barter or sale under the
circumstances of this case.
The Civil Code provides that contracts are perfected by mere
consent. From this moment, the parties are bound not only to the fulfillment
of what has been expressly stipulated but also to all the consequences
which, according to their nature, may be in keeping with good faith, usage
and law.[17] A contract of sale is perfected at the moment there is a meeting
of the minds upon the thing which is the object of the contract and upon the
price.[18] Being consensual, a contract of sale has the force of law between
the contracting parties and they are expected to abide in good faith by their
respective contractual commitments. Article 1358 of the Civil Code which
requires the embodiment of certain contracts in a public instrument, is only
for convenience,[19] and registration of the instrument only adversely affects
third parties.[20] Formal requirements are, therefore, for the benefit of third
parties. Non-compliance therewith does not adversely affect the validity of
the contract nor the contractual rights and obligations of the parties
thereunder.
It is evident from the facts of the case that there was a meeting of the
minds between petitioner and Dr. Cruz. As such, they are bound by the
contract unless there are reasons or circumstances that warrant its
nullification. Hence, the problem that should be addressed in this case is
whether or not under the facts duly established herein, the contract can be
voided in accordance with law so as to compel the parties to restore to each
other the things that have been the subject of the contract with their fruits,
and the price with interest.[21]
Contracts that are voidable or annullable, even though there may have
been no damage to the contracting parties are: (1) those where one of the
130

parties is incapable of giving consent to a contract; and (2) those where the
consent is vitiated by mistake, violence, intimidation, undue influence or
fraud.[22] Accordingly, petitioner now stresses before this Court that he
entered into the contract in the belief that the pair of emerald-cut diamond
earrings was genuine. On the pretext that those pieces of jewelry turned out
to be counterfeit, however, petitioner subsequently sought the nullification
of said contract on the ground that it was, in fact, tainted with fraud [23] such
that his consent was vitiated.
There is fraud when, through the insidious words or machinations of one
of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to. [24] The records, however,
are bare of any evidence manifesting that private respondents employed
such insidious words or machinations to entice petitioner into entering the
contract of barter. Neither is there any evidence showing that Dr. Cruz
induced petitioner to sell his Tanay property or that she cajoled him to take
the earrings in exchange for said property.On the contrary, Dr. Cruz did not
initially accede to petitioners proposal to buy the said jewelry. Rather, it
appears that it was petitioner, through his agents, who led Dr. Cruz to
believe that the Tanay property was worth exchanging for her jewelry as he
represented that its value was P400,000.00 or more than double that of the
jewelry which was valued only at P160,000.00. If indeed petitioners property
was truly worth that much, it was certainly contrary to the nature of a
businessman-banker like him to have parted with his real estate for half its
price. In short, it was in fact petitioner who resorted to machinations to
convince Dr. Cruz to exchange her jewelry for the Tanay property.
Moreover, petitioner did not clearly allege mistake as a ground for
nullification of the contract of sale. Even assuming that he did, petitioner
cannot successfully invoke the same. To invalidate a contract, mistake must
refer to the substance of the thing that is the object of the contract, or to
those conditions which have principally moved one or both parties to enter
into the contract.[25] An example of mistake as to the object of the contract
is the substitution of a specific thing contemplated by the parties with
another.[26] In his allegations in the complaint, petitioner insinuated that an
inferior one or one that had only Russian diamonds was substituted for the
jewelry he wanted to exchange with his 10-hectare land. He, however, failed
to prove the fact that prior to the delivery of the jewelry to him, private
respondents endeavored to make such substitution.
Likewise, the facts as proven do not support the allegation that petitioner
himself could be excused for the mistake. On account of his work as a
banker-jeweler, it can be rightfully assumed that he was an expert on
131

matters regarding gems. He had the intellectual capacity and the business
acumen as a banker to take precautionary measures to avert such a
mistake, considering the value of both the jewelry and his land. The fact
that he had seen the jewelry before October 24, 1984 should not have
precluded him from having its genuineness tested in the presence of Dr.
Cruz. Had he done so, he could have avoided the present situation that he
himself brought about. Indeed, the finger of suspicion of switching the
genuine jewelry for a fake inevitably points to him. Such a mistake caused
by manifest negligence cannot invalidate a juridical act. [27] As the Civil Code
provides, (t)here is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract. [28]
Furthermore, petitioner was afforded the reasonable opportunity required
in Article 1584 of the Civil Code within which to examine the jewelry as he in
fact accepted them when asked by Dr. Cruz if he was satisfied with the
same.[29] By taking the jewelry outside the bank, petitioner executed an act
which was more consistent with his exercise of ownership over it. This gains
credence when it is borne in mind that he himself had earlier delivered the
Tanay property to Dr. Cruz by affixing his signature to the contract of
sale. That after two hours he later claimed that the jewelry was not the one
he intended in exchange for his Tanay property, could not sever the juridical
tie that now bound him and Dr. Cruz. The nature and value of the thing he
had taken preclude its return after that supervening period within which
anything could have happened, not excluding the alteration of the jewelry
or its being switched with an inferior kind.
Both the trial and appellate courts, therefore, correctly ruled that there
were no legal bases for the nullification of the contract of sale. Ownership
over the parcel of land and the pair of emerald-cut diamond earrings had
been transferred to Dr. Cruz and petitioner, respectively, upon the actual
and constructive delivery thereof. [30] Said contract of sale being absolute in
nature, title passed to the vendee upon delivery of the thing sold since
there was no stipulation in the contract that title to the property sold has
been reserved in the seller until full payment of the price or that the vendor
has the right to unilaterally resolve the contract the moment the buyer fails
to pay within a fixed period.[31] Such stipulations are not manifest in the
contract of sale.
While it is true that the amount of P40,000.00 forming part of the
consideration was still payable to petitioner, its nonpayment by Dr. Cruz is
not a sufficient cause to invalidate the contract or bar the transfer of
ownership and possession of the things exchanged considering the fact that
their contract is silent as to when it becomes due and demandable. [32]
132

Neither may such failure to pay the balance of the purchase price result
in the payment of interest thereon. Article 1589 of the Civil Code prescribes
the payment of interest by the vendee for the period between the delivery
of the thing and the payment of the price in the following cases:
(1) Should it have been so stipulated;
(2) Should the thing sold and delivered produce fruits or income;
(3) Should he be in default, from the time of judicial or extrajudicial
demand for the payment of the price.
Not one of these cases obtains here. This case should, of course, be
distinguished from De la Cruz v. Legaspi,[33] where the court held that failure
to pay the consideration after the notarization of the contract as previously
promised resulted in the vendees liability for payment of interest. In the
case at bar, there is no stipulation for the payment of interest in the
contract of sale nor proof that the Tanay property produced fruits or
income. Neither did petitioner demand payment of the price as in fact he
filed an action to nullify the contract of sale.
All told, petitioner appears to have elevated this case to this Court for
the principal reason of mitigating the amount of damages awarded to both
private respondents which petitioner considers as exorbitant. He contends
that private respondents do not deserve at all the award of damages. In
fact, he pleads for the total deletion of the award as regards private
respondent Belarmino whom he considers a mere nominal party because no
specific claim for damages against him was alleged in the complaint. When
he filed the case, all that petitioner wanted was that Atty. Belarmino should
return to him the owners duplicate copy of TCT No. 320725, the deed of sale
executed by Fr. Antonio Jacobe, the deed of redemption and the check
alloted for expenses. Petitioner alleges further that Atty. Belarmino should
not have delivered all those documents to Dr. Cruz because as the lawyer
for both the seller and the buyer in the sale contract, he should have
protected the rights of both parties. Moreover, petitioner asserts that there
was no firm basis for damages except for Atty. Belarminos uncorroborated
testimony.[34]
Moral and exemplary damages may be awarded without proof of
pecuniary loss. In awarding such damages, the court shall take into account
the circumstances obtaining in the case and assess damages according to
its discretion.[35] To warrant the award of damages, it must be shown that
the person to whom these are awarded has sustained injury. He must
likewise establish sufficient data upon which the court can properly base its
133

estimate of the amount of damages. [36] Statements of facts should establish

such data rather than mere conclusions or opinions of witnesses. [37] Thus:
x x x. For moral damages to be awarded, it is essential that the
claimant must have satisfactorily proved during the trial the existence
of the factual basis of the damages and its causal connection with the
adverse partys acts. If the court has no proof or evidence upon which
the claim for moral damages could be based, such indemnity could
not be outrightly awarded. The same holds true with respect to the
award of exemplary damages where it must be shown that the party
acted in a wanton, oppressive or malevolent manner. [38]
In this regard, the lower court appeared to have awarded damages on a
ground analogous to malicious prosecution under Article 2219(8) of the Civil
Code[39] as shown by (1) petitioners wanton bad faith in bloating the value of
the Tanay property which he exchanged for a genuine pair of emerald-cut
diamond worth P200,000.00; and (2) his filing of a malicious and unfounded
case against private respondents who were well known, respected and held
in high esteem in San Pablo City where everybody practically knows
everybody and whose good names in the twilight of their lives were soiled
by petitioners coming to court with unclean hands, thereby affecting their
earning capacity in the exercise of their respective professions and
besmirching their reputation.
For its part, the Court of Appeals affirmed the award of damages to
private respondents for these reasons:
The malice with which Fule filed this case is apparent. Having taken
possession of the genuine jewelry of Dra. Cruz, Fule now wishes to
return a fake jewelry to Dra. Cruz and, more than that, get back the
real property, which his bank owns. Fule has obtained a genuine
jewelry which he could sell anytime, anywhere and to anybody,
without the same being traced to the original owner for practically
nothing. This is plain and simple, unjust enrichment. [40]
While, as a rule, moral damages cannot be recovered from a person who
has filed a complaint against another in good faith because it is not sound
policy to place a penalty on the right to litigate, [41] the same, however,
cannot apply in the case at bar. The factual findings of the courts a quo to
the effect that petitioner filed this case because he was the victim of fraud;
that he could not have been such a victim because he should have
134

examined the jewelry in question before accepting delivery thereof,

considering his exposure to the banking and jewelry businesses; and that he
filed the action for the nullification of the contract of sale with unclean
hands, all deserve full faith and credit to support the conclusion that
petitioner was motivated more by ill will than a sincere attempt to protect
his rights in commencing suit against respondents.
As pointed out earlier, a closer scrutiny of the chain of events
immediately prior to and on October 24, 1984 itself would amply
demonstrate that petitioner was not simply negligent in failing to exercise
due diligence to assure himself that what he was taking in exchange for his
property were genuine diamonds. He had rather placed himself in a
situation from which it preponderantly appears that his seeming ignorance
was actually just a ruse. Indeed, he had unnecessarily dragged respondents
to face the travails of litigation in speculating at the possible favorable
outcome of his complaint when he should have realized that his supposed
predicament was his own making. We, therefore, see here no semblance of
an honest and sincere belief on his part that he was swindled by
respondents which would entitle him to redress in court. It must be noted
that before petitioner was able to convince Dr. Cruz to exchange her jewelry
for the Tanay property, petitioner took pains to thoroughly examine said
jewelry, even going to the extent of sketching their appearance. Why at the
precise moment when he was about to take physical possession thereof he
failed to exert extra efforts to check their genuineness despite the large
consideration involved has never been explained at all by petitioner. His
acts thus failed to accord with what an ordinary prudent man would have
done in the same situation. Being an experienced banker and a
businessman himself who deliberately skirted a legal impediment in the sale
of the Tanay property and to minimize the capital gains tax for its exchange,
it was actually gross recklessness for him to have merely conducted a
cursory examination of the jewelry when every opportunity for doing so was
not denied him. Apparently, he carried on his person a tester which he later
used to prove the alleged fakery but which he did not use at the time when
it was most needed. Furthermore, it took him two more hours of
unexplained delay before he complained that the jewelry he received were
counterfeit. Hence, we stated earlier that anything could have happened
during all the time that petitioner was in complete possession and control of
the jewelry, including the possibility of substituting them with fake ones,
against which respondents would have a great deal of difficulty defending
themselves. The truth is that petitioner even failed to successfully prove
during trial that the jewelry he received from Dr. Cruz were not genuine. Add
135

to that the fact that he had been shrewd enough to bloat the Tanay
propertys price only a few days after he purchased it at a much lower value.
Thus, it is our considered view that if this slew of circumstances were
connected, like pieces of fabric sewn into a quilt, they would sufficiently
demonstrate that his acts were not merely negligent but rather studied and
deliberate.
We do not have here, therefore, a situation where petitioners complaint
was simply found later to be based on an erroneous ground which, under
settled jurisprudence, would not have been a reason for awarding moral and
exemplary damages.[42] Instead, the cause of action of the instant case
appears to have been contrived by petitioner himself. In other words, he
was placed in a situation where he could not honestly evaluate whether his
cause of action has a semblance of merit, such that it would require the
expertise of the courts to put it to a test. His insistent pursuit of such case
then coupled with circumstances showing that he himself was guilty in
bringing about the supposed wrongdoing on which he anchored his cause of
action would render him answerable for all damages the defendant may
suffer because of it. This is precisely what took place in the petition at bar
and we find no cogent reason to disturb the findings of the courts below that
respondents in this case suffered considerable damages due to petitioners
unwarranted action.
WHEREFORE, the decision of the Court of Appeals dated October 20,
1992 is hereby AFFIRMED in toto. Dr. Cruz, however, is ordered to pay
petitioner the balance of the purchase price of P40,000.00 within ten (10)
days from the finality of this decision. Costs against petitioner.
SO ORDERED.
Narvasa, CJ. (Chairman), Kapunan and Purisima, JJ., concur.

136

G.R. No. L-11827

July 31, 1961
FERNANDO A. GAITE, plaintiff-appellee,
vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING
CO., INC., SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO
ESCANDOR and FERNANDO TY, defendants-appellants.
Alejo Mabanag for plaintiff-appellee.
Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendantsappellants.
REYES, J.B.L., J.:
This appeal comes to us directly from the Court of First Instance because
the claims involved aggregate more than P200,000.00.
Defendant-appellant Isabelo Fonacier was the owner and/or holder, either
by himself or in a representative capacity, of 11 iron lode mineral claims,
known as the Dawahan Group, situated in the municipality of Jose
Panganiban, province of Camarines Norte.
By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier
constituted and appointed plaintiff-appellee Fernando A. Gaite as his true
and lawful attorney-in-fact to enter into a contract with any individual or
juridical person for the exploration and development of the mining claims
aforementioned on a royalty basis of not less than P0.50 per ton of ore that
might be extracted therefrom. On March 19, 1954, Gaite in turn executed a
general assignment (Record on Appeal, pp. 17-19) conveying the
development and exploitation of said mining claims into the Larap Iron
Mines, a single proprietorship owned solely by and belonging to him, on the
same royalty basis provided for in Exhibit "3". Thereafter, Gaite embarked
upon the development and exploitation of the mining claims in question,
opening and paving roads within and outside their boundaries, making other
improvements and installing facilities therein for use in the development of
the mines, and in time extracted therefrom what he claim and estimated to
be approximately 24,000 metric tons of iron ore.
For some reason or another, Isabelo Fonacier decided to revoke the
authority granted by him to Gaite to exploit and develop the mining claims
in question, and Gaite assented thereto subject to certain conditions. As a
result, a document entitled "Revocation of Power of Attorney and Contract"
was executed on December 8, 1954 (Exhibit "A"),wherein Gaite transferred
to Fonacier, for the consideration of P20,000.00, plus 10% of the royalties
that Fonacier would receive from the mining claims, all his rights and
interests on all the roads, improvements, and facilities in or outside said
claims, the right to use the business name "Larap Iron Mines" and its
137

goodwill, and all the records and documents relative to the mines. In the
same document, Gaite transferred to Fonacier all his rights and interests
over the "24,000 tons of iron ore, more or less" that the former had already
extracted from the mineral claims, in consideration of the sum of
P75,000.00, P10,000.00 of which was paid upon the signing of the
agreement, and
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be
paid from and out of the first letter of credit covering the first shipment
of iron ores and of the first amount derived from the local sale of iron
ore made by the Larap Mines & Smelting Co. Inc., its assigns,
administrators, or successors in interests.
To secure the payment of the said balance of P65,000.00, Fonacier promised
to execute in favor of Gaite a surety bond, and pursuant to the promise,
Fonacier delivered to Gaite a surety bond dated December 8, 1954 with
himself (Fonacier) as principal and the Larap Mines and Smelting Co. and its
stockholders George Krakower, Segundina Vivas, Pacifico Escandor,
Francisco Dante, and Fernando Ty as sureties (Exhibit "A-1"). Gaite testified,
however, that when this bond was presented to him by Fonacier together
with the "Revocation of Power of Attorney and Contract", Exhibit "A", on
December 8, 1954, he refused to sign said Exhibit "A" unless another bond
under written by a bonding company was put up by defendants to secure
the payment of the P65,000.00 balance of their price of the iron ore in the
stockpiles in the mining claims. Hence, a second bond, also dated
December 8, 1954 (Exhibit "B"),was executed by the same parties to the
first bond Exhibit "A-1", with the Far Eastern Surety and Insurance Co. as
additional surety, but it provided that the liability of the surety company
would attach only when there had been an actual sale of iron ore by the
Larap Mines & Smelting Co. for an amount of not less then P65,000.00, and
that, furthermore, the liability of said surety company would automatically
expire on December 8, 1955. Both bonds were attached to the "Revocation
of Power of Attorney and Contract", Exhibit "A", and made integral parts
thereof.
On the same day that Fonacier revoked the power of attorney he gave to
Gaite and the two executed and signed the "Revocation of Power of Attorney
and Contract", Exhibit "A", Fonacier entered into a "Contract of Mining
Operation", ceding, transferring, and conveying unto the Larap Mines and
Smelting Co., Inc. the right to develop, exploit, and explore the mining
claims in question, together with the improvements therein and the use of
the name "Larap Iron Mines" and its good will, in consideration of certain
royalties. Fonacier likewise transferred, in the same document, the complete
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title to the approximately 24,000 tons of iron ore which he acquired from
Gaite, to the Larap & Smelting Co., in consideration for the signing by the
company and its stockholders of the surety bonds delivered by Fonacier to
Gaite (Record on Appeal, pp. 82-94).
Up to December 8, 1955, when the bond Exhibit "B" expired with respect to
the Far Eastern Surety and Insurance Company, no sale of the
approximately 24,000 tons of iron ore had been made by the Larap Mines &
Smelting Co., Inc., nor had the P65,000.00 balance of the price of said ore
been paid to Gaite by Fonacier and his sureties payment of said amount, on
the theory that they had lost right to make use of the period given them
when their bond, Exhibit "B" automatically expired (Exhibits "C" to "C-24").
And when Fonacier and his sureties failed to pay as demanded by Gaite, the
latter filed the present complaint against them in the Court of First Instance
of Manila (Civil Case No. 29310) for the payment of the P65,000.00 balance
of the price of the ore, consequential damages, and attorney's fees.
All the defendants except Francisco Dante set up the uniform defense that
the obligation sued upon by Gaite was subject to a condition that the
amount of P65,000.00 would be payable out of the first letter of credit
covering the first shipment of iron ore and/or the first amount derived from
the local sale of the iron ore by the Larap Mines & Smelting Co., Inc.; that up
to the time of the filing of the complaint, no sale of the iron ore had been
made, hence the condition had not yet been fulfilled; and that consequently,
the obligation was not yet due and demandable. Defendant Fonacier also
contended that only 7,573 tons of the estimated 24,000 tons of iron ore sold
to him by Gaite was actually delivered, and counterclaimed for more than
P200,000.00 damages.
At the trial of the case, the parties agreed to limit the presentation of
evidence to two issues:
(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite
P65,000.00 become due and demandable when the defendants failed to
renew the surety bond underwritten by the Far Eastern Surety and Insurance
Co., Inc. (Exhibit "B"), which expired on December 8, 1955; and
(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to
defendant Fonacier were actually in existence in the mining claims when
these parties executed the "Revocation of Power of Attorney and Contract",
Exhibit "A."
On the first question, the lower court held that the obligation of the
defendants to pay plaintiff the P65,000.00 balance of the price of the
approximately 24,000 tons of iron ore was one with a term: i.e., that it
would be paid upon the sale of sufficient iron ore by defendants, such sale
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to be effected within one year or before December 8, 1955; that the giving
of security was a condition precedent to Gait's giving of credit to
defendants; and that as the latter failed to put up a good and sufficient
security in lieu of the Far Eastern Surety bond (Exhibit "B") which expired on
December 8, 1955, the obligation became due and demandable under
Article 1198 of the New Civil Code.
As to the second question, the lower court found that plaintiff Gaite did have
approximately 24,000 tons of iron ore at the mining claims in question at
the time of the execution of the contract Exhibit "A."
Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering
defendants to pay him, jointly and severally, P65,000.00 with interest at 6%
per annum from December 9, 1955 until payment, plus costs. From this
judgment, defendants jointly appealed to this Court.
During the pendency of this appeal, several incidental motions were
presented for resolution: a motion to declare the appellants Larap Mines &
Smelting Co., Inc. and George Krakower in contempt, filed by appellant
Fonacier, and two motions to dismiss the appeal as having become
academic and a motion for new trial and/or to take judicial notice of certain
documents, filed by appellee Gaite. The motion for contempt is
unmeritorious because the main allegation therein that the appellants Larap
Mines & Smelting Co., Inc. and Krakower had sold the iron ore here in
question, which allegedly is "property in litigation", has not been
substantiated; and even if true, does not make these appellants guilty of
contempt, because what is under litigation in this appeal is appellee Gaite's
right to the payment of the balance of the price of the ore, and not the iron
ore itself. As for the several motions presented by appellee Gaite, it is
unnecessary to resolve these motions in view of the results that we have
reached in this case, which we shall hereafter discuss.
The main issues presented by appellants in this appeal are:
(1) that the lower court erred in holding that the obligation of appellant
Fonacier to pay appellee Gaite the P65,000.00 (balance of the price of the
iron ore in question)is one with a period or term and not one with a
suspensive condition, and that the term expired on December 8, 1955; and
(2) that the lower court erred in not holding that there were only 10,954.5
tons in the stockpiles of iron ore sold by appellee Gaite to appellant
Fonacier.
The first issue involves an interpretation of the following provision in the
contract Exhibit "A":
7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo
F. Fonacier all his rights and interests over the 24,000 tons of iron ore,
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more or less, above-referred to together with all his rights and interests
to operate the mine in consideration of the sum of SEVENTY-FIVE
THOUSAND PESOS (P75,000.00) which the latter binds to pay as
follows:
a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of
this agreement.
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be
paid from and out of the first letter of credit covering the first shipment
of iron ore made by the Larap Mines & Smelting Co., Inc., its assigns,
administrators, or successors in interest.
We find the court below to be legally correct in holding that the shipment or
local sale of the iron ore is not a condition precedent (or suspensive) to the
payment of the balance of P65,000.00, but was only a suspensive period or
term. What characterizes a conditional obligation is the fact that its efficacy
or obligatory force (as distinguished from its demandability) 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. That the parties to the contract Exhibit "A" did
not intend any such state of things to prevail is supported by several
circumstances:
1) The words of the contract express no contingency in the buyer's
obligation to pay: "The balance of Sixty-Five Thousand Pesos
(P65,000.00) will be paid out of the first letter of credit covering the first
shipment of iron ores . . ." etc. There is no uncertainty that the payment will
have to be made sooner or later; what is undetermined is merely the exact
date at which it will be made. By the very terms of the contract, therefore,
the existence of the obligation to pay is recognized; only
its maturity or demandability is deferred.
2) A contract of sale is normally commutative and onerous: not only does
each one of the parties assume a correlative obligation (the seller to deliver
and transfer ownership of the thing sold and the buyer to pay the price),but
each party anticipates performance by the other from the very start. While
in a sale the obligation of one party can be lawfully subordinated to an
uncertain event, so that the other understands that he assumes the risk of
receiving nothing for what he gives (as in the case of a sale of hopes or
expectations, emptio spei), it is not in the usual course of business to do so;
hence, the contingent character of the obligation must clearly appear.
Nothing is found in the record to evidence that Gaite desired or assumed to
run the risk of losing his right over the ore without getting paid for it, or that
Fonacier understood that Gaite assumed any such risk. This is proved by the
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fact that Gaite insisted on a bond a to guarantee payment of the

P65,000.00, an not only upon a bond by Fonacier, the Larap Mines &
Smelting Co., and the company's stockholders, but also on one by a surety
company; and the fact that appellants did put up such bonds indicates that
they admitted the definite existence of their obligation to pay the balance of
P65,000.00.
3) To subordinate the obligation to pay the remaining P65,000.00 to the sale
or shipment of the ore as a condition precedent, would be tantamount to
leaving the payment at the discretion of the debtor, for the sale or shipment
could not be made unless the appellants took steps to sell the ore.
Appellants would thus be able to postpone payment indefinitely. The
desireability of avoiding such a construction of the contract Exhibit "A"
needs no stressing.
4) Assuming that there could be doubt whether by the wording of the
contract the parties indented a suspensive condition or a suspensive period
(dies ad quem) for the payment of the P65,000.00, the rules of
interpretation would incline the scales in favor of "the greater reciprocity of
interests", since sale is essentially onerous. The Civil Code of the
Philippines, Article 1378, paragraph 1, in fine, provides:
If the contract is onerous, the doubt shall be settled in favor of the
greatest reciprocity of interests.
and there can be no question that greater reciprocity obtains if the buyer'
obligation is deemed to be actually existing, with only its maturity (due
date) postponed or deferred, that if such obligation were viewed as nonexistent or not binding until the ore was sold.
The only rational view that can be taken is that the sale of the ore to
Fonacier was a sale on credit, and not an aleatory contract where the
transferor, Gaite, would assume the risk of not being paid at all; and that
the previous sale or shipment of the ore was not a suspensive condition for
the payment of the balance of the agreed price, but was intended merely to
fix the future date of the payment.
This issue settled, the next point of inquiry is whether appellants, Fonacier
and his sureties, still have the right to insist that Gaite should wait for the
sale or shipment of the ore before receiving payment; or, in other words,
whether or not they are entitled to take full advantage of the period granted
them for making the payment.
We agree with the court below that the appellant have forfeited the right
court below that the appellants have forfeited the right to compel Gaite to
wait for the sale of the ore before receiving payment of the balance of
P65,000.00, because of their failure to renew the bond of the Far Eastern
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Surety Company or else replace it with an equivalent guarantee. The

expiration of the bonding company's undertaking on December 8, 1955
substantially reduced the security of the vendor's rights as creditor for the
unpaid P65,000.00, a security that Gaite considered essential and upon
which he had insisted when he executed the deed of sale of the ore to
Fonacier (Exhibit "A"). The case squarely comes under paragraphs 2 and 3
of Article 1198 of the Civil Code of the Philippines:
"ART. 1198. The debtor shall lose every right to make use of the period:
(1) . . .
(2) When he does not furnish to the creditor the guaranties or
securities which he has promised.
(3) When by his own acts he has impaired said guaranties or securities
after their establishment, and when through fortuitous event they
disappear, unless he immediately gives new ones equally satisfactory.
Appellants' failure to renew or extend the surety company's bond upon its
expiration plainly impaired the securities given to the creditor (appellee
Gaite), unless immediately renewed or replaced.
There is no merit in appellants' argument that Gaite's acceptance of the
surety company's bond with full knowledge that on its face it would
automatically expire within one year was a waiver of its renewal after the
expiration date. No such waiver could have been intended, for Gaite stood
to lose and had nothing to gain barely; and if there was any, it could be
rationally explained only if the appellants had agreed to sell the ore and pay
Gaite before the surety company's bond expired on December 8, 1955. But
in the latter case the defendants-appellants' obligation to pay became
absolute after one year from the transfer of the ore to Fonacier by virtue of
the deed Exhibit "A.".
All the alternatives, therefore, lead to the same result: that Gaite acted
within his rights in demanding payment and instituting this action one year
from and after the contract (Exhibit "A") was executed, either because the
appellant debtors had impaired the securities originally given and thereby
forfeited any further time within which to pay; or because the term of
payment was originally of no more than one year, and the balance of
P65,000.00 became due and payable thereafter.
Coming now to the second issue in this appeal, which is whether there were
really 24,000 tons of iron ore in the stockpiles sold by appellee Gaite to
appellant Fonacier, and whether, if there had been a short-delivery as
claimed by appellants, they are entitled to the payment of damages, we
must, at the outset, stress two things:first, that this is a case of a sale of a
specific mass of fungible goods for a single price or a lump sum, the
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quantity of "24,000 tons of iron ore, more or less," stated in the contract
Exhibit "A," being a mere estimate by the parties of the total tonnage
weight of the mass; and second, that the evidence shows that neither of the
parties had actually measured of weighed the mass, so that they both tried
to arrive at the total quantity by making an estimate of the volume thereof
in cubic meters and then multiplying it by the estimated weight per ton of
each cubic meter.
The sale between the parties is a sale of a specific mass or iron ore because
no provision was made in their contract for the measuring or weighing of
the ore sold in order to complete or perfect the sale, nor was the price of
P75,000,00 agreed upon by the parties based upon any such measurement.
(see Art. 1480, second par., New Civil Code). The subject matter of the sale
is, therefore, a determinate object, the mass, and not the actual number of
units or tons contained therein, so that all that was required of the seller
Gaite was to deliver in good faith to his buyer all of the ore found in the
mass, notwithstanding that the quantity delivered is less than the amount
estimated by them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield
Salvage Co., Inc. 171 So. 872, applying art. 2459 of the Louisiana Civil
Code). There is no charge in this case that Gaite did not deliver to
appellants all the ore found in the stockpiles in the mining claims in
questions; Gaite had, therefore, complied with his promise to deliver, and
appellants in turn are bound to pay the lump price.
But assuming that plaintiff Gaite undertook to sell and appellants undertook
to buy, not a definite mass, but approximately 24,000 tons of ore, so that
any substantial difference in this quantity delivered would entitle the buyers
to recover damages for the short-delivery, was there really a short-delivery
in this case?
We think not. As already stated, neither of the parties had actually
measured or weighed the whole mass of ore cubic meter by cubic meter, or
ton by ton. Both parties predicate their respective claims only upon an
estimated number of cubic meters of ore multiplied by the average tonnage
factor per cubic meter.
Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in
the stockpiles of ore that he sold to Fonacier, while appellants contend that
by actual measurement, their witness Cirpriano Manlagit found the total
volume of ore in the stockpiles to be only 6.609 cubic meters. As to the
average weight in tons per cubic meter, the parties are again in
disagreement, with appellants claiming the correct tonnage factor to be
2.18 tons to a cubic meter, while appellee Gaite claims that the correct
tonnage factor is about 3.7.
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In the face of the conflict of evidence, we take as the most reliable estimate
of the tonnage factor of iron ore in this case to be that made by Leopoldo F.
Abad, chief of the Mines and Metallurgical Division of the Bureau of Mines, a
government pensionado to the States and a mining engineering graduate of
the Universities of Nevada and California, with almost 22 years of
experience in the Bureau of Mines. This witness placed the tonnage factor of
every cubic meter of iron ore at between 3 metric tons as minimum to 5
metric tons as maximum. This estimate, in turn, closely corresponds to the
average tonnage factor of 3.3 adopted in his corrected report (Exhibits "FF"
and FF-1") by engineer Nemesio Gamatero, who was sent by the Bureau of
Mines to the mining claims involved at the request of appellant Krakower,
precisely to make an official estimate of the amount of iron ore in Gaite's
stockpiles after the dispute arose.
Even granting, then, that the estimate of 6,609 cubic meters of ore in the
stockpiles made by appellant's witness Cipriano Manlagit is correct, if we
multiply it by the average tonnage factor of 3.3 tons to a cubic meter, the
product is 21,809.7 tons, which is not very far from the estimate of 24,000
tons made by appellee Gaite, considering that actual weighing of each unit
of the mass was practically impossible, so that a reasonable percentage of
error should be allowed anyone making an estimate of the exact quantity in
tons found in the mass. It must not be forgotten that the contract Exhibit
"A" expressly stated the amount to be 24,000 tons, more or less. (ch. Pine
River Logging & Improvement Co. vs U.S., 279, 46 L. Ed. 1164).
There was, consequently, no short-delivery in this case as would entitle
appellants to the payment of damages, nor could Gaite have been guilty of
any fraud in making any misrepresentation to appellants as to the total
quantity of ore in the stockpiles of the mining claims in question, as charged
by appellants, since Gaite's estimate appears to be substantially correct.
WHEREFORE, finding no error in the decision appealed from, we hereby
affirm the same, with costs against appellants.
Bengzon, C.J., Padilla, Labrador, Concepcion, Barrera, Paredes, Dizon, De
Leon and Natividad, JJ., concur.

145