TOPIC: Sale of Things Subject to Resolutory Condition No error was found, affirming the decision of the lower court.
No error was found, affirming the decision of the lower court. Gaite acted within his rights in demanding payment
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.
FACTS: Defendant-appellant Fonacier was the owner/holder of 11 iron lode mineral claims, known as the Dawahan
Group, situated in Camrines Norte.
By Deed of Assignment, Respondent constituted and appointed plaintiff-appellee Gaite as attorney-in-fact to enter
into contract for the exploration and development of the said mining claims on. On March 1954, petitioner executed
a general assignment conveying the claims into the Larap Iron Mines, which owned solely and belonging to him.
Thereafter, he underwent development and the exploitation for the mining claims which he estimates to be
approximately 24 metric tons of iron ore.
However, Fonacier decide to revoke the authority given to Gaite, whereas respondent assented subject to certain
conditions. Consequently a revocation of Power of Attorney and Contract was executed transferring P20k plus
royalties from the mining claims, all rights and interest on the road and other developments done, as well as , the
right to use of the business name, goodwill, records, documents related to the mines. Furthermore, included in the
transfer was the rights and interest over the 24K+ tons of iron ore that had been extracted. Lastly the balance of
P65K was to be paid for covering the first shipment of iron ores.
To secure the payment of P65k, respondent executed a surety bond with himself as principal, the Larap Mines and
Smelting Co. and its stockholder as sureties. Yet, this was refused by petitioner. Appelle further required another
bond underwritten by a bonding company to secure the payment of the balance. Hence a second bond was produced
with Far Eastern Surety as an additional surety, provided the liability of Far Eastern would only prosper when there
had been an actual sale of the iron ores of not less than the agreed amount of P65k, moreover, its liability was to
automatically expire on December 1955.
On December 1955, the second bond had expired and no sale amounting to the stipulation as prior agreed nor had the
balance been paid to petitioner by respondent. Thus such failure, prompted petitioner to file a complaint in the CFI of
Manila for the payment of the balance and other damages.
The Trial Court ruled in favor of plaintiff ordering defendant to pay the balance of P65k with interest. Afterwards an
appeal was affected by the respondent where several motions were presented for resolution: a motion for contempt;
two motions to dismiss the appeal for becoming moot and academic; motion for a new trial, filed by appellee Gaite.
The motion for contempt was held unmeritorious, while the rest of the motions were held unnecessary to resolve
ISSUE:
Whether or not the Lower Court erred in holding the obligation of appellant Fonacier to pay appelle Gaite the
balance of P65k, as one with a period or term and not one with a suspensive condition; and that the term expired on
December 1955?
RULING:
and instituting this action one year from and after the contract 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 P65k, became due and payable
thereafter.
The Lower Court was legally correct in holding the shipment or sale of the iron ore is not a condition or suspensive
to the payment of the balance of P65k, 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.
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.
While as to the right of Fonacier 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. The appellant had indeed 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
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 (first bond).
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: (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.
Nevertheless, 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, first bond.
TOPIC: Subject Matter, Determinate or At least Determinate
G.R. No. L-24732 April 30, 1968
PIO SIAN MELLIZA, petitioner,
vs.
CITY OF ILOILO, UNIVERSITY OF THE PHILIPPINES and THE COURT APPEALS, respondents.
FACTS:
Juliana Melliza during her lifetime owned, among other properties, 3 parcels of residential land in Iloilo
City (OCT 3462). Said parcels of land were known as Lots Nos. 2, 5 and 1214. The total area of Lot 1214 was
29,073 sq. m. On 27 November 1931 she donated to the then Municipality of Iloilo, 9,000 sq. m. of Lot 1214, to
serve as site for the municipal hall. The donation was however revoked by the parties for the reason that the area
donated was found inadequate to meet the requirements of the development plan of the municipality, the so- called
Arellano Plan. Subsequently, Lot 1214 was divided by Certeza Surveying Co., Inc. into Lots 1214-A and 1214-B.
And still later, Lot 1214-B was further divided into Lots 1214-B-1, Lot 1214-B-2 and Lot 1214-B-3. As approved by
the Bureau of Lands, Lot 1214-B-1, with 4,562 sq. m., became known as Lot 1214-B; Lot 1214-B-2, with 6,653 sq.
m., was designated as Lot 1214-C; and Lot 1214-B-3, with 4,135 sq. m., became Lot 1214-D. On 15 November
1932, Juliana Melliza executed an instrument without any caption providing for the absolute sale involving all of lot
5, 7669 sq. m. of Lot 2 (sublots 2-B and 2-C), and a portion of 10,788 sq. m. of Lot 1214 (sublots 1214-B2 and
1214-B3) in favor of the Municipal Government of Iloilo for the sum of P6,422; these lots and portions being the
ones needed by the municipal government for the construction of avenues, parks and City hall site according the
Arellano plan. On 14 January 1938, Melliza sold her remaining interest in Lot 1214 to Remedios Sian Villanueva
(thereafter TCT 18178). Remedios in turn on 4 November 1946 transferred her rights to said portion of land to Pio
Sian Melliza (thereafter TCT 2492). Annotated at the back of Pio Sian Mellizas title certificate was the following
that a portion of 10,788 sq. m. of Lot 1214 now designated as Lots 1412-B-2 and 1214-B-3 of the subdivision plan
belongs to the Municipality of Iloilo as per instrument dated 15 November 1932. On 24 August 1949 the City of
Iloilo, which succeeded to the Municipality of Iloilo, donated the city hall site together with the building thereon, to
the University of the Philippines (Iloilo branch). The site donated consisted of Lots 1214-B, 1214-C and 1214-D,
with a total area of 15,350 sq. m., more or less. Sometime in 1952, the University of the Philippines enclosed the site
donated with a wire fence. Pio Sian Melliza thereupon made representations, thru his lawyer, with the city authorities
for payment of the value of the lot (Lot 1214-B). No recovery was obtained, because as alleged by Pio Sian Melliza,
the City did not have funds. The University of the Philippines, meanwhile, obtained Transfer Certificate of Title No.
7152 covering the three lots, Nos. 1214-B, 1214-C and 1214-D.
On 10 December 1955 Pio Sian Melizza filed an action in the CFI Iloilo against Iloilo City and the
University of the Philippines for recovery of Lot 1214-B or of its value. After stipulation of facts and trial, the CFI
rendered its decision on 15 August 1957, dismissing the complaint. Said court ruled that the instrument executed by
Juliana Melliza in favor of Iloilo municipality included in the conveyance Lot 1214-B, and thus it held that Iloilo
City had the right to donate Lot 1214-B to UP. Pio Sian Melliza appealed to the Court of Appeals. On 19 May 1965,
the CA affirmed the interpretation of the CFI that the portion of Lot 1214 sold by Juliana Melliza was not limited to
the 10,788 square meters specifically mentioned but included whatever was needed for the construction of avenues,
parks and the city hall site. Nonetheless, it ordered the remand of the case for reception of evidence to determine the
area actually taken by Iloilo City for the construction of avenues, parks and for city hall site. Hence, the appeal by
Pio San Melliza to the Supreme Court.
ISSUE:
RULING:
The Supreme Court affirmed the decision appealed from insofar as it affirms that of the CFI, and dismissed the
complaint; without costs.
Requirement, that sale must have a determinate thing as object, is fulfilled if object of sale is capable of being made
determinate at the time of the contract
The requirement of the law that a sale must have for its object a determinate thing, is fulfilled as long as, at the time
the contract is entered into, the object of the sale is capable of being made determinate without the necessity of a new
or further agreement between the parties (Art. 1273, old Civil Code; Art. 1460, New Civil Code). The specific
mention of some of the lots plus the statement that the lots object of the sale are the ones needed for city hall site;
avenues and parks, according to the Arellano plan, sufficiently provides a basis, as of the time of the execution of the
contract, for rendering determinate said lots without the need of a new and further agreement of the parties.
TOPIC: Subject Matter, Determinate or At least Determinate
[G.R. No. 135634. May 31, 2000]
HEIRS OF JUAN SAN ANDRES (VICTOR S. ZIGA) and SALVACION S. TRIA, petitioners, vs. VICENTE
RODRIGUEZ, respondent.
FACTS:
Juan Andres was the owner of the lot situated in Liboton, Naga City. The sale was evidenced by a deed of sale. Upon
the death of Juan Andres, Ramon San Andres was appointed as administrator of the estate, and hired geodetic
engineer. Jose Panero prepared a consolidated plan of the estate and also prepared a sketch plan of the lot sold to
respondent. It was found out that respondent had enlarged the area which he purchased from Juan. The administrator
sent a letter to the respondent to vacate the said portion in which the letter refused to do.
Respondent alleged that apart from the original lot, which had been sold to him, the latter likewise sold to him the
following day the remaining portion of the lot. He alleged that the payment for such would be affected in 5 years
from the execution of the formal deed of sale after a survey is conducted. He also alleged that under the consent of
Juan, he took possession of the same and introduced improvements thereon.
Respondent deposited in court the balance of the purchase price amounting to P7,035.00 for the aforesaid
509-square meter lot.
On September 20, 1994, the trial court rendered judgment in favour of petitioner. It ruled that there was no
contract of sale to speak of for lack of a valid object because there was no sufficient indication to identify the
property subject of the sale, hence, the need to execute a new contract.
Respondent appealed to the Court of Appeals, which on April 21, 1998 rendered a decision reversing the
decision of the trial court. The appellate court held that the object of the contract was determinable, and that there
was a conditional sale with the balance of the purchase price payable within five years from the execution of the
deed of sale.
ISSUE: Whether or not there was a valid sale?
RULING: Yes
Under Article 1460 of the New Civil Code, a thing sold is determinate if at the time the contract is entered
into, the thing is capable of being determinate without necessity of a new or further agreement between the parties.
Article 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 therefore a price certain in money or its equivalent. In the case at
bench, all the essential elements of a contract: consent, subject matter and consideration; were all present. However,
the CA is incorrect in saying that the sale was conditional. The payment of full consideration based on survey shall
be due and payable in 5 years from the execution of the formal deed of sale is only a manner by which the full
consideration is to be computed and the time with in which the same is to be paid. Also, the absence of a formal deed
of sale does not affect in any manner the effectivity of a contract.
Valid consideration Petitioners, seek the declaration of nullity of certain deeds of sale and certificates of
titles executed by their parents on behalf of their co-defendant children based on the allegations that :
a. no actual valid consideration;
b. under pricing of property;
c. sale do not reflect true intention of party and;
d. deprivation of petitioners legitime.
The case was dismissed by the RTC holding that under Article 777 of the NCC, compulsory heirs have
the right to a legitime but such right is contingent since said right commences only from the moment of death of the
decedent. There is no legitime to speak of because the parents (defendant) are still alive. On appeal, the CA
affirmed the decision.
TOPIC: Subject Matter, Determinate or At least Determinate
DOMINGO CARABEO VS SPOUSES NORBERTO and
SUSAN DINGCO
FACTS: On July 10, 1990, Domingo Carabeo (petitioner) entered into a contract denominated as Kasunduan sa
Bilihan ng Karapatan sa Lupa (kasunduan) with Spouses Norberto and Susan Dingco (respondents) whereby
petitioner agreed to sell his rights over a 648 square meter parcel of unregistered land situated in Purok III, Tugatog,
Orani, Bataan to respondents for P38,000. Upon the signing of the contract, the respondents paid an initial amount of
P10,000 and the remaining balance would be paid on September 1990. However, when the respondents were about
to pay the balance, the petitioner refused to accept the amount due to an on-going dispute over the land.
Nevertheless, the respondents occasionally gave the petitioner small sums of money which totaled P9,100. Despite
the respondents insistence of paying the remaining balance of P19,800, the petitioner remained firm in his refusal.
He reasoned that he would register the land first. However, when the dispute was finally settled and the registration
of the land was made, the petitioner still declined to accept the payment. Thus, forcing the respondents to file a
complaint before the Katarungan Pambarangay. Nevertheless, the parties were not able to reach a settlement. Hence,
the filing of a complaint for specific performance before the RTC.
In the petitioners answer in the complaint, he alleged that the sale was void for lack of object certain. The
kasunduan not having specified the metes and bounds of the land. In addition to that, he alleged that assuming that
the validity of the kasunduan is upheld, the respondent failed to comply with their reciprocal obligation in paying the
balance of the P28,000 on September 1900. Thus, forcing him to accept the installment payments. After the case was
submitted for decision, the petitioner passed away. However, the records do not show that petitioners counsel
informed the lower court of his death and that proper substitution was effected. The RTC ruled in favor of the
respondents ordering them to sell their rights over the land and to pay the costs of suit. The CA affirmed the decision
of the lower court.
ISSUE:
1. Whether or not the elements of a valid contract are present in this case.?
2. Whether or not there is a valid contract despite the absence of spousal consent ?
3. Whether or not the death of the petitioner causes dismissal of the action filed by the respondents. ?
RULING:
1. The elements of a valid contract are present in this case. Even though the kasunduan did not specify the technical
boundaries of the property, it does not render the sale a nullity. The requirement that a sale must have for its object a
determinate thing is satisfied as long as, at the time the contract is entered into, the object of the sale is capable of
being made determinate without the necessity of a new or further agreement between the parties.
2. The issue as to whether or not there is a valid contract despite the absence of spousal consent was raised only on
appeal, hence, will not be considered, in the present case, in the interest of fair play, justice and due process.
3. The death of the petitioner would not cause the dismissal of the action. the respondents are pursuing a property
right arising from the kasunduan, whereas petitioner is invoking nullity of the kasunduan to protect his proprietary
interest. Since the action involves property rights, it survives. Assuming arguendo, however, that the kasunduan is
deemed void, there is a corollary obligation of petitioner to return the money paid by respondents. It bears noting that
trial on the merits was already concluded before petitioner died. Since the trial court was not informed of petitioners
death, it may not be faulted for proceeding to render judgment without ordering his substitution. Its judgment is thus
valid and binding upon petitioners legal representatives or successors-in-interest, insofar as his interest in the
property subject of the action is concerned.
TOPIC: Subject Matter, Determinate or At least Determinate
G.R. NO. 151334 FEBRUARY 13, 2013
VDA. DE FIGURACION VS. FIGUARACION GENILLA
FACTS:
The parties are the heirs of Leandro Figuracion (Leandro) who died intestate in May 1958. Petitioner Carolina is the
surviving spouse. The other petitioners Elena Figuracion-Ancheta, Hilaria A. Figuracion (Hilaria), Felipa
Figuracion-Manuel (Felipa), Quintin Figuracion, and Mary Figuracion-Ginez and respondent Emilia were Carolina
and Leandros children
When Leandro died, he left behind two parcels of land, a portion of Lot 2299 and 705 in Urdaneta, both of which he
inherited from his deceased parents.
Another parcel of land, Lot 707, was inherited by Carolina and her half-sister Agripina when their father Eulalio
Adviento died.
Agripina then executed a quitclaim over the one-half eastern portion of the lot in favor of petitioner, Emilia, who
died single and without any issue. Before her half-sisters death, however, Carolina adjudicated unto herself, via
affidavit under Rule 74 of the Rules of Court the entire Lot 707 which she later sold to respondents Felipe and
Hilaria.
Petitioner and her family went to the United States where they stayed for ten years. When she returned, she built a
house made of strong materials on the eastern half-portion of Lot 707. Sometime later, petitioner sought the
extrajudicial partition of all properties held in common by her and respondents.
The Regional Trial Court of Urdaneta City, upon a complaint filed by petitioner, rendered judgment nullifying
Carolinas affidavit of self-adjudication and deed of absolute sale of Lot 707. The RTC, however, dismissed the
complaint for partition, reconveyance and damages on the ground that reliefs prayed for cannot be granted without
any prior settlement proceedings. The CA upheld the dismissal of petitioners action for partition for being premature
but reversed the decision with respect to the nullification and the deed of absolute sale. Hence, this present petition.
ISSUE: Whether or not there needs to be a prior settlement of Leandros intestate estate (that is, an accounting of the
income of Lots 2299 and 705, the payment of expenses and liabilities and taxes, etc.) before the properties can be
partitioned or distributed?
RULING: Yes. Partition is inappropriate in a situation where there remains an issue as to the expenses chargeable
to the estate. Although petitioner points out that the estate is allegedly without any debt and respondents are the only
legal heirs, she does not dispute the finding of the CA that certain expenses including those related to her fathers
final illness and burial have not been properly settled. Thus, with respect to Lot 2299, the heirs have to submit their
fathers estate to settlement because the determination of these expenses cannot be done in an action for partition. The
heirs or distributees, however, may take possession of the estate even before the settlement of accounts as long as
they file a bond conditioned on the payment of the estates obligations. With respect to the partition of Lot 705,
partition was deemed premature since ownership of the lot is still in dispute. As regards Lot 707, the Court made no
ruling on the validity of Carolinas affidavit of self-adjudication and deed of sale since a separate case is still pending
in the same Division of the Court.
TOPIC: Sale distinguished from Piece of Work
G.R. No. 71122 March 25, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ARNOLDUS CARPENTRY SHOP, INC. and COURT OF TAX APPEALS, respondents.
FACTS:
Arnoldus Carpentry Shop, Inc. (private respondent herein) is a domestic corporation which has been in existence
since 1960. It has for its secondary purpose the "preparing, processing, buying, selling, exporting, importing,
manufacturing, trading and dealing in cabinet shop products, wood and metal home and office furniture, cabinets,
doors, windows, etc., including their component parts and materials, of any and all nature and description" (Rollo,
pp. 160-161). These furniture, cabinets and other woodwork were sold locally and exported abroad.
Sometime in March 1979, the examiners of the petitioner Commissioner of Internal Revenue conducted an
investigation of the business tax liabilities of private respondent pursuant to Letter of Authority No. 08307 NA dated
November 23, 1978. As per the examination, the total gross sales of private respondent for the year 1977 from both
its local and foreign dealings amounted to P5,162,787.59 (Rollo. p. 60). From this amount, private respondent
reported in its quarterly percentage tax returns P2,471,981.62 for its gross local sales. The balance of P2,690,805.97,
which is 52% of the total gross sales, was considered as its gross export sales (CTA Decision, p. 12).
Based on such an examination, BIR examiners Honesto A. Vergel de Dios and Voltaire Trinidad made a report to the
Commissioner classifying private respondent as an "other independent contractor" under Sec. 205 (16) [now Sec.
169 (q)] of the Tax Code.
The examiners from BIR who conducted an investigation on the companys tax liabilities reported that subject
corporation should be considered a contractor and not a manufacturer since the corporation renders service in the
course of an independent occupation representing the will of his employer only as to the result of his work, and not
as to the means by which it is accomplished. Hence, in the computation of the percentage tax, the 3% contractors
tax should be imposed instead of the 7% manufacturers tax. However, responded company holds that the carpentry
shop is a manufacturer and therefore entitled to tax exemption on its gross export sales under Section 202 (e) of the
National Internal Revenue Code. CIR rendered its decision classifying the respondent as contractor which was in
turn reversed by the CTA. Hence, this appeal.
ISSUE: Whether or not the Court of Tax Appeals erred in holding that private respondent is a manufacturer and not
a contractor.
RULING: The Supreme Court holds that the private respondent is a manufacturer as defined in the Tax Code and
not a contractor under Section 205(e) of the Tax Code.
Petitioner CIR wants to impress upon this Court that under Article 1467, the true test of whether or not the contract is
a piece of work (and thus classifying private respondent as a contractor) or a contract of sale (which would classify
private respondent as a manufacturer) is the mere existence of the product at the time of the perfection of the contract
such that if the thing already exists, the contract is of sale, if not, it is work. This is not the test followed in this
jurisdiction. Based on Art. 1467, what determines whether the contract is one of work or of sale is whether the thing
has been manufactured specially for the customer and upon his special order. Thus, if the thing is specially done at
the order of another, this is a contract for a piece of work. If, on the other hand, the thing is manufactured or
procured for the general market in the ordinary course of ones business, it is a contract of sale. The distinction
between a contract of sale and one for work, labor and materials is tested by the inquiry whether the thing transferred
is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a
thing which would have existed and has been the subject of sale to some other persons even if the order had not been
given. The one who has ready for the sale to the general public finished furniture is a manufacturer, and the mere fact
that he did not have on hand a particular piece or pieces of furniture ordered does not make him a contractor only.
A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business
manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of
sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the
general market, it is a contract for a piece of work. The facts show that the company had a ready stock of its shop
products for sale to its foreign and local buyers. As a matter of fact, the purchase orders from its foreign buyers
showed that they ordered by referring to the models designated by petitioner. Even purchases by local buyers for
television cabinets were by orders for existing models except only for some adjustments in sizes and accessories
utilized.
The Court finds itself in agreement with CTA and as the CTA did not err in holding that private respondent is a
manufacturer, then private respondent is entitled to the tax exemption under See. 202 (d) and (e) now Sec. 167 (d)
and (e)] of the Tax Code.
TOPIC: Sale distinguished from Piece of Work
Commissioner of Internal Revenue vs.
Engineering Equipment and Supply Company
FACTS: Engineering Equipment and Supply Co. (Engineering for short), a domestic corporation, is an engineering
and machinery firm. As operator of an integrated engineering shop, it is engaged, among others, in the design and
installation of central type air conditioning system, pumping plants and steel fabrications.
On July 27, 1956, one Juan de la Cruz, wrote the then Collector, now Commissioner, of Internal Revenue
denouncing Engineering for tax evasion by misdeclaring its imported articles and failing to pay the correct
percentage taxes due thereon in connivance with its foreign suppliers (Exh. "2" p. 1 BIR record Vol. I). Engineering
was likewise denounced to the Central Bank (CB) for alleged fraud in obtaining its dollar allocations. Acting on
these denunciations, a raid and search was conducted by a joint team of Central Bank, (CB), National Bureau of
Investigation (NBI) and Bureau of Internal Revenue (BIR) agents on September 27, 1956, on which occasion
voluminous records of the firm were seized and confiscated.
Revenue examiners Quesada and Catudan reported and recommended to the then Collector, now Commissioner, of
Internal Revenue (hereinafter referred to as Commissioner) that Engineering be assessed for P480,912.01 as
deficiency advance sales tax on the theory that it misdeclared its importation of air conditioning units and parts and
accessories thereof which are subject to tax under Section 185(m) 1 of the Tax Code, instead of Section 186 of the
same Code.
This assessment was revised on January 23, 1959, in line with the observation of the Chief, BIR Law Division, and
was raised to P916,362.56 representing deficiency advance sales tax and manufacturers sales tax, inclusive of the
25% and 50% surcharges.
The Commissioner assessed against, and demanded upon, Engineering payment of the increased amount and
suggested that P10,000 be paid as compromise in extrajudicial settlement of Engineering's penal liability for
violation of the Tax Code. The firm, however, contested the tax assessment and requested that it be furnished with
the details and particulars of the Commissioner's assessment. ) The Commissioner replied that the assessment was in
accordance with law and the facts of the case.
Engineering appealed the case to the Court of Tax Appeals and during the pendency of the case the investigating
revenue examiners reduced Engineering's deficiency tax liabilities.
The Court of Tax Appeals rendered its decision . The Commissioner, not satisfied with the decision of the Court of
Tax Appeals, appealed to this Court on January 18, 1967, (G.R. No. L-27044). On the other hand, Engineering, on
January 4, 1967, filed with the Court of Tax Appeals a motion for reconsideration of the decision abovementioned.
This was denied on April 6, 1967, prompting Engineering to file also with this Court its appeal, docketed as G.R. No.
L-27452.
ISSUE: Whether or not Engineering is a manufacturer of air conditioning units under Tax Code or contractor under
the same code?
RULING: The arguments of both the Engineering and the Commissioner call for a clarification of the term
contractor as well as the distinction between a contract of sale and contract for furnishing services, labor and
materials. The distinction between a contract of sale and one for work, labor and materials is tested by the inquiry
whether the thing transferred is one not in existence and which never would have existed but for the order of the
party desiring to acquire it, or a thing which would have existed and has been the subject of sale to some other
persons even if the order had not been given. 2 If the article ordered by the purchaser is exactly such as the plaintiff
makes and keeps on hand for sale to anyone, and no change or modification of it is made at defendant's request, it is
a contract of sale, even though it may be entirely made after, and in consequence of, the defendants order for it. 3
Our New Civil Code, likewise distinguishes a contract of sale from a contract for a piece of work thus:
Art. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his
business manufactures or procures for the general market, whether the same is on hand at the time or not, is a
contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order and not
for the general market, it is a contract for a piece of work.
The word "contractor" has come to be used with special reference to a person who, in the pursuit of the independent
business, undertakes to do a specific job or piece of work for other persons, using his own means and methods
without submitting himself to control as to the petty details. (Araas, Annotations and Jurisprudence on the National
Internal Revenue Code, p. 318, par. 191 (2), 1970 Ed.) The true test of a contractor as was held in the cases of Luzon
Stevedoring Co., vs. Trinidad, 43, Phil. 803, 807-808, and La Carlota Sugar Central vs. Trinidad, 43, Phil. 816, 819,
would seem to be that he renders service in the course of an independent occupation, representing the will of his
employer only as to the result of his work, and not as to the means by which it is accomplished.
After going over the three volumes of stenographic notes and the voluminous record of the BIR and the CTA as well
as the exhibits submitted by both parties, We find that Engineering did not manufacture air conditioning units for
sale to the general public, but imported some items (as refrigeration compressors in complete set, heat exchangers or
coils, t.s.n. p. 39) which were used in executing contracts entered into by it.
The facts and circumstances aforequoted support the theory that Engineering is a contractor rather than a
manufacturer.
TOPIC: Sale distinguished from Agency to Sell or to Buy
G.R. No. 89775 November 26, 1992
JACINTO UY DIO and NORBERTO UY, petitioners, vs.
HON. COURT OF APPEALS and METROPOLITAN BANK AND TRUST COMPANY, respondents.
FACTS: In 1977, Uy Tiam Enterprises and Freight Services (UTEFS), thru its representative Uy Tiam, applied for
and obtained credit accommodations (letter of credit and trust receipt accommodations) from the Metropolitan Bank
and Trust Company. To secure the aforementioned credit accommodations, Norberto Uy and Jacinto Uy Dio
executed separate Continuing, dated 25 February 1977, in favor of the MBTC. This credit accommodation has been
fully paid.Subsequent transactions flowed smoothly until UTEFS executed and delivered to METROBANK a Trust
Receipt whereby the former acknowledged receipt in trust from the latter of the received goods from Planters
Products which amounted to P815,600.00. Being the entrustee, the UTEFS agreed to deliver to METROBANK the
entrusted goods in the event of non-sale or, if sold, the proceeds of the sale thereof, on or before September 2,
1979.However, UTEFS did not acquiesceto the obligatory stipulations in the trust receipt. As a consequence,
METROBANK sent letters to the said principal obligor and its sureties, Norberto Uy and Jacinto Uy Dio,
demanding payment of the amount due.
They denied liability on the transaction. In its reply, the bank informed him that the source of his liability is the
Continuing Suretyship which he executed on February 25, 1977. On demand, UTEFS paid some of the outstanding
amount.As a rejoinder, Dio maintained that he cannot be held liable forthe 1979 credit accommodation because it is
a new obligation contracted without his participation. Besides, the 1977 credit accommodation which he guaranteed
has been fully paid.Since it could no longer collect the balance of amount due, METROBANK thus filed a complaint
for collection of a sum of money. Norberto Uy and Jacinto Uy Dio (sureties-defendants) filed a motion to dismiss
the complaint on the ground of lack of cause of action. They maintained that the obligation which they guaranteed in
1977 hasbeen extinguished since it has already been paid in the same year. Accordingly, the Continuing Suretyships
executed in 1977 cannot be availed of to secure Uy Tiam's Letter of Credit obtained in 1979 because a guaranty
cannot exist without a valid obligation.
It was further argued that they cannot be held liable for the obligation contracted in 1979 because they are not privies
thereto as it was contracted without their participation.METROBANK filed its opposition to the motion to dismiss.
Invoking the terms and conditions embodied in the comprehensive suretyships separately executed by sureties-
defendants, the bank argued that sureties-movants bound themselves as solidary obligors of defendant Uy Tiam to
both existing obligations and future ones. The RTC and the CA ruled in favor of MBTC and held the sureties
solidarily liable.
ISSUE: Whether or not petitioners are liable as sureties for the 1979 obligations of Uy Tiam to METROBANK by
virtue of the Continuing Suretyship Agreements they separately signed in 1977?
RULING: Yes, they are still liable. Under the Civil Code, a guaranty may be given to secure even future debts, the
amount of which may not be known at the time the guaranty is executed. This is the basis for contracts denominated
as a continuing guaranty or suretyship. A continuing guaranty is one which is not limited to a single transaction, but
which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or
until revoked. It s prospective in its operation and is generally intended to provide security with respect to future
transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the
guarantor becomes liable. Otherwise stated, a continuing guaranty is one whichcovers all transactions, including
those arising in the future, which are within the description or contemplation of the contract of guaranty, until the
expiration or termination thereof.A guaranty shall be construed as continuingwhen by the terms thereof it is evident
that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or
until a certain period, especially if the right to recall the guaranty is expressly reserved. Hence, where the contract of
guaranty states that the same is to secure advances to be made "from time to time" the guaranty will be construed to
be a continuing one.Paragraph IV of both agreements stipulate that: "VI.This is a continuing guaranty and shall
remain in full force and effect until written notice shall have been received by the BANK that it has been revoked by
the SURETY, but any such notice shall not release the SURETY from any liability as to any instruments, loans,
advances or other obligations hereby guaranteed, which may be held by the BANK, or in which the BANK may have
any interest at the time of the receipt of such notice. x x xThe foregoing stipulations unequivocally reveal that the
suretyship agreements in the case at bar are continuing in nature. Petitioners do not deny this; in fact, they candidly
admitted it. Neither have they denied the fact that they had not revoked the suretyship agreements.Petitioners
maintain, however, that their Continuing Suretyship Agreements cannot be made applicable to the 1979 obligation
because the latter was not yet in existence when the agreements were executed in 1977; under Article 2052 of the
Civil Code, a guaranty "cannot exist without avalid obligation." We cannot agree. First of all, the succeeding article
providesthat "[a] guaranty may also be given as security for future debts, the amount of which is not yet known."
Secondly. Article 2052 speaks about a valid obligations, as distinguished from a void obligation, and not an existing
or current obligation. This distinction is made clearer in the second paragraph of Article 2052 which
reads:"Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an unenforceable
contract. It may also guarantee a natural obligation."By express mandate of the Continuing Suretyship Agreements
which they had signed, petitioners separately bound themselves to pay interests, expenses, attorney's fees and costs.
The last two items are pegged at not less than ten percent (10%) of the amount due.
Even without such stipulations, the petitioners would, nevertheless, be liable for the interest and judicial costs.
Article 2055 of theCivil Code provides: "ARTICLE 2055.A guaranty is not presumed; it must be express and cannot
extend to more than what is stipulated therein.The limit of the petitioners' respective liabilities must be determined
from the suretyship agreement each had signed. It is undoubtedly true that the law looks upon the contract of
suretyship with a jealous eye, and the rule is settled that the obligation of the surety cannot be extended by
implication beyond its specified limits. To the extent, and in the manner, and under the circumstances pointed out in
his obligation, he is bound, and no farther. Indeed, the Continuing Suretyship Agreements signed by petitioner Dio
and petitioner Uy fix the aggregate amount of their liability, at any given time, at P800,000.00 and P300,000.00,
respectively. The law is clear that a guarantor may bind himself for less, but not for more thanthe principal debtor,
both as regards the amount and the onerous nature of the conditions
TOPIC: Sale distinguished from Agency to Sell or to Buy
G.R. No. L-47538 June 20, 1941
GONZALO PUYAT & SONS, INC., petitioner,
vs.
ARCO AMUSEMENT COMPANY (formerly known as Teatro Arco), respondent.
FACTS: In 1929, Arco Amusement Company (formerly known as Teatro Arco) was engaged in the business of
operating cinematographs. Around 1930, Arco Amusement approached Gonzalo Puyat & Sons, Inc., the exclusive
agents in the Phils of the Starr Piano Company (of Richmond, Indiana, USA) to negotiate with them their intent to
buy sound reproducing equipment from Starr Piano through Gonzalo Puyat & Sons. After some negotiations, the
parties agreed that Gonzalo Puyat & Sons would order the equipment from Starr Piano and Arco Amusement would
pay Gonzalo Puyat, in addition to the price of the equipment, a 10% commission, plus expenses, such as freight,
insurance, banking charges, cables etc.
In ordering the equipment, Gonzalo Puyat & Sons was able to get a discounted price from Starr Piano. However,
Gonzalo Puyat did not inform Arco Amusement of the discounted price, and still billed them the list price of $ 1,700
plus the 10% commission and the expenses incurred in ordering the equipment.
Arco Amusement paid the bills and then placed another order for a second sound reproducing equipment, which was
quoted at $1,600 plus commission and other expenses. Arco paid the amount assessed by Gonzalo Puyat. 3 years
later, Arco Amusement discovered that the price quoted to them by Gonzalo Puyat was not the net price but was
rather the list price and that Gonzalo Puyat obtained a discount from Starr Piano.
They sought for reimbursement of what they have paid Gonzalo Puyat by filing a case for reimbursement.
CFI of Manila held that the contract between the petitioner and the respondent was one of outright purchase and sale,
and absolved Gonzalo Puyat from the complaint.
CA reversed the decision of the CFI, holding that the relation between Gonzalo Puyat and Arco Amusement was that
of an agent and a principal, and sentenced Gonzalo Puyat to reimburse Arco Amusement of all the alleged
overpayments in the total sum of $1,335.52 or Php 2,671.04
ISSUE: Whether or not the contract between Gonzalo Puyat and Arco Amusement is an Agency to merit Arco
Amusement a reimbursement or is an Outright Purchase and Sale Contract that would absolve Gonzalo Puyat of the
case?
RULING: The contract between Gonzalo Puyat and Arco Amusement is an Outright Purchase and Sale Contract.
The contract is the law between the parties and should include all the things they are supposed to have agreed upon.
The letters, by which Arco accepted the prices of $1,700 and S1,600 plus the commission and other expenses for the
sound reproducing equipment are clear in their terms and admit of no other interpretation than that Arco agreed to
purchase from Gonzalo Puyat the equipment in question at the prices indicated which are fixed and determinate.
Arco admitted in its complaint filed with the CFI that Gonzalo Puyat agreed to sell to it the first sound reproducing
equipment and machinery.
Whatever unforeseen events might have taken place unfavorable to Arco, such as change in prices, mistake in their
quotation, or failure of Starr Piano to properly fill the orders as per specifications, Gonzalo Puyat might still legally
hold Arco to the prices fixed. This is incompatible with the pretended relation of agency between the petitioner and
the respondent, because in agency, the agent is exempted from all liability in the discharge of his commission
provided that he acts in accordance with the instructions received from his principal and the principal must
indemnify the agent for all damages which the latter may incur in carrying out the agency without fault or
imprudence on his part.
To hold the petitioner an agent of the respondent in the purchase of the equipment from Starr Piano is incompatible
with the fact that the petitioner is the exclusive agent of the same company in the Phils. It is out of the ordinary for
one to be the agent of both the vendor and the vendee.
It follows that Gonzalo Puyat as a vendor is not bound to reimburse Arco as vendee for any difference between the
cost price and the sales price which represents the profit realized by the vendor out of the transaction. This is the very
essence of commerce without which merchants or middlemen would not exist.
TOPIC: Sale distinguished from Agency to Sell or to Buy
G.R. No. L-11491 August 23, 1918
ANDRES QUIROGA, plaintiff-appellant,
vs.
PARSONS HARDWARE CO., defendant-appellee.
FACTS: A contract was entered into by and between Andres Quiroga (plaintiff) and J. Parsons (defendant) for the
exclusive sale of Quiroga beds in the Visayan Islands.
Plaintiff alleges that defendant violated the following obligations: not to sell the beds at higher prices than those of
the invoices; to have an open establishment in Iloilo; itself to conduct the agency; to keep the beds on public
exhibition, and to pay for the advertisement expenses for the same; and to order the beds by the dozen and in no
other manner.
However, none of the obligations, except for that part of the defendant to order the beds by the dozen and no other
manner, are expressly set forth in the contract.
But the plaintiff alleged that thedefendant was his agent for the sale of his beds in Iloilo, and that said obligations are
implied in a contract of commercial agency.
ISSUE: Whether or not Parsons, by reason of the contract, was a purchaser or an agent of Quiroga for the sale of his
beds?
RULING: The contract by and between the plaintiff and the defendant was one of purchase and sale.
In order to classify a contract, due regard must be given to its essential clauses. In the contract in question, what was
essential, as constituting its cause and subject matter, is that the plaintiff was to furnish the defendant with the beds
which the latter might order, at the price stipulated, and that the defendant was to pay the price in the manner
stipulated.
There was the obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their
price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent
received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale
of the thing to a third person, and if he does not succeed in selling it, he returns it.
Not a single one of the clauses in the contract necessarily conveys the idea of an agency. The words commission on
sales used in clause (A) of article 1 mean nothing else, as stated in the contract itself, than a mere discount on the
invoice price.
The word agency, also used in articles 2 and 3, only expresses that the defendant was the only one that could sell the
plaintiffs beds in the Visayan Islands.
The testimony of the person who drafted this contract, to the effect that his purpose was to be an agent for the beds
and to collect a commission on the sales, is of no importance to prove that the contract was one of agency, inasmuch
as the agreements contained in the contract constitute, according to law, covenants of purchase and sale, and not of
commercial agency. It must be understood that a contract is what the law defines it to be, and not what it is called by
the contracting parties.
TOPIC: Sale distinguished from Agency to Sell or to Buy
Ker and Co., LTD vs Lingad
GR No. L-20871 April 30, 1971
FACTS: CIR assessed the sum of P20,272.33 as the commercial brokers percentage tax, surcharge, and
compromise penalty against Ker & Co. Ker and Co. requested for the cancellation of the assessment and filed a
petition for review with the Court of Tax Appeals. The CTA ruled that Ker and Co is liable as a commercial broker.
Ker has a contract with US rubber. Ker is the distributor of the said company. Ker was precluded from disposing the
products elsewhere unless there has been a written consent from the company. The prices, discounts, terms of
payment, terms of delivery and other conditions of sale were subject to change in the discretion of the Company.
ISSUE: Whether the relationship of Ker and Co and US rubber was that of a vendor- vendee or principal-broker
RULING: The relationship of Ker and Co and US rubber was that of a principal-broker/ agency. Ker and Co is only
an agent of the US rubber because it can dispose of the products of the Company only to certain persons or entities
and within stipulated limits, unless excepted by the contract or by the Rubber Company, it merely receives, accepts
and/or holds upon consignment the products, which remain properties of the latter company, every effort shall be
made by petitioner to promote in every way the sale of the products and that sales made by petitioner are subject to
approval by the company. Since the company retained ownership of the goods, even as it delivered possession unto
the dealer for resale to customers, the price and terms of which were subject to the companys control, the
relationship between the company and the dealer is one of agency.
TOPIC: Sale distinguished from Agency to Sell or to Buy
Victoria Milling Co., Inc. v. CA and Consolidated Sugar Corporation
G.R. No. 117356 June 19, 2000
FACTS: St. Therese merchandising regularly bought sugar from Victorias Milling Co., Inc. In the course of their
dealings, Victorias Milling issued several Shipping List/Delivery Receipts (SLDRs) to St. Therese Merchandising as
proof of purchases. Among these was SLDR No. 1214M which covers 25,000 bags of sugar. Each bag contained 50
kilograms and priced at P638.00 per bag. The transaction it covered was a direct sale.
On October 25, 1989, St. Therese Merchandising sold to Consolidated Sugar Corp. its rights in SLDR No. 1214M
for P14,750,000.00. Consolidated Sugar Corp. issued checks in payment. That same day, Consolidated Sugar Corp.
wrote Victorias Milling that it had been authorized by St. Therese Merchandising to withdraw the sugar covered by
SLDR No. 1214M.
Consolidated Sugar Corp. surrendered SLDR No. 1214M to Victorias Millings NAWACO warehouse and was
allowed to withdraw sugar. However, after 2,000 bags had been released, Victorias Milling refused to allow further
withdrawals of sugar against SLDR No. 1214M because, according to it, St. Therese Merchandising had already
withdrawn all the sugar covered by the cleared checks.
ISSUE: WON the contract was one of agency or sale
HELD: Sale. Victorias Milling heavily relies upon St. Therese Merchandisings letter of authority allowing
Consolidated Sugar Corp. to withdraw sugar against SLDR No. 1214M to show that the latter was St. Therese
Merchandisings agent. The pertinent portion of said letter reads: This is to authorize Consolidated Sugar
Corporation or its representative to withdraw for and in our behalf (stress supplied) the refined sugar covered by
Shipping List/Delivery Receipt = Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of 25,
000 bags.
Art. 1868. By the contract of agency a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.
The basis of agency is representation. On the part of the principal, there must be an actual intention to appoint or an
intention naturally inferable from his words or actions; and on the part of the agent, there must be an intention to
accept the appointment and act on it, and in the absence of such intent, there is generally no agency. One factor
which most clearly distinguishes agency from other legal concepts is control; one person - the agent - agrees to act
under the control or direction of another -the principal.
Victorias Milling failed to sufficiently establish the existence of an agency relation between Consolidated Sugar
Corp. and St. Therese Merchandising. The fact alone that it (St. Therese Merchandising) had authorized withdrawal
of sugar by Consolidated Sugar Corp. for and in our (St. Therese Merchandisings) behalf should not be eyed as
pointing to the existence of an agency relation. Further, Consolidated Sugar Corp. has shown that the 25,000 bags of
sugar covered by the SLDR No. 1214M were sold and transferred by St. Therese Merchandising to it. A conclusion
that there was a valid sale and transfer to Consolidated Sugar Corp. may, therefore, be made thus capacitating
Consolidated Sugar Corp. to sue in its own name, without need of joining its imputed principal St. Therese
Merchandising as co-plaintiff.
Consolidated Sugar Corp. was a buyer of the SLDFR form, and not an agent of STM. Consolidated Sugar Corp. was
not subject to St. Therese Merchandisings control. That no agency was meant to be established by the Consolidated
Sugar Corp. and STM is clearly shown by Consolidated Sugar Corp.s communication to petitioner that SLDR No.
1214M had been sold and endorsed to it.27 The use of the words sold and endorsed means that St. Therese
Merchandising and Consolidated Sugar Corp. intended a contract of sale, and not an agency.
TOPIC: Requisite for a valid price real money or its equivalent certain or ascertainable
G.R. No. L-21489 and L-21628 May 19, 1966
MIGUEL MAPALO, ET AL., petitioners,
vs.
MAXIMO MAPALO, ET AL., respondents.
FACTS: Miguel Mapalo and Candida Quiba, simple illiterate farmers, were registered owners of a residential land
in Manaoag, Pangasinan. Out of love and affection for Maximo Mapalo, Miguels brother who was about to get
married, they decided to donate the eastern half of the land. However, they were deceived into signing a deed of
absolute sale of the entire land on October 15, 1936. The document showed a consideration of P500, but the spouses
actually did not receive anything. The spouses built a fence segregating the donated land. They continued to possess
the western part up to the present. Not known to them, on March 15, 1938, Maximo registered the deed of sale in his
favor and was able to obtain a TCT. On October 20, 1951, Maximo sold the entire land to the Narcisos, and a TCT
was issued. The Narcisos took possession of the eastern part and filed a suit against Miguel and Candida, as well as
Floro Guieb and Rosalia Mapalo Guieb who had a house on the western portion consented by the spouses. The
spouses filed an answer with counterclaim, seeking cancellation of the TCT of the Narcisos on the ground that their
consent to the deed of sale in favor of Maximo was obtained through fraud. The spouses also instituted a complaint
to nullify the deeds of sale in 1936 and 1951. The trial court tried the case jointly. It ruled in favor of Miguel and
Candida. The appellate court, however, reversed the judgment and rendered the sale valid on the ground of
prescription. According to the appellate court, the sale is voidable and subject to annulment only within 4 years after
discovery of fraud. It reckoned March 15, 1938, the date of registration, to be the reckoning period.
ISSUES:
(1) Whether, under the old civil code which was in effect during the execution of the sale, the sale to Maximo is void
or merely voidable
(2) Whether the Narcisos were purchasers in good faith
HELD:
(1) For a contract to exist at all, three essential requisites must concur: (1) consent, (2) object, and (3) cause or
consideration. The Court of Appeals is right in that the element of consent is present as to the deed of sale of October
15, 1936. For consent was admittedly given, albeit obtained by fraud. Accordingly, said consent, although defective,
did exist. In such case, the defect in the consent would provide a ground for annulment of a voidable contract, not a
reason for nullity ab initio. The parties are agreed that the second element of object is likewise present in the deed of
October 15, 1936, namely, the parcel of land subject matter of the same. Not so, however, as to the third element of
cause or consideration. As regards the eastern portion of the land, the Mapalo spouses are not claiming the same, it
being their stand that they have donated and freely given said half of their land to Maximo Mapalo. And since they
did not appeal from the decision of the trial court finding that there was a valid and effective donation of the eastern
portion of their land in favor of Maximo Mapalo, the same pronouncement has become final as to them, rendering it
no longer proper herein to examine the existence, validity efficacy of said donation as to said eastern portion. Now,
as to the western portion, however, the fact not disputed herein is that no donation by the Mapalo spouses obtained as
to said portion. Accordingly, we start with the fact that liberality as a cause or consideration does not exist as regards
the western portion of the land in relation to the deed of 1936; that there was no donation with respect to the same.
Was there a cause or consideration to support the existence of a contrary of sale? Since the deed of sale of 1936 is
governed by the Old Civil Code, it should be asked whether its case is one wherein there is no consideration, or one
with a statement of a false consideration. If the former, it is void and inexistent; if the latter, only voidable, under the
Old Civil Code. As observed earlier, the deed of sale of 1936 stated that it had for its consideration Five Hundred
(P500.00) Pesos. In fact, however, said consideration was totally absent. According to Manresa, what is meant by a
contract that states a false consideration is one that has in fact a real consideration but the same is not the one stated
in the document. A contract of purchase and sale is null and void and produces no effect whatsoever where the same
is without cause or consideration in that the purchase price which appears thereon as paid has in fact never been paid
by the purchaser to the vendor.
(2) What was the necessity, purpose and reason of Pacifico Narciso in still going to the spouses Mapalo and asked
them to permit their brother Maximo to dispose of the above-described land? To this question it is safe to state that
this act of Pacifico Narciso is a conclusive manifestation that they (the Narcisos) did not only have prior knowledge
of the ownership of said spouses over the western half portion in question but that they also have recognized said
ownership. It also conclusively shows their prior knowledge of the want of dominion on the part of their vendor
Maximo Mapalo over the whole land and also of the flaw of his title thereto. Under this situation, the Narcisos may
be considered purchasers in value but certainly not as purchasers in good faith.
TOPIC: Requisite for a valid price real money or its equivalent certain or ascertainable
Respondents coursed an appeal to the CA. The CA, on August 30, 2007, reversed and set aside the Decision of the
G.R. No. 186264 July 8, 2013 trial court and ordered petitioner to vacate the land in question and restore the same to respondents.

DR. LORNA C. FORMARAN, Petitioner, ISSUE: Whether or not there the Deed of Absolute Sale is valid?
vs.
DR. GLENDA B. ONG AND SOLOMON S. ONG, Respondents. HELD: No.

FACTS: Petitioner's complaint, she owns the afore-described parcel of land which was donated to her intervivos by
her uncle and aunt, spouses Melquiades Barraca and Praxedes Casidsid on June 25, 1967; that on August 12, 1967
upon the proddings and representation of defendant (Respondent) Glenda, that she badly needed a collateral for a
loan which she was applying from a bank to equip her dental clinic, plaintiff made it appear that she sold one-half of
the afore-described parcel of land to the defendant Glenda; that the sale was totally without any consideration and
fictitious; that contrary to plaintiffs agreement with defendant Glenda for the latter to return the land, defendant
Glenda filed a case for unlawful detainer against the plaintiff who consequently suffered anxiety, sleepless nights
and besmirched reputation; and that to protect plaintiffs rights and interest over the land in question, she was
constrained to file the instant case, binding herself to pay P50,000.00 as and for attorney's fees.
The Court believes and so holds that the subject Deed of Sale is indeed simulated,2 as it is: (1) totally devoid of
consideration; (2) it was executed on August 12, 1967, less than two months from the time the subject land was
donated to petitioner on June 25, 1967 by no less than the parents of respondent Glenda Ong; (3) on May 18, 1978,
petitioner mortgaged the land to the Aklan Development Bank for a P23,000.00 loan; (4) from the time of the alleged
sale, petitioner has been in actual possession of the subject land; (5) the alleged sale was registered on May 25, 1991
or about twenty four (24) years after execution; (6) respondent Glenda Ong never introduced any improvement on
the subject land; and (7) petitioners house stood on a part of the subject land. These are facts and circumstances
which may be considered badges of bad faith that tip the balance in favor of petitioner.
The Court is in accord with the observation and findings of the (RTC,3 Kalibo, Aklan) thus:

Defendant Glenda insisted on her ownership over the land in question on account of a Deed of Absolute Sale
executed by the plaintiff in her favor; and that plaintiffs claim of ownership therefore was virtually rejected by the
Municipal Circuit Trial Court of Ibaja-Nabas, Ibajay, Aklan, when it decided in her favor the unlawful detainer case
she filed against the plaintiff, docketed therein as Civil Case No. 183.
Plaintiffs testimony tends to show that the land in question is part of the land donated to her on June 25, 1967 by
spouses Melquiades Barraca and Praxedes Casidsid, plaintiffs uncle and aunt, respectively. As owner thereof, she
declared the land for taxation purposes (Exhibits A-1 to A-5, inclusive). She religiously paid its realty taxes (Exhibit
A-6). She mortgaged the land to Aklan Development Bank to secure payment of a loan. In 1967, defendant Glenda
and her father, Melquiades Barraca came to her residence asking for help. They were borrowing one-half of land
donated to her so that defendant Glenda could obtain a loan from the bank to buy a dental chair. They proposed that
she signs an alleged sale over the said portion of land.
"The amplitude of foregoing undisputed facts and circumstances clearly shows that the sale of the land in question
was purely simulated. It is void from the very beginning (Article 1346, New Civil Code). If the sale was legitimate,
defendant Glenda should have immediately taken possession of the land, declared in her name for taxation purposes,
registered the sale, paid realty taxes, introduced improvements therein and should not have allowed plaintiff to
mortgage the land. These omissions properly militated against defendant Glendas submission that the sale was
legitimate and the consideration was paid.
While the Deed of Absolute Sale was notarized, it cannot justify the conclusion that the sale is a true conveyance to
which the parties are irrevocably and undeniably bound. Although the notarization of Deed of Absolute Sale, vests in
its favor the presumption of regularity, it does not validate nor make binding an instrument never intended, in the
first place, to have any binding legal effect upon the parties thereto (Suntay vs. Court of Appeals, G.R. No. 114950,
December 19, 1995; cited in Ruperto Viloria vs. Court of Appeals, et al., G.R. No. 119974, June 30, 1999)."

Acceding to their request, she signed on August 12, 1967 a prepared Deed of Absolute Sale (Exhibit C) which they WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals rendered on August 30, 2007 in
brought along with them (TSN, p. 22, Ibid), covering the land in question without any money involved. There was no CA G.R. CV No. 66187 is hereby REVERSED and SET ASIDE. The Decision of the Regional Trial Court, Branch
monetary consideration in exchange for executing Exhibit C. She did not also appear before the Notary Public 5, Kalibo, Aklan in Civil Case No. 5398 dated December 3, 1999 is REINSTATED.
Edilberto Miralles when Exhibit C was allegedly acknowledged by her on November 9, 1967.

In 1974, plaintiff transferred her residence from Nabas, Aklan, to Antipolo City where she has been residing up to
the present time. From the time she signed the Deed of Absolute Sale (Exhibit C) in August, 1967 up to the present
time of her change of residence to Antipolo City, defendant Glenda never demanded actual possession of the land in
question, except when the latter filed on May 30, 1996 a case for unlawful detainer against her. Upon the other hand,
relevant matters that surfaced from the testimonies of the defendants shows that on June 25, 1967, Melquiades
Barraca, father of the defendant Glenda, donated a parcel of land to her niece, plaintiff Lorna C. Formaran (Exhibit
3). At the time of the donation, plaintiff was still single. She married Atty. Formaran only in September, 1967
Defendant Glenda maintained that there was money involved affecting the sale of the land in her favor. The sale was
not to enable her to buy a dental chair for she had already one at the time. Besides, the cost of a dental chair in 1967
was only P2,000.00 which she can readily afford.

Petitioner filed on action for annulment of the Deed of Sale (Civil Case No. 5398) against respondents before the
Regional Trial Court (RTC), of Kalibo, Aklan, Branch 5. The trial court rendered a Decision in favor of petitioner
and against the respondent by declaring the Deed of Absolute Sale null and void for being an absolutely simulated
contract and for want of consideration.
TOPIC: Effect of non-payment of price
ASUNCION MENESES VDA. DE CATINDIG, petitioner-appellant,
vs.
The Heirs of CATALINA ROQUE
FACTS: The said fishpond, known as Lot No. 4626 of the Malolos Cadastre, has an area of more than thirteen
hectares. As shown in Original Certificate of Title No. 7937, it is registered in the names of the several persons who
were co-owners of the lot.
The co-owners of the fishpond leased it to Mrs. Catindig for a term of ten years counted from October 1, 1941 for a
total rental of six thousand pesos (Exh. C-1; Amendment to Decision, per Resolution of February 22, 1966).
After the termination of the lease on September 30, 1951, Mrs. Catindig remained in possession of the fishpond
because she was negotiating with the co-owners for the purchase thereof. She wanted to buy it for P52,000.
On October 18, 1960 German Ramirez, one of the co-owners, executed a deed wherein he sold his 2/16 share to Mrs.
Catindig for P6,500 (Exh. E). The sale was annotated on the title on October 19, 1960. Two weeks later, Pedro
Villanueva, one of the co-owners, learned of the sale executed by German Ramirez. That sale retroacted to April 13,
1950.
On November 18, 1960 the respondents filed this action against Mrs. Catindig to compel her to allow them to
redeem the portion sold by German Ramirez. In April, 1962 the respondents amended their complaint by
including, inter alia, a prayer for the recovery of the possession of the fishpond.
ISSUE: Whether the sale of the fishpond to her is void for nonpayment of the price.
RULING: The alleged sales were absolutely simulated, fictitious or inexistent contracts (Arts. 1346 and 1409[2],
Civil Code). "The action or defense for the declaration of the inexistence of a contract does not prescribe" (Art. 1410,
Ibid; Eugenio vs. Perdido, 97 Phil. 41). Mere lapse of time cannot give efficacy to a void contract (Tipton vs.
Velasco, 6 Phil. 67).
The Appellate Court's finding that the price was not paid or that the statement in the supposed contracts of sale (Exh.
6 to 26) as to the payment of the price was simulated fortifies the view that the alleged sales were void. "If the price
is simulated, the sale is void ..." (Art. 1471, Civil Code).
A contract of sale is void and produces no effect whatsoever where the price, which appears thereon as paid, has in
fact never been paid by the purchaser to the vendor (Ocejo, Perez & Co. vs. Flores and Bas, 40 Phil. 921; Mapalo vs.
Mapalo, L-21489, May 19, 1966, 64 O. G. 331, 17 SCRA 114, 122). Such a sale is non-existent (Borromeo vs.
Borromeo, 98 Phil. 432) or cannot be considered consummated (Cruzado vs. Bustos and Escaler, 34 Phil. 17;
Garanciang vs. Garanciang, L-22351, May 21, 1969, 28 SCRA 229).
The foregoing discussion disposes of whatever legal issues were raised by appellant Catindig which are interwoven
with her factual contentions, including the issue as to whether she is entitled to demand the execution of a notarized
deed of sale for the 14/16 pro indiviso portion of the fishpond. She is not entitled because, as already held, the
alleged sales in her favor are void.
TOPIC: Effect of non-payment of price
G.R. No. 109410 August 28, 1996
CLARA M. BALATBAT, petitioner,
vs.
COURT OF APPEALS and Spouses JOSE REPUYAN and AURORA REPUYAN, respondents.
FACTS: A parcel of land was acquired by plaintiff Aurelio Roque and Maria Mesina during their conjugal union.
Maria died on August 28, 1966. On June 15, 1977, Aurelio filed a case for partition. The trial court held that Aurelio
is entitled to the portion at his share in the conjugal property, and 1/5 of the other half which formed part of
Marias estate, divided equally among him at his 4 children. The decision having become final and executory, the
Register of Deeds of Manila issued a transfer certificate of title on October 5, 1979 according to the ruling of the
court. On April 1, 1980, Aurelio sold his 6/10 share to spouses Aurora Tuazon-Repuyan and Jose Repuyan, as
evidenced by a deed of absolute sale. On June 21, 1980, Aurora caused the annotation of her affidavit of adverse
claim. On August 20, 1980, Aurelio filed a complaint for rescission of contract grounded on the buyers failure to
pay the balance of the purchase price. On February 4, 1982, another deed of absolute sale was executed between
Aurelio and his children, and herein petitioner Clara Balatbat, involving the entire lot. Balatbat filed a motion for the
issuance of writ of possession, which was granted by the court on September 20, 1982, subject to valid rights and
interests of third persons. Balatbat filed a motion to intervene in the rescission case, but did not file her complaint in
intervention. The court ruled that the sale between Aurelio and Aurora is valid.
ISSUES:
(1) Whether the alleged sale to private respondents was merely executor
(2) Whether there was double sale
(3) Whether petitioner is a buyer in good faith and for value
HELD:(1) Contrary to petitioner's contention that the sale dated April 1, 1980 in favor of private respondents
Repuyan was merely executory for the reason that there was no delivery of the subject property and that
consideration/price was not fully paid, we find the sale as consummated, hence, valid and enforceable. The Court
dismissed vendor's Aurelio Roque complaint for rescission of the deed of sale and declared that the Sale dated April
1, 1980, as valid and enforceable. No appeal having been made, the decision became final and executory.The
execution of the public instrument, without actual delivery of the thing, transfers the ownership from the vendor to
the vendee, who may thereafter exercise the rights of an owner over the same. In the instant case, vendor Roque
delivered the owner's certificate of title to herein private respondent. The provision of Article 1358 on the necessity
of a public document is only for convenience, not for validity or enforceability. It is not a requirement for the validity
of a contract of sale of a parcel of land that this be embodied in a public instrument. A contract of sale being
consensual, it is perfected by the mere consent of the parties. Delivery of the thing bought or payment of the price is
not necessary for the perfection of the contract; and failure of the vendee to pay the price after the execution of the
contract does not make the sale null and void for lack of consideration but results at most in default on the part of the
vendee, for which the vendor may exercise his legal remedies.
(2) Article 1544 of the Civil Code provides that in case of double sale of an immovable property, ownership shall be
transferred (1) to the person acquiring it who in good faith first recorded it in the Registry of Property; (2) in default
thereof, to the person who in good faith was first in possession; and (3) in default thereof, to the person who presents
the oldest title, provided there is good faith. In the case at bar, vendor Aurelio Roque sold 6/10 portion of his share to
private respondents Repuyan on April 1, 1980. Subsequently, the same lot was sold again by vendor Aurelio Roque
(6/10) and his children (4/10), represented by the Clerk of Court pursuant to Section 10, Rule 39 of the Rules of
Court, on February 4, 1982. Undoubtedly, this is a case of double sale contemplated under Article 1544 of the New
Civil Code. Evidently, private respondents Repuyan's caused the annotation of an adverse claim on the title of the
subject property on July 21, 1980. The annotation of the adverse claim in the Registry of Property is sufficient
compliance as mandated by law and serves notice to the whole world. On the other hand, petitioner filed a notice of
lis pendens only on February 2, 1982. Accordingly, private respondents who first caused the annotation of the
adverse claim in good faith shall have a better right over herein petitioner. As between two purchasers, the one who
has registered the sale in his favor, has a preferred right over the other who has not registered his title even if the
latter is in actual possession of the immovable property. Further, even in default of the first registrant or first in
possession, private respondents have presented the oldest title. Thus, private respondents who acquired the subject
property in good faith and for valuable consideration established a superior right as against the petitioner.
(3) Petitioner cannot be considered as a buyer in good faith. If petitioner did investigate before buying the land on
February 4, 1982, she should have known that there was a pending case and an annotation of adverse claim was
made in the title of the property before the Register of Deeds and she could have discovered that the subject property
was already sold to the private respondents. It is incumbent upon the vendee of the property to ask for the delivery of
the owner's duplicate copy of the title from the vendor. One who purchases real estate with knowledge of a defect or
lack of title in his vendor cannot claim that he has acquired title thereto in good faith as against the true owner of the
land or of an interest therein; and the same rule must be applied to one who has knowledge of facts which should
have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title
of his vendor. Good faith, or the want of it is not a visible, tangible fact that can be seen or touched, but rather a state
or condition of mind which can only be judged of by actual or fancied tokens or signs.
TOPIC: Effect of Non-payment of price
Heirs of Escanlar Vs. Court of Appeals
GR. No. 119777 October 23, 1997
FACTS: Spouses Nombre and Cari-an died without a child. Nombres heirs include his nephews and grandnephews.
Two parcels of land formed part of the estate of Nombre and Cari-an. The Private Respondents, heirs of Cari-an
executed a Deed of Sale in favor of petitioners Escanlar and Holgado. Petitioner paid P50, 000.00 as a form of down
payment, but was unable to pay the remaining balance (paid only 12 installments). Being former lessees, petitioners
continued in possession of the said lots, and continued to pay rent. Private Respondent later sold the said lots to the
Chua spouses. Private Respondent then filed an action for cancellation of sale against petitioners, for failure to pay
the balance. Petitioners however, sold their rights and interests over the said lots to Jayme, and turned over
possession. The Regional Trial Court of Himamaylan which took cognizance of Special Proceeding ruled that the
Sale to petitioners was nullified since all the properties of the estate had been transferred and titled to in the name of
the Chua spouses. On appeal, the Court of Appeals affirmed, questioned deed of sale (one with petitioners) is a
contract to sell because it shall become effective only upon approval by the probate court and upon full payment of
the purchase price.
ISSUE: Whether or not the sale was a contract to sell and therefore, private respondents may rescind the contract the
moment the buyer fails to pay.
HELD: The sale of rights, interests and participation as to 1/2 portion pro indiviso of the two subject lots is a
contract of sale for the following reasons:
First, private respondents as sellers did not reserve unto themselves the ownership of the property until full payment
of the unpaid balance of P225,000.00.
Second, there is no stipulation giving the sellers the right to unilaterally rescind the contract the moment the buyer
fails to pay within the fixed period. Prior to the sale, petitioners were in possession of the subject property as lessees.
Upon sale to them of the rights, interests and participation as to the 1/2 portion pro indiviso, they remained in
possession, not in concept of lessees anymore but as owners now through symbolic delivery known as traditio brevi
manu.
Under Article 1477 of the Civil Code, the ownership of the thing sold is acquired by the vendee upon actual or
constructive delivery thereof. In a contract of sale, the non-payment of the price is a resolutory condition which
extinguishes the transaction that, for a time, existed and discharges the obligations created there under. The remedy
of an unpaid seller in a contract of sale is to seek either specific performance or rescission. In contracts to sell,
ownership is retained by the seller and is not to pass until the full payment of the price. Such payment is a positive
suspensive condition, the failure of which is not a breach of contract but simply an event that prevented the
obligation of the vendor to convey title from acquiring binding force. To illustrate, although a deed of conditional
sale is denominated as such, absent proviso that title to the property sold is reserved in the vendor until full payment
of the purchase price nor a stipulation giving the vendor the right to unilaterally rescind the contract the moment the
vendee fails to pay within a fixed period, by its nature, it shall be declared a deed of absolute sale. The petitions are
hereby GRANTED. The decision of the Court of Appeals under review is hereby REVERSED AND SET ASIDE.
TOPIC: Money or its equivalent and manner of payment
G.R. No. L-38498 August 10, 1989 ISAAC BAGNAS, ENCARNACION BAGNAS, SILVESTRE BAGNAS
MAXIMINA BAGNAS, SIXTO BAGNAS and AGATONA ENCARNACION, petitioners, vs. HON. COURT
OF APPEALS, ROSA L. RETONIL TEOFILO ENCARNACION, and JOSE B. NAMBAYAN respondents.
FACTS: Hilario Mateum died single, without any ascendants or descendants. He was survived only by collateral
relatives, with petitioners, his first cousins, the nearest in degree. Mateum left no will, no debts, and an estate of
twenty nine parcels of land, ten of which are involved in his appeal. Private respondents are collateral relatives of
Mateum as well, although more remote in degree than petitioners. They registered with the Registry of Deeds two
deeds of sale allegedly executed by Mateum in their favor covering the ten parcels of land. Each had the
reconsideration of the sale at "halagang ISANG PISO (P1.00) at mga naipaglingkod, ipinaglilingkod sa aking
kapakanan ..." Both of these deeds were dated one year before Mateum's death. Due to the deeds of sale, respondents
were able to secure in their title three of the ten parcels of land. The properties in question were in fact assessed for
more than P10,000.00. Petitioners sought the annulment of the deeds of sale. They claimed that such were fictitious,
fraudulent or falsified, or, alternatively, as donations void for want of acceptance embodied in a public instrument.
They prayed for the recovery of ownership and possession, by virtue of being intestate heirs of Mateum.
ISSUE: Whether the sales are void or voidable.
HELD: If the sales were only voidable, then since Mateum had no forced heirs whose legitimes may have been
impaired and the petitioners being collateral relatives who are not bound pricipally or subsidiarily to the terms of said
deeds, then petitioners would have no actionable right to question the transfers. On the other hand if they deeds were
void ab initio because they are without consideration, then the transaction was inexistent and void from the
beginning. The property would never leave the patrimony of the transferor, and upon the death of the latter without a
will the property would pass to the transferor's heirs intestate. It is apparent that there is a gross and enormous
disproportion between the stipulated price of P1.00 plus unspecified services and the estimated value of P10,000.00.
The assessment is in fact for tax purposes which are well-known to be notoriously low indicators of actual value.
This clearly demonstrates that they state a false and fictitious consideration, and no lawful cause having been shown,
both deeds are not merely voidable, but void ab initio. Respondents cannot rely on their contention that the true
causa is the liberality of Mateum and that they are actually donations. The law prescribes that donations of
immovables must be made and accepted in a public instrument, and there has been no such claim. The transfers
being void, it then follows that the properties remained part of Mateum's estate, recoverable by his intestate heirs, the
petitioners therein. The respondents only have themselves to blame for lack of proof that might have said the
transfers from invalidity. They could have presented proof of the character and value of the services, past, present,
and future, as indicated in the very terms of the said transfers. The onus of showing the existence of a valid and licit
consideration for the conveyances rested on the respondents. The burden was shifted to the private respondents when
the petitioners presented the deeds which they claimed showed that defect on their face and it became the duty of
said respondents to offer evidence of existent lawful consideration.
TOPIC: Money or its equivalent and manner of payment
G.R. No. 191696 April 10, 2013
ROGELIO DANTIS,Petitioner vs. JULIO MAGHINANG, JR., Respondent.
FACTS: The case draws its origin from a complaint for quieting of title and recovery of possession with damages filed by
petitioner Rogelio Dantis (Rogelio) against respondent Julio Maghinang, Jr. (Julio, Jr.) " before the RTC, docketed as Civil Case No. 280-
M-2002. Rogelio alleged that he was the registered owner of a parcel of land covered by Transfer Certificate of Title (TCT) No. T-125918,
with an area of 5,657 square meters, located in Sta. Rita, San Miguel, 2ulacan3 that he acquired ownership of the
property through a deed of extrajudicial partition of the estate of his deceased father, Emilio Dantis (Emilio), dated
December 22, 1993; that he had been paying the realty taxes on the said property; that Julio Jr. occupied and built a house on a
portion of his property without any right at all; that demands were made upon Julio, Jr. that he vacate the premises but the same fell on deaf
ears; and that the acts of Julio,Jr. had created a cloud of doubt over his title and right of possession of his property.
He added that he was constrained to institute an ejectment suit against Julio, Jr. before the Municipal Trial Court of San Miguel, Bulacan
(MTC), but the complaint was dismissed for lack of jurisdiction and lack of cause of action.
Julio claimed that his father, Julio Maghinang Sr., bought the said lot from the parents of Rogelio Dantis. He admitted that
the affidavit was not signed by the alleged vendor, Emilio Dantis, the father of Rogelio Dantis. The receipt he presented was admittedly a
mere photocopy.
RTCsRuling:
On March 2, 2005 the RTC rendered its decision declaring Rogelio as the true owner of the entire -5,657 - square meter lot located
in Sta. Rita, San Miguel, Bulacan, as evidenced by his TCT over the same. The RTC ruled that even if the purported affidavit and
the receipt presented by Julio were adjudged as competent evidence, still, they would only serve as proofs that the purchase
price for the sub5ect lot had not yet been completely paid and, hence, Rogelio was not duty bound to deliver the
property to Julio, Jr. The RTC found Julio, Jr. to be a mere possessor by tolerance. The dispositive portion of the RTC decision reads:
Julio, Jr. moved for a reconsideration of the March 2, 2005 decision, but the motion was denied by the RTC in its May 3,
2005 Order. Feeling aggrieved, Julio, Jr.appealed the decision to the CA.
The CA held that the receipt was an indubitable proof of the sale of the 352 square meter lot between Emilio and Julio, Sr.
It also ruled that the partial payment of the purchase price, coupled with the delivery of the res, gave e9cacy to the oral sale and brought it
outside the operation of the statute of frauds.
The motion for reconsideration filed by Rogelio was denied by the CA, hence this petition.
ISSUES: Whether or not there is a perfected contract of sale between Emilio and Julio, Sr.
HELD: There is no perfected contract of sale. First, the affidavit allegedly executed by Ignacio Dantis (Ignacio), Rogelios
grandfather, whereby said affiant attested, among others, to the sale of the subject lot made by his son, Emilio, to Julio, Sr.
Second the undated handwritten receipt of initial downpayment in the amount of P100.00 supposedly issued by Emilio to
Julio, Sr. in connection with the sale of the subject lot jurisprudence dictates that an affidavit is merely hearsay evidence where its affiant
/maker did not take the witness stand.
The sworn statement of Ignacio is hearsay evidence. It cannot be deemed a declaration against interest for the matter to be
considered as an exception to the hearsay rule because the declarant was not the seller (Emilio), but his father Ignacio". On
the other hand, the undated handwritten receipt is considered secondary evidence being a mere photocopy which, in this case,
cannot be admitted to prove the contents of such receipt. The best evidence rule requires that the highest available degree of proof must be
produced. For documentary evidence, the contents of a document are best proved by the production of the document itself to the exclusion
of secondary or substitutionary evidence, pursuant to Rule 130, Section 3.
A secondary evidence is admissible only upon compliance with Rule 130, Section 5,which states that: when the original has been lost or
destroyed, or cannot be produced in court, the offeror, upon proof of its execution or existence and the cause of its unavailability
without bad faith on his part, may prove its contents by a copy, or by a recital of its contents in some authentic
document, or by the testimony of witnesses in the order stated. Proof of the due execution of the document and its subsequent loss
would constitute the basis for the introduction of secondary evidence.
In MCC Industrial Sales Corporation v. Sangyong Corporation, it was held that where the missing document is the
foundation of the action, more strictness in proof is required than where the document is only collaterally involved.
Guided by these norms, the court holds that Julio, Jr. failed to prove the due execution of the original of affidavit as well as its subsequent
loss. His testimony was riddled with improbabilities and contradictions which tend to erode his credibility and raise doubt on
the veracity of his evidence. his claim of Julio, Jr. that Emilio affixed his signature on the original affidavit in 1953 is highly
improbable because record shows that 6milio died even before that year, specifically, on November 13, 1952.
Assuming, in, that the receipt is admissible in evidence, there will still be no valid and perfected oral contract for failure of Julio, Jr. to prove
the concurrence of the essential requisites of a contract of sale by adequate and competent evidence. By the contract of
sale, one of the contracting parties obligates himself to transfer the ownership of, and to deliver, a determinate thing,
and the other to pay therefor a price certain in money or its equivalent. A contract of sale is a consensual contract and,
thus, is perfected by mere consent which is manifested by the meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract. Until the contract of sale is perfected, it cannot, as an independent
source of obligation, serve as a binding juridical relation between the parties. The essential elements of a contract of
sale are; 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. The absence of any of the essential elements shall negate the
existence of a perfected contract of sale.
A perusal of the above document would readily show that it does not specify a determinate subject matter. Nowhere does it
provide a description of the property subject of the sale, including its metes and bounds, as well as its total area. The Court notes that
while Julio, Jr. testified that the land subject of the sale consisted of 352 square meters, the receipt however, states that it is
more than 400 square meters. Moreover, it does not categorically declare the price certain in money. Neither does it state the mode of
payment of the purchase price and the period for its payment.
Seemingly, Julio, Jr. wanted to prove the sale by a receipt when it should be the receipt that should further corroborate the existence of the
sale. At best, his testimony only alleges but does not prove the existence of the verbal agreement. Julio, Jr. miserably
failed to establish by preponderance of evidence.
On one hand, It is an age-old rule in civil cases that he who alleges a fact has the burden of proving it and a mere allegation
is not evidence. After carefully sifting through the evidence on record, the Court finds that Rogelio was able to establish a prima facie case
in his favour tending to show his exclusive ownership of the parcel of land under a title with an area of 5,657 square meters, which included
the 352 square meter subject lot and is a derivative of a mother title, which covered a bigger area of land measuring 30,000
square meters registered in the name of Emilio Dantis; that Emilio died intestate on November 13, 1952; that Emilios five
heirs, including Rogelio, executed an extra judicial partition of estate on December 22, 1993 and divided among themselves specific
portions of the property
In Swedich Match, AB v Court of Appeals, the Court ruled that the manner of payment of the purchase price was an
essential element before a valid and binding contract of sale could exist. Albeit the Civil Code does not explicitly
provide that the minds of the contracting parties must also meet on the terms or manner of payment of the price, the
same is needed, otherwise, there is no sale. An agreement anent the manner of payment goes into the price so much so
that a disagreement on the manner of payment is tantamount to a failure to agree on the price.
TOPIC: Money or its equivalent and manner of payment
G.R. No. L-31018 June 29, 1973
LORENZO VELASCO AND SOCORRO J. VELASCO, petitioners,
vs.
HONORABLE COURT OF APPEALS and MAGDALENA ESTATE, INC., respondents.
FACTS: Lorenzo Velasco & Magdalena Estate, Inc. entered into a contract of sale involving a lot in New Manila for
100K.The agreement was that Lorenzo would give a down payment of 10K (as evidenced by a receipt) to be
followed by 20K (time w/in which to make full down payment was not specified) and the balance of 70K would be
paid in installments, the equal monthly amortization to be determined as soon as the 30K had been paid. Lorenzo
paid the 10K but when he tendered payment for 20K, Magdalena refused to accept & refused to execute a formal
deed of sale. Velasco filed a complaint for damages.
Magdalena denied having any dealings/contractual relations w/ Lorenzo. It contends that a portion of the property
was being leased by Lorenzos sister-in-law, Socorro Velasco who went to their office & they agreed to the sale of
the property (30K down payment, 70K on installments+9% interest). Since Socorro was only able to pay 10K, it was
merely accepted as deposit & on her request, the receipt was made in the name of Lorenzo. Socorro failed to
complete the down payment & neither has she paid the 70K. It was only 2 years after that she tendered payment for
20K & by then, Magdalena considered their offer to sell rescinded.
According to Lorenzo, he had requested Socorro to make the necessary contracts & he had authorized her to make
negotiations w/ Magdalena on her own name, as he doesnt understand English. He also uses as evidence the receipt
to prove that there already had been a perfected contract to sell as the annotations therein indicated that earnest
money for 10K had been received & also the agreed price (100K, 30K dp & bal in 10 yrs) appears thereon. To
further prove that it was w/ him & not w/ Socorro that Magdalena dealt with, he showed 5 checks drawn by him for
payment of the lease of the property.
ISSUE: Whether or not there was a consummated sale?
HELD: NO.
The minds of the parties did not meet in regard to the matter of payment. It is admitted that they still had to meet and
agree on how & when the down payment & installments were to be paid. Therefore, it cannot be said that a definite
& firm sales agreement between the parties had been perfected.
The definite agreement on the manner of payment of the purchase price is an essential element in the formation of a
binding & enforceable contract of sale. The fact that Velasco delivered to Magdalena the sum of 10K as part of the
down payment that they had to be pay cannot be considered as sufficient proof of the perfection of any purchase &
sale agreement between the parties under Art 1428, NCC.
TOPIC: Money or its equivalent and Option Money/Option Contract and Earnest Money
San Miguel Properties vs. Huang, 336 SCRA 737
Facts: The case involves the offer to sell the two parcels of land owned by the petitioner who is a domestic
corporation engaged in the purchased and sale of real properties to the respondents. Said transaction was entered by
the respondent spouses agent, Atty. Helena Dauz. The agent signified the respondents interest in purchasing the lot
and so they offered the sum of 500, 000 as an earnest money and the b lance would be paid in monthly installments.
However, the petitioner refused the counter-offer, Subsequently, Attu. Dauz wrote another letter proposing the terms
of the purchase that they will be given the exclusive option to purchase the property within the 30 days from date of
acceptance by the petitioner of this offer and that the earnest deposit of 1M. The petitioner accepted the 1M. With
this, the parties commenced negotiation wherein they have agreed that petitioner was willing to sell the subject
properties on a 90-day term but Atty. Dauz countered with an offer of six months to pay. After several meetings, the
parties failed to agree and so the petitioner returned the 1M given as earnest deposit. However, the respondent
wanted the execution of the Deed of Sale and they even returned the 1M to the petitioner but the latter refused
contending that the period to purchase had already expired and that the "exclusive option" of respondent spouses
lacked a consideration separate and distinct from the purchase price.
Trial Court:
Granted the petitioners.
Court of Appeals:
Reversed the decision and ruled that there was a perfected contract of sale-offer made and was accepted and there
was even money tendered.
Issue: Whether there was a perfected contract of sale?
SUPREME COURT: No.
Ratio: Option money vs earnest money
In promise to buy or sell, the option to buy the properties within the period agreed upon is separate and distinct from Petitioner:
the contract of sale which the properties may enter. The P1 million "earnest-deposit" could not have been given as
earnest money because, at the time when petitioner accepted the terms of respondents' offer, their contract had not Sale was valid.
yet been perfected. This is evident from the conditions attached by respondents to their letter. The first condition for
an option period of 30 days sufficiently showed that a sale was never perfected. 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
Respondent:
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 The decedents signature was forged and there was inadequacy of the price.
separate and distinct from the contract of sale which the parties may enter. 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.
Trial Court:

The sale was valid.

Money or its equivalent
Court of Appeals:
Further, the option must be supported by a consideration otherwise the same is unenforceable. Accepted unilateral
promise to buy or sell a determinate thing for a price certain is binding upon the promisor only if the promise is Reversed and set aside the decision.
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.
Also, 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 Issue:
or manner of payment of the price, the same is needed, otherwise there is no sale. There is no showing here of any
Whether the alleged inadequacy of price invalidates the sale?
consideration for the option. Lacking any proof of such consideration, the option is unenforceable.

Lastly, the amount given by the respondents was not considered as part of the purchase price and proof of perfection
of contract of sale but only as guarantee that they would not back out of the sale. Hence, no contract of sale was
SUPREME COURT:
made.
No.

Ratio:
TOPIC: Inadequacy of Price
As to the alleged insufficient consideration of the sale of the property, the mere inadequacy of the price does not
affect its validity when both parties are in a position to form an independent judgment concerning the transaction,
unless fraud, mistake or undue influence indicative of a defect in consent is present. A contract may consequently be
Bautista vs. Court of Appeals, 436 SCRA 141
annulled on the ground of vitiated consent and not due to the inadequacy of the price.

In the case at bar, however, no evidence to prove fraud, mistake or undue influence indicative of vitiated consent was
Facts:The dispute involves the sale of a parcel of land which was previously owned and registered in the name of the present other than the respondents self-serving allegations.
late Cesar, who was the uncle of the petitioner. The sale was between the deceased and the petitioner. Respondent
claimed to be the illegitimate child of the decedent and sought the declaration of the sale.
TOPIC: Perfection
Xentex Automotive vs. CA 290 SCRA 66
Facts: Petitioner is a dealer of motor vehicles. The respondent went to petitioner to purchase a brand new car and
even made an initial deposit and the balance was to be paid thru bank financing. However due to the slow pace in the
processing of the financing company, the respondents decided to pay the remaining balance and to their surprise the
car had already been sold to another buyer without their knowledge. And so respondent sent a demand letter to
petitioner asking the latter to comply the delivery of the car as there was already a perfect contract. Petitioners on the
other hand argued that there was no perfected contract of sale since the respondents failed to comply with their
obligation to pay the purchase price of the car and full.
Trial court:
Ruled in favor of petitioners.
Court of Appeals:
Affirmed the decision.
Issue: Whether there was a perfected contract f o sale?
SUPREME COURT: Yes.
Ratio: Article 1475 of the New Civil Code is very explicit that "[t]he 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. From that
moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form
of contracts.
As to claim of damages, only moral damages can be awarded considering that respondent has suffered shock and
embarrassment as a result of petitioners breach of contract for failure to comply its obligation. The award of
exemplary damages in this case is unwarranted because there is no showing that petitioner acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner. In the same vein, the grant of nominal damages must also be
deleted because the factual basis for such has not been established.
TOPIC: Perfection
Dalion vs. CA, Feb. 28, 1990
Facts: A land in Southern Leyte was declared in the name of petitioner. Respondent ued to recover ownership of the
land based on a private document of absolute sale, allegedly executed by Segundo Dalion. However, petitioner
denied the sale, sayong that the document was fictitious; that his signature was froged; and that the land formed part
of their conjugal property which he and his wife acquired in 1960 from Saturnina Sabesaje as evidenced by the
Escritua de Venta Absoluta. They also denied the claims of respondent that after they executed the deed of sale,
they pleaded respondent that they be allowed to administer the land because they do not have any means of
livelihood. Although the petitioners admitted that they have been administering 5 lands in Southern Leyte, which
belonged to the grandfather of the respondent who died in 1956.
Trial Court:
Favored respondents and ordered the petitioners to deliver the land in a public instrument.
Court of Appeals:
Affirmed the decision.
Issue: Whether the sale was valid?
SUPREME COURT: Yes.
Ratio:A contract of sale is a consensual contract, which means that the sale is perfected by mere consent. No
particular form is required for its validity. Upon perfection of the contract, the parties may reciprocally demand
performance, the vendee may compel transfer of ownership of the object of the sale, and the vendor may require the
vendee to pay the thing sold.
In this case, there are people who witness the execution of the deed and testified positively on its authenticity and
even admitted that the deed of sale was executed and signed by the parties.
Lastly, the necessity of a public document is only for convenience not for validity or enforceability. Under Art. 1498,
NCC, when the sale is made through a public instrument, the execution thereof is equivalent to the delivery of the
thing. Delivery may either be actual (real) or constructive. Thus delivery of a parcel of land may be done by placing
the vendee in control and possession of the land (real) or by embodying the sale in a public instrument (constructive).
TOPIC: Option Money/Option Contract and Earnest Money with, certain terms and conditions, or which gives to the owner of the property the right to sell or demand a sale. It is
also sometimes called an "unaccepted offer." An option is not of itself a purchase, but merely secures the privilege to
buy. It is not a sale of property but a sale of the right to purchase. It is simply a contract by which the owner of
property agrees with another person that he shall have the right to buy his property at a fixed price within a certain
Limson vs. CA 357 SCRA 209 time. He does not sell his land; he does not then agree to sell it; but he does sell something, i.e., the right or privilege
to buy at the election or option of the other party. Its distinguishing characteristic is that it imposes no binding
obligation on the person holding the option, aside from the consideration for the offer. Until acceptance it is not,
Facts: Petitioner filed a complaint against respondent. The respondents acting through their agent offered to sell the properly speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in
land which petitioner accepted and offered 20, 000 as earnest money. The respondents even gave her 10-day option the subject matter, but is merely a contract by which the owner of the property gives the optionee the right or
period to purchase the property. She was even told that the subject land was mortgaged and she even offered to pay privilege of accepting the offer and buying the property on certain terms.
the balance however it did not materialize because the taxes were not yet paid. To her surprise she was told by the
On the other hand, a contract, like a contract to sell, involves the meeting of minds between two persons whereby
agent of the respondents that the land is being offered to respondent Sunvar Realty Corporation.
one binds himself, with respect to the other, to give something or to render some service. Contracts, in general, are
perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer must be certain and the acceptance absolute.
Respondent:
Earnest money vs option money
Petitioner had no sufficient cause of action against them; that she was not the real party in interest; that the option to
buy the (a) earnest money is part of the purchase price, while option money is the money given as a distinct consideration for
property had long expired; that there was no perfected contract to sell between them. an option contract; (b) earnest money is given only where there is already a sale, while option money applies to a
sale not yet perfected; and, (c) when earnest money is given, the buyer is bound to pay the balance, while when the
would-be buyer gives option money, he is not required to buy, but may even forfeit it depending on the terms of the
option.
Lower Court:
In this case, the receipt evidencing the payment did not indicate that the 20, 000 was part of the purchase price.
Favored petitioner. Moreover, it was not shown that there was a perfected sale between the parties where earnest money was given.
Finally, when petitioner gave the "earnest money," the Receipt did not reveal that she was bound to pay the balance
of the purchase price. In fact, she could even forfeit the money given if the terms of the option were not met. Thus,
the P20,000.00 could only be money given as consideration for the option contract. Doubtless, the agreement
Court of Appeals: between respondent spouses and petitioner was an "option contract" or what is sometimes called an "unaccepted
offer." During the option period the agreement was not converted into a bilateral promise to sell and to buy where
Reversed the decision.
both respondent spouses and petitioner were then reciprocally bound to comply with their respective undertakings as
petitioner did not timely, affirmatively and clearly accept the offer of respondent spouses.

Issue: Whether there was a valid sale?

SUPREME COURT: No.

Ratio: Contract to sell vs option contract

An option, as used in the law of sales, is a continuing offer or contract by which the owner stipulates with another
that the latter shall have the right to buy the property at a fixed price within a time certain, or under, or in compliance
TOPIC: Option Money/Option Contract and Earnest Money
Carcellar vs. CA 302 SCRA 718
Facts: Private respondent State Investment House, Inc. (SIHI), the registered owner of two (2) parcels of land
located at Bulacao, Cebu City, entered into a lease contract with option purchase with petitioner for a period of
eighteen (18) months, beginning on August 1, 1984 until January 30, 1986. On January 7, 1986, SIHI notified
petitioner of the short period of time left within which he could still validly exercise the option. On January 15, 1986,
petitioner requested for a six-month extension of the lease contract, alleging that it needs ample time to raise
sufficient funds. However, on February 14, 1986, SIHI notified petitioner that his request was disapproved.
Consequently, on February 18, 1986, petitioner notified SIHI of his decision to exercise the option to purchase the
property. Again, on February 20, 1986, SIHI reiterated its previous stand on the latter's offer, stressing that the period
within which the option should have been exercised had already lapsed. Further, SIHI asked petitioner to vacate the
property. Thus, on February 28, 198 complaint for specific performance and damages was filed by petitioner against
SIHI before the Regional Trial Court of Cebu City.
Trial Court: Favored petitioner and ordered SIHI to execute a deed of sale in favor of the plaintiff in accordance
with the contract.
Court of Appeals:
Affirmed the decision with modification.
Issue: Whether there can be a valid sale pursuant to the lease contract.
SUPREME COURT: No.
Ratio: An option is a preparatory contract in which one party grants to the other, for a fixed period and under
specified conditions, the power to decide, whether or not to enter into a principal contract. It binds the party who has
given the option, not to enter into the principal contract with any other person during the period designated, and,
within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide
to use the option. It is a separate agreement distinct from the contract which the parties may enter into upon the
consummation of the option.
In this case, Petitioner could not insist on buying the said property based on the price agreed upon the lease
agreement, even if his option to purchase it is recognized. On the other hand, SIHI could not take advantage of the
situation to increase the selling price of said property by nearly 90% of the original price. If the courts were to allow
SIHI to take advantage of the situation, the result would have been an injustice to petitioner, because SIHI would be
unjustly enriched at his expense. Courts of law, being also courts of equity, may not countenance such grossly unfair
results without doing violence to its solemn obligation to administer fair and equal justice for all.
TOPIC: Option Money/Option Contract and Earnest Money
Tuazon vs. Del Rosario, Dec. 8, 2010
Facts: Respondent Lourdes Q. Del Rosario-Suarez was the owner of a parcel of land in Quezon City. Petitioner
Roberto D. Tuazon and Lourdes executed a Contract of Lease over the land for a period of three years. During the
effectivity of the lease,Lourdes sent a letter to Roberto where she offered to sell to the latter subject parcel of land.
She pegged the price atP37,541,000.00 and gave him two years to decide on the offer. More than four months after
the expiration of the Contract of Lease, Lourdes sold subject parcel of land to the De Leons. The new owners
notified Roberto to vacate the premises. Roberto refused hence, the De Leons filed a complaint for Unlawful
Detainer against him.
MeTC:
The MeTC rendered a Decision ordering Roberto to vacate the property for non-payment of rentals and expiration of
the contract.
RTC;
The court declared the Deed of Absolute Sale made by Lourdes in favor of the De Leons as valid and binding. The
offer made by Lourdes to Roberto did not ripen into a contract to sell because the price offered by the former was not
acceptable to the latter. The offer made by Lourdes is no longer binding and effective at the time she decided to sell
the subject lot to the De Leons because the same was not accepted by Roberto.
Court of Appeals:
Affirmed the decision.
Issue: Whether there was a valid sale?
SUPREME COURT: No.
Ratio:
Option contract vs Right of First Refusal
An agreement in writing to give a person the 'option' to purchase lands within a given time at a named price is
neither a sale nor an agreement to sell. It
simply a contract by which the owner of property agrees with another person that he shall have the right to buy his
property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does
sell something; that is, the right or privilege to buy at the election or option of the other party. The second party gets
in praesenti, not lands, nor an agreement that he shall have lands, but he does get something of value; that is, the
right to call for and receive lands if he elects. The owner parts with his right to sell his lands, except to the second
party, for a limited period. The second party receives this right, or rather, from his point of view, he receives the right
to elect to buy.
On the other hand, In a right of first refusal, while the object might be made determinate, the exercise of the right,
however, would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation
with another but also on terms, including the price, that obviously are yet to be later firmed up.
This case involves an option contract and not a contract of a right of first refusal. An option contract is entirely
different and distinct from a right of first refusal in that in the former, the option granted to the offeree is for a fixed
period and at a determined price. It is clear that the offer embodies an option contract as it grants Roberto a fixed
period of only two years to buy the subject property at a price certain ofP37,541,000.00. It is undisputed that Roberto
did not accept the terms stated in the letter of Lourdes as he negotiated for a much lower price. Robertos act of
negotiating for a much lower price was a counter-offer and is therefore not an acceptance of the offer of Lourdes.
The counter-offer of Roberto for a much lower price was not accepted by Lourdes. There is therefore no contract that
was perfected between them with regard to the sale of subject property. Roberto, thus, does not have any right to
demand that the property be sold to him at the price for which it was sold to the De Leons neither does he have the
right to demand that said sale to the De Leons be annulled.
TOPIC: Option Money/Option Contract and Earnest Money
Villamor vs. CA, 202 SCRA 607
Facts: Reyes was the owner of a lot located at Caloocan City, as evidenced by TCT of the Register of Deeds of
Rizal. Reyes sold a portion of the lot (300sqm) to the Spouses Villamor. Earlier, Reyes borrowed money from the
spouses which amount was deducted from the total purchase price of the lot sold. The portion sold to the Villamor
spouses is now covered by a different TCT while the remaining portion which is still in the name of Reyes is covered
by a different TCT. Reyes executed a "Deed of Option" in favor of Villamor in which the remaining portion of the
lot would be sold to Villamor under the certain conditions. According to Macaria Reyes, when her husband, Roberto
Reyes, retired, they offered to repurchase the lot sold by them to the Villamor spouses but Marina Villamor refused
and reminded them instead that the Deed of Option in fact gave them the option to purchase the remaining portion of
the lot. The Villamors, on the other hand, claimed that they had expressed their desire to purchase the remaining
portion of the lot but the Reyes had been ignoring them. Thus, after conciliation proceedings in the barangay level
failed, they filed a complaint for specific performance against the Reyes.
is
Trial Court:
Favored petitioners.
Court of Appeals:
Reversed the decision of the lower court because the Deed of Option is void for lack of consideration.
Issue: Whether Deed of Option in this case was valid.
SUPREME COURT: No.
Ratio: An optional contract is a privilege existing in one person, for which he had paid a consideration and which
gives him the right to buy, for example, certain merchandise or certain specified property, from another person, if he
chooses, at any time within the agreed period at a fixed price.
The court a quo, rule that the Deed of Option was a valid written agreement between the parties. The law provides
that when the terms of an agreement have been reduced to writing it is to be considered as containing all such terms,
and therefore, there can be, between the parties and their successors in interest no evidence of their terms of the
agreement, other than the contents of the writing. ... (Section 7 Rule 130 Revised Rules of Court).
A sale must be for a price certain (Art. 1458). The respondent appellate court failed to give due consideration to the
evidence which shows that the Villamor spouses bough an adjacent lot from the brother of Macaria Reyes for only
P18.00 per square meter which the respondents Reyes did not rebut. Thus, expressed in terms of money, the
consideration for the deed of option is the difference between the purchase price of the portion of the lot in 1971
(P70.00 per sq.m.) and the prevailing reasonable price of the same lot in 1971. Whatever it is, (P25.00 or P18.00)
though not specifically stated in the deed of option, was ascertainable. Villamors allegedly paying P52.00 per square
meter for the option may, as opined by the appellate court, be improbable but improbabilities does not invalidate a
contract freely entered into by the parties.
The "deed of option" entered into by the parties in this case had unique features. Ordinarily, an optional contract is a
privilege existing in one person, for which he had paid a consideration and which gives him the right to buy, for
example, certain merchandise or certain specified property, from another person, if he chooses, at any time within
the agreed period at a fixed price. The first part of the deed covered the statement on the sale of the 300 square meter
portion of the lot to Spouses Villamor at the price of P70.00 per square meter "which was higher than the actual
reasonable prevailing value of the lands in that place at that time (of sale)." The second part stated that the only
reason why the Villamor spouses agreed to buy the said lot at a much higher price is because the vendor (Reyes) also
agreed to sell to the Villamors the other half-portion of 300 square meters of the land. Had the deed stopped there,
there would be no dispute that the deed is really an ordinary deed of option granting the Villamors the option to buy
the remaining 300 square meter-half portion of the lot in consideration for their having agreed to buy the other half
of the land for a much higher price. But, the "deed of option" went on and stated that the sale of the other half would
be made "whenever the need of such sale arises, either on our (Reyes) part or on the part of the Spouses Villamor. It
appears that while the option to buy was granted to the Villamors, the Reyes were likewise granted an option to sell.
In other words, it was not only the Villamors who were granted an option to buy for which they paid a consideration.
The Reyes as well were granted an option to sell should the need for such sale on their part arise.
The option offered by Reyes had been accepted by the Villamors, the promise, in the same document. The
acceptance of an offer to sell for a price certain created a bilateral contract to sell and buy and upon acceptance, the
offer, ipso facto assumes obligations of a vendee. Demandabilitiy may be exercised at any time after the execution of
the deed.
Since there may be no valid contract without a cause of consideration, the promissory is not bound by his promise
and may, accordingly withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the
nature of an offer to sell which, if accepted, results in a perfected contract of sale.
A contract of sale is, under Article 1475 of the Civil Code, "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 perform of contracts." Since there was, between the parties, a meeting of minds upon the object and the
price, there was already a perfected contract of sale. What was, however, left to be done was for either party to
demand from the other their respective undertakings under the contract. It may be demanded at any time either by the
private respondents, who may compel the petitioners to pay for the property or the petitioners, who may compel the
private respondents to deliver the property.
However, the Deed of Option did not provide for the period within which the parties may demand the performance
of their respective undertakings in the instrument. The parties could not have contemplated that the delivery of the
property and the payment thereof could be made indefinitely and render uncertain the status of the land. The failure
of either parties to demand performance of the obligation of the other for an unreasonable length of time renders the
contract ineffective.
Under Article 1144 (1) of the Civil Code, actions upon written contract must be brought within ten (10) years. The
Deed of Option was executed on November 11, 1971. The acceptance, as already mentioned, was also accepted in
the same instrument. The complaint in this case was filed by the petitioners 17 years from the time of the execution
of the contract. Hence, the right of action had prescribed.
It is of judicial notice that the price of real estate in Metro Manila is continuously on the rise. To allow the Villamors
to demand the delivery of the property 17 years after the execution of the deed at the price of only P70.00 per square
meter is inequitous. For reasons also of equity and in consideration of the fact that the Reyes have no other decent
place to live, the Court, in the exercise of its equity jurisdiction is not inclined to grant petitioners' prayer.
TOPIC: Option Money/Option Contract and Earnest Money
Bible Baptist Church vs. CA 444 SCRA 399
Facts: On June 7, 1985, petitioner Bible Baptist Church entered into a contract of lease with respondents Mr. & Mrs.
Elmer Tito Medina Villanueva who own the subject property located at No. 2436 Leon Guinto St., Malate, Manila.
Petitioner seeks to buy the leased premises from the spouses Villanueva, under the option given to them. Petitioners
claim that they (Baptist Church) agreed to advance the large amount needed for the rescue of the property but, in
exchange, it asked the Villanuevas to grant it a long term lease and an option to buy the property for P1.8 million.
However, the respondents did not agree saying that there is no separate consideration. In this hand, the petitioners
argue that there is a consideration the consideration supporting the option was their agreement to pay off the
Villanuevas P84,000 loan with the bank, thereby freeing the subject property from the mortgage encumbrance. That
they would not have agreed to advance such a large amount as it did to rescue the property from bank foreclosure
had it not been given an enforceable option to buy that went with the lease agreement. The Baptist Church states that
[t]rue, the Baptist Church did not pay a separate and specific sum of money to cover the option alone. But the
P84,000 it paid the Villanuevas in advance should be deemed consideration for the one contract they entered into the
lease with option to buy. Petitioners further insist that a consideration need not be a separate sum of money. They
posit that their act of advancing the money to rescue the property from mortgage and impending foreclosure should
be enough consideration to support the option. On the other hand, Respondents argue that the amount of P84,000 has
been fully exhausted and utilized by their occupation of the premises and there is no separate consideration to speak
of which could support the option.
Issue: Whether or not there is a separate consideration that would render the option contract valid and binding.
SUPREME COURT: NO. There is no separate consideration that would render the option contract valid and
binding.
Ratio: An option contract, to be valid and binding, needs to be supported by a separate consideration. The
consideration need not be monetary but could consist of other things or undertakings. However, if the consideration
is not monetary, these must be things or undertakings of value, in view of the onerous nature of the contract of
option. Furthermore, when a consideration for an option contract is not monetary, said consideration must be clearly
specified as such in the option contract or clause.
In this case, the option was not founded upon a separate and distinct consideration and that, hence, spouses
Villanuevas cannot be compelled to sell their property to petitioner Baptist Church. The option to buy the leased
premises was not binding upon the Villanuevas for non-compliance with Article 1479.
It found that said option was not supported by a consideration as "no money was ever really exchanged for and in
consideration of the option."
In addition, the CA determined that in the instant case, "the price for the object is not yet certain." Having found that
the option to buy granted to the petitioner Baptist Church was not founded upon a separate consideration, and hence,
not enforceable against respondents, this Court finds no need to discuss whether a price certain had been fixed as the
purchase price.
TOPIC: Option Contract: Separate Consideration
YAO KA SIN TRADING, owned and operated by YAO KA SIN, Petitioner vs.
HONORABLE COURT OF APPEALS and PRIME WHITE CEMENT CORPORATION,
represented by its President-Chairman, COSTANCIO B. MAGLANA, respondents.
FACTS: The root of this controversy is the undated letter offer of Constancio B. Maglana, President and Chairman
of the Board of the Prime White Cement Corporation (PWCC) to Yao Ka Sin Trading (YKS), described as a
business concern of single proprietorship, represented by its manager, Mr. Henry Yao. This letter is referred to as
Exhibit A dated and signed on June 7, 1973. This letter contains the terms and conditions of the contract between
PWCC and YKS; provided that this letter was subject to the approval of the Board of Directors of the former.
Twenty three (23) days after the signing, the Board of Directors of PWCC disapproved the same. The rejection is
evidenced by the following minutes (Exhibit 10): the 10,000 bags of white cement sold to Yao Ka Sin Trading is
sold not because of the alleged letter contract adhered to by them, but must be understood as a new and separate
contract, and has in no way to do with the letter-offer which they as consummated is by the resolution of the Board
of Directors of the PWCC totally disapproved and is unacceptable to the corporation. However, YKS denied having
received a copy of the letter of disapproval- the Exhibit 10.
After several exchange of letters, PWCC had delivered only 9,775 bags of white cement. YKS insisted on
the performance of the Exhibit A and informing that it is exercising on the terms therein but the PWCC upholding
that it committed only on the said 10,000 cements order.
YKS filed with the then Court of First Instance (now Regional Trial Court) a complaint for Specific
Performance with Damages against PWCC. The complaint was based on the Exhibit A and was docketed as Civil
Case No. 5064.
In its Answer with Counterclaim, PWCC denied under oath the material averments in the complaint and
alleged, among others, that: YKS has no legal personality to sue having no legal personality even by fiction
represent itself; Mr. Maglana, its President and Chairman, was lured into signing Exhibit A; such signing was
subject to the condition that Exhibit A be approved by the Board of Directors of PWCC, as corporate
commitments are made through it; the latter disapproved it, hence Exhibit A was never consummated and is not
enforceable against PWCC; it agreed to sell 10,000 bags of white cement, not under Exhibit A, but under a
separate contract prepared by the Board; and the rejection by the Board of Exhibit A was made known to YKS
through various letter sent to it, copies of which attached to the Answer as Annexes 1, 2, and 3.
During the trial, PWCC presented evidence to proved that Exhibit A is not binding upon it because Mr.
Maglana was not authorized to make the offer and sign the contract in behalf of the corporation. However, the RTC
ruled in favor of the petitioner and interpreted the provision of the By-Laws.
Both parties appealed the same to the Honorable Court of Appeals which reversed the decision of the then
Court of First Instance (now Regional Trial Court).
On the 15th day of April 1980, YKS filed the instant petition to the Supreme Court based on the four (4)
grounds stated on the petition. The Supreme Court ruled in favor of the defendant corporation, which is the Prime
White Cement Corporation or the (PWCC) and stated concurs with the decision of the Honorable Court of Appeals.
COURT OF FIRST INSTANCE (REGIONAL TRIAL COURT)
ISSUE: WHETHER OR NOT THE CONTRACT (EXHIBIT A) ENTERED BY THE PRESIDENT AND
CHAIRMAN OF THE BOARD (CONSTANCIO B. MAGLANA) IN BEHALF OF THE PRIME WHITE
CEMENT CORPORATION (PWCC) BINDS THE SAID CORPORATION.
RULING: Yes, the contract entered by the President and Chairman of the Board (Constancio B. Maglana) in behalf
of the Corporation binds the Prime White Cement Corporation. The Court of the First Instance (now Regional Trial
Court) ruled in favor of the petitioner. Disregarding the PWCCs theory, the court interpreted the provision of the
By-Laws- granting its Board of Directors the power to enter into such contract of any kind with any person through
the President, - to mean that the latter may enter into such contract or agreement at any time and that the same is not
subject to the ratification of the Board of Directors but subject only to the declared objects and purpose of the
corporation and existing laws. The trial court then concluded that it is obvious that it is not the whole membership
of the Board of Directors who actually enters into any contract with any person in the name and for and in behalf of
the corporation, but only its president. It is likewise crystal clear that this automatic representation of the Board by
the president is limited only by the declared objects and purpose of the corporation and existing provisions of law.
The trial court also interpreted the provision on the power of the president to operate and conduct the business of
the corporation according to the orders, directives or resolutions of the Board of Directors and according to his own
judgment and discretion whenever the same is not expressly limited by such orders, directives and resolutions, to
mean that the president can operate and conduct the business of the corporation according to his own judgment and
discretion as long as it is not expressly limited by the orders, directives or resolutions of the Board of Directors. The
trial court found no evidence that the Board had set a prior limitation upon the exercise of such judgment and
discretion. It further ruled that the By-Laws, does not require that Exhibit A be approved by the Board of
Directors. Finally, in the light of the Chairmans power to execute and sign for and in behalf of the corporation all
contracts or agreements which the corporation may enter into. It concluded that Mr. Maglana merely followed the
By-Laws as a president and chairman of the board.
The trial court ruled in favor of Yao Ka Sin Trading (YKS) and ordering the defendant to completed the
delivery of 45,000 bags of prime white cement at 94 lbs. net per bag at the price agreed, with a breakage allowance
of 4% and ordered the defendant to pay P50,000.00 as moral damages, P5,000.00 as exemplary damages, P3,000.00
as attorneys fees and the cost of the proceedings.
COURT OF APPEALS
ISSUE: WHETHER OR NOT THE CONTRACT (EXHIBIT A) ENTERED BY THE PRESIDENT AND
CHAIRMAN OF THE BOARD (CONSTANCIO B. MAGLANA) IN BEHALF OF THE PRIME WHITE
CEMENT CORPORATION (PWCC) BINDS THE SAID CORPORATION.
RULING: No, the contract entered by the President and Chairman of the Board (Constancio B. Maglana) in behalf
of the Corporation does not bind the Prime White Cement Corporation (PWCC). The Court of Appeals reversed the
decision of the Court of First Instance (now Regional Trial Court) and set aside. Before resolving the issue, it is
helpful to bring out some preliminary facts. The defendant corporation is supervised and principally financed by the
National Investment and Development Corporation (NIDC), a subsidiary investment of the Philippine National Bank
(PNB), with cash financial exposure of some P10,000,000.00. PNB is a government financial institution whose
Board is chairmaned by the Minister of National Defense. This fact is very material to the issue of whether
Defendant Corporations president can bind the corporation with his own act. The Court of Appeals also ruled that
for failure to deny under oath the following actionable documents in support of defendants counterclaim of which
the Exhibit A was totally disapproved by Defendant Corporations Board of Directors. The Court of Appeals ruled
that Maglanas signing letter-offer prepared for him in the Solid Bank was made clearly upon the condition that it
was subject to the approval of the Board of Directors of the defendant corporation. The court also found that theres
consistency because according to the Corporation Law, and the By-Laws of the defendant corporation, all corporate
commitments and business are conducted by, and contracts entered into through, the express authority of the Board
of Directors. Because of this instance the contract entered by Yao Ka Sin Trading (YKS) insofar as Defendant
Corporation is concerned, was an authorized contract. And because Maglana was not authorized by the Board of
Directors of the defendant corporation nor was his actuation ratified by the Board, the agreement is unenforceable.
Thus, the contract does not bind the corporation.
The Court of Appeals ruled in favor of the Prime White Cement Corporation (defendant corporation)
reversing the decision of the Court of First Instance (now Regional Trial Court) and set aside giving the Yao Ka Sin
Trading (plaintiff) dismissed cost and ordered to pay P25,000 exemplary damages, and P10,000 attorneys fees.
SUPREME COURT
ISSUE: WHETHER OR NOT THE CONTRACT (EXHIBIT A) ENTERED BY THE PRESIDENT AND
CHAIRMAN OF THE BOARD (CONSTANCIO B. MAGLANA) IN BEHALF OF THE PRIME WHITE
CEMENT CORPORATION (PWCC) BINDS THE SAID CORPORATION.
RULING: No, the contract entered by the President and Chairman of the Board (Constancio B. Maglana) in behalf
of the Corporation does not bind the Prime White Cement Corporation (PWCC). We note that the private corporation
has a general manager who, under its By-Laws has inter alia, the following powers: (a) to have the active and direct
management of the business and operation of the corporation, conducting the same accordingly to the order,
directives or resolutions of the Board of Directors or of the President. It goes beyond without saying then that Mr.
Maglana did not have a direct and active and in management of the business and operations of the corporation.
Besides, no evidence was adduced to show that Mr. Maglana had in the past, entered into contracts similar to that of
Exhibit A either with the petitioner or with other parties.
It was incumbent upon the petitioner to prove that indeed the private respondent had clothed Mr. Maglana
with the apparent power to execute Exhibit A or any similar contract. This could have been easily done by
evidence of similar acts executed either in its favor or in favor of the other parties. Petitioner miserably failed to do
that. Upon the other hand, private respondent (PWCC) evidence overwhelmingly shows that no contract can be
signed by the President without first being approved by the Board of Directors.
The Supreme Court affirms the decision of respondent Court of Appeals in C. A. G. R. No. 61072 R
promulgated on 21st day of December 1979. Cost against the petitioner.
Topic: Option Contract: Separate Consideration
PERCELINO DIAMANTE, petitioner, vs.
HON. COURT OF APPEALS and GERARDO DEYPALUBUS, respondents.
FACTS: A fishery lot, encompassing an area of 9.4 hectares and designated as Lot No. 518-A of the Cadastral
Survey of Dumangas, Iloilo, was previously covered by Fishpond Permit No. F-2021 issued in the name of Anecita
Dionio. Upon Anecita's death, her heirs, petitioner Diamante and Primitivo Dafeliz, inherited the property which
they later divided between themselves; petitioner got 4.4. hectares while Dafeliz got 5 hectares. It is the petitioner's
share that is the subject of the present controversy. Primitivo Dafeliz later sold his share to private respondent.
On 21 May 1959, petitioner sold to private respondent his leasehold rights over the property in question for
P8,000.00 with the right to repurchase the same within three (3) years from said date.
On 16 August 1960, private respondent filed an application with the Bureau of Fisheries, dated 12 July 1960, for a
fishpond permit and a fishpond lease agreement over the entire lot, submitting therewith the deeds of sale executed
by Dafeliz and the petitioner.
Pressed by urgent financial needs, petitioner, on 17 October 1960, sold all his remaining rights over the property in
question to the private respondent for P4,000.00.
On 25 October 1960, private respondent, with his wife's consent, executed in favor of the petitioner an Option to
Repurchase the property in question within ten (10) years from said date, with a ten-year grace period.
Private respondent submitted to the Bureau of Fisheries the definite deed of sale; he did not, however, submit the
Option to Repurchase.
Thereafter, on 2 August 1961, the Bureau of Fisheries issued to private respondent Fishpond Permit
On 11 December 1963, petitioner, contending that he has a valid twenty-year option to repurchase the subject
property, requested the Bureau of Fisheries to respondents permit insofar as the said property is concerned. On 18
December 1964, his letter-complaint was dismissed. Petitioner then sought a reconsideration of the dismissal; the
same was denied on 29 April 1965. His appeal to the Secretary of the DANR was likewise dismissed on 30 October
1968. Again, on 20 November 1968, petitioner sought for a reconsideration; this time, however, he was successful.
ISSUE: Was there a valid Option? No
RULING: It is settled by this Court that "an agreement to repurchase becomes a promise to sell when made after the
sale, because when the sale is made without such an 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 already of the object. In that case the vendor has not reserved to himself the right to repurchase."
Hence, the Option to Repurchase executed by private respondent in the present case, was merely a promise to sell,
which must be governed by Article 1479 of the Civil Code.
A copy of the so-called Option to Repurchase is neither attached to the records nor quoted in any of the pleadings of
the parties. This Court cannot, therefore, properly rule on whether the promise was accepted and a consideration
distinct from the price, supports the option. Undoubtedly, in the absence of either or both acceptance and separate
consideration, the promise to sell is not binding upon the promissor (private respondent).
A unilateral promise to buy or sell is a mere offer, which is not converted into a contract except at the moment it is
accepted. Acceptance is the act that gives life to a juridical obligation, because, before the promise is accepted, the
promissor may withdraw it at any time. Upon acceptance, however, a bilateral contract to sell and to buy is created,
and the offeree ipso facto assumes the obligations of a purchaser; the offeror, on the other hand, would be liable for
damages if he fails to deliver the thing he had offered for sale.
The contract of option is a separate and distinct contract from the contract which the parties may enter into upon the
consummation of the option, and a consideration for an optional contract is just as important as the consideration for
any other kind of contract. Thus, a distinction should be drawn between the consideration for the option to
repurchase, and the consideration for the contract of repurchase itself.
Even if the promise was accepted, private respondent was not bound thereby in the absence of a distinct
consideration.
TOPIC: Summary of the Ruling
ANG YU ASUNCION ET AL. VS. COURT OF APPEALS AND BUEN REALTY CORP.
FACTS: Petitioners Ang Yu Asuncion et. al. are lessees of residential and commercial spaces owned by the
Unjiengs. They have been leasing the property and possessing it since 1935 and have been paying rentals.
In 1986, the Unjiengs informed Petitioners Ang Yu Asuncion that the property was being sold and that Petitioners
were being given priority to acquire them (Right of First Refusal). They agreed on a price of P5M but they had not
yet agreed on the terms and conditions. Petitioners wrote to the Unjiengs twice, asking them to specify the terms and
conditions for the sale but received no reply. Later, the petitioners found out that the property was already about to
be sold, thus they instituted this case for Specific Performance [of the right of first refusal].
The Trial Court dismissed the case. The trial court also held that the Unjiengs offer to sell was never accepted by the
Petitioners for the reason that they did not agree upon the terms and conditions of the proposed sale, hence, there was
no contract of sale at all. Nonetheless, the lower court ruled that should the defendants subsequently offer their
property for sale at a price of P11-million or below, plaintiffs will have the right of first refusal.
The Court of Appeals affirmed the decision of the Trial Court.
In the meantime, in 1990, the property was sold to De Buen Realty, Private Respondent in this case. The title to the
property was transferred into the name of De Buen and demanded that the Petitioners vacate the premises.
Because of this, Petitioners filed a motion for execution of the CA judgement. At first, CA directed the Sheriff to
execute an order directing the Unjiengs to issue a Deed of Sale in the Petitioners favour and nullified the sale to De
Buen Realty. But then, the CA reversed itself when the Private Respondents Appealed.
ISSUES:
1. Whether or not the Contract of Sale is perfected by the grant of a Right of First Refusal.
2. Whether or not a Right of First Refusal may be enforced in an action for Specific Performance.
HELD:
1. No. A Right of First Refusal is not a Perfected Contract of Sale under Art. 1458 or an option under Par. 2
Art 1479 or an offer under Art. 1319. In a Right of First Refusal, only the object of the contract is
determinate. This means that no vinculum juris is created between the seller-offeror and the buyer-offeree.
2. No. Since a contractual relationship does not exist between the parties, a Right of First Refusal may not be
enforced through an action for specific performance. Its conduct is governed by the law on human relations
under Art. 19-21 of the Civil Code and not by contract law.

Therefore, the Supreme Court held that the CA could not have decreed at the time the execution of any deed of sale
between the Unjiengs and Petitioners.
Other Rules, Comments and Discussion:
This case is notable because it lays down the rules on options contracts and right of first refusal as well as promises
to buy and sell. First, the Supreme Court discussed the stages of the formation of a sales contract, these are:
1. Negotiation covers the period from the time the prospective contracting parties indicate interest in the
contract to the time the contract is concluded (perfected).
2. Perfection takes place upon the concurrence of the essential elements thereof. In a sales contract this is
governed by Art. 1458
3. Consummation begins when the parties perform their respective undertakings under the contract
culminating in the extinguishment thereof
Until the contract is perfected (No. 2), it cannot, as an independent source of obligation, serve as a binding juridical
relation. A sales contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver
and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees (Art 1458).
Under Art. 1458, there is no perfection of a sale under a Contract to Sell. A Contract to Sell is characterized as a
conditional sale and the breach of the suspensive condition will prevent the obligation to transfer title from acquiring
obligatory force.
Promises to Buy and Sell
Unconditional mutual promise to buy and sell As long as the object is made determinate and the price is fixed, can
be obligatory on the parties, and compliance therewith may accordingly be exacted. The Right of First Refusal falls
under this classification.
Accepted unilateral promise If it specifies the thing to be sold and the price to be paid and when coupled with a
valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract of
option. This contract is legally binding. (Par. 2 Art. 1458) Note however, that the option is a contract separate and
distinct from the contract of sale. Once the option is exercised before it is withdrawn, a bilateral promise to sell and
to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings.
Offers with a Period
Where a period is given to the offeree within which to accept the offer, the following rules generally govern:
1. If the period is not itself founded upon or supported by a consideration Offeror may withdraw offer at
any time before its acceptance (or knowledge of its acceptance). However, the right to withdraw must not
be exercised whimsically or arbitrarily otherwise it can give rise to damages under Art. 19 of the New
Civil Code
2. If period is founded on a separate consideration This is a perfected contract of option. Withdrawal of the
offer within the period of the option is deemed a breach of the contract of option (not the sale). If, in fact,
the optioner-offeror withdraws the offer before its acceptance (exercise of the option) by the optionee-
offeree, the latter may not sue for specific performance on the proposed contract (object of the option)
since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself
liable for damages for breach of the option.
3. Earnest money This is not an offer with a period. Earnest money is distinguished from the option
contract if the consideration given will be considered as a part of the purchase price of the object of the
sale. Earnest money is evidence of a perfected contract of sale. (Art. 1482)
Right of First Refusal
This is an innovative juridical relation because it is neither a perfected contract of sale under Art. 1458 nor an
option contract under par. 2 Art 1479. The object might be made determinate, the exercise of the right, however, is
dependent on the offerors eventual intention to enter into a binding juridical relation with another but also on terms
and conditions such as price. There is no juridical tie or vinculum juris.
Breach of the right cannot justify correspondingly an issuance of a writ of execution under a court judgement that
recognizes its existence, such as in Ang Yu Asuncion. An action for Specific Performance is not allowed under a
Right of First Refusal because doing so would negate the indispensable element of consensuality in the perfection of
contracts.
This right is not inconsequential because it gives right to an action for damages under Art. 19.
Other Acts that Wont Bind
Public advertisements or solicitations Construed as mere invitations to make offers and/or proposals.
Related Cases
The cases of Equatorial v. Mayfair and Paraaque Kings v. Court of Appeals held that if a sale happens in violation
of a Right of First Refusal where the buyer is aware of the existence of that right in favor of another (such as when it
is written in a lease contract), the sale may be rescinded and the seller may be forced to offer the property to the party
with the Right of First Refusal.
TOPIC: Summary of the Ruling
ROBERTO D. TUAZON, Petitioner, vs. LOURDES Q. DEL ROSARIO-SUAREZ
Respondent was the owner of a parcel of land, previously covered by Transfer Certificate of Title. Petitioner and
Lourdes executed a Contract of Lease over the abovementioned parcel of land for a period of three years. During the
effectivity of the lease, Lourdes sent a letter to Roberto where she offered to sell to the latter subject parcel of land.
She pegged the price and gave him two years to decide on the said offer.
Four months after the expiration of the Contract of Lease, Lourdes sold subject parcel of land to her only child,
Catalina Suarez-De Leon, her son-in-law Wilfredo De Leon, and her two grandsons, Miguel Luis S. De Leon and
Rommel S. De Leon (the De Leons), for a total consideration of only P2,750,000.00 as evidenced by a Deed of
Absolute Sale7 executed by the parties. TCT No. 1779868 was then issued by the Registry of Deeds of Quezon City
in the name of the De Leons.
The new owners through their attorney-in-fact, Guillerma S. Silva, notified Roberto to vacate the premises. Roberto
refused hence, the De Leons filed a complaint for Unlawful Detainer before the Metropolitan Trial Court (MeTC) of
Quezon City against him. On August 30, 2000, the MeTC rendered a Decision9 ordering Roberto to vacate the
property for non-payment of rentals and expiration of the contract.
Ruling of the Regional Trial Court
On November 8, 2000, while the ejectment case was on appeal, Roberto filed with the RTC of Quezon City a
Complaint10 for Annulment of Deed of Absolute Sale, Reconveyance, Damages and Application for Preliminary
Injunction against Lourdes and the De Leons. On November 13, 2000, Roberto filed a Notice of Lis Pendens11 with
the Registry of Deeds of Quezon City.
On January 8, 2001, respondents filed An Answer with Counterclaim12 praying that the Complaint be dismissed for
lack of cause of action. They claimed that the filing of such case was a mere leverage of Roberto against them
because of the favorable Decision issued by the MeTC in the ejectment case.
On September 17, 2001, the RTC issued an Order13 declaring Lourdes and the De Leons in default for their failure to
appear before the court for the second time despite notice. Upon a Motion for Reconsideration, 14 the trial court in an
Order15 dated October 19, 2001 set aside its Order of default.
After trial, the court a quo rendered a Decision declaring the Deed of Absolute Sale made by Lourdes in favor of the
De Leons as valid and binding. The offer made by Lourdes to Roberto did not ripen into a contract to sell because
the price offered by the former was not acceptable to the latter. The offer made by Lourdes is no longer binding and
effective at the time she decided to sell the subject lot to the De Leons because the same was not accepted by
Roberto. Thus, in a Decision dated November 18, 2002, the trial court dismissed the complaint. Its dispositive
portion reads:
WHEREFORE, premises considered, judgment is hereby rendered dismissing the above-entitled Complaint for lack
of merit, and ordering the Plaintiff to pay the Defendants, the following:
1. the amount of P30,000.00 as moral damages;
2. the amount of P30,000.00 as exemplary damages;
3. the amount of P30,000.00 as attorneys fees; and
4. cost of the litigation.
SO ORDERED.16
Ruling of the Court of Appeals
On May 30, 2005, the CA issued its Decision dismissing Robertos appeal and affirming the Decision of the RTC.
Hence, this Petition for Review on Certiorari filed by Roberto advancing the following arguments:
I.
The Trial Court and the Court of Appeals had decided that the "Right of First Refusal" exists only within the
parameters of an "Option to Buy", and did not exist when the property was sold later to a third person, under
favorable terms and conditions which the former buyer can meet.
II.
What is the status or sanctions of an appellee in the Court of Appeals who has not filed or failed to file an appellees
brief?17
Petitioners Arguments
Roberto claims that Lourdes violated his right to buy subject property under
the principle of "right of first refusal" by not giving him "notice" and the opportunity to buy the property under the
same terms and conditions or specifically based on the much lower price paid by the De Leons.
Roberto further contends that he is enforcing his "right of first refusal" based on Equatorial Realty Development, Inc.
v. Mayfair Theater, Inc.18 which is the leading case on the "right of first refusal."
Respondents Arguments
On the other hand, respondents posit that this case is not covered by the principle of "right of first refusal" but an
unaccepted unilateral promise to sell or, at best, a contract of option which was not perfected. The letter of Lourdes
to Roberto clearly embodies an option contract as it grants the latter only two years to exercise the option to buy the
subject property at a price certain of P37,541,000.00. As an option contract, the said letter would have been binding
upon Lourdes without need of any consideration, had Roberto accepted the offer. But in this case there was no
acceptance made neither was there a distinct consideration for the option contract.
Our Ruling
The petition is without merit.
This case involves an option contract and not a contract of a right of first refusal
In Beaumont v. Prieto,19 the nature of an option contract is explained thus:
In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following language:
A contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires the privilege of
buying from, or selling to, B certain securities or properties within a limited time at a specified price. (Story vs.
Salamon, 71 N. Y., 420.)
From Vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs. Leiser (24 Pac., 695; 10 Mont.,
5; 24 Am. St. Rep., 17) the following quotation has been taken:
An agreement in writing to give a person the option to purchase lands within a given time at a named price is
neither a sale nor an agreement to sell. It is simply a contract by which the owner of property agrees with
another person that he shall have the right to buy his property at a fixed price within a certain time. He does
not sell his land; he does not then agree to sell it; but he does sell something; that is, the right or privilege to buy at
the election or option of the other party. The second party gets in praesenti, not lands, nor an agreement that he shall
have lands, but he does get something of value; that is, the right to call for and receive lands if he elects. The owner
parts with his right to sell his lands, except to the second party, for a limited period. The second party receives this
right, or rather, from his point of view, he receives the right to elect to buy.
But the two definitions above cited refer to the contract of option, or, what amounts to the same thing, to the case
where there was cause or consideration for the obligation x x x. (Emphasis supplied.)
On the other hand, in Ang Yu Asuncion v. Court of Appeals,20 an elucidation on the "right of first refusal" was made
thus:
In the law on sales, the so-called right of first refusal is an innovative juridical relation. Needless to point out, it
cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first
refusal, understood in its normal concept, per se be brought within the purview of an option under the second
paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 of the same Code. An option or an
offer would require, among other things, a clear certainty on both the object and the cause or consideration of the
envisioned contract. In a right of first refusal, while the object might be made determinate, the exercise of the
right, however, would be dependent not only on the grantor's eventual intention to enter into a binding
juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed
up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations
governed not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and
inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on
human conduct.
Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach
cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its
existence, nor would it sanction an action for specific performance without thereby negating the indispensable
element of consensuality in the perfection of contracts. It is not to say, however, that the right of first refusal would
be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for instance, the
circumstances expressed in Article 19 of the Civil Code, can warrant a recovery for damages. (Emphasis supplied.)
From the foregoing, it is thus clear that an option contract is entirely different and distinct from a right of first refusal
in that in the former, the option granted to the offeree is for a fixed period and at a determined price. Lacking these
two essential requisites, what is involved is only a right of first refusal.
In this case, the controversy is whether the letter of Lourdes to Roberto dated January 2, 1995 involved an option
contract or a contract of a right of first refusal. In its entirety, the said letter-offer reads:
206 Valdes Street
Josefa Subd. Balibago
Angeles City 2009
January 2, 1995
Tuazon Const. Co.
986 Tandang Sora Quezon City
Dear Mr. Tuazon,
I received with great joy and happiness the big box of sweet grapes and ham, fit for a kings party. Thanks
very much.
I am getting very old (79 going 80 yrs. old) and wish to live in the U.S.A. with my only family. I need
money to buy a house and lot and a farm with a little cash to start.
I am offering you to buy my 1211 square meter at P37,541,000.00 you can pay me in dollars in the name
of my daughter. I never offered it to anyone. Please shoulder the expenses for the transfer. I wish the Lord
God will help you buy my lot easily and you will be very lucky forever in this place. You have all the
time to decide when you can, but not for 2 years or more.
I wish you long life, happiness, health, wealth and great fortune always!
I hope the Lord God will help you be the recipient of multi-billion projects aid from other countries.
Thank you,
Lourdes Q. del Rosario vda de Suarez
It is clear that the above letter embodies an option contract as it grants Roberto a fixed period of only two years to
buy the subject property at a price certain of P37,541,000.00. It being an option contract, the rules applicable are
found in Articles 1324 and 1479 of the Civil Code which provide:
Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any
time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration,
as something paid or promised.
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
if the promise is supported by a consideration distinct from the price.
It is clear from the provision of Article 1324 that there is a great difference between the effect of an option which is
without a consideration from one which is founded upon a consideration. If the option is without any consideration,
the offeror may withdraw his offer by communicating such withdrawal to the offeree at anytime before acceptance;
if it is founded upon a consideration, the offeror cannot withdraw his offer before the lapse of the period agreed
upon.
The second paragraph of Article 1479 declares that "an accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the
price." Sanchez v. Rigos21 provided an interpretation of the said second paragraph of Article 1479 in relation to
Article 1324. Thus:
There is no question that under Article 1479 of the new Civil Code "an option to sell," or "a promise to buy or to
sell," as used in said article, to be valid must be "supported by a consideration distinct from the price." This is clearly
inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is only binding if
supported by consideration. In other words, "an accepted unilateral promise can only have a binding effect if
supported by a consideration, which means that the option can still be withdrawn, even if accepted, if the same is not
supported by any consideration. Hence, it is not disputed that the option is without consideration. It can therefore be
withdrawn notwithstanding the acceptance made of it by appellee.
It is true that under Article 1324 of the new Civil Code, the general rule regarding offer and acceptance is that, when
the offerer gives to the offeree a certain period to accept, "the offer may be withdrawn at any time before acceptance"
except when the option is founded upon consideration, but this general rule must be interpreted as modified by the
provision of Article 1479 above referred to, which applies to "a promise to buy and sell" specifically. As already
stated, this rule requires that a promise to sell to be valid must be supported by a consideration distinct from the
price.
In Diamante v. Court of Appeals,22 this Court further declared that:
A unilateral promise to buy or sell is a mere offer, which is not converted into a contract except at the moment it is
accepted. Acceptance is the act that gives life to a juridical obligation, because, before the promise is accepted,
the promissor may withdraw it at any time. Upon acceptance, however, a bilateral contract to sell and to buy is
created, and the offeree ipso facto assumes the obligations of a purchaser; the offeror, on the other hand, would be
liable for damages if he fails to deliver the thing he had offered for sale.
xxxx
Even if the promise was accepted, private respondent was not bound thereby in the absence of a distinct
consideration. (Emphasis ours.)
In this case, it is undisputed that Roberto did not accept the terms stated in the letter of Lourdes as he negotiated for a
much lower price. Robertos act of negotiating for a much lower price was a counter-offer and is therefore not an
acceptance of the offer of Lourdes. Article 1319 of the Civil Code provides:
Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a
counter-offer. (Emphasis supplied.)
The counter-offer of Roberto for a much lower price was not accepted by Lourdes. There is therefore no contract that
was perfected between them with regard to the sale of subject property. Roberto, thus, does not have any right to
demand that the property be sold to him at the price for which it was sold to the De Leons neither does he have the
right to demand that said sale to the De Leons be annulled.
Equatorial Realty Development, Inc. v. Mayfair Theater, Inc. is not applicable here
It is the position of Roberto that the facts of this case and that of Equatorial are similar in nearly all aspects. Roberto
is a lessee of the property like Mayfair Theater in Equatorial. There was an offer made to Roberto by Lourdes during
the effectivity of the contract of lease which was also the case in Equatorial. There were negotiations as to the price
which did not bear fruit because Lourdes sold the property to the De Leons which was also the case in Equatorial
wherein Carmelo and Bauermann sold the property to Equatorial. The existence of the lease of the property is known
to the De Leons as they are related to Lourdes while in Equatorial, the lawyers of Equatorial studied the lease
contract of Mayfair over the property. The property in this case was sold by Lourdes to the De Leons at a much
lower price which is also the case in Equatorial where Carmelo and Bauerman sold to Equatorial at a lesser price. It
is Robertos conclusion that as in the case of Equatorial, there was a violation of his right of first refusal and hence
annulment or rescission of the Deed of Absolute Sale is the proper remedy.
Robertos reliance in Equatorial is misplaced. Despite his claims, the facts in Equatorial radically differ from the
facts of this case. Roberto overlooked the fact that in Equatorial, there was an express provision in the Contract of
Lease that (i)f the LESSOR should desire to sell the leased properties, the LESSEE shall be given 30-days
exclusive option to purchase the same.
There is no such similar provision in the Contract of Lease between Roberto and Lourdes. What is involved here is a
separate and distinct offer made by Lourdes through a letter dated January 2, 1995 wherein she is selling the leased
property to Roberto for a definite price and which gave the latter a definite period for acceptance. Roberto was not
given a right of first refusal. The letter-offer of Lourdes did not form part of the Lease Contract because it was made
more than six months after the commencement of the lease.
It is also very clear that in Equatorial, the property was sold within the lease period. In this case, the subject property
was sold not only after the expiration of the period provided in the letter-offer of Lourdes but also after the
effectivity of the Contract of Lease.
Moreover, even if the offer of Lourdes was accepted by Roberto, still the former is not bound thereby because of the
absence of a consideration distinct and separate from the price. The argument of Roberto that the separate
consideration was the liberality on the part of Lourdes cannot stand. A perusal of the letter-offer of Lourdes would
show that what drove her to offer the property to Roberto was her immediate need for funds as she was already very
old. Offering the property to Roberto was not an act of liberality on the part of Lourdes but was a simple matter of
convenience and practicality as he was the one most likely to buy the property at that time as he was then leasing the
same.
All told, the facts of the case, as found by the RTC and the CA, do not support Robertos claims that the letter of
Lourdes gave him a right of first refusal which is similar to the one given to Mayfair Theater in the case of
Equatorial. Therefore, there is no justification to annul the deed of sale validly entered into by Lourdes with the De
Leons.
What is the effect of the failure of Lourdes to file her appellees brief at the CA?
Lastly, Roberto argues that Lourdes should be sanctioned for her failure to file her appellees brief before the CA.
Certainly, the appellees failure to file her brief would not mean that the case would be automatically decided against
her. Under the circumstances, the prudent action on the part of the CA would be to deem Lourdes to have waived her
right to file her appellees brief. De Leon v. Court of Appeals,23 is instructive when this Court decreed:
On the second issue, we hold that the Court of Appeals did not commit grave abuse of discretion in considering the
appeal submitted for decision. The proper remedy in case of denial of the motion to dismiss is to file the appellees
brief and proceed with the appeal. Instead, petitioner opted to file a motion for reconsideration which, unfortunately,
was pro forma. All the grounds raised therein have been discussed in the first resolution of the respondent Court of
Appeals. There is no new ground raised that might warrant reversal of the resolution. A cursory perusal of the
motion would readily show that it was a near verbatim repetition of the grounds stated in the motion to dismiss;
hence, the filing of the motion for reconsideration did not suspend the period for filing the appellees brief.
Petitioner was therefore properly deemed to have waived his right to file appellees brief. (Emphasis
supplied.)lawphi1
In the above cited case, De Leon was the plaintiff in a Complaint for a sum of money in the RTC. He obtained a
favorable judgment and so defendant went to the CA. The appeal of defendant-appellant was taken cognizance of by
the CA but De Leon filed a Motion to Dismiss the Appeal with Motion to Suspend Period to file Appellees Brief.
The CA denied the Motion to Dismiss. De Leon filed a Motion for Reconsideration which actually did not suspend
the period to file the appellees brief. De Leon therefore failed to file his brief within the period specified by the rules
and hence he was deemed by the CA to have waived his right to file appellees brief.
The failure of the appellee to file his brief would not result to the rendition of a decision favorable to the appellant.
The former is considered only to have waived his right to file the Appellees Brief. The CA has the jurisdiction to
resolve the case based on the Appellants Brief and the records of the case forwarded by the RTC. The appeal is
therefore considered submitted for decision and the CA properly acted on it.
WHEREFORE, the instant petition for review on certiorari is DENIED. The assailed Decision of the Court of
Appeals in CA-G.R. CV No. 78870, which affirmed the Decision dated November 18, 2002 of the Regional Trial
Court, Branch 101, Quezon City in Civil Case No. Q-00-42338 is AFFIRMED.
SO ORDERED.
TOPIC: Right of First Refusal
EQUATORIAL V. MAYFAIR
FACTS: Carmelo & Bauermann, Inc. owned a land, together with two 2-storey buildings at Claro M. Recto Avenue,
Manila, and covered by TCT No. 18529.
On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc. fpr 20 years. The lease covered
a portion of the second floor and mezzanine of a two-storey building with about 1,610 square meters of floor area,
which respondent used as Maxim Theater.
Two years later, on March 31, 1969, Mayfair entered into a second Lease with Carmelo for another portion of the
latters property this time, a part of the second floor of the two-storey building, and two store spaces on the ground
floor. In that space, Mayfair put up another movie house known as Miramar Theater. The Contract of Lease was
likewise for a period of 20 years.
Both leases contained a clause giving Mayfair a right of first refusal to purchase the subject properties. Sadly, on
July 30, 1978 - within the 20-year-lease term -- the subject properties were sold by Carmelo to Equatorial Realty transferred from the vendor to the vendee. This right is transferred, not by contract alone, but by tradition or
Development, Inc. for eleven million smackers, without their first being offered to Mayfair. delivery. There is delivery if and when the thing sold is placed in the control and possession of the vendee.

As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint before the Regional Trial
Court of Manila for the rescission of the Deed of Absolute Sale between Carmelo and Equatorial, specific While execution of a public instrument of sale is recognized by law as equivalent to the delivery of the thing sold,
performance, and damages. RTC decided for Carmelo and Equatorial. such constructive or symbolic delivery is merely presumptive. It is nullified by the failure of the vendee to take
actual possession of the land sold.
CA reversed and ruled for Mayfair. The SC denied a petition questioning the CA decision. What happened is that the
contract did get rescinded, Equatorial got its money back and asserted that Mayfair have the right to purchase the lots
for 11 million bucks.
For property to be delivered, we need two things. Delivery of property or title, and transfer of control or custody to
Decision became final and executory, so Mayfair deposited with the clerk the 11M (less 847grand withholding) the buyer.
payment for the properties (Carmelo somehow disappeared).

Meanwhile, on Sept 18, 1997, barely five months after Mayfair submitted its Motion for Execution, Equatorial Possession was never acquired by the petitioner. It therefore had no rights to rent.
demanded from Mayfair back rentals and reasonable compensation for the Mayfairs continued use of the subject
premises after its lease contracts expired. Remember that Mayfair was still occupying the premises during all this.

ISSUE: Whether Paragraph 8 constitutes an option contract clause or a right of first refusal
TOPIC: Right of First Refusal
HELD: SC ruled in favor of Mayfair ordering rescission of the deed of sale and granting him right of first refusal to
buy the property at P11,300,000. The issues were held as follows: PARANAQUE KINGS VS. CA

RIGHT OF FIRST REFUSAL.

FACTS: PR Catalina L. Santos is the owner of 8 parcels of land located at Paraaque, Metro Manila.

The SC agreed with the CAs ruling that Paragraph 8 cannot constitute an option clause (covered in Article 1324 &
November 28, 1977: a certain Frederick Chua leased the subject property from defendant Catalina L. Santos, the said
1479 of the Civil Code) for the lack of definite purchasing price in the agreement. Furthermore, the SC ruled that the
lease was registered in the Register of Deeds.
stipulation in question was created to manifest a reciprocal obligation to guard the interest of Mayfair in case of sale
of the property: (1) to give him the option to purchase the property or (2)to ensure that purchaser of the property
shall recognize the lease agreement earlier made. As such, Paragraph 8 is considered a right of first refusal February 12, 1979: Frederick Chua assigned all his rights and interest and participation in the leased property to Lee
Ching Bing, by virtue of a deed of assignment and with the conformity of defendant Santos, the said assignment was
also registered.

August 6, 1979: Lee Ching Bing also assigned all his rights and interest in the leased property to Paraaque Kings
Nor right of ownership was transferred from Carmelo to Equatorial since there was failure to deliver the property to Enterprises, Incorporated by virtue of a deed of assignment and with the conformity of defendant Santos. Their
the buyer. Compound this with the fact that the sale was even rescinded. contract provided that:

"9. That in case the properties subject of the lease agreement are sold or encumbered, Lessors shall impose as a
The court went on to assert that rent is a civil fruit that belonged to the owner of the property producing it by right of condition that the buyer or mortgagee thereof shall recognize and be bound by all the terms and conditions of this
accession. Hence, the rentals that fell due from the time of the perfection of the sale to petitioner until its rescission lease agreement and shall respect this Contract of Lease as if they are the LESSORS thereof and in case of sale,
by final judgment should belong to the owner of the property during that period. LESSEE shall have the first option or priority to buy the properties subject of the lease;"

September 21, 1988: Catalina Santos sold the eight parcels of land subject of the lease to defendant David
We remember from SALES that in a contract of sale, one of the contracting parties obligates himself to transfer Raymundo for a consideration of P5,000,000.
ownership of and to deliver a determinate thing and the other to pay therefor a price certain in money or its
equivalent.
Upon learning of this fact, the representative of Paranaque King wrote a letter to defendant Santos, requesting her to
rectify the error and consequently realizing the error, she had it reconveyed to her for the same consideration of
P5M.
Ownership of the thing sold is a real right, which the buyer acquires only upon delivery of the thing to him in any of
the ways specified in articles 1497 to 1501, or in any other manner signifying an agreement that the possession is
Only 2 days after Catalina Santos sold her properties did she reply to Paranaque Kings letter saying period has
lapsed.
July 6, 1989: counsel for defendant Santos informed the petitioners Paranaque Kings that the new owner is
RAYMUNDO.
From the preceding facts, it is clear that the sale was simulated and that there was a collusion between the
respondents Santos and Raymundo in the sales of the leased properties (defendants SANTOS and RAYMUNDO
have the same counsel who represented both of them in their exchange of communication with PKs counsel, a fact
that led to the conclusion that a collusion exist between them, among others)
Petitioner Paranaque demanded from the defendants to rectify their unlawful acts that they committed, but
defendants refused and failed to comply with plaintiffs just and valid demands.
RTC issued the order dismissing the complaint for lack of a valid cause of action. CA affirmed in toto.
ISSUE: Is such right of first refusal enforceable by an action for specific performance? YES
(WON the complaint filed by Paranaque Kings states a valid cause of action. YES)
HELD:
Paranaque Kings was granted a first option or priority to purchase the subject property (Based on the Par. 9
of the Lease Contract)
A careful examination of the complaint filed by Paranaque Kings reveals that it sufficiently alleges an actionable
contractual breach on the part of private respondents.
Under paragraph 9 of the contract of lease between respondent Santos and petitioner, the latter was granted the "first
option or priority" to purchase the leased properties in case Santos decided to sell. If Santos never decided to sell at
all, there can never be a breach, much less an enforcement of such "right."
But on September 21, 1988, Santos sold said properties to Respondent Raymundo without first offering these to
petitioner. Santos indeed realized her error, since she repurchased the properties after petitioner complained.
Thereafter, she offered to sell the properties to petitioner for P15 million, which petitioner, however, rejected
because of the "ridiculous" price. But Santos again appeared to have violated the same provision of the lease contract
when she finally resold the properties to respondent Raymundo for only P9 million without first offering them to
petitioner at such price. Whether there was actual breach which entitled petitioner to damages and/or other just or
equitable relief, is a question which can better be resolved after trial on the merits where each party can present
evidence to prove their respective allegations and defenses.
The basis of the right of first refusal must be the current offer to sell of the seller or offer to purchase of any
prospective buyer.
Only after the optionee fails to exercise its right of first priority under the same terms and within the period
contemplated, could the owner validly offer to sell the property to a third person, again, under the same terms as
offered to the optionee.
The contention of Raymundo that he is not a privy to the contract is untenable
With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being the lessor
nor the lessee referred to therein, he could thus not have violated its provisions, but he is nevertheless a proper party.
Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue of his purchase, he assumed all the
obligations of the lessor under the lease contract. Moreover, he received benefits in the form of rental payments.
Furthermore, the complaint, as well as the petition, prayed for the annulment of the sale of the properties to him.
Both pleadings also alleged collusion between him and respondent Santos which defeated the exercise by petitioner
of its right of first refusal.
In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not indispensable,
party to the case. A favorable judgment for the petitioner will necessarily affect the rights of respondent Raymundo
as the buyer of the property over which petitioner would like to assert its right of first option to buy.
Deed of Assignment included the option to purchase
The provisions of the deeds of assignment with regard to matters assigned were very clear. Under the first
assignment between Frederick Chua as assignor and Lee Ching Bing as assignee, it was expressly stated that:
. . . . the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein ASSIGNEE, all his rights, interest and
participation over said premises afore-described, . . . .
And under the subsequent assignment executed between Lee Ching Bing as assignor and the petitioner, represented
by its Vice President Vicenta Lo Chiong, as assignee, it was likewise expressly stipulated that;
. . . . the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and participation over said leased
premises, . . . .
One of such rights included in the contract of lease and, therefore, in the assignments of rights was the lessee's right
of first option or priority to buy the properties subject of the lease, as provided in paragraph 9 of the assigned lease
contract. The deed of assignment need not be very specific as to which rights and obligations were passed on to the
assignee. It is understood in the general provision aforequoted that all specific rights and obligations contained in the
contract of lease are those referred to as being assigned. Needless to state, respondent Santos gave her unqualified
conformity to both assignments of rights.
Ruling: WHEREFORE, the petition is GRANTED. The assailed decisions of the trial court and Court of Appeals are
hereby REVERSED and SET ASIDE. The case is REMANDED to the Regional Trial Court of Makati for further
proceedings.
Topic: Right of First Refusal
PUP vs. GOLDEN HORIZON
FACTS: National Development Company (NDC) had in its disposal a 10 hectare property, commonly called as
NDC Compound, located along Pureza St., Sta. Mesa, Manila.
September 7, 1977: NDC entered into a Contract of Lease with Golden Horizon Realty Corporation (GHRC) over a
portion of the NDC Compound for a period of ten years, renewable for another ten years with mutual consent of the
parties.
May 4, 1978: a second Contract of Lease was executed between NDC and GHRC. In addition, GHRC as lessee was
granted the option to purchase the area leased, the price to be negotiated and determined at the time the option to
purchase is exercised.
Sometime after September 1988, GHRC discovered that NDC had decided to secretly dispose the property to a third
party.
In the meantime, then President Corazon C. Aquino issued Memorandum Order No. 214 dated January 6, 1989,
ordering the transfer of the whole NDC Compound to the National Government, which in turn would convey the said
property in favor of PUP at acquisition cost.
The order of conveyance of the 10.31-hectare property would automatically result in the cancellation of NDCs total
obligation in favor of the National Government in the amount of P57,193,201.64.
PUP demanded that GHRC vacate the premises, insisting that the latters lease contract had already expired. Its
demand letter unheeded by GHRC, PUP filed an ejectment case. GHRC argued that Memorandum Order No. 214 is
a nullity.
RTC rendered its decision upholding the right of first refusal granted to GHRC under its lease contract with NDC
and ordering PUP to reconvey the said portion of the property in favor of GHRC. CA affirmed the RTC ruling.
ISSUE: WON the option to purchase the portion leased to GHRC was violated by the sale of the NDC Compound in
favor of PUP pursuant to Memorandum Order No. 214. YES
HELD: The contract between NDC and GHRC contained an option to purchase in favor to the lessee
The second lease contract contained the following provision:
III. It is mutually agreed by the parties that this Contract of Lease shall be in full force and effect for a period of ten
(10) years counted from the effectivity of the payment of rental as provided under sub-paragraph (b) of Article I,
with option to renew for another ten (10) years with the mutual consent of both parties. In no case should the rentals
be increased by more than 100% of the original amount fixed.
Lessee shall also have the option to purchase the area leased, the price to be negotiated and determined at the time
the option to purchase is exercised.
Option Contract vs. Right of First Refusal
An option is a contract by which the owner of the property agrees with another person that the latter shall have the
right to buy the formers property at a fixed price within a certain time. It is a condition offered or contract by which
the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a
certain time, or under, or in compliance with certain terms and conditions; or which gives to the owner of the
property the right to sell or demand a sale. It binds the party, who has given the option, not to enter into the principal
contract with any other person during the period designated, and, within that period, to enter into such contract with
the one to whom the option was granted, if the latter should decide to use the option.
Upon the other hand, a right of first refusal is a contractual grant, not of the sale of a property, but of the first priority
to buy the property in the event the owner sells the same. As distinguished from an option contract, in a right of first
refusal, while the object might be made determinate, the exercise of the right of first refusal would be dependent not
only on the owners eventual intention to enter into a binding juridical relation with another but also on terms,
including the price, that are yet to be firmed up.
The contract between the parties involve a right of first refusal
As the option to purchase clause in the second lease contract has no definite period within which the leased premises
will be offered for sale to respondent lessee and the price is made subject to negotiation and determined only at the
time the option to buy is exercised, it is obviously a mere right of refusal, usually inserted in lease contracts to give
the lessee the first crack to buy the property in case the lessor decides to sell the same.
When a lease contract contains a right of first refusal, the lessor has the legal duty to the lessee not to sell the leased
property to anyone at any price until after the lessor has made an offer to sell the property to the lessee and the lessee
has failed to accept it. Only after the lessee has failed to exercise his right of first priority could the lessor sell the
property to other buyers under the same terms and conditions offered to the lessee, or under terms and conditions
more favorable to the lessor.
Respondent GHRC thus timely exercised its option to purchase on August 12, 1988 and NDC violated the
right of first refusal
However, considering that NDC had been negotiating through the National Government for the sale of the property
in favor of PUP as early as July 15, 1988 without first offering to sell it to respondent and even when respondent
communicated its desire to exercise the option to purchase granted to it under the lease contract, it is clear that NDC
violated respondents right of first refusal. Under the premises, the matter of the right of refusal not having been
carried over to the impliedly renewed month-to-month lease after the expiration of the second lease contract on
October 21, 1988 becomes irrelevant since at the time of the negotiations of the sale to a third party, petitioner PUP,
respondents right of first refusal was still subsisting.
Indeed, basic is the rule that a party to a contract cannot unilaterally withdraw a right of first refusal that
stands upon valuable consideration
We have categorically ruled that it is not correct to say that there is no consideration for the grant of the right of first
refusal if such grant is embodied in the same contract of lease. Since the stipulation forms part of the entire lease
contract, the consideration for the lease includes the consideration for the grant of the right of first refusal. In
entering into the contract, the lessee is in effect stating that it consents to lease the premises and to pay the price
agreed upon provided the lessor also consents that, should it sell the leased property, then, the lessee shall be given
the right to match the offered purchase price and to buy the property at that price.
The true value of the land at the time of the sale to PUP was P1,500
GHRC, which did not offer any amount to petitioner NDC, and neither disputed the P1,500.00 per square meter
actual value of NDCs property at that time it was sold to PUP at P554.74 per square meter, as duly considered by
this Court in the Firestone case, should be bound by such determination. Accordingly, the price at which the leased
premises should be sold to respondent in the exercise of its right of first refusal under the lease contract with
petitioner NDC, which was pegged by the RTC at P554.74 per square meter, should be adjusted to P1,500.00 per
square meter, which more accurately reflects its true value at that time of the sale in favor of petitioner PUP.
RULING: RTC and CA ruling affirmed with modification: the price to be paid by respondent Golden Horizon Realty
Corporation for the leased portion of the NDC Compound under Lease Contract Nos. C-33-77 and C-12-78 is hereby
increased to P1,500.00 per square meter.
Topic: Earnest Money
SPOUSES DOROMAL SR. VS CA
FACTS: Lot 3504 of the cadastral survey of Iloilo, situated in the poblacion of La Paz, one of its districts, with an
area of a little more than 2-1/2 hectares was originally decreed in the name of the late Justice Antonio Horilleno, in
1916, under Original Certificate of Title No. 1314, Exh. A
But before he died, he executed a last will and testament attesting to the fact that it was a co-ownership between
himself and his brothers and sisters,
The co-owners were: beside 1. Justice Horilleno (daughter Mary as heir), 2. Luis,3. Soledad, 4. Fe, 5. Rosita, 6.
Carlos and 7. Esperanza,' all surnamed Horilleno, and since Esperanza had already died, she was succeeded by her
only daughter and heir herein plaintiff, Filomena Javellana, in the proportion of 1/7 undivided ownership each;
Even though their right had not as yet been annotated in the title, the co-owners led by Carlos, had wanted to sell
their shares, or if possible if plaintiff Filomena Javellana were agreeable, wanted to sell the entire property, and they
hired an acquaintance Cresencia Harder, to look for buyers, and the latter came to interest defendants, the father and
son, named Ramon Doromal, Sr. and Jr., and
In preparation for the execution of the sale, since the brothers and sisters Horilleno were scattered in various parts of
the country, 1. Carlos in Ilocos Sur, 2. Mary in Baguio, 3. Soledad and 4. Fe, in Mandaluyong, Rizal, and 5. Rosita
in Basilan City, they all executed various powers of attorney in favor of their niece, Mary H. Jimenez
They also caused preparation of a power of attorney of identical tenor for signature by plaintiff, Filomena Javellana,
and sent it with a letter of Carlos, dated 18 January, 1968
Carlos informed Filomina that the price was P4.00 a square meter,-although it now turns out according to Exh. 3 that
as early as 22 October, 1967, Carlos had received in check as earnest money from defendant Ramon Doromal, Jr.,
the sum of P5,000.00 and the price therein agreed upon was five (P5.00) pesos a square meter
In another letter also of Carlos to Plaintiff Filomina in 5 November, 1967, Exh. 6, he had told her that the Doromals
had given the earnest money of P5,000.00 at P6.00 a square meter
At any rate, Plaintiff Filomina not being agreeable, did not sign the power of attorney, and the rest of the co-owners
went ahead with their sale of their 6/7, Carlos first seeing to it that the deed of sale by their common attorney in fact,
Mary H. Jimenez be signed and ratified as it was signed and ratified in Candon, Ilocos Sur, on 15 January, 1968,
Exh; 2, then brought to Iloilo by Carlos in the same month,
And because the Register of Deeds of Iloilo refused to register right away, since the original registered owner,
Justice Antonio Horilleno was already dead, Carlos had to ask as he did, hire Atty. Teotimo Arandela to file a
petition within the cadastral case, on 26 February, 1968, for the purpose, after which Carlos returned to Luzon, and
after compliance with the requisites of publication, hearing and notice, the petition was approved,
On 29 April, 1968, Carlos already back in Iloilo went to the Register of Deeds and caused the registration of the
order of the cadastral court approving the issuance of a new title in the name of the co-owners, as well as of the deed
of sale to the Doromals,
As a result of which on that same date, a new title was issued TCT No. 23152, in the name of the Horillenos to 6/7
and plaintiff Filomena Javellana to 1/7,
The Doromals paid unto Carlos by check, the sum of P97,000,00 of Chartered Bank which was later substituted by
check of Phil. National Bank, because there was no Chartered Bank Branch in Ilocos Sur, but besides this amount
paid in check, the Doromals according to their evidence still paid an additional amount in cash of P18,250.00 since
the agreed price was P5.00 a square meter and thus was consummated the transaction.
On 10 June, 1968, there came to the residence of the Doromals in Dumangas, Iloilo, plaintiff Filomenas lawyer,
Atty. Arturo H. Villanueva, bringing with him her letter of that date, making a formal offer to repurchase or redeem
the 6/7 undivided share in Lot 3504 for P30,000 in cash which will be delivered as soon as the contract of sale is
executed in favor of Filomena.
The Doromals were aghast, and refused
The next day, 11 June, 1968, plaintiff Filomena filed this case, and in the trial, thru oral and documentary proofs,
sought to show that as co-owner, she had the right to redeem at the price stated in the deed of sale of P30,000.00
But defendants Sps Doromals in answer, and in their evidence, oral and documentary sought to show that plaintiff
had no more right to redeem, and that if ever she should have, that it should be at the true and real price paid by them
which amounts to P115,250.00
Trial judge : plaintiff had no more right, to redeem, because 'Plaintiff was informed of the intended sale of the 6/7
share belonging to the Horillenos.'
Court of Appeals reversed the trial court's decision and held that although respondent Filomena Javellana was
informed of her coowners' Proposal to sell the land in question to petitioners she was, however, "never notified...
least of all, in writing", of the actual execution and registration of the corresponding deed of sale, hence, said
respondent's right to redeem had not yet expired at the time she made her offer for that purpose thru her letter of June
10, 1968 delivered to petitioners on even date. The intermediate court further held that the redemption price to be
paid by respondent should be that stated in the deed of sale which is P30,000 notwithstanding that the preponderance
of the evidence proves that the actual price paid by petitioners was P115,250.
ISSUE: WON Filomenas right to redeem had expired?
HELD: NO. There is No showing that Filomena was notified.
The letters sent by Carlos Horilleno to respondent and dated January 18, 1968, Exhibit 7, and November 5, 1967,
Exhibit 6, constituted the required notice in writing from which the 30-day day period fixed in said provision should
be computed. But to start with, there is no showing that said letters were in fact received by respondent
Filomena and when they were actually received. Besides, petitioners do not pinpoint which of these two letters,
their dates being more than two months apart, is the required notice. In any event, as found by the appellate court,
neither of said letters referred to a consummated sale
It cannot be said that the Court of Appeals erred in holding that the letters aforementioned sufficed to comply with
the requirement of notice of a sale by co-owners under Article 1623 of the Civil Code. We are of the considered
opinion and so hold that for purposes of the co-owner's right of redemption granted by Article 1620 of the Civil
Code, the notice in writing which Article 1623 requires to be made to the other co-owners and from receipt of which
the 30-day period to redeem should be counted is a notice not only of a perfected sale but of the actual execution and
delivery of the deed of sale. This is implied from the latter portion of Article 1623 which requires that before a
register of deeds can record a sale by a co-owner, there must be presented to him, an affidavit to the effect that the
notice of the sale had been sent in writing to the other co-owners. A sale may not be presented to the register of
deeds for registration unless it be in the form of a duly executed public instrument.
RATIO:
Petitioners do not question respondent's right to redeem, she being admittedly a 1/7 co-owner of the property in
dispute. The thrust of their first assignment of error is that for purposes of Article 1623 of the Civil Code which
provides that:
"ART. 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty days from the
notice in writing by the prospective vendor, or by the vendor, as the case may be. The deed of sale shall not be
recorded in the Registry of Property, unless accompanied by an affidavit of the vendor that he has given written
notice thereof to all possible redemptioners.
The right of redemption of co-owners excludes that of adjoining owners."
while the letters relied upon by petitioners could convey the idea that more or less some kind of consensus
had been arrived at among the other Homeowners to sell the property in dispute to petitioners, it cannot be
said definitely that such a sale had even been actually perfected. The fact alone that in the later letter of
January 18, 1968 the price indicated was P4.00 per square meter while in that of November 5, 1967, what
was stated was P5.00 per square meter negatives the possibility that a "price definite" had already been
agreed upon.
While 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 Article 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 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.
the law prefers that all the terms and conditions of the sale should be definite and in writing. As aptly
observed by Justice Gatmaitan in the decision under review, Article 1619 of the Civil Code bestows unto a
co-owner the right to redeem and "to be subrogated under the same terms and conditions stipulated in the
contract", and to avoid any controversy as to the terms and conditions under which the right to redeem may
be exercised, it is beat that the period therefor should not be deemed to have commenced unless the notice
of the disposition is made after the formal deed of disposal has been duly executed. And it being beyond
dispute that respondent herein has never been notified in writing of the execution of the deed of sale by
which petitioners acquired the subject property, it necessarily follows that her tender to redeem the same
made on June 10, 1968 was well within the period prescribed by law. Indeed, it is immaterial when she
might have actually come to know about said deed, it appearing she has never been shown a copy thereof
through a written communication by either any of the petitionerspurchasers or any of her co-owners-
vendees. (Cornejo et al. vs. CA et al., 16 SCRA 775.)
Other issue: REDEMPTION PRICE
from the decision of the Court of Appeals, We gather that there is "decisive preponderance of evidence" establishing
"that the price paid by defendants was not that stated in the document, Exhibit 2, of P30,000 but much more, at least
P97,000, according to the check if not a total of P115,250.00 because another amount in cash of P18,250 was paid
afterwards."
the contention of petitioners here that considering said finding of fact of the intermediate court, it erred in holding
nevertheless that "the redemption price should be that stated in the deed of sale."
Again, petitioners' contention cannot be sustained.
it is impossible for the Supreme Court to sanction petitioners' pragmatic but immoral posture. Being patently
violative of public policy and injurious to public interest, the seemingly wide practice of understating
considerations of transactions for the purpose of evading taxes and fees due to the government must be
condemned and all parties guilty thereof must be made to suffer the consequences of their ill-advised
agreement to defraud the state.
Verily, the trial court fell short of its devotion and loyalty to the Republic in officially giving its stamp of approval
to the stand of petitioners and even berating respondent Javellana as wanting to enrich herself "at the expense of her
own blood relatives who are her aunts, uncles and cousins."
On the contrary. said "blood relatives" should have been sternly told, as We here hold, that they are in pari-delicto
with petitioners in committing tax evasion and should not receive any consideration from any court in respect to the
money paid for the sale in dispute. Their situation is similar to that of parties to an illegal contract.
Of course, the Court of Appeals was also eminently correct in its considerations supporting the conclusion that the
redemption in controversy should be only for the price stipulated in the deed, regardless of what might have been
actually paid by petitioners.
Dispositive: WHEREFORE the decision of the Court of Appeals is affirmed, with costs against Petitioners.
Topic: Earnest Money
SAN MIGUEL PROPERTIES VS. SPS. HUANG
FACTS: San Miguel Properties is engaged in the purchase and sale of real properties, of which include two parcels
of land. These properties were offered for sale at P52,140,000.00. Such offer was made to Atty. Dauz on behalf of
Sps. Huang. Atty. Dauz wrote San Miguel informing the respondents interest to buy the property and enclosed
therein a check (P1,000,000.00) as earnest deposit subject to certain conditions, 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. Sobrecarey, San Miguel Properties VP
indicated his conformity to the offer; signed the letter; and accepted the earnest deposit. By agreement of the parties,
they agreed that respondents will be given 6 months within which to pay. Upon failure of respondents to pay despite
the extension of time given, petitioner through its Pres & CEO Gonzales, wrote Atty. Dauz, that they are returning
the earnest deposit.
Respondent spouses through counsel, wrote petitioner demanding the execution of a deed of conveyance in their
favor. They attempted to return the earnest deposit but was refused by San Miguel. Respondent spouses filed a
complaint for specific performance.
Trial court, upon motion, dismissed the complaint, which was reversed by the CA.
Arguments:
San Miguel: the Court of Appeals erred in finding that there was a perfected contract of sale between the parties
because the 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.
HELD: No, hence, there was no perfected contract of sale. 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, their contract had not yet been perfected. The first condition for an option period of 30
days sufficiently shows that a sale was never perfected. 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.
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.
Was it an earnest deposit? NO. At the time when petitioner accepted the terms of respondents offer of March 29,
1994, their contract had not yet been perfected. It does not satisfy Article 1482.
The stages of a contract of sale are as follows: (1) negotiation, (2) perfection, and (3) consummation. The alleged
indubitable evidence 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.
There was also failure to agree on the manner of payment. 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.
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

Petitioner also disputes the appellate courts ruling that Isidro A. Sobrecarey had authority to sell the subject real
properties.

Sps. Huang: As held by CA, there is a perfected contract of sale since the earnest money was allegedly given by
respondents and accepted by petitioner through its vice-president and operations manager, Sobrecarey. 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.

ISSUE:WON the earnest deposit could have been given as earnest money contemplated in Art. 1482, and thus there
was a perfected contract of sale.