REVALIDA CASES #1

JULY 29, 2019

Contents
#1 NOBLEZA v. NUEZA ............................................................................................................. 2
#2 SPOUSES NICANOR TUMBOKON v. APOLONIA LEGASPI ...................................... 11
#3 SPOUSES REX AND CONCEPCION AGGABAO v. DIONISIO PARULAN, JR ....... 21
#4 FAR EAST BANK AND TRUST COMPANY v. PHILIPPINE DEPOSIT ...................... 32
#5 NEMENCIO PULUMBARIT, SR v. CA (17th Division), ET AL ....................................... 51
#6 AKANG v. MUNICIPALITY OF ISULAN, SULTAN KUDARAT, PROVINCE .............. 68
#7 FULLIDO v. GRILLI .............................................................................................................. 78
#8 HEIRS OF FAUSTO IGNACIO v. HOME BANKERS SAVINGS AND TRUST .......... 91
#9 QUIROGA v. PARSONS ................................................................................................... 102
#10 ANG YU ASUNCION v. CA ............................................................................................ 108
#11 BIBLE BAPTIST CHURCH v. CA .................................................................................. 118
#12 LIMSON v. CA................................................................................................................... 126
#13 ATKINS KROLL & CO. v. CUA HIAN TEK ................................................................... 135
#14 GREGORIO v. CRISOLOGO VDA. DE CULIG ........................................................... 140
#15 OSMEÑA III v. POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT
CORP. ........................................................................................................................................ 147

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#1 NOBLEZA v. NUEZA
GR No. 193038; March 11, 2015

[G.R. No. 193038. March 11, 2015.]

JOSEFINA V. NOBLEZA, petitioner, vs. SHIRLEY B.

NUEGA, respondent.

DECISION

VILLARAMA, JR., J : p

At bar is a petition for review on certiorari of the Decision 1 dated May

14, 2010 and the Resolution 2 dated July 21, 2010 of the Court of Appeals
(CA) in CA-G.R. CV No. 70235, which affirmed with modification the assailed
Decision 3 dated February 14, 2001 of the Regional Trial Court (RTC) of
Marikina City, Branch 273, in Civil Case No. 96-274-MK.
The following facts are found by the trial court and affirmed by the
appellate court:
Respondent Shirley B. Nuega (Shirley) was married to Rogelio A.
Nuega (Rogelio) on September 1, 1990. 4 Sometime in 1988 when the parties
were still engaged, Shirley was working as a domestic helper in Israel. Upon
the request of Rogelio, Shirley sent him money 5 for the purchase of a
residential lot in Marikina where they had planned to eventually build their
home. Rogelio was then also working abroad as a seaman. The following
year, or on September 13, 1989, Rogelio purchased the subject house and lot
for One Hundred Two Thousand Pesos (P102,000.00) 6 from Rodeanna
Realty Corporation. The subject property has an aggregate area of one
hundred eleven square meters (111 sq. m.) covered by Transfer Certificate of
Title (TCT) No. N-133844. 7 Shirley claims that upon her arrival in the
Philippines sometime in 1989, she settled the balance for the equity over the
subject property with the developer through SSS 8 financing. She likewise
paid for the succeeding monthly amortizations. On October 19, 1989, TCT No.
171963 9 over the subject property was issued by the Registry of Deeds of
Marikina, Rizal solely under the name of Rogelio.
On September 1, 1990, Shirley and Rogelio got married and lived in the
subject property. The following year, Shirley returned to Israel for work. While
overseas, she received information that Rogelio had brought home another
woman, Monica Escobar, into the family home. She also learned, and was
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able to confirm upon her return to the Philippines in May 1992, that Rogelio
had been introducing Escobar as his wife.
In June 1992, Shirley filed two cases against Rogelio: one for
Concubinage before the Provincial Prosecution Office of Rizal, and another
for Legal Separation and Liquidation of Property before the RTC of Pasig City.
Shirley later withdrew the complaint for legal separation and liquidation of
property, but re-filed 10 the same on January 29, 1993. In between the filing of
these cases, Shirley learned that Rogelio had the intention of selling the
subject property. Shirley then advised the interested buyers — one of whom
was their neighbor and petitioner Josefina V. Nobleza (petitioner) — of the
existence of the cases that she had filed against Rogelio and cautioned them
against buying the subject property until the cases are closed and terminated.
Nonetheless, under a Deed of Absolute Sale 11 dated December 29, 1992,
Rogelio sold the subject property to petitioner without Shirley's consent in the
amount of Three Hundred Eighty Thousand Pesos (P380,000.00), including
petitioner's undertaking to assume the existing mortgage on the property with
the National Home Mortgage Finance Corporation and to pay the real
property taxes due thereon.
Meanwhile, in a Decision 12 dated May 16, 1994, the RTC of Pasig City,
Branch 70, granted the petition for legal separation and ordered the
dissolution and liquidation of the regime of absolute community of property
between Shirley and Rogelio, viz.:
WHEREFORE, in view of the foregoing, the Court hereby grants
the instant petition for legal separation between the subject spouses
with all its legal effects as provided for in Art. 63 of the Family Code.
Their community property is consequently dissolved and must be
liquidated in accordance with Art. 102 of the New FamilyCode. The
respondent is thus hereby enjoined from selling, encumbering or in any
way disposing or alienating any of their community property including
the subject house and lot before the required liquidation. Moreover, he,
being the guilty spouse, must forfeit the net profits of the community
property in favor of the petitioner who is the innocent spouse pursuant
to Art. 43 of the aforesaid law. Finally, in the light of the claim of
ownership by the present occupants who have not been impleaded in
the instant case, a separate action must be instituted by the petitioner
against the alleged buyer or buyers thereof to determine their
respective rights thereon.
Let a copy of this decision be furnished the Local Civil Registrar
of Manila, the Register of Deeds of Marikina, Metro Manila and the
National Statistics Office (NSO), Sta. Mesa, Manila.
SO ORDERED. 13

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Rogelio appealed the above-quoted ruling before the CA which denied
due course and dismissed the petition. It became final and executory and a
writ of execution was issued in August 1995. 14
On August 27, 1996, Shirley instituted a Complaint 15 for Rescission of
Sale and Recovery of Property against petitioner and Rogelio before the RTC
of Marikina City, Branch 273. After trial on the merits, the trial court rendered
its decision on February 14, 2001, viz.:
WHEREFORE, foregoing premises considered, judgment is
hereby rendered in favor of plaintiff Shirley Nuega and against
defendant Josefina Nobleza, as follows:
1) the Deed of Absolute Sale dated December 29, 1992 insofar as
the 55.05 square meters representing the one half (1/2)
portion of plaintiff Shirley Nuega is concerned, is hereby
ordered rescinded, the same being null and void;
2) defendant Josefina Nobleza is ordered to reconvey said 55.05
square meters to plaintiff Shirley Nuega, or in the
alternative to pay plaintiff Shirley Nuega the present market
value of said 55.05 square meters; and
3) to pay plaintiff Shirley Nuega attorney's fees in the sum of
Twenty Thousand Pesos (P20,000.00).
For lack of merit, defendant's counterclaim is hereby DENIED.
SO ORDERED. 16
Petitioner sought recourse with the CA, while Rogelio did not appeal the
ruling of the trial court. In its assailed Decision promulgated on May 14, 2010,
the appellate court affirmed with modification the trial court's ruling, viz.:
WHEREFORE, subject to the foregoing disquisition, the appeal
is DENIED. The Decision dated 14 February 2001 of the Regional Trial
Court of Marikina City, Branch 273 in Civil Case No. 96-274-
MK is AFFIRMED with MODIFICATION in that the Deed of Absolute
Sale dated 29 December 1992 is hereby declared null and void in its
entirety, and defendant-appellant Josefina V. Nobleza is ordered to
reconvey the entire subject property to plaintiff-appellee Shirley B.
Nuega and defendant Rogelio Nuega, without prejudice to said
defendant-appellant's right to recover from defendant Rogelio whatever
amount she paid for the subject property. Costs against defendant-
appellant Nobleza.
SO ORDERED. 17
Petitioner moved for reconsideration. In a Resolution dated July 21,
2010, the appellate court denied the motion for lack of merit. Hence, this
petition raising the following assignment of errors:

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[I.] THE HONORABLE COURT OF APPEALS ERRED WHEN IT
AFFIRMED THE DECISION OF THE REGIONAL TRIAL COURT
BY SUSTAINING THE FINDING THAT PETITIONER WAS NOT
A PURCHASER IN GOOD FAITH.
[II.] THE HONORABLE COURT OF APPEALS ERRED WHEN IT
MODIFIED THE DECISION OF THE REGIONAL TRIAL COURT
BY DECLARING AS NULL AND VOID THE DEED OF
ABSOLUTE SALE DATED 29 DECEMBER 1992 IN ITS
ENTIRETY. 18
We deny the petition.
Petitioner is not a buyer in good faith.
An innocent purchaser for value is one who buys the property of
another, without notice that some other person has a right or interest in the
property, for which a full and fair price is paid by the buyer at the time of the
purchase or before receipt of any notice of claims or interest of some other
person in the property. 19It is the party who claims to be an innocent
purchaser for value who has the burden of proving such assertion, and it is
not enough to invoke the ordinary presumption of good faith. 20 To
successfully invoke and be considered as a buyer in good faith, the
presumption is that first and foremost, the "buyer in good faith" must have
shown prudence and due diligence in the exercise of his/her rights. It
presupposes that the buyer did everything that an ordinary person would do
for the protection and defense of his/her rights and interests against
prejudicial or injurious concerns when placed in such a situation. The
prudence required of a buyer in good faith is "not that of a person with training
in law, but rather that of an average man who 'weighs facts and
circumstances without resorting to the calibration of our technical rules of
evidence of which his knowledge is nil.'" 21 A buyer in good faith does his
homework and verifies that the particulars are in order — such as the title, the
parties, the mode of transfer and the provisions in the deed/contract of sale, to
name a few. To be more specific, such prudence can be shown by making an
ocular inspection of the property, checking the title/ownership with the proper
Register of Deeds alongside the payment of taxes therefor, or inquiring into
the minutiae such as the parameters or lot area, the type of ownership, and
the capacity of the seller to dispose of the property, which capacity
necessarily includes an inquiry into the civil status of the seller to ensure that
if married, marital consent is secured when necessary. In fine, for a purchaser
of a property in the possession of another to be in good faith, he must
exercise due diligence, conduct an investigation, and weigh the surrounding
facts and circumstances like what any prudent man in a similar situation
would do. 22

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In the case at bar, petitioner claims that she is a buyer in good faith of
the subject property which is titled under the name of the seller Rogelio A.
Nuega alone as evidenced by TCT No. 171963 and Tax Declaration Nos. D-
012-04723 and D-012-04724. 23 Petitioner argues, among others, that since
she has examined the TCT over the subject property and found the property
to have been registered under the name of seller Rogelio alone, she is an
innocent purchaser for value and "she is not required to go beyond the face of
the title in verifying the status of the subject property at the time of the
consummation of the sale and at the date of the sale."24
We disagree with petitioner.
A buyer cannot claim to be an innocent purchaser for value by merely
relying on the TCT of the seller while ignoring all the other surrounding
circumstances relevant to the sale.
In the case of Spouses Raymundo v. Spouses Bandong, 25 petitioners
therein — as does petitioner herein — were also harping that due to the
indefeasibility of a Torrens title, there was nothing in the TCT of the property
in litigation that should have aroused the buyer's suspicion as to put her on
guard that there was a defect in the title of therein seller. The Court held in
the Spouses Raymundo case that the buyer therein could not hide behind the
cloak of being an innocent purchaser for value by merely relying on the TCT
which showed that the registered owner of the land purchased is the seller.
The Court ruled in this case that the buyer was not an innocent purchaser for
value due to the following attendant circumstances, viz.:
In the present case, we are not convinced by the petitioners'
incessant assertion that Jocelyn is an innocent purchaser for value. To
begin with, she is a grandniece of Eulalia and resides in the same
locality where the latter lives and conducts her principal business. It is
therefore impossible for her not to acquire knowledge of her grand
aunt's business practice of requiring her biyaheros to surrender the
titles to their properties and to sign the corresponding deeds of sale
over said properties in her favor, as security. This alone should have
put Jocelyn on guard for any possible abuses that Eulalia may commit
with the titles and the deeds of sale in her possession. 26
Similarly, in the case of Arrofo v. Quiño, 27 the Court held that while
"the law does not require a person dealing with registered land to inquire
further than what the Torrens Title on its face indicates," the rule is not
absolute. 28 Thus, finding that the buyer therein failed to take the necessary
precaution required of a prudent man, the Court held that Arrofo was not an
innocent purchaser for value, viz.:
In the present case, the records show that Arrofo failed to act as
a prudent buyer. True, she asked her daughter to verify from the

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Register of Deeds if the title to the Property is free from
encumbrances. However, Arrofo admitted that the Property is within
the neighborhood and that she conducted an ocular inspection of the
Property. She saw the house constructed on the Property. Yet,
Arrofo did not even bother to inquire about the occupants of the house.
Arrofo also admitted that at the time of the sale, Myrna was occupying
a room in her house as her lessee. The fact that Myrna was renting a
room from Arrofo yet selling a land with a house should have put
Arrofo on her guard. She knew that Myrna was not occupying the
house. Hence, someone else must have been occupying the house.
Thus, Arrofo should have inquired who occupied the house, and
if a lessee, who received the rentals from such lessee. Such inquiry
would have led Arrofo to discover that the lessee was paying rentals to
Quiño, not to Renato and Myrna, who claimed to own the Property. 29
An analogous situation obtains in the case at bar.
The TCT of the subject property states that its sole owner is the seller
Rogelio himself who was therein also described as "single". However, as in
the cases ofSpouses Raymundo and Arrofo, there are circumstances critical
to the case at bar which convince us to affirm the ruling of both the appellate
and lower courts that herein petitioner is not a buyer in good faith.
First, petitioner's sister Hilda Bautista, at the time of the sale, was
residing near Rogelio and Shirley's house — the subject property — in
Ladislao Diwa Village, Marikina City. Had petitioner been more prudent as a
buyer, she could have easily checked if Rogelio had the capacity to dispose of
the subject property. Had petitioner been more vigilant, she could have
inquired with such facility — considering that her sister lived in the same
Ladislao Diwa Village where the property is located — if there was any person
other than Rogelio who had any right or interest in the subject property.
To be sure, respondent even testified that she had warned their
neighbors at Ladislao Diwa Village — including petitioner's sister — not to
engage in any deal with Rogelio relative to the purchase of the subject
property because of the cases she had filed against Rogelio. Petitioner denies
that respondent had given such warning to her neighbors, which includes her
sister, therefore arguing that such warning could not be construed as "notice"
on her part that there is a person other than the seller himself who has any
right or interest in the subject property. Nonetheless, despite petitioner's
adamant denial, both courts a quo gave probative value to the testimony of
respondent, and the instant petition failed to present any convincing evidence
for this Court to reverse such factual finding. To be sure, it is not within our
province to second-guess the courts a quo, and the re-determination of this
factual issue is beyond the reach of a petition for review on certiorariwhere
only questions of law may be reviewed. 30

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Second, issues surrounding the execution of the Deed of Absolute Sale
also pose question on the claim of petitioner that she is a buyer in good faith.
As correctly observed by both courts a quo, the Deed of Absolute Sale was
executed and dated on December 29, 1992. However, the Community Tax
Certificates of the witnesses therein were dated January 2 and 20,
1993. 31 While this irregularity is not a direct proof of the intent of the parties
to the sale to make it appear that the Deed of Absolute Sale was executed on
December 29, 1992 — or before Shirley filed the petition for legal separation
on January 29, 1993 — it is circumstantial and relevant to the claim of herein
petitioner as an innocent purchaser for value.
That is not all.
In the Deed of Absolute Sale dated December 29, 1992, the civil status
of Rogelio as seller was not stated, while petitioner as buyer was indicated as
"single,"viz.:
ROGELIO A. NUEGA, of legal age, Filipino citizen and with postal
address at 2-A-2 Ladislao Diwa St., Concepcion, Marikina, Metro
Manila, hereinafter referred to as the VENDOR
And
JOSEFINA V. NOBLEZA, of legal age, Filipino citizen, single and with
postal address at No. L-2-A-3 Ladislao Diwa St., Concepcion,
Marikina, Metro Manila, hereinafter referred to as the VENDEE. 32
It puzzles the Court that while petitioner has repeatedly claimed that
Rogelio is "single" under TCT No. 171963 and Tax Declaration Nos. D-012-
04723 and D-012-04724, his civil status as seller was not stated in the Deed
of Absolute Sale — further creating a cloud on the claim of petitioner that she
is an innocent purchaser for value.
As to the second issue, we rule that the appellate court did not err when
it modified the decision of the trial court and declared that the Deed of
Absolute Sale dated December 29, 1992 is void in its entirety.
The trial court held that while the TCT shows that the owner of the
subject property is Rogelio alone, respondent was able to prove at the trial
court that she contributed in the payment of the purchase price of the subject
property. This fact was also settled with finality by the RTC of Pasig City,
Branch 70, and affirmed by the CA, in the case for legal separation and
liquidation of property docketed as JDRC Case No. 2510. The pertinent
portion of the decision reads:
. . . Clearly, the house and lot jointly acquired by the parties
prior to their marriage forms part of their community property regime. . .
.

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From the foregoing, Shirley sufficiently proved her financial
contribution for the purchase of the house and lot covered by TCT
171963. Thus, the present lot which forms part of their community
property should be divided equally between them upon the grant of the
instant petition for legal separation. Having established by
preponderance of evidence the fact of her husband's guilt in
contracting a subsequent marriage . . ., Shirley alone should be
entitled to the net profits earned by the absolute community
property. 33
However, the nullity of the sale made by Rogelio is not premised on
proof of respondent's financial contribution in the purchase of the subject
property. Actual contribution is not relevant in determining whether a piece of
property is community property for the law itself defines what constitutes
community property.
Article 91 of the Family Code thus provides:
Art. 91. Unless otherwise provided in this Chapter or in the
marriage settlements, the community property shall consist of all the
property owned by the spouses at the time of the celebration of the
marriage or acquired thereafter.
The only exceptions from the above rule are: (1) those excluded from
the absolute community by the Family Code; and (2) those excluded by the
marriage settlement.
Under the first exception are properties enumerated in Article 92 of
the Family Code, which states:
Art. 92. The following shall be excluded from the community
property:
(1) Property acquired during the marriage by gratuitous title by
either spouse, and the fruits as well as the income thereof, if any,
unless it is expressly provided by the donor, testator or grantor that
they shall form part of the community property;
(2) Property for personal and exclusive use of either spouse;
however, jewelry shall form part of the community property;
(3) Property acquired before the marriage by either spouse who
has legitimate descendants by a former marriage, and the fruits as well
as the income, if any, of such property.
As held in Quiao v. Quiao: 34
When a couple enters into a regime of absolute community, the
husband and the wife becomes joint owners of all the properties of the
marriage. Whatever property each spouse brings into the marriage,
and those acquired during the marriage (except those excluded under
Article 92 of the Family Code) form the common mass of the couple's

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properties. And when the couple's marriage or community is dissolved,
that common mass is divided between the spouses, or their respective
heirs, equally or in the proportion the parties have established,
irrespective of the value each one may have originally owned.
Since the subject property does not fall under any of the exclusions
provided in Article 92, it therefore forms part of the absolute community
property of Shirley and Rogelio. Regardless of their respective contribution to
its acquisition before their marriage, and despite the fact that only Rogelio's
name appears in the TCT as owner, the property is owned jointly by the
spouses Shirley and Rogelio.
Respondent and Rogelio were married on September 1, 1990. Rogelio,
on his own and without the consent of herein respondent as his spouse, sold
the subject property via a Deed of Absolute Sale dated December 29, 1992 —
or during the subsistence of a valid contract of marriage. Under Article 96
of Executive Order No. 209, otherwise known as The Family Code of the
Philippines, the said disposition of a communal property is void, viz.:
Art. 96. The administration and enjoyment of the community
property shall belong to both spouses jointly. In case of disagreement,
the husband's decision shall prevail, subject to recourse to the court by
the wife for a proper remedy, which must be availed of within five years
from the date of the contract implementing such decision.
In the event that one spouse is incapacitated or otherwise
unable to participate in the administration of the common properties,
the other spouse may assume sole powers of administration. These
powers do not include the powers of disposition or encumbrance
without the authority of the court or the written consent of the
other spouse. In the absence of such authority or consent, the
disposition or encumbrance shall be void. However, the transaction
shall be construed as a continuing offer on the part of the consenting
spouse and the third person, and may be perfected as a binding
contract upon the acceptance by the other spouse or authorization by
the court before the offer is withdrawn by either or both offerors. 35
It is clear under the foregoing provision of the Family Code that Rogelio
could not sell the subject property without the written consent of respondent or
the authority of the court. Without such consent or authority, the entire sale is
void. As correctly explained by the appellate court:
In the instant case, defendant Rogelio sold the entire subject
property to defendant-appellant Josefina on 29 December 1992 or
during the existence of Rogelio's marriage to plaintiff-appellee Shirley,
without the consent of the latter. The subject property forms part of
Rogelio and Shirley's absolute community of property. Thus, the trial
court erred in declaring the deed of sale null and void only insofar as
the 55.05 square meters representing the one-half (1/2) portion of
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plaintiff-appellee Shirley. In absolute community of property, if the
husband, without knowledge and consent of the wife, sells (their)
property, such sale is void. The consent of both the husband Rogelio
and the wife Shirley is required and the absence of the consent of one
renders the entire sale null and void including the portion of the subject
property pertaining to defendant Rogelio who contracted the sale with
defendant-appellant Josefina. Since the Deed of Absolute Sale . . .
entered into by and between defendant-appellant Josefina and
defendant Rogelio dated 29 December 1992, during the subsisting
marriage between plaintiff-appellee Shirley and Rogelio, was without
the written consent of Shirley, the said Deed of Absolute Sale is void in
its entirety. Hence, the trial court erred in declaring the said Deed of
Absolute Sale as void only insofar as the 1/2 portion pertaining to the
share of Shirley is concerned. 36
Finally, consistent with our ruling that Rogelio solely entered into the
contract of sale with petitioner and acknowledged receiving the entire
consideration of the contract under the Deed of Absolute Sale, Shirley could
not be held accountable to petitioner for the reimbursement of her payment for
the purchase of the subject property. Under Article 94 of the Family Code, the
absolute community of property shall only be "liable for . . . [d]ebts and
obligations contracted by either spouse without the consent of the other to the
extent that the family may have been benefited . . . ." As correctly stated by
the appellate court, there being no evidence on record that the amount
received by Rogelio redounded to the benefit of the family, respondent cannot
be made to reimburse any amount to petitioner.37
WHEREFORE, in view of the foregoing, the petition is DENIED. The
assailed Decision and Resolution of the Court of Appeals dated May 14, 2010
and July 21, 2010, respectively, in CA-G.R. CV No. 70235 are AFFIRMED.
Costs against petitioner.
SO ORDERED.
Velasco, Jr., Peralta, Reyes and Jardeleza, JJ., concur.
||| (Nobleza v. Nuega, G.R. No. 193038, [March 11, 2015])

#2 SPOUSES NICANOR TUMBOKON v. APOLONIA LEGASPI

GR No. 153736; August 4, 2010

[G.R. No. 153736. August 4, 2010.]

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SPOUSES NICANOR TUMBOKON (deceased), substituted by:
ROSARIO SESPEÑE and their Children, namely: NICANOR S.
TUMBOKON, JR., NELIA S. TUMBOKON, NEMIA T. SEGOVIA,
NOBELLA S. TUMBOKON, NABIGAIL T. TAAY, NAZARENE T.
MONTALVO, NORGEL S. TUMBOKON, NEYSA S. TUMBOKON,
SILVESTRE S. TUMBOKON, NORA T. MILCZAREK, NONITA T.
CARPIO, NERLYN S. TUMBOKON, and NINFA T.
SOLIDUM, petitioners, vs. APOLONIA G. LEGASPI, and
PAULINA S. DE MAGTANUM, respondents.

DECISION

BERSAMIN, J : p

The question presented in this appeal is whether the ruling in a criminal

prosecution for qualified theft (involving coconut fruits) bound the complainant
(petitioners herein) and the accused (respondents herein) on the issue of
ownership of the land, which was brought up as a defense, as to preclude the
Regional Trial Court (RTC) or the Court of Appeals (CA) from adjudicating the
same issue in a civil case filed prior to the promulgation of the decision in the
criminal case.
Under contention herein are the ownership and possession of that
parcel of land with an area of 12,480 square meters, more or less, situated in
Barangay Buenavista (formerly Barangay San Isidro, in the Municipality of
Ibajay, Province of Aklan. The land — planted to rice, corn, and coconuts —
was originally owned by the late Alejandra Sespeñe (Alejandra), who had two
marriages. The first marriage was to Gaudencio Franco, by whom she bore
Ciriaca Franco, whose husband was Victor Miralles. The second marriage
was to Jose Garcia, by whom she bore respondent Apolonia Garcia
(Apolonia), who married Primo Legaspi. Alejandra died without a will in 1935,
and was survived by Apolonia and Crisanto Miralles, the son of Ciriaca (who
had predeceased Alejandra in 1924) and Victor Miralles; hence, Crisanto
Miralles was Alejandra's grandson.
The ownership and possession of the parcel of land became
controversial after Spouses Nicanor Tumbokon and Rosario Sespeñe
(petitioners) asserted their right in it by virtue of their purchase of it from
Cresenciana Inog, who had supposedly acquired it by purchase from Victor
Miralles. The tug-of-war over the property between the petitioners and the
respondents first led to the commencement of a criminal case. The Spouses
Nicanor Tumbokon and Rosario Sespeñe filed a criminal complaint for

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qualified theft against respondents Apolonia and Paulina S. Magtanum and
others not parties herein, namely: Rosendo Magtanum, Antonio Magtanum,
Ulpiano Mangilaya, charging them with stealing coconut fruits from the land
subject of the present case. 1 The criminal case, docketed as Criminal Case
No. 2269, was assigned to Branch III of the erstwhile Court of First Instance
(CFI) of Aklan. 2CIaDTE

After trial, the CFI found the respondents and their co-accused guilty as
charged in its decision dated June 10, 1972. The respondents appealed
(C.A.-G.R. No. 13830-CR), but the CA affirmed their conviction on February
19, 1975, whereby the CA rejected respondent Apolonia's defense of
ownership of the land. 3
In the meanwhile, on September 21, 1972, or prior to the CA's rendition
of its decision in the criminal case, the petitioners commenced this suit for
recovery of ownership and possession of real property with damages against
the respondents in the CFI. This suit, docketed as Civil Case No. 240 and
entitled Spouses Nicanor P. Tumbokon and Rosario S. Sespeñe v. Apolonia
G. Legaspi, Jesus Legaspi, Alejandra Legaspi, Primo Legaspi, Jose Legaspi,
and Paulina S. de Magtanum, was assigned also to Branch III of the CFI, and
involved the same parcel of land from where the coconut fruits subject of the
crime of qualified theft in Criminal Case No. 2269 had been taken.
On February 17, 1994, the RTC, which meanwhile replaced the CFI
following the implementation of the Judiciary Reorganization Act, 4 rendered
its decision in favor of the petitioners herein, holding and disposing thus:
After a careful study of the evidence on record, the Court finds
that the plaintiffs were able to establish that plaintiff Rosario Sespeñe
Tumbokon purchased the land in question from Cresenciana Inog on
December 31, 1959 (Exh. "C"). Cresenciana Inog, in turn, acquired the
land by purchase from Victor Miralles on June 19, 1957 (Exh. "B").
Seven (7) years before, on May 8, 1950, the land was mortgaged by
Victor Miralles to Cresenciana Inog as shown by a Deed of Pacto de
Retro (Exh. "A"), and from 1950 up to 1959, Cresenciana Inog was in
continuous and peaceful possession of the land in question. . . .
xxx xxx xxx
WHEREFORE, finding preponderance of evidence in favor of the
plaintiffs, judgment is hereby rendered as follows:
1. The plaintiffs are hereby declared the true and lawful owners,
and entitled to the possession of the parcel of land of 12,480 square
meters in area, declared in the name of plaintiff Rosario S. Tumbokon,
under Tax Declaration No. 29220, situated in Barangay Buenavista
(formerly San Isidro), Ibajay, Aklan;

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2. The defendants are ordered and directed to vacate the land in
question, and restore and deliver the possession thereof to the plaintiffs;
and
3. No pronouncement as to damages, but with costs against the
defendants.
SO ORDERED. 5

The respondents appealed to the CA.

On May 15, 2001, the CA reversed the decision of the RTC and
dismissed the complaint, 6 opining and ruling thus: CSaHDT

The appellees trace their acquisition of the subject lot to the

admitted primal owner Alejandra Sespeñe through her supposed sale of
it to her son-in-law Victor Miralles, who sold this to Cresenciana Inog,
and who in turn sold it to the appellees. In the process, they presented
the Deed of Absolute Sale (Exh. "B", June 19, 1957) executed by Victor
Miralles in favor of Cresenciana Inog but wherein it is provided in the
said instrument that:
That this parcel of land abovementioned was inherited from
the deceased Alejandra Sespeñe, by the party of the First Part
being the sole heir of the said Alejandra Sespeñe, having no other
brothers or sisters.
This claim of being the sole heir is obviously false and erroneous
for Alejandra Sespeñe had more than one intestate heir, and Victor
Miralles as a mere son-in-law could not be one of them.
This also damages and puts to serious doubt their other and
contradictory claim that Victor Miralles instead bought the lot from
Alejandra Sespeñe. This supposed sale was oral, one that can of course
be facilely feigned. And it is likely to be so for the claim is sweeping,
vacuous and devoid of the standard particulars like what was the price,
when and where was the sale made, who were present, or who knew of
it. The record is bereft too of documentary proof that Victor Miralles
exercised the rights and performed the obligations of an owner for no tax
declarations nor tax receipt has been submitted or even adverted to.
The testimonial evidence of the appellants as to ownership, the
sale and possession is inadequate, with even the appellant Nicanor
Tumbokon stating that:
Q Did you come to know before you purchase (sic) the property
from whom did V. Miralles acquired (sic) the land?
A No, sir.

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xxx xxx xxx
Q And you did not come to know out (sic) and why V. Miralles
came to possess the land under litigation before it was sold
to C. Inog?
A All I was informed was V. Miralles became automatically the
heir of A. Sespeñe after the death of the wife which is
the only daughter of A. Sespeñe.

Q How did you know that V. Miralles became automatically the

heir of the land after the death of his wife?

A He is the only son-in-law. (TSN, pp. 2-3, Feb. 26, 1974;

emphasis supplied) aSACED

While Victor Miralles may have been in physical possession of the

lot for a while, this was not as owner but as mere Administrator as was
clearly appearing in tax declaration no. 21714 ("Exhs. "J", "1").The
corroboration in this by Lourdes Macawili (TSN, June 7, 1973) does not
help the appellees (herein petitioners) any for she never knew the
source of the property. Neither does the testimony of Crisanto Miralles
succor the appellees (petitioners). He was the son of Victor Miralles and
the husband of the said Cresenciana Inog, the supposed buyer, owner
and possessor of the land in question from 1950-1957, and yet Crisanto
Miralles could only say:
Q Are there improvements on the land in question?
A I do not know because I did not bother to go to the land in
question. (TSN, p. 4, Aug. 18, 1973; emphasis supplied)]
These strongly suggest that the sales and claim of possession
were shams, and are further demolished by the following testimonies:
Q After the death of Alejandra Sespeñe who inherited this land in
question?
A Apolonia.
Q At present who is in possession of the land in question?
A Apolonia Legaspi.
Q From the time that Apolonia Legaspi took possession of the
land up to the present do you know if anybody interrupted
her possession?
A No sir. (tsn, Urbana Tañ-an Vda. de Franco, p. 7, Nov. 24,
1977)

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xxx xxx xxx
Q Now, since when did you know the land in question?
A Since I was at the age of 20 yrs. old. (TSN; Crispina Taladtad,
p. 3; Jan. 20, 1977; [she was 74 yrs. old at the time of this
testimony]).
xxx xxx xxx
Q And for how long has Apolonia Garcia Legaspi been in
possession of the land in question?
A Since the time I was at the age of 20 yrs. old when I was
been (sic) invited there to work up to the present she is in
possession of the land.
Q You said that you know Cresenciana Inog, do you know if
Cresenciana Inog has ever possessed the land in
question? cEITCA

A Never.

Q You also said that you know Nicanor Tumbokon and his wife
Rosario Tumbokon, my question is do you know if this
Nicanor Tumbokon and his wife Rosario have ever
possessed and usufructed this land under litigation?
A No, sir.
Q You also stated a while ago that you know Victor Miralles, do
you know if Victor Miralles had ever possessed this under
litigation?
A No, he had not. (p. 9, ibid.; emphasis supplied)
Thus neither do We buy the appellee's contention that ownership
of the disputed land was acquired by their predecessors-in-interest thru
lapse of time. Acquisitive prescription requires possession in the concept
of owner, and they have not been able to prove even mere possession.
As proponents it was incumbent upon the appellees to prove that
they were the owners of the lot and that they were being unlawfully
deprived of their possession thereof. But this they failed to do. It is a
basic rule in evidence that each party must prove his affirmative
allegation. Since the burden of evidence lies with the party who asserts
the affirmative allegation, the plaintiff or complainant has to prove this
affirmative allegations in the complaint and the defendant or the
respondent has to prove the affirmative allegation in his affirmative

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defenses and counterclaim. (AKELCO vs. NLRC, G.R. No. 121439, Jan.
25, 2000) cTSHaE

But this hoary rule also cuts both ways. Appellants too must also
prove the allegations to support their prayer to declare the litigated
lot the exclusive property of the defendants Apolonia G. Legaspi and
Paulina S. Magtanum; (Answer, p. 6, record). Apolonia Legaspi however
is only one of the putative intestate heirs of Alejandra Sespeñe, the other
being Crisanto Miralles who stands in the stead of Ciriaca, his
predeceased mother and other daughter of the decedent. But then no
judgment can be made as to their successional rights for Crisanto
Miralles was never impleaded. Neither is there a proof that can convince
that Paulina S. Magtanum who is merely a niece of the decedent, should
also be declared a co-owner of the inherited lot.
Because of said inadequacies, We cannot rule beyond the
holding that the appellees (petitioners) are not the owners and therefore
not entitled to the recovery of the litigated lot.
WHEREFORE, the appealed Decision is REVERSED and SET
ASIDE and in its place judgment is rendered DISMISSING the
Complaint.
SO ORDERED. 7

Hence, the petitioners appeal by petition for review on certiorari.

Issues
The issues to be resolved are the following:
1. Whether or not the decision in C.A.-G.R. CV 45672 reversing
the decision of the RTC in Civil Case No. 240 was supported
by law and the evidence on record;
2. Whether or not the decision in C.A.-G.R. No. 13830-CR
affirming the decision of the CFI of Aklan in Criminal Case
No. 2269 had the effect of res judicata on the issue of
ownership of the land involved in Civil Case No. 240,
considering that such land was the same land involved in
Criminal Case No. 2269.
Ruling
The petition has no merit.
A
Reversal by the CA was supported
by law and the evidence on record

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The CA correctly found that the petitioners' claim of ownership could not
be legally and factually sustained. ETDSAc

First of all, the petitioners adduced no competent evidence to establish

that Victor Miralles, the transferor of the land to Cresenciana Inog (the
petitioners' immediate predecessor in interest) had any legal right in the first
place to transfer ownership. He was not himself an heir of Alejandra, being
only her son-in-law (as the husband of Ciriaca, one of Alejandra's two
daughters). Thus, the statement in the deed of absolute sale (Exhibit B)
entered into between Victor Miralles and Cresenciana Inog, to the effect that
the "parcel of land was inherited from the deceased Alejandra Sespeñe" by
Victor Miralles "being the sole heir of the said Alejandra Sespeñe, having no
other brothers or sisters," was outrightly false.
Secondly, a decedent's compulsory heirs in whose favor the law
reserves a part of the decedent's estate are exclusively the persons
enumerated in Article 887,Civil Code, viz.:
Article 887. The following are compulsory heirs:
(1) Legitimate children and descendants, with respect to their
legitimate parents and ascendants;
(2) In default of the foregoing, legitimate parents and ascendants,
with respect to their legitimate children and descendants;
(3) The widow or widower;
(4) Acknowledged natural children, and natural children by legal
fiction;
(5) Other illegitimate children referred to in article 287.
Compulsory heirs mentioned in Nos. 3, 4, and 5 are not excluded
by those in Nos. 1 and 2; neither do they exclude one another.
In all cases of illegitimate children, their filiation must be duly
proved.
The father or mother of illegitimate children of the three classes
mentioned, shall inherit from them in the manner and to the extent
established by this Code. (807a)

Only two forced heirs survived Alejandra upon her death, namely:
respondent Apolonia, her daughter, and Crisanto Miralles, her grandson. The
latter succeeded Alejandra by right of representation because his mother,
Ciriaca, had predeceased Alejandra. Representation is a right created by
fiction of law, by virtue of which the representative is raised to the place and
the degree of the person represented, and acquires the rights which the latter

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would have if she were living or if she could have inherited. 8 Herein, the
representative (Crisanto Miralles) was called to the succession by law and not
by the person represented (Ciriaca); he thus succeeded Alejandra, not
Ciriaca. 9aHIEcS

The foregoing undeniable facts rendered the hearsay testimony of

Nicanor Tumbokon to the effect that he had been informed that Victor Miralles
had "bec[o]me automatically the heir" of Alejandra "after the death of his wife,"
the wife being "the only daughter" and he "the only son-in-law" a plain
irrelevancy.
Thirdly, Victor Miralles' supposed acquisition of the land by oral sale
from Alejandra had no competent factual support in the records. For one, the
oral sale was incompatible with the petitioners' anchor claim that he had
acquired the land by inheritance from Alejandra. Also, the evidence that the
petitioners adduced on the oral sale was insufficient and incredible,
warranting the CA's rejection of the oral sale under the following terms:
This also damages and puts to serious doubt their other and
contradictory claim that Victor Miralles instead bought the lot from
Alejandra Sespeñe. This supposed sale was oral, one that can of
course be facilely feigned. And it is likely to be so for the claim is
sweeping, vacuous and devoid of the standard particulars like what
was the price, when and where was the sale made, who were
present, or who knew of it. The record is bereft too of documentary
proof that Victor Miralles exercised the rights and performed the
obligations of an owner for no tax declarations nor tax receipt has
been submitted or even adverted to. 10

With Victor Miralles lacking any just and legal right in the land, except
as an heir of Ciriaca, the transfer of the land from him to Cresenciana Inog
was ineffectual. As a consequence, Cresenciana Inog did not legally acquire
the land, and, in turn, did not validly transfer it to the petitioners.
B
Bar by res judicata is not applicable.
The petitioners submit that the final ruling in the criminal case had
already determined the issue of ownership of the land; and that such ruling in
the criminal case barred the issue of ownership in the civil case under the
doctrine of res judicata.
The submission has no merit.
Res judicata means a matter adjudged, a thing judicially acted upon or
decided; a thing or matter settled by judgment. 11 The doctrine of res
judicata is an old axiom of law, dictated by wisdom and sanctified by age, and
founded on the broad principle that it is to the interest of the public that there

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should be an end to litigation by the same parties over a subject once fully
and fairly adjudicated. It has been appropriately said that the doctrine is a rule
pervading every well-regulated system of jurisprudence, and is put upon two
grounds embodied in various maxims of the common law: the one, public
policy and necessity, which makes it to the interest of the State that there
should be an end to litigation — reipublicae ut sit finis litium; the other, the
hardship on the individual that he should be vexed twice for one and the same
cause — nemo debet bis vexari pro una et eadem causa. A contrary doctrine
will subject the public peace and quiet to the will and neglect of individuals
and prefer the gratification of the litigious disposition on the part of suitors to
the preservation of the public tranquillity and happiness. 12 TacADE

Under the doctrine of res judicata, a final judgment or decree on the

merits rendered by a court of competent jurisdiction is conclusive of the rights
of the parties or their privies in all later suits and on all points and matters
determined in the previous suit. 13 The foundation principle upon which the
doctrine rests is that the parties ought not to be permitted to litigate the same
issue more than once; that when a right or fact has been judicially tried and
determined by a court of competent jurisdiction, so long as it remains
unreversed, should be conclusive upon the parties and those in privity with
them in law or estate. 14
For res judicata to bar the institution of a subsequent action, the
following requisites must concur: (1) the former judgment must be final; (2) it
must have been rendered by a court having jurisdiction over the subject
matter and the parties; (3) it must be a judgment on the merits; and (4) there
must be between the first and second actions (a) identity of parties, (b)
identity of the subject matter, and (c) identity of cause of action. 15
The doctrine of res judicata has two aspects: the first, known as bar by
prior judgment, or estoppel by verdict, is the effect of a judgment as a bar to
the prosecution of a second action upon the same claim, demand, or cause of
action; the second, known as conclusiveness of judgment, also known as the
rule of auter action pendant, ordains that issues actually and directly resolved
in a former suit cannot again be raised in any future case between the same
parties involving a different cause of action and has the effect of preclusion of
issues only. 16
Based on the foregoing standards, this action is not barred by the
doctrine of res judicata.
First of all, bar by prior judgment, the first aspect of the doctrine, is not
applicable, because the causes of action in the civil and the criminal actions
were different and distinct from each other. The civil action is for the recovery
of ownership of the land filed by the petitioners, while the criminal action was
to determine whether the act of the respondents of taking the coconut fruits

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from the trees growing within the disputed land constituted the crime of
qualified theft. In the former, the main issue is the legal ownership of the land,
but in the latter, the legal ownership of the land was not the main issue. The
issue of guilt or innocence was not dependent on the ownership of the land,
inasmuch as a person could be guilty of theft of the growing fruits even if he
were the owner of the land.
Conclusiveness of judgment is not also applicable. The petitioners
themselves commenced both actions, and fully and directly participated in the
trial of both actions. Any estoppel from assailing the authority of the CA to
determine the ownership of the land based on the evidence presented in the
civil action applied only to the petitioners, who should not be allowed to assail
the outcome of the civil action after the CA had ruled adversely against
them. CcAHEI

Moreover, the doctrine of conclusiveness of judgment is subject to

exceptions, such as where there is a change in the applicable legal context, or
to avoid inequitable administration of justice. 17 Applying the doctrine of
conclusiveness of judgments to this case will surely be iniquitous to the
respondents who have rightly relied on the civil case, not on the criminal case,
to settle the issue of ownership of the land. This action for recovery of
ownership was brought precisely to settle the issue of ownership of the
property. In contrast, the pronouncement on ownership of the land made in
the criminal case was only the response to the respondents having raised the
ownership as a matter of defense.
WHEREFORE, the petition for review on certiorari is denied, and the
decision rendered on May 15, 2001 by the Court of Appeals is affirmed.
Costs of suit to be paid by the petitioners.
SO ORDERED.
Carpio Morales, Brion, Abad * and Villarama, Jr., JJ., concur.
||| (Spouses Tumbokon v. Legaspi, G.R. No. 153736, [August 4, 2010], 641 PHIL
48-63)

#3 SPOUSES REX AND CONCEPCION AGGABAO v. DIONISIO PARULAN,

JR
GR No. 165803; September 1, 2010

[G.R. No. 165803. September 1, 2010.]

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SPOUSES REX and CONCEPCION AGGABAO, petitioners, vs.
DIONISIO Z. PARULAN, JR. and MA. ELENA
PARULAN, respondents.

DECISION

BERSAMIN, J : p

On July 26, 2000, the Regional Trial Court (RTC), Branch 136, in
Makati City annulled the deed of absolute sale executed in favor of the
petitioners covering two parcels of registered land the respondents owned for
want of the written consent of respondent husband Dionisio Parulan, Jr. On
July 2, 2004, in C.A.-G.R. CV No. 69044, 1 the Court of Appeals (CA) affirmed
the RTC decision.
Hence, the petitioners appeal by petition for review on certiorari,
seeking to reverse the decision of the CA. They present as the main issue
whether the sale of conjugal property made by respondent wife by presenting
a special power of attorney to sell (SPA) purportedly executed by respondent
husband in her favor was validly made to the vendees, who allegedly acted in
good faith and paid the full purchase price, despite the showing by the
husband that his signature on the SPA had been forged and that the SPA had
been executed during his absence from the country.
We resolve the main issue against the vendees and sustain the CA's
finding that the vendees were not buyers in good faith, because they did not
exercise the necessary prudence to inquire into the wife's authority to sell. We
hold that the sale of conjugal property without the consent of the husband was
not merely voidable but void; hence, it could not be ratified.
Antecedents
Involved in this action are two parcels of land and their improvements
(property) located at No. 49 Miguel Cuaderno Street, Executive Village, BF
Homes, Parañaque City and registered under Transfer Certificate of Title
(TCT) No. 63376 2 and TCT No. 63377 3 in the name of respondents
Spouses Maria Elena A. Parulan (Ma. Elena) and Dionisio Z. Parulan, Jr.
(Dionisio), who have been estranged from one another. aEHADT

In January 1991, real estate broker Marta K. Atanacio (Atanacio)

offered the property to the petitioners, who initially did not show interest due to
the rundown condition of the improvements. But Atanacio's persistence
prevailed upon them, so that on February 2, 1991, they and Atanacio met with
Ma. Elena at the site of the property. During their meeting, Ma. Elena showed

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to them the following documents, namely: (a) the owner's original copy of TCT
No. 63376; (b) a certified true copy of TCT No. 63377; (c) three tax
declarations; and (d) a copy of the special power of attorney (SPA) dated
January 7, 1991 executed by Dionisio authorizing Ma. Elena to sell the
property. 4 Before the meeting ended, they paid P20,000.00 as earnest
money, for which Ma. Elena executed a handwritten Receipt of Earnest
Money,whereby the parties stipulated that: (a) they would pay an additional
payment of P130,000.00 on February 4, 1991; (b) they would pay the balance
of the bank loan of the respondents amounting to P650,000.00 on or before
February 15, 1991; and (c) they would make the final payment of P700,000.00
once Ma. Elena turned over the property on March 31, 1991. 5
On February 4, 1991, the petitioners went to the Office of the Register
of Deeds and the Assessor's Office of Parañaque City to verify the TCTs
shown by Ma. Elena in the company of Atanacio and her husband (also a
licensed broker). 6 There, they discovered that the lot under TCT No. 63376
had been encumbered to Banco Filipino in 1983 or 1984, but that the
encumbrance had already been cancelled due to the full payment of the
obligation. 7 They noticed that the Banco Filipino loan had been effected
through an SPA executed by Dionisio in favor of Ma. Elena. 8 They found on
TCT No. 63377 the annotation of an existing mortgage in favor of the Los
Baños Rural Bank, also effected through an SPA executed by Dionisio in
favor of Ma. Elena, coupled with a copy of a court order authorizing Ma. Elena
to mortgage the lot to secure a loan of P500,000.00. 9
The petitioners and Atanacio next inquired about the mortgage and the
court order annotated on TCT No. 63377 at the Los Baños Rural Bank. There,
they met with Atty. Noel Zarate, the bank's legal counsel, who related that the
bank had asked for the court order because the lot involved was conjugal
property. 10
Following their verification, the petitioners delivered P130,000.00 as
additional down payment on February 4, 1991; and P650,000.00 to the Los
Baños Rural Bank on February 12, 1991, which then released the owner's
duplicate copy of TCT No. 63377 to them. 11
On March 18, 1991, the petitioners delivered the final amount of
P700,000.00 to Ma. Elena, who executed a deed of absolute sale in their
favor. However, Ma. Elena did not turn over the owner's duplicate copy of
TCT No. 63376, claiming that said copy was in the possession of a relative
who was then in Hongkong. 12 She assured them that the owner's duplicate
copy of TCT No. 63376 would be turned over after a week.
On March 19, 1991, TCT No. 63377 was cancelled and a new one was
issued in the name of the petitioners.

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Ma. Elena did not turn over the duplicate owner's copy of TCT No.
63376 as promised. In due time, the petitioners learned that the duplicate
owner's copy of TCT No. 63376 had been all along in the custody of Atty.
Jeremy Z. Parulan, who appeared to hold an SPA executed by his brother
Dionisio authorizing him to sellboth lots. 13 IADCES

At Atanacio's instance, the petitioners met on March 25, 1991 with Atty.
Parulan at the Manila Peninsula. 14 For that meeting, they were accompanied
by one Atty. Olandesca. 15 They recalled that Atty. Parulan "smugly
demanded P800,000.00" in exchange for the duplicate owner's copy of TCT
No. 63376, because Atty. Parulan represented the current value of the
property to be P1.5 million. As a counter-offer, however, they tendered
P250,000.00, which Atty. Parulan declined, 16giving them only until April 5,
1991 to decide.
Hearing nothing more from the petitioners, Atty. Parulan decided to call
them on April 5, 1991, but they informed him that they had already fully paid
to Ma. Elena. 17
Thus, on April 15, 1991, Dionisio, through Atty. Parulan, commenced an
action (Civil Case No. 91-1005 entitled Dionisio Z. Parulan, Jr., represented
by Jeremy Z. Parulan, as attorney in fact v. Ma. Elena Parulan, Sps. Rex and
Coney Aggabao), praying for the declaration of the nullity of the deed of
absolute sale executed by Ma. Elena, and the cancellation of the title issued
to the petitioners by virtue thereof.
In turn, the petitioners filed on July 12, 1991 their own action for specific
performance with damages against the respondents.
Both cases were consolidated for trial and judgment in the RTC. 18
Ruling of the RTC
After trial, the RTC rendered judgment, as follows:
WHEREFORE, and in consideration of the foregoing, judgment is
hereby rendered in favor of plaintiff Dionisio A. Parulan, Jr. and against
defendants Ma. Elena Parulan and the Sps. Rex and Concepcion
Aggabao, without prejudice to any action that may be filed by the Sps.
Aggabao against co-defendant Ma. Elena Parulan for the amounts they
paid her for the purchase of the subject lots, as follows:
1. The Deed of Absolute Sale dated March 18, 1991 covering the
sale of the lot located at No. 49 M. Cuaderno St., Executive Village, BF
Homes, Parañaque, Metro Manila, and covered by TCT Nos. 63376 and
63377 is declared null and void.
2. Defendant Mrs. Elena Parulan is directed to pay litigation
expenses amounting to P50,000.00 and the costs of the suit.

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SO ORDERED. 19

The RTC declared that the SPA in the hands of Ma. Elena was a
forgery, based on its finding that Dionisio had been out of the country at the
time of the execution of the SPA; 20 that NBI Sr. Document Examiner Rhoda
B. Flores had certified that the signature appearing on the SPA purporting to
be that of Dionisio and the set of standard sample signatures of Dionisio had
not been written by one and the same person; 21 and that Record Officer III
Eliseo O. Terenco and Clerk of Court Jesus P. Maningas of the Manila RTC
had issued a certification to the effect that Atty. Alfred Datingaling, the Notary
Public who had notarized the SPA, had not been included in the list of
Notaries Public in Manila for the year 1990-1991. 22 ACcTDS

The RTC rejected the petitioners' defense of being buyers in good faith
because of their failure to exercise ordinary prudence, including demanding
from Ma. Elena a court order authorizing her to sell the properties similar to
the order that the Los Baños Rural Bank had required before accepting the
mortgage of the property. 23 It observed that they had appeared to be in a
hurry to consummate the transaction despite Atanacio's advice that they first
consult a lawyer before buying the property; that with ordinary prudence, they
should first have obtained the owner's duplicate copies of the TCTs before
paying the full amount of the consideration; and that the sale was void
pursuant to Article 124 of the Family Code. 24
Ruling of the CA
As stated, the CA affirmed the RTC, opining that Article 124 of the Family
Code applied because Dionisio had not consented to the sale of the conjugal
property by Ma. Elena; and that the RTC correctly found the SPA to be a forgery.
The CA denied the petitioners' motion for reconsideration. 25
Issues
The petitioners now make two arguments: (1) they were buyers in good
faith; and (2) the CA erred in affirming the RTC's finding that the sale between
Mrs. Elena and the petitioners had been a nullity under Article 124 of
the Family Code.
The petitioners impute error to the CA for not applying the "ordinary
prudent man's standard" in determining their status as buyers in good faith.
They contend that the more appropriate law to apply was Article 173 of
the Civil Code, not Article 124 of the Family Code; and that even if the SPA
held by Ma. Elena was a forgery, the ruling in Veloso v. Court of
Appeals 26 warranted a judgment in their favor.
Restated, the issues for consideration and resolution are as follows:

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1) Which between Article 173 of the Civil Code and Article 124 of
the Family Code should apply to the sale of the conjugal
property executed without the consent of Dionisio?
2) Might the petitioners be considered in good faith at the time of
their purchase of the property?
3) Might the ruling in Veloso v. Court of Appeals be applied in favor
of the petitioners despite the finding of forgery of the SPA?
Ruling
The petition has no merit. We sustain the CA. AcHaTE

1.
Article 124, Family Code, applies to sale of conjugal
properties made after the effectivity of the Family Code
The petitioners submit that Article 173 of the Civil Code, not Article 124
of the Family Code, governed the property relations of the respondents
because they had been married prior to the effectivity of the Family Code; and
that the second paragraph of Article 124 of the Family Code should not apply
because the other spouse held the administration over the conjugal property.
They argue that notwithstanding his absence from the country Dionisio still
held the administration of the conjugal property by virtue of his execution of
the SPA in favor of his brother; and that even assuming that Article 124 of
the Family Code properly applied, Dionisio ratified the sale through Atty.
Parulan's counter-offer during the March 25, 1991 meeting.
We do not subscribe to the petitioners' submissions.
To start with, Article 254 27 of the Family Code has expressly repealed
several titles under the Civil Code, among them the entire Title VI in which the
provisions on the property relations between husband and wife, Article 173
included, are found.
Secondly, the sale was made on March 18, 1991, or after August 3,
1988, the effectivity of the Family Code. The proper law to apply is, therefore,
Article 124 of the Family Code, for it is settled that any alienation or
encumbrance of conjugal property made during the effectivity of the Family
Code is governed by Article 124 of the Family Code. 28 TaDIHc

Article 124 of the Family Code provides:

Article 124. The administration and enjoyment of the conjugal
partnership property shall belong to both spouses jointly. In case of
disagreement, the husband's decision shall prevail, subject to recourse
to the court by the wife for proper remedy, which must be availed of

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within five years from the date of the contract implementing such
decision.
In the event that one spouse is incapacitated or otherwise
unable to participate in the administration of the conjugal
properties, the other spouse may assume sole powers of
administration. These powers do not include disposition or
encumbrance without authority of the court or the written consent
of the other spouse. In the absence of such authority or consent,
the disposition or encumbrance shall be void. However, the
transaction shall be construed as a continuing offer on the part of the
consenting spouse and the third person, and may be perfected as a
binding contract upon the acceptance by the other spouse or
authorization by the court before the offer is withdrawn by either or both
offerors.

Thirdly, according to Article 256 29 of the Family Code, the provisions of

the Family Code may apply retroactively provided no vested rights are
impaired. InTumlos v. Fernandez, 30 the Court rejected the petitioner's
argument that the Family Code did not apply because the acquisition of the
contested property had occurred prior to the effectivity of the Family Code,
and pointed out that Article 256 provided that the Family Code could apply
retroactively if the application would not prejudice vested or acquired rights
existing before the effectivity of the Family Code. Herein, however, the
petitioners did not show any vested right in the property acquired prior to
August 3, 1988 that exempted their situation from the retroactive application
of the Family Code.
Fourthly, the petitioners failed to substantiate their contention that
Dionisio, while holding the administration over the property, had delegated to
his brother, Atty. Parulan, the administration of the property, considering that
they did not present in court the SPA granting to Atty. Parulan the authority for
the administration.
Nonetheless, we stress that the power of administration does not
include acts of disposition or encumbrance, which are acts of strict ownership.
As such, an authority to dispose cannot proceed from an authority to
administer, and vice versa, for the two powers may only be exercised by an
agent by following the provisions on agency of the Civil Code (from Article
1876 to Article 1878). Specifically, the apparent authority of Atty. Parulan,
being a special agency, was limited to the sale of the property in question,
and did not include or extend to the power to administer the property. 31
Lastly, the petitioners' insistence that Atty. Parulan's making of a
counter-offer during the March 25, 1991 meeting ratified the sale merits no
consideration. Under Article 124 of the Family Code, the transaction

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executed sans the written consent of Dionisio or the proper court order was
void; hence, ratification did not occur, for a void contract could not be
ratified. 32
On the other hand, we agree with Dionisio that the void sale was a
continuing offer from the petitioners and Ma. Elena that Dionisio had the
option of accepting or rejecting before the offer was withdrawn by either or
both Ma. Elena and the petitioners. The last sentence of the second
paragraph of Article 124 of theFamily Code makes this clear, stating that in
the absence of the other spouse's consent, the transaction should be
construed as a continuing offer on the part of the consenting spouse and the
third person, and may be perfected as a binding contract upon the acceptance
by the other spouse or upon authorization by the court before the offer is
withdrawn by either or both offerors.cCTAIE

2.
Due diligence required in verifying not only vendor's title,
but also agent's authority to sell the property
A purchaser in good faith is one who buys the property of another,
without notice that some other person has a right to, or interest in, such
property, and pays the full and fair price for it at the time of such purchase or
before he has notice of the claim or interest of some other persons in the
property. He buys the property with the belief that the person from whom he
receives the thing was the owner and could convey title to the property. He
cannot close his eyes to facts that should put a reasonable man on his guard
and still claim he acted in good faith. 33 The status of a buyer in good faith is
never presumed but must be proven by the person invoking it. 34
Here, the petitioners disagree with the CA for not applying the "ordinary
prudent man's standard" in determining their status as buyers in good faith.
They insist that they exercised due diligence by verifying the status of the
TCTs, as well as by inquiring about the details surrounding the mortgage
extended by the Los Baños Rural Bank. They lament the holding of the CA
that they should have been put on their guard when they learned that the Los
Baños Rural Bank had first required a court order before granting the loan to
the respondents secured by their mortgage of the property.
The petitioners miss the whole point.
Article 124 of the Family Code categorically requires the consent
of both spouses before the conjugal property may be disposed of by sale,
mortgage, or other modes of disposition. In Bautista v. Silva, 35 the Court
erected a standard to determine the good faith of the buyers dealing with a
seller who had title to and possession of the land but whose capacity to sell
was restricted, in that the consent of the other spouse was required before the

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conveyance, declaring that in order to prove good faith in such a situation, the
buyers must show that they inquired not only into the title of the seller but also
into the seller's capacity to sell. 36 Thus, the buyers of conjugal property must
observe two kinds of requisite diligence, namely: (a) the diligence in verifying
the validity of the title covering the property; and(b) the diligence in inquiring
into the authority of the transacting spouse to sell conjugal property in behalf
of the other spouse.
It is true that a buyer of registered land needs only to show that he has
relied on the face of the certificate of title to the property, for he is not required
to explore beyond what the certificate indicates on its face. 37 In this respect,
the petitioners sufficiently proved that they had checked on the authenticity of
TCT No. 63376 and TCT No. 63377 with the Office of the Register of Deeds
in Pasay City as the custodian of the land records; and that they had also
gone to the Los Baños Rural Bank to inquire about the mortgage annotated
on TCT No. 63377. Thereby, the petitioners observed the requisite diligence
in examining the validity of the TCTs concerned. ADETca

Yet, it ought to be plain enough to the petitioners that the issue was
whether or not they had diligently inquired into the authority of Ma. Elena to
convey the property, not whether or not the TCT had been valid and
authentic, as to which there was no doubt. Thus, we cannot side with them.
Firstly, the petitioners knew fully well that the law demanded the written
consent of Dionisio to the sale, but yet they did not present evidence to show
that they had made inquiries into the circumstances behind the execution of
the SPA purportedly executed by Dionisio in favor of Ma. Elena. Had they
made the appropriate inquiries, and not simply accepted the SPA for what it
represented on its face, they would have uncovered soon enough that the
respondents had been estranged from each other and were under de
facto separation, and that they probably held conflicting interests that would
negate the existence of an agency between them. To lift this doubt, they must,
of necessity, further inquire into the SPA of Ma. Elena. The omission to
inquire indicated their not being buyers in good faith, for, as fittingly observed
in Domingo v. Reed: 38
What was required of them by the appellate court, which we
affirm, was merely to investigate — as any prudent vendee should — the
authority of Lolita to sell the property and to bind the partnership. They
had knowledge of facts that should have led them to inquire and to
investigate, in order to acquaint themselves with possible defects in her
title. The law requires them to act with the diligence of a prudent person;
in this case, their only prudent course of action was to investigate
whether respondent had indeed given his consent to the sale and
authorized his wife to sell the property. 39

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Indeed, an unquestioning reliance by the petitioners on Ma. Elena's
SPA without first taking precautions to verify its authenticity was not a prudent
buyer's move. 40 They should have done everything within their means and
power to ascertain whether the SPA had been genuine and authentic. If they
did not investigate on the relations of the respondents vis-Ã -vis each other,
they could have done other things towards the same end, like attempting to
locate the notary public who had notarized the SPA, or checked with the RTC
in Manila to confirm the authority of Notary Public Atty. Datingaling. It turned
out that Atty. Datingaling was not authorized to act as a Notary Public for
Manila during the period 1990-1991, which was a fact that they could easily
discover with a modicum of zeal.
Secondly, the final payment of P700,000.00 even without the owner's
duplicate copy of the TCT No. 63376 being handed to them by Ma. Elena
indicated a revealing lack of precaution on the part of the petitioners. It is true
that she promised to produce and deliver the owner's copy within a week
because her relative having custody of it had gone to Hongkong, but their
passivity in such an essential matter was puzzling light of their earlier alacrity
in immediately and diligently validating the TCTs to the extent of inquiring at
the Los Baños Rural Bank about the annotated mortgage. Yet, they could
have rightly withheld the final payment of the balance. That they did not do so
reflected their lack of due care in dealing with Ma. Elena. aSTAIH

Lastly, another reason rendered the petitioners' good faith incredible.

They did not take immediate action against Ma. Elena upon discovering that
the owner's original copy of TCT No. 63376 was in the possession of Atty.
Parulan, contrary to Elena's representation. Human experience would have
impelled them to exert every effort to proceed against Ma. Elena, including
demanding the return of the substantial amounts paid to her. But they seemed
not to mind her inability to produce the TCT, and, instead, they contented
themselves with meeting with Atty. Parulan to negotiate for the possible
turnover of the TCT to them.
3.
Veloso v. Court of Appeals cannot help petitioners
The petitioners contend that the forgery of the SPA notwithstanding, the
CA could still have decided in their favor conformably with Veloso v. Court of
Appeals,41 a case where the petitioner husband claimed that his signature
and that of the notary public who had notarized the SPA the petitioner
supposedly executed to authorize his wife to sell the property had been
forged. In denying relief, the Court upheld the right of the vendee as an
innocent purchaser for value.
Veloso is inapplicable, however, because the contested property
therein was exclusively owned by the petitioner and did not belong to the
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conjugal regime.Veloso being upon conjugal property, Article 124 of
the Family Code did not apply.
In contrast, the property involved herein pertained to the conjugal
regime, and, consequently, the lack of the written consent of the husband
rendered the sale void pursuant to Article 124 of the Family Code. Moreover,
even assuming that the property involved in Veloso was conjugal, its sale was
made on November 2, 1987, or prior to the effectivity of the Family Code;
hence, the sale was still properly covered by Article 173 of the Civil Code,
which provides that a sale effected without the consent of one of the spouses
is only voidable, not void. However, the sale herein was made already during
the effectivity of the Family Code, rendering the application of Article 124 of
the Family Code clear and indubitable.
The fault of the petitioner in Veloso was that he did not adduce
sufficient evidence to prove that his signature and that of the notary public on
the SPA had been forged. The Court pointed out that his mere allegation that
the signatures had been forged could not be sustained without clear and
convincing proof to substantiate the allegation. Herein, however, both the
RTC and the CA found from the testimonies and evidence presented by
Dionisio that his signature had been definitely forged, as borne out by the
entries in his passport showing that he was out of the country at the time of
the execution of the questioned SPA; and that the alleged notary public, Atty.
Datingaling, had no authority to act as a Notary Public for Manila during the
period of 1990-1991. DSETac

WHEREFORE, we deny the petition for review on certiorari, and affirm

the decision dated July 2, 2004 rendered by the Court of Appeals in C.A.-G.R.
CV No. 69044 entitled "Dionisio Z. Parulan, Jr. vs. Ma. Elena Parulan and
Sps. Rex and Concepcion Aggabao" and "Sps. Rex and Concepcion
Aggabao vs. Dionisio Z. Parulan, Jr. and Ma. Elena Parulan."
Costs of suit to be paid by the petitioners.
SO ORDERED.
Carpio Morales, Del Castillo, * Villarama, Jr. and Sereno, JJ., concur.
(Spouses Aggabao v. Spouses Parulan, Jr., G.R. No. 165803, [September 1,
|||

2010], 644 PHIL 26-43)

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#4 FAR EAST BANK AND TRUST COMPANY v. PHILIPPINE DEPOSIT

INSURANCE CORPORATION
GR No. 172983; July 22, 2015

[G.R. No. 172983. July 22, 2015.]

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FAR EAST BANK AND TRUST
COMPANY, petitioner, vs.PHILIPPINE DEPOSIT INSURANCE
CORPORATION, respondent.

DECISION

BRION, J :p

Before the Court is a petition for review on certiorari 1 filed by the

petitioner Far East Bank and Trust Company (FEBTC),assailing the May 31,
2006 decision 2 of the Court of Appeals (CA) in CA-G.R. C.V. No. 56624.
The CA decision reversed and set aside the orders dated February 26,
1997, and May 21, 1997, of the Regional Trial Court (RTC),Branch 31,
Manila, in Special Proceeding No. 86-35313.
The Factual Antecedents
On July 5, 1985, the Central Bank of the Philippines (Central
Bank) issued Monetary Board (MB) Resolution No. 699, placing Pacific
Banking Corporation (PBC)under receivership. 3
On October 28, 1985, the Central Bank formally invited banks to submit
their proposals for the purchase of the assets and franchise of the various
offices of the PBC and the assumption of an equivalent amount of the PBC's
liabilities. 4
In answer to the formal invitation, the FEBTC submitted its bid 5 on
November 14, 1985.
The FEBTC's bid covered the purchase of the PBC's non-fixed and
fixed assets and the assumption of the PBC's recorded
liabilities. 6 According to the bid, the fixed assets are those described in the
Asian Appraisal Report of August 1, 1984, and August 9, 1984 (Asian
Appraisal Report),which the FEBTC offered to purchase at a price equivalent
to the sound values indicated in the report, subject to the discounts proposed
in the bid. 7
Specifically, the assets and their corresponding valuation that were
enumerated in the Asian Appraisal Report 8 are as follows:
Cost of Reproduction Sound Value

Cubao, Quezon City, P19,604,000 P16,844,000

Metropolitan Manila

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Paco, Manila 3,836,000 3,288,000
Sta. Cruz, Manila 3,126,750 2,445,750
(Soler) 9
Sta. Mesa, Manila 12,500,400 10,213,000
Bacolod City 12,522,900 9,728,000
Melencio Street, 3,878,600 3,157,500
Cabanatuan City
A.V. Fernandez 9,873,000 8,325,000
Avenue, Dagupan City
E. Tañedo Street, 5,622,000 5,227,000
Tarlac, Tarlac
A. Flores Street, San 3,434,800 3,151,800
Pablo City
Cebu City 3,921,700 3,112,200
Davao City 6,844,200 5,938,800
Iloilo City 5,383,000 3,803,000
Quezon Avenue, San 3,587,800 2,729,400
Fernando, La Union
Laoag City 1,781,000 1,293,000
Bo. Centro, Legaspi 3,132,300 2,400,000
City
Poblacion, Naga City 6,280,900 5,569,600
––––––––––––– ––––––––––––
Grand Total P105,329,350 P87,226,050
Rounded To P105,329,000 P87,226,000

On November 22, 1985, the Monetary Board issued MB Resolution No.

1234, accepting the FEBTC's bid after finding it as the most
advantageous. 10 CAIHTE

On April 16, 1986, the FEBTC as the buyer,the PBC as the

seller,and the Central Bank entered into a Memorandum of
Agreement (MOA).The PBC was represented by its Liquidator Renan V.
Santos (Liquidator Santos) 11 who was then the Special Assistant to the
Central Bank Governor.
Section 1 12 of the MOA stated that the parties shall execute an
absolute purchase agreement covering all the assets of the
PBC. 13 Specifically, these assets covered the non-fixed assets,as provided
under Section 3 (a) 14 of the MOA and the fixed assets defined under
Section 3 (c).15 Reflecting the FEBTC's bid, Section 3 (c) 16 of the MOA

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stated that the fixed assets are those enumerated in the Asian Appraisal
Report dated August 1984. 17
The parties agreed, however, in Section 1 (a) (vii) of the MOA that the
PBC assets submitted to the Central Bank as collaterals shall be excluded
from the purchase. 18
In accordance with Section 1 (a) 19 of the MOA, the PBC as
the seller,the FEBTC as the buyer,and the Central Bank, executed a
purchase agreement (PA)for the FEBTC's purchase of the PBC assets and
the assumption of its liabilities. 20 The PBC was again represented by
Liquidator Santos.
The PA merely covered the non-fixed assets of the PBC and did
not include the fixed assets agreed upon under Section 3 (c) 21 of the
MOA. 22
The parties acknowledged, however, that there were other assets not
yet covered by the PA and that the parties may agree, within a period of
ninety (90) days from the effectivity date of the PA, to purchase the
additional assets. 23 The parties agreed that the effectivity date of the PA
shall be the date of its approval by the Liquidation Court. 24
The PA was approved 25 by the Monetary Board on October 24,
1986, and by the RTC, as the liquidating court, on December 18, 1986. 26
According to the FEBTC, it complied with its obligation under the MOA,
including the payment of P260,000,000.00 as additional consideration for the
purchase. The FEBTC also took possession and custody of the fixed assets
of the PBC, including those mentioned in the Asian Appraisal Report, and
opened its branches thereon including the servicing of the PBC's deposit
liability. 27
In January 1987, the FEBTC wrote a letter to Liquidator Santos,
following up the execution of the deeds of sale over the fixed assets of the
PBC. 28
Initially, Liquidator Santos positively responded to the FEBTC request
by furnishing it with copies of the transfer certificates of title of the fixed
assets. 29However, he failed to execute the purchase agreement covering the
disputed fixed assets. 30
The respondent Philippine Deposit Insurance
Commission (PDIC),thereafter, took over as the new PBC Liquidator. The
PDIC President Mr. Vitaliano Nañagas II (Liquidator Nañagas) replaced
Liquidator Santos.
Liquidator Nañagas informed the FEBTC that all the fixed assets of the
PBC can be purchased only at their present appraisal value which is much

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higher than their sound value. 31 He also proceeded to start the bidding or
negotiated sale to third persons of the PBC's fixed assets, including those
enumerated in the Asian Appraisal's Report. 32
This move prompted the FEBTC to file before the RTC (the Liquidating
Court) a motion to compel the Liquidator to execute the implementing
deeds of sale over the disputed PBC fixed assets, 33 with application for
the issuance of preliminary injunction and/or temporary restraining
order (TRO). 34
The disputed fixed assets are the PBC branches located at the
following sites:
1. Soler (Arranque)
2. Bacolod City
3. Cabanatuan City
4. San Pablo City
5. Cebu-Manalili
6. Davao-Sta. Ana
7. San Fernando, La Union
8. Legaspi City
9. Iloilo City-Central Market
10. PBC Condominium Bldg.-Paseo de Roxas
The PBC Condominium Bldg.-Paseo de Roxas was sold to
Security Bank and Trust Company in the RTC-approved compromise
agreement with PDIC and FEBTC; thus, this PBC asset is no longer in
dispute. 35 DETACa

The RTC issued a TRO, directing the PDIC to desist from proceeding
with the bidding or negotiated sale of the PBC fixed assets. 36
However, on November 16, 1993, the RTC denied the FEBTC's prayer
for the issuance of a writ of preliminary injunction and declared the TRO
automatically dissolved. 37 The RTC likewise ruled that the disputed
assets had been submitted as collaterals with the Central Bank and are
therefore excluded from the purchase pursuant to section 1 (a) (vii) 38 of
the MOA. 39
The CA and the Court affirmed the RTC's order denying the preliminary
injunction. 40

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The Motion-for-Intervention of Central
Bank Board of Liquidators before the
Court
On December 4, 2013, the Central Bank Board of Liquidators (CB-
BOL) filed before the Court a motion for leave to intervene with motion for
extension to file its memorandum-in-intervention. 41 In its memorandum-in-
intervention, 42 the CB-BOL alleged that the PBC had assigned to it the
disputed fixed assets by virtue of a deed of assignment. 43
The FEBTC filed its opposition 44 to the motion for leave to intervene.
The Court granted the motion for leave to intervene in its Resolution
dated August 13, 2014. 45 The Court ruled that the CB-BOL is a necessary
party in the case since it is the transferee of the properties in litigation.
Additionally, since the case arose from the liquidation proceedings before the
RTC, it is only proper that the Court decide who — between FEBTC (as the
alleged purchaser) and the Central Bank (the creditor and the PBC's former
liquidator) — has the superior right over the disputed properties. 46
The RTC Ruling
After the trial on the merits, the RTC issued the assailed order dated
February 26, 1997: (1) directing the PDIC to execute the implementing deeds
of absolute sale in favor of the FEBTC; and (2) ordering the FEBTC to pay the
price for the fixed assets in the amount equivalent to their sound values as
stated in the Asian Appraisal Report. 47
The RTC concluded that, first,there was a perfected contract of sale or
direct purchase of the disputed fixed assets under both the MOA and the PA;
these fixed assets were identified and valuated in the Asian Appraisal
Report. 48
Furthermore, the amount of P260,000,000.00 that the FEBTC
previously paid pursuant to the MOA was part of the consideration and did not
merely serve as authority to operate and reopen the PBC branches. 49
Second,the RTC ruled that the fixed assets were not actually submitted
as collaterals with the Central Bank, as admitted by Ms. Teresa Salcor who
was an Account Officer of the Central Bank Board of
Liquidators. 50 Therefore, the disputed assets should not be excluded from
the assets that the FEBTC purchased under the MOA.
According to the RTC, Ms. Salcor also admitted that the FEBTC was
not notified that the disputed assets were mortgaged to the Central Bank. 51
Third,the authenticity of the deeds of real estate mortgage submitted to
the court was suspicious. The deeds and annexes were not signed and did

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not bear any notarial seal, contrary to the statement in the acknowledgment
portion of the deeds.
The alleged mortgages were also not annotated on the respective titles
of the mortgaged properties, and hence, were not binding on third parties
such as the FEBTC.
Lastly,after the execution of the MOA and the PA in 1986, the
FEBTC immediately took possession of the fixed assets and introduced
improvements thereon with the knowledge of the PDIC. It was only in
June 1993 that the PDIC assessed rentals for the use and occupation of the
disputed assets. 52
On May 21, 1997, the RTC denied the PDIC's motion for
reconsideration, prompting the PDIC to file an appeal with the CA. 53
The CA Ruling
The CA granted the petition and reversed the RTC's decision. 54
First,the CA relied on the RTC's initial findings during the preliminary
injunction proceedings that the disputed fixed assets had been submitted as
collaterals with the Central Bank and are thus excluded from the
purchase. 55 The CA emphasized that this RTC ruling was upheld by the CA
and by the Court. 56aDSIHc

Second,the CA concluded that the parties intended the PA to be the

final and absolute repository of the terms of their transactions. Although the
RTC subsequently found that the fixed assets were not submitted as
collaterals to the Central Bank, the fact remains that these were not included
in the PA and, therefore were not purchased by the FEBTC. 57
Third,since the PA was the final repository of the parties' agreement,
Section 10 of the MOA (which provides that the P260 million shall be paid by
the FEBTC as further consideration) should yield to Section 9 of the PA which
provides that the P260 million was paid as a premium concomitant with the
transfer of authority to the FEBTC to open and operate the 43 banking
offices/branches of PBC. 58
Based on the above reasons, the CA ruled that the RTC erred in
directing the Liquidator to execute the deeds of sale over these properties. 59
The Parties' Arguments
The FEBTC Arguments
The FEBTC argues that, first,the CA failed to address the real issue
and had decided the case on the bases of a non-issue, by ruling that the
disputed fixed assets of the PBC were not part of the assets that the FEBTC
purchased under the PA. 60 The real issue is whether or not there had been a

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perfected contract of sale under the MOA among the FEBTC, the PBC, and
the Central Bank, which imposed upon the Liquidator the obligation to execute
the deeds of sale over the disputed fixed assets. 61
Second,the FEBTC further argues that the MOA adopted the FEBTC's
bid to purchase all the PBC's fixed assets as described in the Asian Appraisal
Report on the basis of its sound value less any assigned depreciation
accruing thereon from August 1984 up to the valuation date. The MOA further
clarified that the P260 million bid price proposed by the FEBTC was a
premium to be paid as further consideration for the sale of the assets and the
assumption of the liabilities of PBC. 62
Lastly,the CA erred in relying on the initial findings of the RTC that the
disputed fixed assets had been submitted to the Central Bank as collateral
and were thus excluded from the purchase under the MOA. 63
The PDIC Arguments
The PDIC countered that first,the CA was correct when it addressed
the issue of whether or not the FEBTC acquired ownership over the disputed
PBC fixed assets. 64
Second,the CA was correct in ruling that the PA was the final and
absolute repository of the terms of the sale transaction between the parties
and not the MOA. 65
The PDIC also adopted the CA's findings that even if the disputed
assets had not been mortgaged, still FEBTC did not directly purchase these
assets either under the MOA or the PA. 66
The Court's Ruling
The issue in this case is whether or not the PDIC, as the Liquidator
of the PBC, may be compelled to execute the deeds of sale over the nine
(9) 67disputed PBC fixed assets.
We rule in the affirmative, as there was a perfected contract of sale
over the disputed fixed assets.
It is well-established that a contract undergoes various stages that
include its negotiation or preparation, its perfection, and finally, its
consummation. 68
Negotiation covers the period from the time the prospective contracting
parties indicate interest in the contract to the time the contract is concluded
(perfected).The perfection of the contract takes place upon the concurrence
of its essential elements. A contract which is consensual as to perfection is so
established upon a mere meeting of minds, i.e.,the concurrence of offer and
acceptance, on the object and on the cause or consideration.

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The consummation stage begins when the parties perform their respective
undertakings under the contract, culminating in its extinguishment. 69
Specifically, contracts of sale are perfected by mutual consent, when
the seller obligates himself, for a price certain, to deliver and transfer
ownership of a specified thing or right to the buyer over which the latter
agrees. 70
Mutual consent, as a state of mind, may only be inferred from the
confluence of two acts of the parties: an offer certain as to the object of the
contract and its consideration, and an absolute acceptance of the
offer, i.e.,with respect to the exact object and consideration embodied in the
offer. While it may not be possible to expect the acceptance to echo every
nuance of the offer, it is imperative that it assents to those points in the offer
that, under the operative facts of each contract, are not only material but
motivating as well. 71
Simply put, a contract of sale is perfected upon the meeting of the
minds of the parties on the essential elements of the contract, i.e.,consent,
object certain, and the consideration of the contract.
Based on the above well-established principles, the Court rules that the
essential elements of a contract of sale are present in the MOA as confirmed
by the FEBTC's bid and the provisions of the MOA and the PA. This
conclusion becomes more apparent upon a closer review of the developments
in the various stages of the parties' contract of sale, as discussed below.
The negotiation stage of the contract of sale
As mentioned above, the FEBTC submitted its bid 72 to the Central
Bank in response to the latter's invitation to submit a formal proposal for the
purchase of the assets of the PBC. ETHIDa

The FEBTC's bid or offer included the purchase of selected assets of

the PBC consisting of the fixed and non-fixed assets,as follows:
"Our Bid is as follows:
I. The Purchase
We will purchase all assets of PaBC less the
following items:
(a) Past Due Loans
(b) Items under Litigation
(c) DOSRI Loans
(d) Acquired Assets

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(e) Loans/Assets which correspond to the foreign currency
deposits/liabilities excluded in accordance with No. 1,
below
(f) Other assets with unrealizable values as shall be agreed upon
by us.
The value of the assets purchased will be matched with
the PaBC liabilities which we will assume,to wit:
xxx xxx xxx
In addition to the above,
a) As further consideration of our bid,we shall be authorized to
operate forty-two (42) branches of PaBC in the manner
and under the terms mentioned in our Bid Prices (See No.
II below).
xxx xxx xxx
c) The determination of the assets and liabilities will be done by
an acceptable independent auditor whose opinion shall be
considered final and shall mutually bind us.
d) Fixed assets shall be valued based on the sound values
per Asian Appraisal Report of August, 1984, subject to
the discounts stated in our Bid Prices.
xxx xxx xxx
i) It is understood that our bid concerns merely the purchase of
certain assets and liabilities of PaBC including the authority
to operate its branches. ...
II. The Bid Price
1. We are willing to pay CB, inclusive of the amount which will be
paid to the existing shareholders, the following individual
bid prices subject to the following conditions:
a. The sum of PESOS: THREE HUNDRED SIXTY
MILLION (P360,000,000.00),provided that:
i. within two (2) years from the date of our takeover,
we shall be authorized to relocate any of the
PaBC branches to other service areas
irregardless (sic) of category without the need
of investment in government securities.
Branches which will not be relocated will be
opened within a period of one (1) year, and
ii. there will be a discount of ten percent (10%)
on the sound value of the fixed asset as
determined in letter d.,above;

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OR
b. The sum of PESOS: THREE HUNDRED TEN MILLION
(P310,000,000.00),provided that,
i. within two (2) years from the date of our takeover,
we shall be authorized to relocate any of the
PaBC branches to other service areas in the
same category and/or lower category areas,
without the need of investment in government
securities. Branches which will not be
relocated will be opened within a period of
one (1) year, and
ii. there will be a discount of eight percent (8%)
of the sound value of the fixed assets
determined in letter d.,above;
OR
c. The sum of PESOS: TWO HUNDRED SIXTY MILLION
(P260,000,000.00),provided that:
i. within a period of one (1) year from the date of
takeover we shall be authorized to relocate
any of the PaBC branches to other service
areas of the same category and/or lower
category areas, without the need of
investment in government securities.
Branches which will not be relocated will be
opened within a period of one year, and
ii. there will be a discount of five per cent (5%) of
the sound value of the fixed assets per
letter d.,above;
OR
d. The sum of PESOS: TWO HUNDRED FIFTEEN
MILLION (P215,000,000.00),provided that:
i. within a period of one (1) year from the date of
takeover, we shall be authorized to relocate
any of the PaBC branches to other service
areas of a lower category; and
ii. there will be no discount on the sound value of the
fixed assets as determined by Asian
Appraisal Report of August, 1984. cSEDTC

2. The terms of payment of our bid price is as follows:

a. A downpayment of thirty percent (30%) of the bid price
upon the completion and execution of all documents

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necessary for us to take over the purchase of all the
assets and liabilities mentioned in No. 1 above; and
b. The balance equivalent to seventy percent (70%) of the
bid price to be paid in equal semi-annual
installments for five (5) years at fourteen percent
(14%) per annum.
3. We are agreeable to deposit with the CB the sum of PESOS:
FIVE MILLION (P5,000,000.00) upon the acceptance of
our proposal, applicable against the premium payable to
CB, and further conditioned, that in the event we fail to
implement our proposal within sixty (60) days from the date
that all the legal requirements and conditions of our
takeover of the assets of the PBC have been complied with
and delivered to us, the P5 million will be forfeited in favor
of CB. ..." [emphasis supplied]
In all the alternative bids above, the FEBTC consistently stated its
intent: (1) to include the purchase of the fixed assets enumerated in the
Asian Appraisal's Report of August 1984; and (2) that these fixed assets
are to be valued based on their sound values pursuant to the Asian Appraisal
Report of August 1984, subject to discount.
The perfection stage of the contract of sale
Subsequently, the FEBTC, the PBC, and the Central Bank entered into
a MOA that essentially adopted the FEBTC's bid.
Specifically, Section 1 (a) 73 of the MOA adopted the FEBTC's bid to
purchase all the PBC' assets, subject to proposed exclusions from the fixed
assets to be purchased. Section 1 (a) added a category of assets that were
excluded from the purchase — assets that had been submitted to the Central
Bank as collaterals.
Section 1 (b) 74 of the MOA likewise adopted the FEBTC's offer to
match the value of the assets purchased with the PBC's liabilities.
Among the alternative bids of the FEBTC in its bid offer, the
parties chose bid II (1) (d) 75 above, as incorporated in Section 10
(a) 76 and (b) 77 of the MOA. Furthermore, on the terms of payment, the
FEBTC's offer in II (2) was substantially incorporated in Sections 10 (c)
(i),78 10 (c) (ii),79 and 10 (d) 80 of the MOA.
The MOA covered, therefore, the purchase of the non-fixed assets and
the disputed fixed assets, their valuation and the manner of payment,
including discounts. The MOA contained the PBC's acceptance, as
represented by the Liquidator and by the Central Bank, of the relevant
provisions of the FEBTC bid; and the FEBTC's acceptance of any changes or
counter-offer made by the Liquidator and by the Central Bank.
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We thus find it clear that the essential elements for the perfection of
a contract of sale, i.e.,object, consideration, and consent were present in
the MOA.These elements are discussed in detail below.
a) Object of the contract
The object of the contract covered the purchase of the PBC's assets as
defined under Sections 1 (a),81 3 (a) 82 and 3 (c) 83 of the MOA, specifically
the following:
First,the non-fixed assets; 84
Second,the fixed assets as contained in the Asian Appraisal's Report,
which include the disputed fixed assets; 85 and
Third,the authority to re-open/relocate any of the PBC's branches to
other service areas within eighteen (18) months from the date of the execution
of the Absolute Purchase Agreement. 86
b) Consideration and Manner of Payment
i. for the non-fixed assets
For the non-fixed assets, Section 1 (b) 87 of the MOA provides that
it shall be compensated and matched by the FEBTC's simultaneous
assumption of the liabilities of the PBC in an amount that should be at least
equivalent to the value of the assets purchased as determined and valuated
by the SGV & Co.,whose opinion shall be considered final and mutually
binding on the parties. The reckoning period of the valuation was provided
under Section 3 (b) 88 of the MOA.
ii. for the fixed assets
The consideration for the fixed assets shall be their sound value less
any assigned depreciation accruing thereon from August 1984, up to the
valuation date as described in the Asian Appraisal's Report of August 1984,
which was incorporated in the MOA by way of reference. 89
There shall also be a discount of five percent (5%) of the value of the
fixed assets pursuant to the valuation of the Asian Appraisal of August 1984,
less their assigned depreciation from the date of the Appraisal's report to the
date of the execution of the Absolute Purchase Agreement. 90
iii. additional consideration for the purchase of the PBC's assets
In addition to the consideration for the fixed and non-fixed assets,
the parties likewise agreed that the FEBTC shall pay an additional or
further consideration of P260,000,000.00 for the sale of assets and the
assumption of the liabilities of the PBC. 91 SDAaTC

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The MOA also set the manner of payment for the additional
consideration above, 92 with an agreement that upon the execution of the
MOA, the FEBTC shall pay P5,000,000.00, which shall be applied against the
downpayment for the P260,000,000.00 additional consideration. 93
Thus viewed, the parties clearly had a meeting of minds on the
essential elements of the contract, perfecting therefore their contract of
sale. This meeting was embodied in their MOA which contained the
absolute acceptance of the offer and the essential elements of the
contract of sale.
Consummation stage, which includes
the execution of an absolute
purchase agreement over the
non-fixed assets
That the contract was already perfected could be confirmed by
supervening events enumerated below which prove that the parties
consummated the perfected contract of sale:
First,the FEBTC's down payment of P5,000,000.00 upon the execution
of the MOA was intended to be part of the purchase price as it was part of the
additional consideration of P260,000,000.00 referred to in Section 10 (c)
(i) 94 of the MOA. The P5 million downpayment therefore is earnest money
and is proof of the perfection of contract pursuant to Article 1482 95 of
the New Civil Code.
Second,as correctly found by the RTC, 96 the FEBTC took possession
of the subject fixed assets immediately after the execution of the MOA and the
PA. In fact, the FEBTC introduced improvements thereon with the knowledge
of the Liquidator, without the latter demanding any payment of rent from the
FEBTC. It was only in 1993 that the Liquidator demanded the payment of
rentals.
Third,the parties executed the PA over the non-fixed assets as
contemplated under Section 1 (a) 97 of the MOA.
Although the PA did not cover the purchase of the fixed assets, the
parties ensured in Section 4 98 of the PA that they may still execute
another purchase agreement for the assets that, due to time constraints,
were not included in the PA. That the parties contemplated a purchase
agreement for the fixed assetsis evident since these are the only remaining
assets purchased under the MOA that have not been covered by a purchase
agreement.
Fourth,upon the request of FEBTC preparatory to the execution of the
purchase agreement for the fixed assets, Liquidator Santos (who signed both

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the MOA and the PA) delivered to FEBTC the corresponding transfer
certificates of titles over the disputed assets.
In these lights, the CA clearly erred when it ruled that there was no
perfected contract of sale over the disputed fixed assets simply because the
PA did not include these fixed assets.
A contract of sale is perfected by the meeting of the minds of the
parties regardless of whether it was reduced to writing.
In Limketkai Sons Milling, Inc. v. CA,99 we ruled that the fact that the
deed of sale still had to be signed and notarized did not mean that no contract
had been perfected. A binding contract may exist between the parties whose
minds have met, although they did not affix their signatures to any written
document, as acceptance may be expressed or implied.
Furthermore, a sale of land, once consummated,is valid regardless of
the form it may have been entered into. The law or jurisprudence does not
mandate that the contract of sale be put in writing before such contract can
validly cede or transmit rights over a certain real property between the parties
themselves. 100
In view of the perfection of the contract of sale, the execution of
the PA over the fixed assets, like the executed PA over the non-fixed
assets, falls under the consummation stage and not the perfection
stage.
We emphasize that a contract is the law between the parties. Absent
any allegation and proof that the contract is contrary to law, morals, good
customs, public order or public policy, it should be complied with in good
faith. 101
Pursuant to the obligatory nature of the contract under Article
1356 102 of the New Civil Code, the terms of the perfected contract of sale
over the disputed fixed assets are reciprocally demandable from both parties.
Therefore, the Liquidator and the CB-BOL as the intervenor, must execute the
corresponding deeds of sale in favor of the FEBTC and the FEBTC must pay
the agreed purchase price of these assets.
The PA did not modify but confirmed
the contract of sale that was
perfected under the MOA
We now address the CA's ruling that the PA was the final repository of
the transactions of the parties or, in other words, that the sale was perfected
only with the execution of the PA.
We disagree with the CA on this point.

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The perfected contract of sale of the disputed assets under the MOA
remained unaltered by the PA. To emphasize, the execution of the PA falls
under the consummation stage of the contract.
The PA also did not modify the MOA. In fact, the PA even strengthened
the perfection of the contract of sale with respect to the fixed assets, as
shown by the provisions of the PA. Consider that:
First,in Section 4 103 of the PA, the parties acknowledged that there
were other assets covered by the MOA but were not covered by the PA. The
only logical interpretation of Section 4 is that the parties contemplated the
purchase agreement for the fixed assets as these are the only remaining
assets purchased under the MOA that have yet to be covered by a purchase
agreement. acEHCD

Second,the same Section 4 of the PA provided a period within which

the parties should enter into a purchase agreement for the sale of the
additional assets,i.e.,within ninety (90) days from the effectivity of the PA.
According to Section 12 (a) 104 of the PA, the effective date of the PA is
the date of its approval by the Liquidating Court.
The RTC, as the liquidating court, approved the PA on December 18,
1986.
Notably, on January 15, 1987,which is well within the 90-day period
provided under Section 4 of the PA, the FEBTC wrote then Liquidator Santos
for the purchase of the fixed assets as agreed upon in Section 3 (c) of the
MOA. The letter states that:
"Gentlemen:
Under the conditions under which we were requested by the Central
Bank to bid for the assets of the PaBC and pursuant to Section 3(c) of
our Memorandum of Agreement dated 16 April 1986, we would like to
proceed with the 2nd tranche on the purchase of the fixed assets of
PaBC on the sale to us of the following branch sites:
1) Soler, Quiapo; 2) Bacolod City; 3) Cabanatuan City; 4) Dagupan
City; 5) San Pablo City; 6) Cebu City; 7) Davao City; 8) San Fernando,
La Union; 9) Laoag; 10) Legaspi City; 11) Iloilo City. The above
purchase price is net of depreciation as of September 30, 1986, and
the 5% discount as agreed upon in the aforementioned Memorandum
Agreement. ..." 105
This letter was admitted as evidence by the Liquidating Court in its
order dated September 7, 1993. 106
Therefore, the FEBTC timely demanded the implementation of the
perfected contract of sale over the fixed assets of the PBC, consistent with

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Section 3 (c) 107 of the MOA and within the conditions set under Sections
4 108 and 12 (a) 109 of the PA.
The disputed fixed assets were not
submitted as collaterals with the
Central Bank and are thus not
excluded from the purchase
The CA also erred in relying on the initial RTC findings that the disputed
fixed assets were excluded from the sale because they were submitted as
collaterals to the CB. This RTC ruling was issued when it denied the FEBTC's
prayer for preliminary injunction. The CA gave weight to the fact that this RTC
ruling was affirmed both by the CA and the Court.
Again, we disagree with the CA's conclusions.
The affirmation by the CA and by this Court of the RTC's order denying
a preliminary injunction on the ground that the disputed assets were submitted
as collaterals does not preclude the RTC from issuing a different ruling
after trial on the merits.
In Olalia, et al. v. Hizon, et al., 110 the Court ruled that the determination
of the issuance of a writ of preliminary injunction is based on evidence
tending to show that the action complained of must be stayed so that
the movant will not suffer irreparable injury or that the final judgment
granting him relief will not become ineffectual. Necessarily, the evidence
needs only be a "sampling," and is submitted merely to give the court an idea
of the justification for the preliminary injunction pending the decision of the
case on the merits. The evidence submitted at the hearing on the motion
for the preliminary injunction is not conclusive of the principal action,
which has yet to be decided.
The appellate court's review of the trial court's issuance of a preliminary
injunction does not include a final determination of the merits of the case; it is
only a determination of whether the preliminary injunction has been properly
issued. 111
In the present case, the Court finds that the RTC's findings after trial on
the merits are more credible as opposed to the CA's misguided reliance on
the ruling of the RTC in the preliminary injunction.
After trial on the merits, the RTC ruled that the disputed fixed assets
had not been submitted as collaterals to the Central Bank. The findings of the
RTC were based on: (1) the testimonies and admissions of Ms. Teresa
Salcor, who was then an Account Officer of the Central Bank Board of
Liquidators; and (2) the RTC's examination of the purported deeds of real
estate mortgage over the disputed fixed assets.

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First,the RTC found that the FEBTC was not informed that the disputed
assets were one of those submitted as collaterals to the Central Bank, as
testified to by Ms. Teresa Salcor. 112
She also admitted during her testimony that there was no annotation of
the real estate mortgage on the titles of the disputed assets; 113 hence, the
RTC correctly ruled that these purported mortgages cannot bind the FEBTC.
Second,the RTC found that there were doubts on the authenticity of the
deeds of real estate mortgage involving the disputed fixed assets. The
acknowledgment portion of the deeds indicated that this document and its
annexes were signed by the parties.
However, the RTC found that the annexes were not so signed and did
not bear any notarial seal. It was therefore easy to insert an entirely different
page as an annex of the deeds. Moreover, the integrity of the real estate
mortgage was put in question.
Third,the RTC ruled that the deeds of real estate mortgage were not
registered with the Register of Deeds, making it binding only between the
Central Bank and the PBC. It cannot bind the FEBTC who was not notified of
the alleged mortgage. 114
In these lights, we find that the disputed fixed assets were not
submitted as collaterals to the Central Bank and are thus not excluded from
the assets purchased by the FEBTC.
Legal consequences
As discussed, the contract of sale was perfected upon the execution of
the MOA. Hence, the terms and conditions of the contract of sale under the
MOA, as confirmed by the PA, are reciprocally demandable from both parties.
Therefore, the Liquidator and the CB-BOL as the intervenor, must
execute the corresponding deeds of sale in favor of the FEBTC; and the
FEBTC must pay the purchase price of the disputed fixed assets. Specifically,
these fixed assets are the PBC branches located at:
1. Soler (Arranque)
2. Bacolod City
3. Cabanatuan City
4. San Pablo City
5. Cebu-Manalili
6. Davao-Sta. Ana
7. San Fernando, La Union

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8. Legaspi City
9. Iloilo City-Central Market
With respect to the purchase price of these fixed assets, we note that
the purchase price and manner of payment were provided under Sections 3
(c) and 10 (b) of the MOA, to wit:
i. Section 3(c)
Section 3. Valuation of Assets and Liabilities. —
c. It is further understood that the BUYER shall purchase on
the basis of its sound value less any assigned depreciation
accruing thereon from August 1984, up to the valuation date, all
the fixed assets of the SELLER as described in the Asian
Appraisal's Report of August 1984, which is herein incorporated
by way of reference, but shall not purchase fixed assets not yet
appraised, equipment, furniture and other fixtures provided that the
BUYER within a period of ninety (90) days from the date hereof shall
have the first option to buy any of the said assets of the SELLER which
shall form part of the assets bought under this Memorandum
Agreement. (emphasis and underscoring supplied) HSAcaE

ii. Section 10(b)

Section 10. Additional Consideration. —
b) Furthermore, the BUYER shall be entitled to a discount
equivalent to five percent (5%) of the value of the fixed assets,
referred to in Section 3 above, per valuation of the Asian
Appraisal of August, 1984, less their assigned depreciation from
the date of the Appraisal's Report to the date of the execution of
the Absolute Purchase Agreement. (emphasis and underscoring
supplied)
Since the Court does not have sufficient records for the computation of
the assigned depreciation from the date of the Asian Appraisal's Report until
the execution of the Absolute Purchase Agreement, we deem it proper to
remand the case to the RTC for the computation of the purchase price strictly
according to the provisions of Sections 3 (c) and 10 (b) of the MOA.
The FEBTC is ordered to pay the purchase price computed by the RTC,
and the Liquidator is ordered to deliver the deeds of sale covering the
disputed properties upon payment by the FEBTC of the purchase price.
The RTC is directed to conduct the proceedings in this case with
dispatch.
WHEREFORE,premises considered, we hereby GRANT the FEBTC's
petition for review on certiorari,and REVERSE the May 31, 2006 Decision of
the Court of Appeals in CA-G.R. C.V. No. 56624.
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The case is REMANDED to the Regional Trial Court (RTC),Branch 31,
Manila, for purposes of computing the purchase price of the disputed fixed
assets in accordance with the provisions of Sections 3 (c) and 10 (b) of the
MOA.
Specifically, these assets are the PBC branches located in: (1) Soler
(Arranque);(2) Bacolod City; (3) Cabanatuan City; (4) San Pablo City; (5)
Cebu-Manalili; (6) Davao-Sta. Ana; (7) San Fernando, La Union; (8) Legaspi
City; and (9) Iloilo City-Central Market.
The RTC is directed to proceed with the computation with DISPATCH.
SO ORDERED.
||| (Far East Bank and Trust Co. v. Phil. Deposit Insurance Corp., G.R. No. 172983
, [July 22, 2015])

#5 NEMENCIO PULUMBARIT, SR v. CA (17th Division), ET AL

GR No. 153745-46; October 14, 2015

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[G.R. Nos. 153745-46. October 14, 2015.]

NEMENCIO C. PULUMBARIT, SR., petitioner, vs. THE COURT

OF APPEALS (17TH Division Composed of JUSTICE
BIENVENIDO L. REYES, Ponente; JUSTICE ROBERTO A.
BARRIOS, Chairman; and JUSTICE EDGARDO F. SUNDIAM,
Acting Third Member), LOURDES S. PASCUAL, LEONILA F.
ACASIO, and SAN JUAN MACIAS MEMORIAL PARK,
INC., respondents.

[G.R. No. 166573. October 14, 2015.]

LOURDES S. PASCUAL, LEONILA F. ACASIO and SAN JUAN

MACIAS MEMORIAL PARK, INC., petitioners, vs. NEMENCIO C.
PULUMBARIT, SR.,respondent.

DECISION

JARDELEZA, J : p

Before us are two consolidated petitions. G.R. Nos. 153745-46 involves

a Petition for Review on Certiorari with Petition for Certiorari filed by
Nemencio C. Pulumbarit to annul and set aside the Resolution 1 dated May
30, 2002 issued by the Court of Appeals (CA) in the consolidated cases CA-
G.R. SP No. 61873 and CA-G.R. CV No. 69931. G.R. No. 166573, on the
other hand, concerns a Petition for Review on Certiorari filed by Lourdes S.
Pascual, Leonila F. Acasio and San Juan Macias Memorial Park, Inc. seeking
the review of the Decision 2 dated September 28, 2004 rendered by the CA in
CA-G.R. CV No. 69931 reversing the Decision 3 of Branch XX of the Regional
Trial Court in Malolos, Bulacan in Civil Case No. 7250-M and ruling that the
agreement entered into between the parties was a sale.
The Facts and Case Antecedents
Sometime in 1982, San Juan Macias Memorial Park, Inc. (SJMMPI),
through its President Lourdes S. Pascual, authorized Atty. Soledad de Jesus
to look for a buyer for the San Juan Memorial Park (Memorial Park) for
P1,500,000.00. 4 Thereafter, Lourdes Pascual, Leonila F. Acasio, and the
other officers of SJMMPI (Pascual,et al.) were introduced to Nemencio
Pulumbarit (Pulumbarit). The parties eventually came to an agreement, with
Pulumbarit issuing eighteen (18) checks in the name of SJMMPI Secretary-

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Treasurer Leonila Acasio. Pulumbarit and/or his lawyer took charge of
reducing the agreement into writing and securing the signatures of all
concerned parties. 5
On June 13, 1983, Pascual, et al. sent a letter to Pulumbarit requesting
for a copy of their written agreement. In another letter of even date, they also
asked Pulumbarit to reissue new checks to replace the ones he previously
issued. 6 Failing to get a favorable response, Pascual, et al. filed a Complaint
for Rescission of Contract, Damages and Accounting with Prayer for
Preliminary Injunction or Receivership against Pulumbarit. 7
Proceedings before the Trial Court
In their Complaint, docketed as Civil Case No. 7250-M before Branch
XX of the Regional Trial Court in Malolos, Bulacan, Pascual, et al. alleged that
they entered into a contract of management with option to buy the Memorial
Park with Pulumbarit, with the latter allegedly agreeing to pay Pascual, et al. a
sum of P750,000.00 on staggered installments. 8 Under this alleged
agreement, Pulumbarit's failure to make good on these installments would
cause the cancellation of their contract, forfeiture of any payment already
made, and surrender by Pulumbarit of possession over the Memorial Park. 9
Pascual, et al. claimed that they requested new checks from Pulumbarit
to replace the previous ones he issued, the latter having been made payable
to SJMMPI's Secretary-Treasurer Leonila Acasio, who has since then
resigned from the company. Due to his refusal to issue the requested
replacement checks, Pulumbarit was in breach of his obligations under their
contract.
Pascual, et al. also asserted that Pulumbarit further violated their
management contract by (1) destroying the original fence surrounding the
Memorial Park, (2) annexing the adjacent lots and (3) operating these and the
Memorial Park under the name "Infinito Memorial Park" using the permit
issued to SJMMPI without its consent and the proper governmental
clearances. 10 Thus, Pascual, et al. prayed that the court declare, among
others, (1) the rescission of their agreement, (2) forfeiture of all sums paid by
Pulumbarit to SJMMPI, and (3) an obligation on Pulumbarit's part to render
accounting. 11 CAIHTE

On February 3, 1984, Pulumbarit filed a Motion praying for the

dismissal of the Complaint for lack of cause of action, attaching a copy of the
Memorandum of Agreement (MOA). 12 Pascual, et al. amended
their Complaint on June 5, 1984. 13 Therein, they alleged that Pulumbarit
falsified their agreement, as the MOA provided did not reflect the terms and
conditions agreed upon by the parties. They disputed the statement in the
MOA that the agreement was a sale of all the paid-up stocks of SJMMPI and

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not a management agreement with option to buy. Pascual, et al. argued that
the falsified MOA was a nullity and therefore without force and effect.
In a motion filed on July 5, 1984, and pending resolution of
Pulumbarit's Motion to Dismiss, Pascual, et al. sought to have Pulumbarit
declared in default. 14 The trial court granted this motion and allowed
Pascual, et al. to present their evidence ex parte. 15
On September 5, 1984, the trial court rendered a default judgment in
favor of Pascual, et al. 16 This judgment of default was reversed by the CA on
January 15, 1989 and the case was remanded to the trial court for reception
of Pulumbarit's evidence. 17 Prior to the reversal of the trial court's default
judgment, however, Pascual, et al. applied for the appointment of a receiver to
take possession of the Memorial Park and all its records and business
transactions during the pendency of the case. 18 This application was denied
by the trial court in an Order dated October 10, 1991. 19
With the reversal of the earlier judgment of default, the trial court
admitted Pulumbarit's Answer. 20 Therein, Pulumbarit denied ever having
offered to manage the Memorial Park for Pascual, et al. Presenting the signed
MOA as evidence, Pulumbarit countered that SJMMPI and its
officers/stockholders sold all of the subscribed capital stock of SJMMPI to him
for P750,000.00 payable in installments. 21 As sole owner, Pulumbarit
claimed he had no obligation to Pascual, et al. to render accounting.
During the trial, Pascual, et al. presented, among others, Eliodoro
Constantino, a Document Examiner from the National Bureau of Investigation
(NBI), to prove that Pulumbarit falsified the MOA, which caused it to not reflect
their true agreement. Constantino examined the contested MOA and testified
that the second page was typed from a typewriter different from the one used
in typing pages one, three and four. 22
On July 15, 2000, the trial court promulgated its
questioned Decision 23 in favor of Pascual, et al. The dispositive portion
reads:
WHEREFORE, premises considered, judgment is hereby rendered as
follows:
a) Declaring null and void the Memorandum of Agreement dated
November 1982 between Lourdes S. Pascual and Nemencio
Pulumbarit, Sr. (marked exhibit "J" for the plaintiffs and Exhibit "1" for
the defendants);
b) Rescinding the Management Contract entered into by
Nemencio C. Pulumbarit, Sr. with the plaintiffs for the management of
the San Juan Macias [Memorial] Park, Inc., and declaring the same to
have no force and effect;

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c) Directing Nemencio Pulumbarit, Sr. to render an accounting
of his operation of the San Juan Macias Memorial Park, Inc. from the
time he took over the operation thereof in 1982 up to the date of this
decision; and
d) Ordering Nemencio C. Pulumbarit, Sr. to pay the San Juan
Macias Memorial Park, Inc. the sums of P100,000.00 as actual
damages and P100,000.00 by way of attorney's fees and expenses of
litigation.
The Court also orders Nemencio Pulumbarit, Sr., as well as any
and all persons acting for and in his behalf, to forthwith cease and
desist from operating and engaging in the business of the San Juan
Macias Memorial Park, Inc., including that being operated under the
name of Infinito Memorial Park, and from engaging, in any manner
whatsoever, in acts of management, ownership and administration of
the aforesaid corporation. He is also directed to immediately surrender
to the plaintiffs all documents, papers, deeds, accounts and sums of
money relating to or the business and operation of the corporation.
SO ORDERED. 24
Pulumbarit filed a Notice of Appeal dated August 19, 2000. 25 His
appeal was docketed as CA-G.R. CV No. 69931.
Meanwhile, and before the transmittal of the records of Civil Case No.
7250-M to the CA, Pascual, et al. filed with the trial court motions praying for
(1) the issuance of a writ of injunction against Pulumbarit 26 and (2) the
execution of the decision pending appeal. 27 The trial court granted these
motions on September 13, 2000 28 pursuant to Section 4, Rule 39 of
the Rules of Court. 29 Pulumbarit's subsequent motion for
reconsideration 30 of this Order (directing discretionary execution) was denied
on October 3, 2000. 31 DETACa

Aggrieved, Pulumbarit filed a Petition for Certiorari with the CA to nullify

the writs of execution and injunction issued by the trial court, with prayer for
the issuance of a temporary restraining order (TRO) and/or a writ of
preliminary injunction. 32 This case was docketed as CA-G.R. SP No. 61873.
Proceedings before the Court of Appeals
After the conduct of oral arguments, the CA in CA G.R. SP No.
61873 issued a TRO on January 26, 2001 33 and thereafter a writ of
preliminary injunction on March 28, 2001. 34 Despite this, however,
Pascual, et al., on May 11, 2001, filed a motion in CA-G.R. CV No.
69931 seeking execution of the trial court's Decisionpending Pulumbarit's
appeal. 35 Meanwhile, CA-G.R. SP No. 61873 and CA-G.R. CV No. 69931
were ordered consolidated on November 5, 2001. 36

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Thereafter, the CA, in its questioned Resolution dated May 30, 2002,
granted Pascual, et al.'s motion for execution pending appeal and, as a
consequence, dismissed CA-G.R. SP No. 61873 for being moot and
academic. 37 On July 12, 2002, Pulumbarit filed a Petition for Review on
Certiorari under Rule 45 (with Petition for Certiorari under Rule 65) seeking a
review of the May 30, 2002 Resolution. 38 This is presently docketed as G.R.
Nos. 153745-46.
As a result of the filing of G.R. Nos. 153745-46 with this Court, the CA,
on September 11, 2002, resolved to suspend its May 30,
2002 Resolution granting Pascual's motion for execution pending
appeal. 39 CA-G.R. CV No. 69931 was nevertheless declared submitted for
decision on November 25, 2002. 40
On September 28, 2004, the CA issued its Decision reversing the trial
court's ruling in Civil Case No. 7250-M. Pascual, et al.'s motion for
reconsideration 41 dated October 19, 2004 was denied by the CA in
its Resolution 42 dated January 12, 2005. Aggrieved, Pascual, et al. filed a
petition 43 seeking the review of this Decision, hence, G.R. No. 166573.
G.R. Nos. 153745-46 were consolidated with G.R. No. 166573 by virtue
of this Court's Resolution dated February 7, 2007. 44
Issues
We find the issues, as raised in the consolidated petitions, to be as
follows:
(1) Whether Pascual, et al.'s filing of an Urgent Motion for Execution
Pending Appeal in CA-G.R. CV No. 69931, despite knowledge of
the pendency of CA-G.R. SP No. 61873, constituted forum
shopping;
(2) Whether the consolidation of CA-G.R. CV No. 69931 with CA-G.R.
SP No. 61873 violated the internal rules of the CA, resulting to an
infringement of Pulumbarit's right to due process;
(3) Whether the filing of the motion for execution pending appeal in CA-
G.R. CV No. 69931 rendered CA-G.R. SP No. 61873 moot and
academic;
(4) Whether the grant of the motion for execution pending appeal by the
CA was proper;
(5) Whether the finding of fact in the application for receivership
constituted res judicata as to the issue of the true agreement
between the parties; and

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(6) Whether the agreement between the parties was one for sale or
management of the memorial park.
We rule on the issues. aDSIHc

Ruling of the Court

Pascual, et al. committed abuse of
court processes.
The trial court, upon Pascual, et al.'s motion, allowed the execution of
its Decision pending Pulumbarit's appeal of the same with the CA. 45 When
the CA (in CA-G.R. SP No. 61873) issued writs against said discretionary
execution, Pascual, et al. filed a motion seeking to do exactly that what the
court has already enjoined, albeit this time before the CA in CA-G.R. CV No.
69931. This act, according to Pulumbarit, constitutes "a specie (sic) of
deliberate and willful forum-shopping" 46 which should not be countenanced
by this Court.
Strictly speaking, Pascual, et al. did not commit forum shopping. Forum
shopping exists when the elements of litis pendentia are present, or when a
final judgment in one case will amount to res judicata in another. 47 Here, any
action by the CA on Pascual, et al.'s motion in CA-G.R. CV No. 69931 is
provisional in nature, such that it can in no way constitute as res judicata in
CA-G.R. SP No. 61873. Moreover, forum shopping requires the identity of
parties, rights or causes of action, and reliefs sought in two or more pending
cases. 48 Here, there is no identity of relief and/or cause of action. CA-G.R.
SP No. 61873 is limited to a determination of whether grave abuse of
discretion was committed by the trial court in granting execution pending
appeal while Pascual, et al.'s motion in CA-G.R. CV No. 69931 involves a
determination by the CA whether there are "good reasons" warranting the
grant of discretionary execution.
We, however, note with disapproval the circumstances surrounding
Pascual, et al.'s filing of said motion.
In In the Matter of Contempt Proceedings Against Ventura O. Ducat
and Teng Mariano and Cruz Law Offices, 49 we resolved to grant a petition to
cite respondents Ducat, et al. in contempt for delaying the satisfaction of a
final judgment against them "by re-filing motions and attempting to re-open
finally settled issues through the expediency of hiring a new counsel." We
ruled:ATICcS

We grant the motion of petitioner as we find respondent Ventura

O. Ducat and his counsel Atty. Elgar Cruz guilty of indirect contempt of
court pursuant to Sec. 3, Rule 71, of the Rules of Court.
xxx xxx xxx

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A comparison of the Urgent Omnibus Motion filed on 14 September
1993 with the urgent motion to declare failure of auction sale of the
Wack Wack properly filed on 18 August 1994 discloses that the latter
motion merely echoed the allegations found in the former motion.
Furthermore, both motions prayed for the same relief, namely, the
annulment of the auction sale conducted on 7 September 1992. In
effect, respondents asked the trial court in the 18 August 1994
motion to resolve an issue which has been settled by the same
court as early as 3 November 1993, affirmed by the Court of
Appeals on 31 January 1994, and by this Court on 11 July 1994.
Equally disdainful is the fact that the motion for reconsideration of the
11 July 1994 ruling was still pending before this Court when
respondents filed the 18 August 1994 motion. The foregoing
actuation demonstrates defiance of the authority and dignity of
this Court and disrespect of the administration of justice. 50
(Emphasis and underscoring supplied.)
Here, the CA in CA-G.R. SP No. 61873 issued the TRO and the writ of
preliminary injunction against the discretionary execution on January 26, 2001
and March 28, 2001, respectively. 51 On April 16, 2001, Pulumbarit posted the
required bond amounting to P500,000.00. 52 Pascual, et al., on the other
hand, filed their motion for execution pending appeal in CA-G.R. CV No.
69931 on May 11, 2001, nearly four months after the issuance of the TRO,
two months after the writ of injunction and almost a month from Pulumbarit's
posting of the bond.
Said motion is clearly an attempt on Pascual, et al.'s part to undermine
the TRO and writ of preliminary injunction earlier issued in CA-G.R. SP No.
61873 in Pulumbarit's favor. (Notably, Pascual, et al. do not appear to have
sought the reconsideration of the issuance of said injunctive orders.) Not
unlike Ducat, therefore, Pascual's filing of the motion in CA-G.R. CV No.
69931 demonstrates defiance of, if not lack of due respect for, the authority of
the CA which earlier issued injunctive writs against the execution by the trial
court of the appealed Decision.
The consolidation of CA-G.R. CV No.
69931 with CA-G.R. SP No. 61873
was proper; no violation of
Pulumbarit's right to due process.
Pulumbarit asserts that the consolidation of CA-G.R. CV No. 69931 with
CA-G.R. SP No. 61873 is void ab initio for violating the Revised Internal Rules
of the Court of Appeals (RIRCA):
. . . we respectfully submit that the consolidation is void ab initio for
flagrant violation of RIRCA on (aa) Raffle of Cases, (bb) the Procedural
Jurisdiction of the Justice to whom the Appeal Case is Raffled; (cc)

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Consolidation of Cases, and what cases can be consolidated, (dd) The
Justice who can consider and act in specific incidents, and (ee)
Processing of Special Civil Actions and Procedural Jurisdiction of the
Justice to whom a Special Civil Action is raffled. . . 53
The consolidation being void ab initio, Pulumbarit argues that the May
30, 2002 Resolution subsequently issued is also null and void for being
violative of his "right to procedure (sic) due process." 54
Pulumbarit errs.
In Spouses Fortaleza v. Spouses Lapitan, we reiterated the established
doctrine that there are no vested rights to rules of procedure. 55 Spouses
Fortalezainvolved a case wherein the Justice assigned to complete the
records also decided the case on file merits, in alleged violation of the Court
of Appeals' internal two-raffle system. This procedural shortcut, according to
Spouses Fortaleza, evinced the appellate court's bias and prejudgment in
favor of Spouses Lapitan. We rejected their argument and ruled thus:
. . . [T]he two-raffle system is already abandoned under the 2009
IRCA. As the rule now stands, the Justice to whom a case is raffled
shall act on it both at the completion stage and for the decision on the
merits . . .
Corollarily, the alleged defect in the processing of this case before the
CA has been effectively cured. We stress that rules of procedure may
be modified at any time and become effective at once, so long as the
change does not affect vested rights. Moreover, it is equally
axiomatic that there are no vested rights to rules of procedure.
Thus, unless spouses Fortaleza can establish a right by virtue of
some statute or law, the alleged violation is not an actionable
wrong. At any rate, the 2002 IRCA does not provide for the effect
of non-compliance with the two-raffle system on the validity of the
decision. Notably too, it does not prohibit the assignment by
raffle of a case for study and report to a Justice who handled the
same during its completion stage. 56 TIADCc

(Emphasis and underscoring supplied.)

The RIRCA are rules which govern the internal operations of the CA. It
is not intended to implicate substantial rights. The rules governing case
assignments, for example, do not give rise to a right on the part of a litigant to
have his case heard by any particular division of the court or
the Decision penned by a particular Justice.57 Barring exceptional
circumstances, parties are not heard on case raffling and similar
matters, 58 as in fact internal rules can generally be modified at any time with
the changes becoming immediately effective.

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Granting, for the sake of argument, that there was some oversight in
relation to the observance of the RIRCA procedure, Pulumbarit nevertheless
failed to establish an actionable wrong separate from the alleged breach of
the said internal rules. Contrary to what he would have this Court believe, we
are convinced that there was no denial of Pulumbarit's right to due process.
The record clearly shows that Pulumbarit was given (and, in fact, availed of)
every opportunity to present his case, by way of both pleadings and oral
arguments, and pursue the appropriate reliefs before the CA. As in fact, the
CA issued, in his favor, a TRO on January 26, 200159 and a writ of
preliminary injunction on March 28, 2001. 60
Aside from being heard in oral argument, Pulumbarit also filed with the
CA several other pleadings, including (a) a Respectful Reiteration of the
Application for a TRO and or Writ of Preliminary Injunction dated January 15,
2001; 61 (b) Petitioner's Memorandum in Summation of the Points raised in
the Oral Arguments of February 27, 2001 and in Refutation of the Arguments
of Private Respondents dated March 5, 2001 as his Memorandum of
Authorities. 62 Clearly, there was no denial of his right to due process.
CA-G.R. SP No. 61873 not rendered
moot and academic by the filing of the
motion for execution pending appeal
in CA-G.R. CV No. 69931.
In its questioned Resolution dated May 30, 2002, the CA ruled that,
even assuming the trial court erred in allowing execution pending appeal,
Pascual, et al. still had the right to apply for a similar writ before the appellate
court. It was in this sense that the CA ruled that the central issues raised in
CA-G.R. SP No. 61873 have been rendered moot and academic by the filing
of the motion. 63
We disagree.
To reiterate, Pascual, et al.'s motion in CA-G.R. CV No. 69931 seeks
the CA's approval to execute the trial court's Decision pending final disposition
of Pulumbarit's appeal. CA-G.R. SP No. 61873, on the other hand, is an
action to determine whether grave abuse of discretion was committed by the
trial court when it allowed execution pending appeal. The subjects of
Pascual, et al.'s motion in CA-G.R. CV No. 69931 and Pulumbarit's petition in
CA-G.R. SP No. 61873 concern two different, albeit closely related, issues.
Furthermore, any action on a motion for execution pending appeal is
only provisional in nature. The grant or denial (as the case may be) of such a
motion is always without prejudice to the court's final disposition of the
case and the issues raised therein. In fact, Section 3, Rule 39 of theRules of
Court allows the party against whom the execution of a decision pending
appeal is directed to stay the execution by posting

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a supersedeas bond. 64 Section 5 of the same rule also provides that where
the executed judgment is reversed totally or partially, or annulled, on appeal
or otherwise, the trial court may, on motion, issue such orders of restitution or
reparation of damages as equity and justice may warrant under the
circumstances. 65
For these reasons, the grant by the CA of a motion for execution
pending appeal, being provisional in nature, could therefore not have
rendered CA-G.R. SP No. 61873 moot and academic. In the same way, if not
arguably more so, much less can the mere filing of such a motion warrant the
dismissal of CA-G.R. SP No. 61873 on the ground of mootness. Thus, the CA
committed a reversible error when it dismissed CA-G.R. SP No. 61873. AIDSTE

Reasons cited are insufficient to justify

grant of execution pending appeal.
Section 2, Rule 30 of the Rules of Court provides, in part, that
discretionary execution (or execution pending appeal) may only issue "upon
good reasons to be stated in a special order after due hearing."
Good reason must consist of superior or exceptional circumstances of
such urgency as to outweigh the injury or damage that the losing party may
suffer, should the appealed judgment be reversed later. 66
Our ruling in Diesel Construction Company, Inc. (DCCI) v. Jollibee
Foods Corporation (JFC) 67 is particularly instructive. Citing possible financial
distress to be caused by a "protracted delay in the reimbursement" of the
costs prayed for, DCCI moved for the discretionary execution of the trial
court's decision awarding escalated construction costs in its favor. 68 The CA,
however, allowed a stay of execution upon the JFC's posting of
a supersedeas bond. 69 When the matter was brought before this Court for
resolution, we ruled against said discretionary execution, thus:
The financial distress of a juridical entity is not comparable to a case
involving a natural person — such as a very old and sickly one without
any means of livelihood, an heir seeking an order for support and
monthly allowance for subsistence, or one who dies.
Indeed, the alleged financial distress of a corporation does not
outweigh the long standing general policy of enforcing only final
and executory judgments. Certainly, a juridical entity like petitioner
corporation, has other than extraordinary execution, alternative
remedies like loans, advances, internal cash generation and the like to
address its precarious financial condition. 70
(Emphasis and underscoring supplied.)
In this case, the grant by the CA of Pascual, et al.'s motion for
discretionary/extraordinary execution was founded on the following reasons:

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(1) to stop Pulumbarit from continuing to receive money from the sale of the
lots and (2) to save the property from distraint and public auction. 71 We find
the foregoing reasons insufficient to justify the execution of the trial
court's Decision pending final resolution of Pulumbarit's appeal.
For one, there is no urgent and pressing need for the immediate
execution of the Decision considering that, as noted by the CA itself,
Pulumbarit had been in possession of the subject Memorial Park for the past
twenty years. 72 Assuming the affirmance of the trial court's Decision in
Pascual, et al.'s favor, Pulumbarit would still have to surrender possession of
the Park and account for all of its finances. 73
Secondly, and as in the case of DCCI v. JFC, there are alternative
remedies (i.e., re-application for receivership, loans and redemption, among
others) available to Pascual, et al. that may more appropriately address their
concerns arising from the possible distraint and auction of the Memorial Park.
The existence of these remedies, in our view, negates the claim of urgency
necessary to justify execution of the trial court's Decision pending final
resolution of Pulumbarit's appeal.
The finding of fact in the application
for receivership did not constitute res
judicata as to the issue of the true
agreement between Pulumbarit and
Pascual, et al.
In its questioned Decision, the CA found that Pascual, et al. was bound
by the finding made by the trial court (in relation to their application for
receivership) that the agreement between the parties was one for sale and not
management. Thus:
This Court is convinced that the trial court was bound by said findings
of fact, especially considering that it was the same court (through then
Presiding Judge Amante M. Laforteza) which made said findings.
Material facts or questions which were in issue in a former action and
were there admitted or judicially determined are conclusively settled by
a judgment rendered therein and that such facts or questions
become res judicata and may not again be litigated in a subsequent
action between the same parties or their privies, regardless of the form
the issue may take in the subsequent action, whether the subsequent
action involves the same or a different form or proceeding, or whether
the second action is upon the same or a different cause of action,
subject matter, claim or demand, as the earlier action. In such cases, it
is also immaterial that the two actions are based on different grounds,
or tried on different theories, or instituted for different purposes, and
seek different reliefs. 74

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We reverse the ruling of the CA on this matter. Res judicata by
conclusiveness of judgment does not apply in this case.
In Social Security Commission v. Rizal Poultry and Livestock
Association, 75 we laid down the requirements of res judicata in the concept of
"conclusiveness of judgment," to wit:
There is "bar by prior judgment" when, as between the first case
where the judgment was rendered and the second case that is sought
to be barred, there is identity of parties, subject matter, and causes of
action. In this instance, the judgment in the first case constitutes an
absolute bar to the second action. AaCTcI

But where there is identity of parties in the first and

second cases, but no identity of causes of action, the first
judgment is conclusive only as to those matters actually and
directly controverted and determined and not as to matters
merely involved therein. This is the concept of res judicata known as
"conclusiveness of judgment." Stated differently, any right, fact, or
matter in issue directly adjudicated or necessarily involved in the
determination of an action before a competent court in which
judgment is rendered on the merits is conclusively settled by the
judgment therein and cannot again be litigated between the parties
and their privies, whether or not the claim, demand, purpose, or
subject matter of the two actions is the same. 76
xxx xxx xxx
(Emphasis and underscoring supplied.)
The application of the doctrine of res judicata either in the concept of
bar by prior judgment or conclusiveness of judgment requires or presupposes
the existence of two independent actions.
Since receivership may be resorted to either as a principal action or an
ancillary remedy, 77 it is imperative to first determine the nature of the
application for receivership in this case. If, for example, it is found that
Pascual, et al. filed a separate action for receivership, the findings of fact
made by the court therein may be held to be conclusive as to the "true"
nature of the parties' agreement in the action for rescission of contract,
damages and accounting. If, on the other hand, the application was
made ancillary to the principal action for rescission, a finding made in the
course of the resolution of said application would not bar the same court, after
an exhaustive litigation of the main issues before it, from later on arriving at a
different finding of fact.
The records show that Pascual, et al.'s "petition for receivership" was
filed with the same court and under Civil Case No. 7250-M, 78 specifically, for
the appointment of a receiver to preserve their rights over the Memorial Park

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during the pendency of the suit with Pulumbarit. It is thus an application for an
ancillary remedy made during the course of the main action for
rescission. 79 Being a provisional remedy, the appointment of a receiver
would always be without prejudice to the final outcome of the main case. A
finding of fact made in the course of the resolution of said application cannot
therefore constitute res judicata for purposes of the issues implicated in the
main case. As in fact, the trial court in this case, in the end, found for
Pascual, et al. and ruled that the agreement between the parties was not a
sale, but a management contract.
Agreement between the parties was a
contract to sell the shares of SJMMPI
and not a contract of sale or a
management contract with option to
buy.
Pascual, et al. do not dispute that they entered into an agreement with
Pulumbarit. What they take issue with are the terms and conditions in the
MOA which allegedly do not reflect the terms and conditions actually agreed
upon by the parties. 80 Hence, they prayed, among others, that the MOA be
declared null and void and/or rescinded and without force and effect and that
Pulumbarit be ordered to "render an accounting of his operation effective from
the date of his takeover and to surrender all documents, papers, deeds and
sums of money in accordance therewith." 81
In ruling that the contract between the parties was a sale, the CA
reasoned thus:
As between the verbal agreement for the management of the
memorial park and the Memorandum of Agreement evidencing the
intention of the parties to sell the memorial park, this Court is inclined
to give more weight to the written agreement of the parties which
was duly signed by the incorporators. Although Lourdes Sevilla
Pascual, one of the incorporators, did not sign said Memorandum of
Agreement, she freely executed another document to signify the sale
of her shares in the corporation.
The agreement or contract between the parties is the formal
expression of the parties' rights, duties and obligations. It is the best
evidence of the intention of the parties. Thus, when the terms of an
agreement have been reduced into writing, it is considered as
containing all the terms agreed upon, and there can be, between the
parties and their successors-in-interest, no evidence of such terms
other than the contents of the written agreement. . . .
Although the investigation of the National Bureau of
Investigation (NBI) on the Memorandum of Agreement yielded a
finding that the second page differed in terms of type size and type

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design from pages 1, 3 and 4, this does not nullify the entire
agreement, especially because page 3 thereof bore the signatures of
the incorporators. The signatures on page 3 are of utmost significance
for it may be safely concluded that pages 1 and 4 also bear the
approval of the signatories. Notably, page 1 of the Memorandum of
Agreement clearly shows the intention of the parties to sell the
memorial park . . .
xxx xxx xxx
Assuming arguendo that no evidentiary weight could be given to
the Memorandum of Agreement, the evidence on record would still
show that appellee Dr. Pascual really intended to sell the
memorial park. This is shown by the letter of authority given to
Atty. Soledad Pascual who was tasked to look for a buyer for the
memorial park. . . .
It is absurd to sustain the trial court's finding that the agreement
was for the management of the memorial park. Notably, appellant
already paid more than P400,000.00, a substantial amount
especially at the time of its payment, the early 80s. If the
agreement was really for the management of the memorial park, it
should have been the corporation which should be paying
appellant. In fact, no evidence was presented by appellee Dr.
Pascual on the compensation of appellant for his management of
the memorial park. EcTCAD

xxx xxx xxx 82

(Emphasis supplied.)
We affirm the findings of the CA insofar as it ruled that the parties
did not contemplate a management contract with option to buy. We
nevertheless rule that the agreement entered into by the parties was not a
contract of sale, but rather, a contract to sell the shares of SJMMPI. 83
The text of the MOA between the parties shows that their agreement
was a contract to sell SJMMPI shares. The pertinent portion of page three of
the MOA reads:
xxx xxx xxx
4. The shares of stocks stated above and subject matter of this
Agreement will only be transferred in the name of the PARTY OF
THE SECOND PART, its heirs, successors and assigns upon full
payment and/or full satisfaction thereon of the consideration of
this agreement. 84
While Pascual, et al. are technically correct in arguing that they did not
enter into a contract of sale with Pulumbarit, they cannot deny the existence
of the stipulation in page three of the MOA evidencing a contract to sell and

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negating their claim of a management contract with option to buy. Notably,
page three bears the signatures of Pulumbarit, Pascual, and the other
SJMMPI stockholders. 85 We further note that Pascual did not dispute the
authenticity of her signature appearing on page three of the MOA. Neither did
she allege during the course of the proceedings that she signed another
document or entered into another written transaction with Pulumbarit aside
from the MOA.
Even though the NBI Questioned Document Report No. 102-
384 86 (Report) stated that page two of the document was typed from a
typewriter different from that used in typing pages one, three and four, the
same report was inconclusive as to the possibility of falsification. The Report
does not contain any categorical statement from the NBI Examiner that the
pages were substituted or that the MOA was spurious or falsified.
Even if we were to assume, for the sake of argument, that page two
was in fact substituted on the ground that its type size and design are different
from the type size and design used in the other three pages of the MOA, then
we can infer that the other three pages (one of which bore the authenticating
signatures of the party) were not substituted, all three having exactly the same
type size and design. We can also further deduce that the provisions in these
un-substituted pages reflect the "true" terms and conditions agreed upon
between the parties.
This is significant as page one, which we have now established to not
have been substituted, clearly sets forth, in the preambular clauses, the
parties' positive intent to enter into a contract to sell:
WHEREAS, THE PARTY OF THE FIRST PART have offered to sell
all their rights, interest and participations with San Juan Macias
Memorial Park, Inc., to the extent indicated above to the PARTY OF
THE SECOND PART and the PARTY OF THE SECOND PART
has accepted the offer of the PARTY OF THE FIRST PART. 87
(Emphasis and underscoring supplied.)
That Pascual, et al. really intended to sell SJMPPI is further shown by
the document earlier issued to Atty. De Jesus authorizing her to look for
a buyer for the Memorial Park and negotiate the sale of the corporation. 88 It
is immaterial that the authorization given to Atty. De Jesus had already
expired by the time the MOA between the parties was signed as this does not
diminish the intention of Pascual, et al. to sell the Memorial Park at or about
the time they entered into the agreement with Pulumbarit. That there are as
yet no SJMMPI stock certificates in Pulumbarit's name and possession, does
not negate the character of the contract to sell between the parties.
Pascual, et al. claim that Pulumbarit, in his reply to their letters of June
13, 1983, 89 July 14, 1983 90 and August 18, 1983, 91 impliedly admitted that
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the true agreement between the parties was for the management of the
memorial park. This is belied by the records. The letter reads:
Your letter dated 18 August 1983 on behalf of San Juan Macias
Memorial Park, Inc., to our client Nemencio Pulumbarit, Sr. has been
referred to us for appropriate reply.
In connection therewith, please be advised that our client is
ready and willing to comply with your request as embodied in your
letter. However, a certain Ms. Lourdes S. Pascual, a major stock
holder (sic) of San Juan Macias Memorial Park, Inc. had complained to
us that she has not as yet receive (sic) a single centavo as her share
from this transaction and threatened us that she will not sign
the memorandum of agreement executed by your client in favor of
our client, till she has been paid. In view of this development, our client
decided to suspend paying your client until the claim of Ms. Pascual
has been settled. We wish to assure you that our client has the money
to pay your client anytime the claim of Ms. Pascual has been settled.
We suggest, therefore, that you urged (sic) your client to thresh out this
claim of Ms. Pascual as soon as possible in order that we could
immediately comply with your request. 92 HSAcaE

(Emphasis supplied.)
Contrary to Pascual, et al.'s claim, there is nothing in the letter to show
an admission, whether express or implied, on Pulumbarit's part that their
agreement was for management of SJMMPI.
Most telling of the real agreement between Pulumbarit and Pascual, et
al. was the undisputed fact that the former made payments to the latter, and
not vice versa. As the CA correctly declared, it was indeed absurd for a
person rendering service to pay compensation to his employers. If Pascual, et
al.'s version of the agreement is to be believed, they should have been the
ones paying Pulumbarit for managing the Memorial Park and not the other
way around.
During the trial, Acasio testified that as "compensation" for his services,
Pulumbarit (who had by then already paid between P500,000.00 to
P700,000.00 to manage a Park previously put up for sale for P1,500,000.00)
will be paid for expenses incurred in the course of management and given an
option to buy the Park after two years. 93 These terms simply do not occur in
the ordinary course of business and we are hard-pressed to imagine a
reasonable person agreeing to such a business arrangement. The evidence
on record overwhelmingly shows that the contract between the parties was
indeed a contract to sell the shares of SJMMPI and the Memorial Park.
WHEREFORE, and in view of the foregoing, we resolve to:

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(1) GRANT G.R. Nos. 153745-46. The Court of
Appeals' Resolution dated May 30, 2002 in CA-G.R. SP No. 61873 is
hereby ANNULLED and SET ASIDE; and
(2) DENY G.R. No. 166573 for lack of merit
and AFFIRM the Decision of the Court of Appeals in CA-G.R. CV No. 69931
with the MODIFICATION that the agreement between herein parties is a
contract to sell (not a contact of sale of) SJMMPI shares.
SO ORDERED. AScHCD

||| (Pulumbarit, Sr. v. Court of Appeals, G.R. Nos. 153745-46 & 166573, [October
14, 2015])

#6 AKANG v. MUNICIPALITY OF ISULAN, SULTAN KUDARAT, PROVINCE

GR No. 186014; June 26, 2013

[G.R. No. 186014. June 26, 2013.]

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ALI AKANG, petitioner, vs. MUNICIPALITY OF ISULAN,
SULTAN KUDARAT PROVINCE, represented by its
MUNICIPAL MAYOR AND MUNICIPAL VICE MAYOR AND
MUNICIPAL COUNCILORS/KAGAWADS, respondent.

DECISION

REYES, J :p

This case was originally filed as a petition for certiorari under Rule 65 of
the Rules of Court. In the Court's Resolution dated March 9, 2009, however, the
petition was treated as one for review under Rule 45. 1 Assailed is the
Decision 2 dated April 25, 2008 and Resolution 3 dated October 29, 2008 of the
Court of Appeals Mindanao Station (CA) in CA-G.R. CV No. 00156, which
reversed the Judgment 4 dated January 14, 2004 of the Regional Trial Court
(RTC) of Isulan, Sultan Kudarat, Branch 19 in Civil Case No. 1007 for Recovery
of Possession of Subject Property and/or Quieting of Title thereon and Damages.
The Facts
Ali Akang (petitioner) is a member of the national and cultural community
belonging to the Maguindanaon tribe of Isulan, Province of Sultan Kudarat and
the registered owner of Lot 5-B-2-B-14-F (LRC) Psd 1100183 located at Kalawag
III, Isulan, Sultan Kudarat, covered by Transfer Certificate of Title (TCT) No. T-
3653, 5 with an area of 20,030 square meters. 6
Sometime in 1962, a two-hectare portion of the property was sold by the
petitioner to the Municipality of Isulan, Province of Sultan Kudarat (respondent)
through then Isulan Mayor Datu Ampatuan under a Deed of Sale executed on
July 18, 1962, which states: DaAIHC

"That for and in consideration of the sum of THREE

THOUSAND PESOS ([P]3,000.00), Philippine Currency, value to be
paid and deliver to me, and of which receipt of which shall be
acknowledged by me to my full satisfaction by the MUNICIPAL
GOVERNMENT OF ISULAN, represented by the Municipal Mayor,
Datu Sama Ampatuan, hereinafter referred to as the VENDEE, I
hereby sell, transfer, cede, convey and assign as by these presents
do have sold, transferred, ceded, conveyed and assigned, an area
of TWO (2) hectares, more or less, to and in favor of the MUNICIPAL
GOVERNMENT OF ISULAN, her (sic)heirs, assigns and administrators
to have and to hold forevery (sic) and definitely, which portion shall be
utilized purposely and exclusively as a GOVERNMENT CENTER SITE .
. .[.]" 7
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The respondent immediately took possession of the property and began
construction of the municipal building. 8
Thirty-nine (39) years later or on October 26, 2001, the petitioner, together
with his wife, Patao Talipasan, filed a civil action for Recovery of Possession of
Subject Property and/or Quieting of Title thereon and Damages against the
respondent, represented by its Municipal Mayor, et al. 9 In his complaint, the
petitioner alleged, among others, that the agreement was one to sell, which was
not consummated as the purchase price was not paid. 10
In its answer, the respondent denied the petitioner's allegations, claiming,
among others: that the petitioner's cause of action was already barred by laches;
that the Deed of Sale was valid; and that it has been in open, continuous and
exclusive possession of the property for forty (40) years. 11
After trial, the RTC rendered judgment in favor of the petitioner. The RTC
construed the Deed of Sale as a contract to sell, based on the wording of the
contract, which allegedly showed that the consideration was still to be paid and
delivered on some future date — a characteristic of a contract to sell. 12 In
addition, the RTC observed that the Deed of Sale was not determinate as to its
object since it merely indicated two (2) hectares of the 97,163 sq m lot, which is
an undivided portion of the entire property owned by the petitioner. The RTC
found that segregation must first be made to identify the parcel of land indicated
in the Deed of Sale and it is only then that the petitioner could execute a final
deed of absolute sale in favor of the respondent. 13 ATCEIc

As regards the payment of the purchase price, the RTC found the same to
have not been made by the respondent. According to the RTC, the Municipal
Voucher is not a competent documentary proof of payment but is merely
evidence of admission by the respondent that on the date of the execution of the
Deed of Sale, the consideration stipulated therein had not yet been paid. The
RTC also ruled that the Municipal Voucher's validity and evidentiary value is in
question as it suffers infirmities, that is, it was neither duly recorded, numbered,
signed by the Municipal Treasurer nor was it pre-audited. 14
The RTC also ruled that the Deed of Sale was not approved pursuant to
Section 145 of the Administrative Code for Mindanao and Sulu or Section 120
of the Public Land Act (PLA), as amended. Resolution No. 70, 15 which was
issued by the respondent, appropriating the amount of P3,000.00 as payment for
the property, and Resolution No. 644 of the Provincial Board of Cotabato, which
approved Resolution No. 70, cannot be considered proof of the sale as said
Deed of Sale was not presented for examination and approval of the Provincial
Board. 16 Further, since the respondent's possession of the property was not in
the concept of an owner, laches cannot be a valid defense for claiming

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ownership of the property, which has been registered in the petitioner's name
under the Torrens System. 17
The dispositive portion of the RTC Decision 18 dated January 14, 2004
reads:
WHEREFORE, upon all the foregoing considerations, judgment is
hereby rendered: CTDHSE

a. Declaring the contract entered into between the plaintiffs and

the defendant, Municipal Government of Isulan, Cotabato
(now Sultan Kudarat), represented by its former Mayor,
Datu Suma Ampatuan, dated July 18, 1962, as a contract
to sell, without its stipulated consideration having been
paid; and for having been entered into between plaintiff Ali
Akang, an illiterate non-Christian, and the defendant,
Municipal Government of Isulan, in violation of Section 120
of C.A. No. 141, said contract/agreement is hereby
declared null and void;
b. Declaring the Deed of Sale (Exh. "1"-"E") dated July 18, 1962,
null and void [ab] initio, for having been executed in
violation of Section 145 of the Administrative Code of
Mindanao and Sulu, and of Section 120 of the Public Land
Law, as amended by R.A. No. 3872;
c. Ordering the defendants to pay plaintiffs, the value of the lot in
question, Lot No. 5-B-2-B-14-F (LRC) Psd 110183,
containing an area of 20,030 Square Meters, at the
prevailing market value, as may [be] reflected in its Tax
Declaration, or in the alternative, to agree on the payment
of monthly back rentals, retroactive to 1996, until
defendants should decide to buy and pay the value of said
lot as aforestated, with legal interest in both cases;
d. Ordering the defendant, Municipal Government of Isulan,
Sultan Kudarat, to pay plaintiffs, by way of attorney's fee,
the equivalent of 30% of the value that defendants would
pay the plaintiffs for the lot in question; and to pay plaintiffs
the further sum of [P]100,000.00, by way of moral and
exemplary damages;
e. Ordering the defendants, members of the Sangguniang Bayan
of Isulan, Sultan Kudarat, to pass a resolution/ordinance
for the appropriation of funds for the payment of the value
of plaintiffs' Lot 5-B-2-B-14-F (LRC) Psd-110183, and of
the damages herein awarded to the plaintiffs; and CTacSE

f. Ordering the defendants to pay the costs of suit.

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For lack of merit, the counterclaims of the defendants should be,
as it is hereby, dismissed.
IT IS SO ORDERED. 19

By virtue of said RTC decision, proceedings for the Cancellation of

Certificate of Title No. T-49349 registered under the name of the respondent was
instituted by the petitioner under Miscellaneous Case No. 866 and as a result,
the respondent's title over the property was cancelled and a new one issued in
the name of the petitioner.
The respondent appealed the RTC Decision dated January 14, 2004 and
in the Decision 20 dated April 25, 2008, the CA reversed the ruling of the RTC
and upheld the validity of the sale. The dispositive portion of the CA Decision
provides:
WHEREFORE, the assailed decision dated January 14, 2004 is
hereby REVERSED and a new one entered, upholding the contract of
sale executed on July 18, 1962 between the parties.
SO ORDERED. 21

The CA sustained the respondent's arguments and ruled that the petitioner
is not entitled to recover ownership and possession of the property as the Deed
of Sale already transferred ownership thereof to the respondent. The CA held
that the doctrines of estoppel and laches must apply against the petitioner for the
reasons that: (1) the petitioner adopted inconsistent positions when, on one
hand, he invoked the interpretation of the Deed of Sale as a contract to sell but
still demanded payment, and called for the application of Sections 145 and 146
of the Administrative Code for Mindanao and Sulu, on the other; and (2) the
petitioner did not raise at the earliest opportunity the nullity of the sale and
remained passive for 39 years, as it was raised only in 2001. 22 EIAaDC

The CA also ruled that the Deed of Sale is not a mere contract to sell but a
perfected contract of sale. There was no express reservation of ownership of title
by the petitioner and the fact that there was yet no payment at the time of the
sale does not affect the validity or prevent the perfection of the sale. 23
As regards the issue of whether payment of the price was made, the CA
ruled that there was actual payment, as evidenced by the Municipal Voucher,
which the petitioner himself prepared and signed despite the lack of approval of
the Municipal Treasurer. Even if he was not paid the consideration, it does not
affect the validity of the contract of sale for it is not the fact of payment of the
price that determines its validity. 24
In addition, the CA noted that there was an erroneous cancellation of the
certificate of title in the name of the respondent and the registration of the same

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property in the name of the petitioner in Miscellaneous Case No. 866. According
to the CA, this does not affect in any way the ownership of the respondent over
the subject property because registration or issuance of a certificate of title is not
one of the modes of acquiring ownership. 25
The petitioner sought reconsideration of the CA Decision, which was
denied by the CA in its Resolution 26 dated October 29, 2008.
Hence, this petition.
Issue
WHETHER THE PETITIONER IS ENTITLED TO RECOVER
OWNERSHIP AND POSSESSION OF THE PROPERTY IN DISPUTE.

Resolution of the above follows determination of these questions: (1)

whether the Deed of Sale dated July 18, 1962 is a valid and perfected contract of
sale; (2) whether there was payment of consideration by the respondent; and (3)
whether the petitioner's claim is barred by laches. IaSAHC

The petitioner claims that the acquisition of the respondent was null and
void because: (1) he is an illiterate non-Christian who only knows how to sign his
name in Arabic and knows how to read the Quran but can neither read nor write
in both Arabic and English; (2) the respondent has not paid the price for the
property; (3) the Municipal Voucher is not admissible in evidence as proof of
payment; (4) the Deed of Sale was not duly approved in accordance with
Sections 145 and 146 of the Administrative Code of Mindanao and Sulu, and
Section 120 of the PLA, as amended; and (4) the property is a registered land
covered by a TCT and cannot be acquired by prescription or adverse
possession. 27 The petitioner also explained that the delayed filing of the civil
action with the RTC was due to Martial Law and the Ilaga-Blackshirt Troubles in
the then Province of Cotabato. 28
The respondent, however, counters that: (1) the petitioner is not an
illiterate non-Christian and he, in fact, was able to execute, sign in Arabic, and
understand the terms and conditions of the Special Power of Attorney dated July
23, 1996 issued in favor of Baikong Akang (Baikong); (2) the Deed of Sale is
valid as its terms and conditions were reviewed by the Municipal Council of
Isulan and the Provincial Board of Cotabato; and (3) the Deed of Sale is a
contract of sale and not a contract to sell.29
Ruling of the Court
The Court finds the petition devoid of merit.
Issue Raised for the First Time
on Appeal is Barred by Estoppel

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The petitioner asserts that the Deed of Sale was notarized by Atty.
Gualberto B. Baclig who was not authorized to administer the same, hence, null
and void. This argument must be rejected as it is being raised for the first time
only in this petition. In his arguments before the RTC and the CA, the petitioner
focused mainly on the validity and the nature of the Deed of Sale, and whether
there was payment of the purchase price. The rule is settled that issues raised
for the first time on appeal and not raised in the proceedings in the lower court
are barred by estoppel. To consider the alleged facts and arguments raised
belatedly would amount to trampling on the basic principles of fair play, justice,
and due process. 30 Accordingly, the petitioner's attack on the validity of the
Deed of Sale vis-Ã -vis its compliance with the 2004 New Notarial Law must be
disregarded. 31 SACHcD

The Deed of Sale is a Valid

Contract of Sale
The petitioner alleges that the Deed of Sale is merely an agreement to sell,
which was not perfected due to non-payment of the stipulated
consideration. 32 The respondent, meanwhile, claims that the Deed of Sale is a
valid and perfected contract of absolute sale. 33
A contract of sale is defined under Article 1458 of the Civil Code:
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.

The 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. 34
A contract to sell, on the other hand, is defined by Article 1479 of the Civil
Code:
[A] bilateral contract whereby the prospective seller, while expressly
reserving the ownership of the subject property despite delivery thereof
to the prospective buyer, binds himself to sell the said property
exclusively to the prospective buyer upon fulfillment of the condition
agreed upon, that is, full payment of the purchase price.AcISTE

In a contract of sale, the title to the property passes to the buyer upon the
delivery of the thing sold, whereas in a contract to sell, the ownership is, by
agreement, retained by the seller and is not to pass to the vendee until full
payment of the purchase price. 35
The Deed of Sale executed by the petitioner and the respondent is a
perfected contract of sale, all its elements being present. There was mutual

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agreement between them to enter into the sale, as shown by their free and
voluntary signing of the contract. There was also an absolute transfer of
ownership of the property by the petitioner to the respondent as shown in the
stipulation: ". . . I [petitioner] hereby sell, transfer, cede, convey and assign as by
these presents do have sold, transferred, ceded, conveyed and assigned, . . .
." 36 There was also a determinate subject matter, that is, the two-hectare parcel
of land as described in the Deed of Sale. Lastly, the price or consideration is at
Three Thousand Pesos (P3,000.00), which was to be paid after the execution of
the contract. The fact that no express reservation of ownership or title to the
property can be found in the Deed of Sale bolsters the absence of such intent,
and the contract, therefore, could not be one to sell. Had the intention of the
petitioner been otherwise, he could have: (1) immediately sought judicial
recourse to prevent further construction of the municipal building; or (2) taken
legal action to contest the agreement. 37 The petitioner did not opt to undertake
any of such recourses.
Payment of consideration or
purchase price
The petitioner's allegation of non-payment is of no consequence taking into
account the Municipal Voucher presented before the RTC, which proves
payment by the respondent of Three Thousand Pesos (P3,000.00). The
petitioner, notwithstanding the lack of the Municipal Treasurer's approval,
admitted that the signature appearing on the Municipal Voucher was his and he
is now estopped from disclaiming payment. DHTCaI

Even assuming, arguendo, that the petitioner was not paid, such non
payment is immaterial and has no effect on the validity of the contract of sale. A
contract of sale is a consensual contract and what is required is the meeting of
the minds on the object and the price for its perfection and validity. 38 In this
case, the contract was perfected the moment the petitioner and the respondent
agreed on the object of the sale — the two-hectare parcel of land, and the price
— Three Thousand Pesos (P3,000.00). Non-payment of the purchase price
merely gave rise to a right in favor of the petitioner to either demand specific
performance or rescission of the contract of sale. 39
Sections 145 and 146 of the
Administrative Code of Mindanao
and Sulu, and Section 120 of the
PLA, as amended, are not
applicable
The petitioner relies on the foregoing laws in assailing the validity of the
Deed of Sale, claiming that the contract lacks executive approval and that he is

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an illiterate non-Christian to whom the benefits of Sections 145 and 146 of the
Administrative Code of Mindanao and Sulu should apply.
Section 145 of the Administrative Code of Mindanao and Sulu essentially
provides for the requisites of the contracts entered into by a person with any
Moro or other non-Christian inhabitants. 40 Section 146, 41 meanwhile, provides
that contracts entered into in violation of Section 145 are void. These provisions
aim to safeguard the patrimony of the less developed ethnic groups in the
Philippines by shielding them against imposition and fraud when they enter into
agreements dealing with realty. 42
Section 120 of the PLA (Commonwealth Act No. 141) affords the same
protection. 43 R.A. No. 3872 44 likewise provides that conveyances and
encumbrances made by illiterate non-Christian or literate non-Christians where
the instrument of conveyance or encumbrance is in a language not understood
by said literate non-Christians shall not be valid unless duly approved by the
Chairman of the Commission on National Integration. CASIEa

In Jandoc-Gatdula v. Dimalanta, 45 however, the Court categorically stated

that while the purpose of Sections 145 and 146 of the Administrative Code of
Mindanao and Sulu in requiring executive approval of contracts entered into by
cultural minorities is indeed to protect them, the Court cannot blindly apply
that law without considering how the parties exercised their rights and
obligations. In this case, Municipality Resolution No. 70, which approved the
appropriation of P3,000.00, was, in fact, accepted by the Provincial Board of
Cotabato. In approving the appropriation of P3,000.00, the Municipal Council of
Isulan and the Provincial Board of Cotabato, necessarily, scrutinized the Deed of
Sale containing the terms and conditions of the sale. Moreover, there is nothing
on record that proves that the petitioner was duped into signing the contract, that
he was taken advantage of by the respondent and that his rights were not
protected.
The court's duty to protect the native vendor, however, should not
be carried out to such an extent as to deny justice to the vendee when
truth and justice happen to be on the latter's side. The law cannot be
used to shield the enrichment of one at the expense of another. More
important, the law will not be applied so stringently as to render
ineffective a contract that is otherwise valid, except for want of approval
by the CNI. This principle holds, especially when the evils sought to be
avoided are not obtaining. 46

The Court must also reject the petitioner's claim that he did not understand
the import of the agreement. He alleged that he signed in Arabic the Deed of
Sale, the Joint Affidavit and the Municipal Voucher, which were all in English, and
that he was not able to comprehend its contents. Records show the contrary. The

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petitioner, in fact, was able to execute in favor of Baikong a Special Power of
Attorney (SPA) dated July 23, 1996, which was written in English albeit signed by
the petitioner in Arabic. Said SPA authorized Baikong, the petitioner's sister, to
follow-up the payment of the purchase price. This raises doubt on the veracity of
the petitioner's allegation that he does not understand the language as he would
not have been able to execute the SPA or he would have prevented its
enforcement. TacESD

The Petitioner's Claim for

Recovery of Possession and
Ownership is Barred by Laches
Laches has been defined as the failure or neglect, for an unreasonable
and unexplained length of time, to do that which, by exercising due diligence
could or should have been done earlier. 47 It should be stressed that laches is
not concerned only with the mere lapse of time. 48
As a general rule, an action to recover registered land covered by the
Torrens System may not be barred by laches. 49 Neither can laches be set up to
resist the enforcement of an imprescriptible legal right. 50 In exceptional cases,
however, the Court allowed laches as a bar to recover a titled property. Thus,
in Romero v. Natividad, 51 the Court ruled that laches will bar recovery of the
property even if the mode of transfer was invalid. Likewise, in Vda. de Cabrera v.
CA, 52 the Court ruled:
In our jurisdiction, it is an enshrined rule that even a registered
owners of property may be barred from recovering possession of
property by virtue of laches. Under the Land Registration Act (now the
Property Registration Decree), no title to registered land in derogation to
that of the registered owner shall be acquired by prescription or adverse
possession. The same is not true with regard to laches. . . .
. 53 (Citation omitted and emphasis supplied) SacTAC

More particularly, laches will bar recovery of a property, even if the mode
of transfer used by an alleged member of a cultural minority lacks executive
approval. 54Thus, in Heirs of Dicman v. Cariño, 55 the Court upheld the Deed of
Conveyance of Part Rights and Interests in Agricultural Land executed by Ting-el
Dicman in favor of Sioco Cariño despite lack of executive approval. The Court
stated that "despite the judicial pronouncement that the sale of real property by
illiterate ethnic minorities is null and void for lack of approval of competent
authorities, the right to recover possession has nonetheless been barred through
the operation of the equitable doctrine of laches." 56 Similarly in this case, while
the respondent may not be considered as having acquired ownership by virtue of
its long and continued possession, nevertheless, the petitioner's right to recover
has been converted into a stale demand due to the respondent's long period of

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possession and by the petitioner's own inaction and neglect. 57 The Court cannot
accept the petitioner's explanation that his delayed filing and assertion of rights
was due to Martial Law and the Cotabato Ilaga-Black Shirt Troubles. The Martial
Law regime was from 1972 to 1986, while the Ilaga-Black Shirt Troubles were
from the 1970s to the 1980s. The petitioner could have sought judicial relief, or at
the very least made his demands to the respondent, as early as the third quarter
of 1962 after the execution of the Deed of Sale and before the advent of these
events. Moreover, even if, as the petitioner claims, access to courts were
restricted during these times, he could have immediately filed his claim after
Martial Law and after the Cotabato conflict has ended. The petitioner's reliance
on the Court's treatment of Martial Law as force majeure that suspended the
running of prescription in Development Bank of the Philippines v. Pundogar 58 is
inapplicable because the Court's ruling therein pertained to prescription and not
laches. Consequently, the petitioner's lengthy inaction sufficiently warrants the
conclusion that he acquiesced or conformed to the sale.
Vigilantibus sed non dormientibus jura subverniunt. The law aids the
vigilant, not those who sleep on their rights. This legal percept finds application in
the petitioner's case.
WHEREFORE, the appeal is DENIED. The Decision dated April 25, 2008
and Resolution dated October 29, 2008 of the Court of Appeals Mindanao
Station in CA-G.R. CV No. 00156 are AFFIRMED.
SO ORDERED. aSHAIC

||| (Akang v. Municipality of Isulan, G.R. No. 186014, [June 26, 2013], 712 PHIL
420-441)

#7 FULLIDO v. GRILLI
GR No. 215014; February 29, 2016

[G.R. No. 215014. February 29, 2016.]

REBECCA FULLIDO, petitioner, vs. GINO GRILLI, respondent.

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DECISION

MENDOZA, J : p

This is a petition for review on certiorari seeking to reverse and set

aside the May 31, 2013 Decision 1 and the September 24, 2014 2 Resolution
of the Court of Appeals (CA) in CA-G.R. CEB-SP No. 06946, which affirmed
the April 26, 2012 Decision 3 of the Regional Trial Court, Branch 47,
Tagbilaran City (RTC) in Civil Case No. 7895, reversing the March 31, 2011
Decision 4 of the Municipal Circuit Trial Court, Dauis, Bohol (MCTC) in Civil
Case No. 244, a case for unlawful detainer filed by Gino Grilli (Grilli) against
Rebecca Fullido (Fullido).
The Facts
Sometime in 1994, Grilli, an Italian national, met Fullido in Bohol and
courted her. In 1995, Grilli decided to build a residential house where he and
Fullido would to stay whenever he would be vacationing in the country.
Grilli financially assisted Fullido in procuring a lot located in Biking I,
Dauis, Bohol, from her parents which was registered in her name under
Transfer Certificate of Title (TCT) No. 30626. 5 On the said property, they
constructed a house, which was funded by Grilli. Upon completion, they
maintained a common-law relationship and lived there whenever Grilli was on
vacation in the Philippines twice a year.
In 1998, Grilli and Fullido executed a contract of lease, 6 a
memorandum of agreement 7 (MOA) and a special power of attorney 8 (SPA),
to define their respective rights over the house and lot.
The lease contract stipulated, among others, that Grilli as the lessee,
would rent the lot, registered in the name of Fullido, for a period of fifty (50)
years, to be automatically renewed for another fifty (50) years upon its
expiration in the amount of P10,000.00 for the whole term of the lease
contract; and that Fullido as the lessor, was prohibited from selling, donating,
or encumbering the said lot without the written consent of Grilli. The pertinent
provisions of the lease contract over the house and lot are as follows:
That for and in consideration of the total amount of rental in the
amount of TEN THOUSAND (P10,000.00) PESOS, Philippine
Currency, paid by the LESSEE to the LESSOR, receipt of which is
hereby acknowledged, the latter hereby leases to the LESSEE a house
and lot, and all the furnishings found therein, land situated at Biking I,
Dauis, Bohol, Philippines, absolutely owned and belonging to the
LESSOR and particularly described as follows, to wit:
xxx xxx xxx

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That the LESSOR and the LESSEE hereby agree as they have
agreed to be bound by the following terms and conditions, to wit:
1. That the term of the lease shall be FIFTY (50) YEARS from
August 16, 1998 to August 15, 2048, automatically renewed for the
same term upon the expiration thereof;
xxx xxx xxx
7. That the LESSOR is strictly prohibited to sell, donate,
encumber, or in any manner convey the property subject of this lease
to any third person, without the written consent of the LESSEE. 9
The said lease contract was duly registered in the Register of Deeds of
Bohol.
The MOA, on the other hand, stated, among others, that Grilli paid for
the purchase price of the house and lot; that ownership of the house and lot
was to reside with him; and that should the common-law relationship be
terminated, Fullido could only sell the house and lot to whomever Grilli so
desired. Specifically, the pertinent terms of the MOA read:
NOW WHEREFORE, FOR AND IN CONSIDERATION of the
foregoing premises, the parties hereto agree as they hereby covenant
to agree that the FIRST PARTY(Grilli) shall permanently reside on the
property as above-mentioned, subject to the following terms and
conditions:
1. That ownership over the above-mentioned properties shall
reside absolutely with herein FIRST PARTY, and the SECOND
PARTY (Fullido) hereby acknowledges the same;
2. That the SECOND PARTY is expressly prohibited to sell the
above-stated property, except if said sale is with the conformity of the
FIRST PARTY; cSEDTC

3. That the SECOND PARTY hereby grants the FIRST PARTY,

the absolute and irrevocable right, to reside in the residential building
so constructed during his lifetime, or any time said FIRST PARTY may
so desire;
4. That in the event the common-law relationship terminates, or
when the SECOND PARTY marries another, or enters into another
common-law relationship with another, said SECOND PARTY shall be
obliged to execute a DEED OF ABSOLUTE SALE over the above-
stated parcel of land and residential building, in favor of whomsoever
the FIRST PARTY may so desire, and be further obliged to turn over
the entire consideration of the said sale to the FIRST PARTY, or if the
law shall allow, the FIRST PARTY shall retain ownership of the said
land, as provided for in paragraph 7 below;
xxx xxx xxx

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7. That if the cases referred to in paragraph 4 shall occur and in
the event that a future law shall be passed allowing foreigners to own
real properties in the Philippines, the ownership of the above-described
real properties shall pertain to the FIRST PARTY, and the herein
undersigned SECOND PARTY undertakes to execute all the
necessary deeds, documents, and contracts to effect the transfer of
title in favor of the FIRST PARTY;
xxx xxx xxx. 10
Lastly, the SPA allowed Grilli to administer, manage, and transfer the
house and lot on behalf of Fullido.
Initially, their relationship was harmonious, but it turned sour after 16
years of living together. Both charged each other with infidelity. They could
not agree who should leave the common property, and Grilli sent formal
letters to Fullido demanding that she vacate the property, but these were
unheeded. On September 8, 2010, Grilli filed a complaint for unlawful detainer
with prayer for issuance of preliminary injunction against Fullido before the
MCTC, docketed as Civil Case No. 244.
Grilli's Position
The complaint stated that the common-law relationship between Grilli
and Fullido began smoothly, until Grilli discovered that Fullido was pregnant
when he arrived in the Philippines in 2002. At first, she told him that the child
she was carrying was his. After the delivery of the child, however, it became
apparent that the child was not his because of the discrepancy between the
child's date of birth and his physical presence in the Philippines and the
difference between the baby's physical features and those of Grilli. Later on,
she admitted that the child was indeed sired by another man.
Grilli further claimed that he was so devastated that he decided to end
their common-law relationship. Nevertheless, he allowed Fullido to live in his
house out of liberality and generosity, but this time, using another room. He
did not demand any rent from Fullido over the use of his property.
After a year, Fullido became more hostile and difficult to handle. Grilli
had to make repairs with his house every time he arrived in the Philippines
because she was not maintaining it in good condition. Fullido also let her two
children, siblings and parents stay in his house, which caused damage to the
property. He even lost his personal belongings inside his house on several
occasions. Grilli verbally asked Fullido to move out of his house because they
were not getting along anymore, but she refused. He could no longer tolerate
the hostile attitude shown to him by Fullido and her family, thus, he filed the
instant complaint.
Fullido's Position

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Fullido countered that she met Grilli sometime in 1993 when she was
still 17 years old working as a cashier in Alturas Supermarket. Grilli was then
a tourist in Bohol who persistently courted her.
At first, Fullido was hesitant to the advances of Grilli because she could
not yet enter into a valid marriage. When he assured her and her parents that
they would eventually be married in three years, she eventually agreed to
have a relationship with him and to live as common-law spouses. Sometime in
1995, Grilli offered to build a house for her on a parcel of land she exclusively
owned which would become their conjugal abode. Fullido claimed that their
relationship as common-law spouses lasted for more than 18 years until she
discovered that Grilli had found a new and younger woman in his life. Grilli
began to threaten and physically hurt her by knocking her head and choking
her.
When Fullido refused to leave their house even after the unlawful
detainer case was filed, Grilli again harassed, intimidated and threatened to
hurt her and her children. Thus, she filed a petition for Temporary Protection
Order (TPO) and Permanent Protection Order (PPO) against Grilli
under Republic Act (R.A.) No. 9262before the Regional Trial Court, Branch 3,
Bohol (RTC-Branch 3). In an Order, 11 dated February 23, 2011, the RTC-
Branch 3 granted the TPO in favor of Fullido and directed that Grilli must be
excluded from their home.
Fullido finally asserted that, although it was Grilli who funded the
construction of the house, she exclusively owned the lot and she contributed
to the value of the house by supervising its construction and maintaining their
household.
The MCTC Ruling
In its decision, dated March 31, 2011, the MCTC dismissed the case
after finding that Fullido could not be ejected from their house and lot. The
MCTC opined that she was a co-owner of the house as she contributed to it
by supervising its construction. Moreover, the MCTC respected the TPO
issued by RTC-Branch 3 which directed that Grilli be removed from Fullido's
residence. The dispositive portion of the MCTC decision reads: SDAaTC

WHEREFORE, judgment is hereby rendered:

1. Dismissing the instant case;
2. Ordering the Plaintiff to pay to Defendant the amount of Fifty
Thousand Pesos (P50,000.00) as moral damages, and
Twenty Thousand Pesos (P20,000.00) as exemplary
damages, and Twenty Thousand Pesos (P20,000.00) as
Attorney's Fees; and

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3. Denying the prayer for the issuance of Preliminary Mandatory
Injunction.
SO ORDERED. 12
Not in conformity, Grilli elevated the matter before the RTC.
The RTC Ruling
In its decision, dated April 26, 2012, the RTC reversed and set aside
the MCTC decision. The RTC was of the view that Grilli had the exclusive
right to use and possess the house and lot by virtue of the contract of lease
executed by the parties. Since the period of lease had not yet expired, Fullido,
as lessor, had the obligation to respect the peaceful and adequate enjoyment
of the leased premises by Grilli as lessee. The RTC opined that absent a
judicial declaration of nullity of the contract of lease, its terms and conditions
were valid and binding. As to the TPO, the RTC held that the same had no
bearing in the present case which merely involved the possession of the
leased property.
Aggrieved, Fullido instituted an appeal before the CA alleging that her
land was unlawfully transferred by Grilli to a certain Jacqueline
Guibone (Guibone), his new girlfriend, by virtue of the SPA earlier executed
by Fullido.
The CA Ruling
In its assailed decision, dated May 31, 2013, the CA upheld the
decision of the RTC emphasizing that in an ejectment case, the only issue to
be resolved would be the physical possession of the property. The CA was
also of the view that as Fullido executed both the MOA and the contract of
lease, which gave Grilli the possession and use of the house and lot, the
same constituted as a judicial admission that it was Grilli who had the better
right of physical possession. The CA stressed that, if Fullido would insist that
the said documents were voidable as her consent was vitiated, then she must
institute a separate action for annulment of contracts. Lastly, the CA stated
that the TPO issued by the RTC-Branch 3 under Section 21 of R.A. No.
9262 was without prejudice to any other action that might be filed by the
parties.
Fullido filed a motion for reconsideration, 13 but she failed to attach the
proofs of service of her motion. For said reason, it was denied by the CA in its
assailed resolution, dated September 24, 2014. AaCTcI

Hence, this present petition raising the following:

ISSUES
I

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THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND
DEPARTED FROM ESTABLISHED LAW AND JURISPRUDENCE IN
DENYING THE PETITION FOR REVIEW AND IN AFFIRMING THE
DECISION OF RTC BOHOL BRANCH 47 EJECTING PETITIONER
FROM THE SUBJECT PROPERTIES, WHICH EJECTMENT ORDER
IS ANCHORED ON PATENTLY NULL AND VOID CONTRACTS.
II
THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND
DEPARTED FROM ESTABLISHED LAW IN AFFIRMING THE
DECISION OF THE RTC BOHOL BRANCH 47 EJECTING
PETITIONER FROM THEIR CONJUGAL ABODE WHERE
RESPONDENT HAS BEEN EARLIER ORDERED TO VACATE BY
VIRTUE OF A PERMANENT PROTECTION ORDER THUS
EFFECTIVELY SETTING ASIDE, NEGATING AND/OR VIOLATING
AN ORDER ISSUED BY A COURT OF CO-EQUAL JURISDICTION.
III
THE HONORABLE COURT OF APPEALS LIKEWISE ERRED AND
DEPARTED FROM ESTABLISHED LAW AND JURISPRUDENCE IN
DENYING THE PETITIONER'S MOTION FOR RECONSIDERATION,
AMONG OTHERS, FOR NON-COMPLIANCE WITH SECTION 1
RULE 52 VIS-À-VIS SECTION 13, RULE 13 OF THE 1997 RULES
OF CIVIL PROCEDURE. 14
Fullido argues that she could not be ejected from her own lot based on
the contract of lease and the MOA because those documents were null and
void for being contrary to the Constitution, the law, public policy, morals and
customs; that the MOA prevented her from disposing or selling her own land,
while the contract of lease favoring Grilli, a foreigner, was contrary to the
Constitution as it was a for a period of fifty (50) years, and, upon termination,
was automatically renewable for another fifty (50) years; that the TPO, which
became a PPO by virtue of the July 5, 2011 Decision 15 of RTC-Branch 3,
should not be defeated by the ejectment suit; and that the CA should have
liberally applied its procedural rules and allowed her motion for
reconsideration.
In his Comment, 16 Grilli countered that he was the rightful owner of the
house because a foreigner was not prohibited from owning residential
buildings; that the lot was no longer registered in the name of Fullido as it was
transferred to Guibone, covered by TCT No. 101-2011000335; that if Fullido
wanted to assail the lease contract, she should have first filed a separate
action for annulment of the said contract, which she did in Civil Case No.
8094, pending before the Regional Trial Court of Bohol; and that by signing
the contracts, Fullido fully agreed with their terms and must abide by the
same.

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In her Reply, 17 Fullido insisted that the contract of lease and the MOA
were null and void, thus, these could not be the source of Grilli's de
facto possession.
The Court's Ruling
The Court finds the petition meritorious.
Unlawful detainer is an action to recover possession of real property
from one who unlawfully withholds possession thereof after the expiration or
termination of his right to hold possession under any contract, express or
implied. The possession of the defendant in unlawful detainer is originally
legal but became illegal due to the expiration or termination of the right to
possess. The only issue to be resolved in an unlawful detainer case is the
physical or material possession of the property involved, independent of any
claim of ownership by any of the parties. 18
In this case, Fullido chiefly asserts that Grilli had no right to institute the
action for unlawful detainer because the lease contract and the MOA, which
allegedly gave him the right of possession over the lot, were null and void for
violating the Constitution. Contrary to the findings of the CA, Fullido was not
only asserting that the said contracts were merely voidable, but she was
consistently invoking that the same were completely void. 19 Grilli, on the
other hand, contends that Fullido could not question the validity of the said
contracts in the present ejectment suit unless she instituted a separate action
for annulment of contracts. Thus, the Court is confronted with the issue of
whether a contract could be declared void in a summary action of unlawful
detainer.
Under the circumstances of the case, the Court answers in the
affirmative.
A void contract cannot be the
source of any right; it cannot
be utilized in an ejectment suit
A void or inexistent contract may be defined as one which lacks,
absolutely either in fact or in law, one or some of the elements which are
essential for its validity. 20 It is one which has no force and effect from the very
beginning, as if it had never been entered into; it produces no effect
whatsoever either against or in favor of anyone. 21 Quod nullum est nullum
producit effectum. Article 1409 of the New Civil Code explicitly states that void
contracts also cannot be ratified; neither can the right to set up the defense of
illegality be waived. 22 Accordingly, there is no need for an action to set aside
a void or inexistent contract. 23
A review of the relevant jurisprudence reveals that the Court did not
hesitate to set aside a void contract even in an action for unlawful detainer.
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In Spouses Alcantara v. Nido, 24 which involves an action for unlawful
detainer, the petitioners therein raised a defense that the subject land was
already sold to them by the agent of the owner. The Court rejected their
defense and held that the contract of sale was void because the agent did not
have the written authority of the owner to sell the subject land.
EcTCAD

Similarly, in Roberts v. Papio, 25 a case of unlawful detainer, the Court

declared that the defense of ownership by the respondent therein was
untenable. The contract of sale invoked by the latter was void because the
agent did not have the written authority of the owner. A void contract produces
no effect either against or in favor of anyone.
In Ballesteros v. Abion, 26 which also involves an action for unlawful
detainer, the Court disallowed the defense of ownership of the respondent
therein because the seller in their contract of sale was not the owner of the
subject property. For lacking an object, the said contract of sale was void ab
initio.
Clearly, contracts may be declared void even in a summary action for
unlawful detainer because, precisely, void contracts do not produce legal
effect and cannot be the source of any rights. To emphasize, void contracts
may not be invoked as a valid action or defense in any court proceeding,
including an ejectment suit. The next issue that must be resolved by the Court
is whether the assailed lease contract and MOA are null and void.
The lease contract and the
MOA circumvent the
constitutional restraint against
foreign ownership of lands.
Under Section 1 of Article XIII of the 1935 Constitution, natural
resources shall not be alienated, except with respect to public agricultural
lands and in such cases, the alienation is limited to Filipino citizens.
Concomitantly, Section 5 thereof states that, save in cases of hereditary
succession, no private agricultural land shall be transferred or assigned
except to individuals, corporations, or associations qualified to acquire or hold
lands of the public domain in the Philippines. The prohibition on the transfer of
lands to aliens was adopted in the present 1987 Constitution, under Sections
2, 3 and 7 of Article XII thereof. Agricultural lands, whether public or private,
include residential, commercial and industrial lands. The purpose of
prohibiting the transfer of lands to foreigners is to uphold the conservation of
our national patrimony and ensure that agricultural resources remain in the
hands of Filipino citizens. 27SDHTEC

The prohibition, however, is not limited to the sale of lands to

foreigners. It also covers leases of lands amounting to the transfer of all or

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substantially all the rights of dominion. In the landmark case of Philippine
Banking Corporation v. Lui She, 28 the Court struck down a lease contract of a
parcel of land in favor of a foreigner for a period of ninety-nine (99) years with
an option to buy the land for fifty (50) years. Where a scheme to circumvent
the Constitutional prohibition against the transfer of lands to aliens is readily
revealed as the purpose for the contracts, then the illicit purpose becomes the
illegal cause rendering the contracts void. Thus, if an alien is given not only
a lease of, but also an option to buy, a piece of land by virtue of which
the Filipino owner cannot sell or otherwise dispose of his property, this
to last for 50 years, then it becomes clear that the arrangement is a
virtual transfer of ownership whereby the owner divests himself in stages
not only of the right to enjoy the land but also of the right to dispose of it —
rights which constitute ownership. If this can be done, then the Constitutional
ban against alien landholding in the Philippines, is indeed in grave peril. 29

In Llantino v. Co Liong Chong, 30 however, the Court clarified that a

lease contract in favor of aliens for a reasonable period was valid as long as it
did not have any scheme to circumvent the constitutional prohibition, such as
depriving the lessors of their right to dispose of the land. The Court explained
that "[a]liens are not completely excluded by the Constitution from use of
lands for residential purposes. Since their residence in the Philippines is
temporary, they may be granted temporary rights such as a lease contract
which is not forbidden by the Constitution. Should they desire to remain here
forever and share our fortune and misfortune, Filipino citizenship is not
impossible to acquire." 31 The lessee-foreigner therein eventually acquired
Filipino citizenship.
Consequently, Presidential Decree (P.D.) No. 471 was enacted to
regulate the lease of lands to aliens. It provides that the maximum period
allowable for the duration of leases of private lands to aliens or alien-owned
corporations, associations, or entities not qualified to acquire private lands in
the Philippines shall be twenty-five (25) years, renewable for another period of
twenty-five (25) years upon mutual agreement of both lessor and lessee. 32 It
also provides that any contract or agreement made or executed in
violation thereof shall be null and void ab initio. 33
Based on the above-cited constitutional, legal and jurisprudential
limitations, the Court finds that the lease contract and the MOA in the present
case are null and void for virtually transferring the reigns of the land to a
foreigner.
As can be gleaned from the contract, the lease in favor of Grilli was for
a period of fifty (50) years, automatically extended for another fifty (50) years
upon the expiration of the original period. Moreover, it strictly prohibited

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Fullido from selling, donating, or encumbering her land to anyone without the
written consent of Grilli. For a measly consideration of P10,000.00, Grilli
would be able to absolutely occupy the land of Fullido for 100 years, and she
is powerless to dispose the same. The terms of lease practically deprived
Fullido of her property rights and effectively transferred the same to Grilli.
Worse, the dominion of Grilli over the land had been firmly cemented by
the terms of the MOA as it reinforced Grilli's property rights over the land
because,first, it brazenly dictated that ownership of the land and the
residential building resided with him. Second, Fullido was expressly prohibited
from transferring the same without Grilli's conformity. Third, Grilli would
permanently reside in the residential building. Fourth, Grilli may capriciously
dispose Fullido's property once their common-law relationship is terminated.
This right was recently exercised when the land was transferred to
Guibone. Lastly, Fullido shall be compelled to transfer the land to Grilli if a law
would be passed allowing foreigners to own real properties in the Philippines.
Evidently, the lease contract and the MOA operated hand-in-hand to
strip Fullido of any dignified right over her own property. The term of lease for
100 years was obviously in excess of the allowable periods under P.D. No.
471. Even Grilli admitted that "this is a case of an otherwise valid contract of
lease that went beyond the period of what is legally permissible." 34 Grilli had
been empowered to deprive Fullido of her land's possession, control,
disposition and even its ownership. Thejus possidendi, jus utendi, jus fruendi,
jus abutendi and, more importantly, the jus disponendi — the sum of rights
which composes ownership — of the property were effectively transferred to
Grilli who would safely enjoy the same for over a century. The title of Fullido
over the land became an empty and useless vessel, visible only in paper, and
was only meant as a dummy to fulfill a foreigner's desire to own land within
our soils.
It is disturbing how these documents were methodically formulated to
circumvent the constitutional prohibition against land ownership by foreigners.
The said contracts attempted to guise themselves as a lease, but a closer
scrutiny of the same revealed that they were intended to transfer the dominion
of a land to a foreigner in violation of Section 7, Article XII of the 1987
Constitution. Even if Fullido voluntary executed the same, no amount of
consent from the parties could legalize an unconstitutional agreement. The
lease contract and the MOA do not deserve an iota of validity and must be
rightfully struck down as null and void for being repugnant to the fundamental
law. These void documents cannot be the source of rights and must be
treated as mere scraps of paper.

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Grilli does not have a
cause of action for
unlawful detainer
Ultimately, the complaint filed by Grilli was an action for unlawful
detainer. Section 1 of Rule 70 of the Rules of Court lays down the
requirements for filing a complaint for unlawful detainer, to wit: AScHCD

Who may institute proceedings, and when. — Subject to the provision

of the next succeeding section, a person deprived of the possession of
any land or building by force, intimidation, threat, strategy, or stealth, or
a lessor, vendor, vendee, or other person against whom the
possession of any land or building is unlawfully withheld after the
expiration or termination of the right to hold possession, by virtue of
any contract, express or implied, or the legal representatives or
assigns of any such lessor, vendor, vendee, or other person, may, at
any time within one (1) year after such unlawful deprivation or
withholding of possession, bring an action in the proper Municipal Trial
Court against the person or persons unlawfully withholding or depriving
of possession, or any person or persons claiming under them, for the
restitution of such possession, together with damages and costs.
[Emphasis Supplied]
A complaint sufficiently alleges a cause of action for unlawful detainer if
it recites the following: (1) initially, possession of property by the defendant
was by contract with or by tolerance of the plaintiff; (2) eventually, such
possession became illegal upon notice by plaintiff to defendant of the
termination of the latter's right of possession; (3) thereafter, the defendant
remained in possession of the property and deprived the plaintiff of the
enjoyment thereof; and (4) within one year from the last demand on defendant
to vacate the property, the plaintiff instituted the complaint for ejectment. 35
The Court rules that Grilli has no cause of action for unlawful detainer
against Fullido. As can be gleaned from the discussion above, the
complainant must either be a lessor, vendor, vendee, or other person against
whom the possession of any land or building is unlawfully withheld. In other
words, the complainant in an unlawful detainer case must have some right of
possession over the property.
In the case at bench, the lease contract and the MOA, from which Grilli
purportedly drew his right of possession, were found to be null and void for
being unconstitutional. A contract that violates the Constitution and the law is
null and void ab initio and vests no rights and creates no obligations. It
produces no legal effect at all. 36 Hence, as void contracts could not be the
source of rights, Grilli had no possessory right over the subject land. A person
who does not have any right over a property from the beginning cannot eject

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another person possessing the same. Consequently, Grilli's complaint for
unlawful detainer must be dismissed for failure to prove his cause of action.
In Pari Delicto Doctrine
is not applicable
On a final note, the Court deems it proper to discuss the doctrine of in
pari delicto. Latin for "in equal fault," in pari delicto connotes that two or more
people are at fault or are guilty of a crime. Neither courts of law nor equity will
interpose to grant relief to the parties, when an illegal agreement has been
made, and both parties stand in pari delicto. 37
The application of the doctrine of in pari delicto is not always rigid. An
accepted exception arises when its application contravenes well-established
public policy. In this jurisdiction, public policy has been defined as that
principle of the law which holds that no subject or citizen can lawfully do that
which has a tendency to be injurious to the public or against the public
good. 38 Thus, whenever public policy is advanced by either party, they may
be allowed to sue for relief against the transaction. 39
In the present case, both Grilli and Fullido were undoubtedly parties to
a void contract. Fullido, however, was not barred from filing the present
petition before the Court because the matters at hand involved an issue of
public policy, specifically the Constitutional prohibition against land ownership
by aliens. As pronounced in Philippine Banking Corporation v. Lui She, the
said constitutional provision would be defeated and its continued violation
sanctioned if the lands continue to remain in the hands of a foreigner. 40 Thus,
the doctrine of in pari delicto shall not be applicable in this case.
WHEREFORE, the petition is GRANTED. The May 31, 2013 Decision
of the Court of Appeals and its September 24, 2014 Resolution in CA-G.R.
CEB-SP No. 06946 are hereby REVERSED and SET ASIDE. The complaint
filed by Gino Grilli before the Municipal Circuit Trial Court, Dauis-Panglao,
Dauis, Bohol, docketed as Civil Case No. 244, is DISMISSED for lack of
cause of action.
SO ORDERED.
||| (Fullido v. Grilli, G.R. No. 215014, [February 29, 2016])

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#8 HEIRS OF FAUSTO IGNACIO v. HOME BANKERS SAVINGS AND TRUST

COMPANY

GR No. 177783; January 23, 2013

[G.R. No. 177783. January 23, 2013.]

HEIRS OF FAUSTO C. IGNACIO, namely MARFEL D. IGNACIO-

MANALO, MILFA D. IGNACIO-MANALO AND FAUSTINO D.

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IGNACIO, petitioners, vs. HOME BANKERS SAVINGS AND
TRUST COMPANY, SPOUSES PHILLIP AND THELMA
RODRIGUEZ, CATHERINE, REYNOLD & JEANETTE, all
surnamed ZUÑIGA, respondents.

DECISION

VILLARAMA, JR., J : p

Before the Court is a Petition for Review on Certiorari under Rule

45 assailing the Decision 1 dated July 18, 2006 and Resolution 2 dated May 2,
2007 of the Court of Appeals (CA) in CA-G.R. CV No. 73551. The CA reversed
the Decision 3 dated June 15, 1999 of the Regional Trial Court (RTC) of Pasig
City, Branch 151 in Civil Case No. 58980.
The factual antecedents:
In August 1981, petitioner Fausto C. Ignacio mortgaged two parcels of land
to Home Savings Bank and Trust Company, the predecessor of respondent
Home Bankers Savings and Trust Company, as security for the P500,000.00
loan extended to him by said bank. These properties which are located in
Cabuyao, Laguna are covered by Transfer Certificate of Title Nos. (T-40380) T-
8595 and (T-45804) T-8350 containing an area of 83,303 square meters and
120,110 square meters, respectively.4
When petitioner defaulted in the payment of his loan obligation, respondent
bank proceeded to foreclose the real estate mortgage. At the foreclosure sale
held on January 26, 1983, respondent bank was the highest bidder for the sum of
P764,984.67. On February 8, 1983, the Certificate of Sale issued to respondent
bank was registered with the Registry of Deeds of Calamba, Laguna. With the
failure of petitioner to redeem the foreclosed properties within one year from such
registration, title to the properties were consolidated in favor of respondent bank.
Consequently, TCT Nos. T-8595 and T-8350 were cancelled and TCT Nos.
111058 and 111059 were issued in the name of respondent bank. 5
Despite the lapse of the redemption period and consolidation of title in
respondent bank, petitioner offered to repurchase the properties. While the
respondent bank considered petitioner's offer to repurchase, there was no
repurchase contract executed. The present controversy was fuelled by
petitioner's stance that a verbal repurchase/compromise agreement was actually
reached and implemented by the parties. TEaADS

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In the meantime, respondent bank made the following dispositions of the
foreclosed properties already titled in its name:
TCT No. 111059 (Subdivided into six lots with individual titles —
TCT Nos. 117771, 117772, 117773, 117774, 117775 and 117776)
A. TCT No. 117771 (16,350 sq.ms.) — Sold to Fermin Salvador
and Bella Salvador under Deed of Absolute Sale dated May 23, 1984 for
the price of P150,000.00
B. TCT No. 11772 (82,569 sq.ms. subdivided into 2 portions
1) Lot 3-B-1 (35,447 sq.ms.) — Sold to Dr. Oscar
Remulla and Natividad Pagtakhan, Dr. Edilberto Torres
and Dra. Rebecca Amores under Deed of Absolute Sale
dated April 17, 1985 for the price of P150,000.00
2) Lot 3-B-2 covered by separate title TCT No. 124660
(Subdivided into 3 portions —
Lot 3-B-2-A (15,000 sq.ms.) — Sold to Dr. Myrna
del Carmen Reyes under Deed of Absolute Sale dated
March 23, 1987 for the price of P150,000.00
Lot 3-B-2-B (15,000 sq.ms.) — Sold to Dr. Rodito
Boquiren under Deed of Absolute Sale dated March 23,
1987 for the price of P150,000.00
Lot 3-B-2-C (17,122 sq.ms.) covered by TCT No.
T-154568 —
C. TCT No. 117773 (17,232 sq.ms.) — Sold to Rizalina Pedrosa
under Deed of Absolute Sale dated June 4, 1984 for the price of
P150,000.00

The expenses for the subdivision of lots covered by TCT No. 111059 and
TCT No. 117772 were shouldered by petitioner who likewise negotiated the
above-mentioned sale transactions. The properties covered by TCT Nos. T-
117774 to 117776 are still registered in the name of respondent bank. 6 SHAcID

In a letter addressed to respondent bank dated July 25, 1989, petitioner

expressed his willingness to pay the amount of P600,000.00 in full, as balance of
the repurchase price, and requested respondent bank to release to him the
remaining parcels of land covered by TCT Nos. 111058 and T-154658 ("subject
properties"). 7Respondent bank however, turned down his request. This
prompted petitioner to cause the annotation of an adverse claim on the said titles
on September 18, 1989. 8

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Prior to the annotation of the adverse claim, on August 24, 1989, the
property covered by TCT No. 154658 was sold by respondent bank to
respondent spouses Phillip and Thelma Rodriguez, without informing the
petitioner. On October 6, 1989, again without petitioner's knowledge, respondent
bank sold the property covered by TCT No. T-111058 to respondents Phillip and
Thelma Rodriguez, Catherine M. Zuñiga, Reynold M. Zuñiga and Jeannette M.
Zuñiga. 9
On December 27, 1989, petitioner filed an action for specific performance
and damages in the RTC against the respondent bank. As principal relief,
petitioner sought in his original complaint the reconveyance of the subject
properties after his payment of P600,000.00. 10 Respondent bank filed its
Answer denying the allegations of petitioner and asserting that it was merely
exercising its right as owner of the subject properties when the same were sold
to third parties.
For failure of respondent bank to appear during the pre-trial conference, it
was declared as in default and petitioner was allowed to present his evidence ex
parteon the same date (September 3, 1990). Petitioner simultaneously filed an
"Ex-Parte Consignation" tendering the amount of P235,000.00 as balance of the
repurchase price. 11 On September 7, 1990, the trial court rendered judgment in
favor of petitioner. Said decision, as well as the order of default, were
subsequently set aside by the trial court upon the filing of a motion for
reconsideration by the respondent bank. 12 EIcTAD

In its Order dated November 19, 1990, the trial court granted the motion for
intervention filed by respondents Phillip and Thelma Rodriguez, Catherine
Zuñiga, Reynold Zuñiga and Jeannette Zuñiga. Said intervenors asserted their
status as innocent purchasers for value who had no notice or knowledge of the
claim or interest of petitioner when they bought the properties already registered
in the name of respondent bank. Aside from a counterclaim for damages against
the petitioner, intervenors also prayed that in the event respondent bank is
ordered to reconvey the properties, respondent bank should be adjudged liable
to the intervenors and return all amounts paid to it. 13
On July 8, 1991, petitioner amended his complaint to include as alternative
relief under the prayer for reconveyance the payment by respondent bank of the
prevailing market value of the subject properties "less whatever remaining
obligation due the bank by reason of the mortgage under the terms of the
compromise agreement. 14
On June 15, 1999, the trial court rendered its Decision, the dispositive
portion of which reads:

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WHEREFORE, findings [sic] the facts aver[r]ed in the complaint
supported by preponderance of evidences adduced, judgment is hereby
rendered in favor of the plaintiff and against the defendant and
intervenors by:
1. Declaring the two Deeds of Sale executed by the defendant in
favor of the intervenors as null and void and the Register of
Deeds in Calamba, Laguna is ordered to cancel and/or
annul the two Transfer Certificate of Titles No. T-154658
and TCT No. T-111058 issued to the intervenors.
2. Ordering the defendant to refund the amount of P1,004,250.00
to the intervenors as the consideration of the sale of the
two properties. EICScD

3. Ordering the defendant to execute the appropriate Deed of

Reconveyance of the two (2) properties in favor of the
plaintiff after the plaintiff pays in full the amount of
P600,000.00 as balance of the [re]purchase price.
4. Ordering the defendant bank to pay plaintiff the sum of
P50,000.00 as attorney's fees
5. Dismissing the counterclaim of the defendant and intervenors
against the plaintiff.
Costs against the defendant.
SO ORDERED. 15

The trial court found that respondent bank deliberately disregarded

petitioner's substantial payments on the total repurchase consideration.
Reference was made to the letter dated March 22, 1984 (Exhibit "I") 16 as the
authority for petitioner in making the installment payments directly to the
Universal Properties, Inc. (UPI), respondent bank's collecting agent. Said court
concluded that the compromise agreement amounts to a valid contract of sale
between petitioner, as Buyer, and respondent bank, as Seller. Hence, in
entertaining other buyers for the same properties already sold to petitioner with
intention to increase its revenues, respondent bank acted in bad faith and is thus
liable for damages to the petitioner. Intervenors were likewise found liable for
damages as they failed to exercise due diligence before buying the subject
properties.
Respondent bank appealed to the CA which reversed the trial court's
ruling, as follows:
WHEREFORE, the foregoing premises considered, the instant
appeal is hereby GRANTED. Accordingly, the assailed decision is
hereby REVERSED and SET ASIDE. IaESCH

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SO ORDERED. 17

The CA held that by modifying the terms of the offer contained in the
March 22, 1984 letter of respondent bank, petitioner effectively rejected the
original offer with his counter-offer. There was also no written conformity by
respondent bank's officers to the amended conditions for repurchase which were
unilaterally inserted by petitioner. Consequently, no contract of repurchase was
perfected and respondent bank acted well within its rights when it sold the
subject properties to herein respondents-intervenors.
As to the receipts presented by petitioner allegedly proving the installment
payments he had completed, the CA said that these were not payments of the
repurchase price but were actually remittances of the payments made by
petitioner's buyers for the purchase of the foreclosed properties already titled in
the name of respondent bank. It was noted that two of these receipts (Exhibits
"K" and "K-1") 18 were issued to Fermin Salvador and Rizalina Pedrosa, the
vendees of two subdivided lots under separate Deeds of Absolute Sale executed
in their favor by the respondent bank. In view of the attendant circumstances, the
CA concluded that petitioner acted merely as a broker or middleman in the sales
transactions involving the foreclosed properties. Lastly, the respondents-
intervenors were found to be purchasers who bought the properties in good faith
without notice of petitioner's interest or claim. Nonetheless, since there was no
repurchase contract perfected, the sale of the subject properties to respondents-
intervenors remains valid and binding, and the issue of whether the latter were
innocent purchasers for value would be of no consequence.
Petitioner's motion for reconsideration was likewise denied by the appellate
court.
Hence, this petition alleging that:
A.
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE
ABUSE OF DISCRETION IN REVERSING THE FINDING OF THE
TRIAL COURT THAT THERE WAS A PERFECTED CONTRACT TO
REPURCHASE BETWEEN PETITIONER AND RESPONDENT-BANK.
B.
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE
ABUSE OF DISCRETION IN REVERSING THE FINDING OF THE
TRIAL COURT THAT PETITIONER DID NOT ACT AS BROKER IN
THE SALE OF THE FORECLOSED PROPERTIES AND THUS
FAILED TO CONSIDER THE EXISTENCE OF OFFICIAL RECEIPTS
ISSUED IN THE NAME OF THE PETITIONER THAT ARE DULY
NOTED FOR HIS ACCOUNT.

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C.
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE
ABUSE OF DISCRETION IN REVERSING THE FINDING OF THE
TRIAL COURT THAT RESPONDENT-BANK DID NOT HAVE THE
RIGHT TO DISPOSE THE SUBJECT PROPERTIES.
D.
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE
ABUSE OF DISCRETION IN REVERSING THE FINDING OF THE
TRIAL COURT THAT RESPONDENTS-INTERVENORS ARE NOT
INNOCENT PURCHASERS FOR VALUE IN GOOD FAITH. 19

It is to be noted that the above issues raised by petitioner alleged grave

abuse of discretion committed by the CA, which is proper in a petition
for certiorari under Rule 65 of the 1997 Rules of Civil Procedure, as amended,
but not in the present petition for review on certiorari under Rule 45.
The core issue for resolution is whether a contract for the repurchase of
the foreclosed properties was perfected between petitioner and respondent bank.
The Court sustains the decision of the CA.
Contracts are perfected by mere consent, which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are
to constitute the contract. 20 The requisite acceptance of the offer is expressed in
Article 1319 of the Civil Code which states:
ART. 1319. 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.

In Palattao v. Court of Appeals, 21 this Court held that if the acceptance of

the offer was not absolute, such acceptance is insufficient to generate consent
that would perfect a contract. Thus: IDETCA

Contracts that are consensual in nature, like a contract of sale,

are perfected upon mere meeting of the minds. Once there is
concurrence between the offer and the acceptance upon the subject
matter, consideration, and terms of payment, a contract is produced. The
offer must be certain. To convert the offer into a contract, the acceptance
must be absolute and must not qualify the terms of the offer; it must be
plain, unequivocal, unconditional, and without variance of any sort from
the proposal. A qualified acceptance, or one that involves a new
proposal, constitutes a counter-offer and is a rejection of the original
offer. Consequently, when something is desired which is not exactly
what is proposed in the offer, such acceptance is not sufficient to
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generate consent because any modification or variation from the terms
of the offer annuls the offer. 22

The acceptance must be identical in all respects with that of the offer so as
to produce consent or meeting of the minds. 23 Where a party sets a different
purchase price than the amount of the offer, such acceptance was qualified
which can be at most considered as a counter-offer; a perfected contract would
have arisen only if the other party had accepted this counter-
offer. 24 In Villanueva v. Philippine National Bank 25 this Court further elucidated
on the meaning of unqualified acceptance, as follows:
. . . While it is impossible to expect the acceptance to echo every
nuance of the offer, it is imperative that it assents to those points in the
offer which, under the operative facts of each contract, are not only
material but motivating as well. Anything short of that level of mutuality
produces not a contract but a mere counter-offer awaiting
acceptance. More particularly on the matter of the consideration of
the contract, the offer and its acceptance must be unanimous both
on the rate of the payment and on its term. An acceptance of an offer
which agrees to the rate but varies the term is ineffective. 26 (Emphasis
supplied)

Petitioner submitted as evidence of a perfected contract of repurchase the

March 22, 1984 letter (Exhibit "I") 27 from Rita B. Manuel, then President of UPI,
a corporation formed by respondent bank to dispose of its acquired assets, with
notations handwritten by petitioner himself. Said letter reads: HAIDcE

March 22, 1984

Honorable Judge Fausto Ignacio
412 Bagumbayan Street, Pateros
Metro Manila
Dear Judge Ignacio:
Your proposal to repurchase your foreclosed properties located at
Cabuyao, Laguna consisting of a total area of 203,413 square meters
has been favorably considered subject to the following terms and
conditions:
1) Total Selling Price shall be P950,000.00
2) Downpayment of P150,00000 with the balance Payable in
Three (3) equal installments as follows:
1st Installment — P266,667 — on or before May 31, '84
2nd Installment — P266,667 — on or before Sept. 31, '84

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3rd Installment — P266,666 — on or before Jan. 30, '85
TOTAL — P800,000.00
3) All expenses pertinent to the subdivision of the parcel of land
consisting of 120,110 square meters shall be for your account.
Thank you, ICHcTD

Very truly yours,

RITA B. MANUEL
President

According to petitioner, he wrote the notations in the presence of a certain

Mr. Lazaro, the representative of Mrs. Manuel (President), and a certain Mr.
Fajardo, which notations supposedly represent their "compromise
agreement." 28 These notations indicate that the repurchase price would be
P900,000.00 which shall be paid as follows: P150,000 — end of May '84;
P150,000 — end of June '84; Balance — "Depending on financial position".
Petitioner further alleged the following conditions of the verbal agreement: (1)
respondent bank shall release the equivalent land area for payments made by
petitioner who shall shoulder the expenses for subdivision of the land; (2) in case
any portion of the subdivided land is sold by petitioner, a separate document of
sale would be executed directly to the buyer; (3) the remaining portion of the
properties shall not be subject of respondent bank's transaction without the
consent and authority of petitioner; (4) the petitioner shall continue in possession
of the properties and whatever portion still remaining, and attending to the needs
of its tenants; and (5) payments shall be made directly to UPI. 29
The foregoing clearly shows that petitioner's acceptance of the respondent
bank's terms and conditions for the repurchase of the foreclosed properties was
not absolute. Petitioner set a different repurchase price and also modified the
terms of payment, which even contained a unilateral condition for payment of the
balance (P600,000), that is, depending on petitioner's "financial position." The CA
thus considered the qualified acceptance by petitioner as a counter-proposal
which must be accepted by respondent bank. However, there was no evidence of
any document or writing showing the conformity of respondent bank's officers to
this counter-proposal.
Petitioner contends that the receipts issued by UPI on his installment
payments are concrete proof — despite denials to the contrary by respondent
bank — that there was an implied acceptance of his counter-proposal and that he
did not merely act as a broker for the sale of the subdivided portions of the
foreclosed properties to third parties. Since all these receipts, except for two
receipts issued in the name of Fermin Salvador and Rizalina Pedrosa, were

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issued in the name of petitioner instead of the buyers themselves, petitioner
emphasizes that the payments were made for his account. Moreover, petitioner
asserts that the execution of the separate deeds of sale directly to the buyers
was in pursuance of the perfected repurchase agreement with respondent bank,
such an arrangement being "an accepted practice to save on taxes and shortcut
paper works." AcICHD

The Court is unconvinced.

In Adelfa Properties, Inc. v. CA, 30 the Court ruled that:
. . . The rule is that except where a formal acceptance is so
required, although the acceptance must be affirmatively and clearly
made and must be evidenced by some acts or conduct communicated to
the offeror, it may be made either in a formal or an informal manner, and
may be shown by acts, conduct, or words of the accepting party that
clearly manifest a present intention or determination to accept the offer
to buy or sell. Thus, acceptance may be shown by the acts, conduct, or
words of a party recognizing the existence of the contract of sale. 31
ICAcTa

Even assuming that the bank officer or employee whom petitioner claimed
he had talked to regarding the March 22, 1984 letter had acceded to his own
modified terms for the repurchase, their supposed verbal exchange did not bind
respondent bank in view of its corporate nature. There was no evidence that said
Mr. Lazaro or Mr. Fajardo was authorized by respondent bank's Board of
Directors to accept petitioner's counter-proposal to repurchase the foreclosed
properties at the price and terms other than those communicated in the March
22, 1984 letter. As this Court ruled in AF Realty & Development, Inc. v.
Dieselman Freight Services, Co. 32
Section 23 of the Corporation Code expressly provides that the
corporate powers of all corporations shall be exercised by the board of
directors. Just as a natural person may authorize another to do certain
acts in his behalf, so may the board of directors of a corporation validly
delegate some of its functions to individual officers or agents appointed
by it. Thus, contracts or acts of a corporation must be made either by the
board of directors or by a corporate agent duly authorized by the board.
Absent such valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs of the
corporation, but not in the course of, or connected with, the performance
of authorized duties of such director, are held not binding on the
corporation. 33

Thus, a corporation can only execute its powers and transact its business
through its Board of Directors and through its officers and agents when
authorized by a board resolution or its by-laws. 34

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In the absence of conformity or acceptance by properly authorized bank
officers of petitioner's counter-proposal, no perfected repurchase contract was
born out of the talks or negotiations between petitioner and Mr. Lazaro and Mr.
Fajardo. Petitioner therefore had no legal right to compel respondent bank to
accept the P600,000 being tendered by him as payment for the supposed
balance of repurchase price.
A contract of sale is consensual in nature and is perfected upon mere
meeting of the minds. When there is merely an offer by one party without
acceptance of the other, there is no contract. 35 When the contract of sale is not
perfected, it cannot, as an independent source of obligation, serve as a binding
juridical relation between the parties. 36
In sum, we find the ruling of the CA more in accord with the established
facts and applicable law and jurisprudence. Petitioner's claim of utmost
accommodation by respondent bank of his own terms for the repurchase of his
foreclosed properties are simply contrary to normal business practice. As aptly
observed by the appellate court: CIHTac

The submission of the plaintiff-appellee is unimpressive.

First, if the counter-proposal was mutually agreed upon by both
the plaintiff-appellee and defendant-appellant, how come not a single
signature of the representative of the defendant-appellant was affixed
thereto. Second, it is inconceivable that an agreement of such great
importance, involving two personalities who are both aware and familiar
of the practical and legal necessity of reducing agreements into writing,
the plaintiff-appellee, being a lawyer and the defendant-appellant, a
banking institution, not to formalize their repurchase agreement. Third, it
is quite absurd and unusual that the defendant-appellant could have
acceded to the condition that the balance of the payment of the
repurchase price would depend upon the financial position of the
plaintiff-appellee. Such open[-]ended and indefinite period for payment is
hardly acceptable to a banking institution like the defendant-appellant
whose core existence fundamentally depends upon its financial
arrangements and transactions which, most, if not all the times are
intended to bear favorable outcome to its business. Last, had there been
a repurchase agreement, then, there should have been titles or deeds of
conveyance issued in favor of the plaintiff-appellee. But as it turned out,
the plaintiff-appellee never had any land deeded or titled in his name as
a result of the alleged repurchase agreement. All these, reinforce the
conclusion that the counter-proposal was unilaterally made and inserted
by the plaintiff-appellee in Exhibit "I" and could not have been accepted
by the defendant-appellant, and that a different agreement other than a
repurchase agreement was perfected between them. 37

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Petitioner Fausto C. Ignacio passed away on November 11, 2008 and was
substituted by his heirs, namely: Marfel D. Ignacio-Manalo, Milfa D. Ignacio-
Manalo and Faustino D. Ignacio.
WHEREFORE, the petition for review on certiorari is DENIED. The
Decision dated July 18, 2006 and Resolution dated May 2, 2007 of the Court of
Appeals in CA-G.R. CV No. 73551 are hereby AFFIRMED.
With costs against the petitioners.
SO ORDERED.

Sereno, C.J., Carpio, * Leonardo-de Castro and Bersamin, JJ., concur.

||| (Heirs of Ignacio v. Home Bankers Savings and Trust Co., G.R. No. 177783,
[January 23, 2013], 702 PHIL 109-127)

#9 QUIROGA v. PARSONS
38 Phil 501

[G.R. No. 11491. August 23, 1918.]

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

Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza, for appellant.

Crossfield & O'Brien, for appellee.

SYLLABUS

1. SALES; INTERPRETATION OF CONTRACT. — For the

classification of contracts, due regard must be paid to their essential clauses.
In the contract in the instant case, what was essential, constituting its cause
and subject matter, was that the plaintiff was to furnish the defendant with the
beds which the latter might order, at the stipulated price, and that the
defendant was to pay this price in the manner agreed upon. These are
precisely the essential features of a contract of purchase and sale. There was
the obligation on the part of the plaintiff to supply the beds, and, on that of the
defendant, to pay their price. These features exclude the legal conception of
an agency or older to sell whereby the mandatary or agent receives 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, Held: That this contract is one of purchase and sale,
and not of commercial agency.
2. ID., ID. — 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.
3. ID.; ID. — The fact that the contracting parties did not perform the
contract in accordance with its terms, only shows mutual tolerance and gives
no right to have the contract considered, not as the parties stipulated it, but as
they performed it.
4. ID.; ID. — Only the acts of the contracting parties, subsequent to and
in connection with, the performance of the contract must be considered in the
interpretation of the contract when such interpretation is necessary, but not
when, as in the instant case its essential agreements are clearly set forth and
plainly show that the contract belongs to a certain kind and not to another
5. ID.; ID. — The defendant obligated itself to order the beds from the
plaintiff by the dozen. Held: That the effect of a breach of this clause by the
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defendant would only entitle the plaintiff to disregard the orders which the
defendant might place under other conditions, but if the plaintiff consents to fill
them, he waives his right and cannot complain for having acted thus at his
own free will.

DECISION

AVANCEÑA, J : p

On January 24, 1911, in this city of Manila, a contract in the following

tenor was entered into by and between the plaintiff, as party of the first part,
and J. Parsons (to whose rights and obligations the present defendant later
subrogated itself), as party of the second part:
CONTRACT EXECUTED BY AND BETWEEN ANDRES
QUIROGA AND J. PARSONS, BOTH MERCHANTS ESTABLISHED IN
MANILA FOR THE EXCLUSIVE SALE OF QUIROGA BEDS IN THE
VISAYAN ISLANDS.
"ARTICLE 1. Don Andres Quiroga grants the exclusive right to
sell his beds in the Visayan Islands to J. Parsons under the following
conditions:
"(A) Mr. Quiroga shall furnish beds of his manufacture to Mr.
Parsons for the latter's establishment in Iloilo, and shall invoice them at
the same price he has fixed for sales, in Manila, and, in the invoices,
shall make an allowance of a discount of 25 per cent of the invoiced
prices, as commission on the sales; and Mr. Parsons shall order the
beds by the dozen, whether of the same or of different styles.
"(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds
received, within a period of sixty days from the date of their shipment.
"(C) The expenses for transportation and shipment shall be borne
by M. Quiroga, and the freight, insurance, and cost of unloading from the
vessel at the point where the beds are received, shall be paid by Mr.
Parsons.
"(D) If, before an invoice falls due, Mr. Quiroga should request its
payment, said payment when made shall be considered as a prompt
payment, and as such a deduction of 2 per cent shall be made from the
amount of the invoice.
"The same discount shall be made on the amount of any invoice
which Mr. Parsons may deem convenient to pay in cash.
"(E) Mr. Quiroga binds himself to give notice at least fifteen days
before hand of any alteration in price which he may plan to make in

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respect to his beds, and agrees that if on the date when such alteration
takes effect he should have any order pending to be served to Mr.
Parsons, such order shall enjoy the advantage of the alteration if the
price thereby be lowered, but shall not be affected by said alteration if
the price thereby be increased, for, in this latter case, Mr. Quiroga
assumed the obligation to invoice the beds at the price at which the
order was given.
"(F) Mr. Parsons binds himself not to sell any other kind except
the 'Quiroga' beds.
"ART. 2. In compensation for the expenses of advertisement
which, for the benefit of both contracting parties, Mr. Parsons may find
himself obliged to make, Mr. Quiroga assumes the obligation to offer and
give the preference to Mr. Parsons in case anyone should apply for the
exclusive agency for any island not comprised within the Visayan group.
"ART. 3. Mr. Parsons may sell, or establish branches of his
agency for the sale of 'Quiroga' beds in all the towns of the Archipelago
where there are no exclusive agents, and shall immediately report such
action to Mr. Quiroga for his approval.
"ART. 4. This contract is made for an unlimited period, and may
be terminated by either of the contracting parties on a previous notice of
ninety days to the other party "
Of the three causes of action alleged by the plaintiff in his complaint,
only two of them constitute the subject matter of this appeal and both
substantially amount to the averment that the defendant violated the following
obligations: not to sell the beds at higher prices than those of the invoices; to
have an open establishment in Iloilo; itself to conduct the agency; to keep the
beds on public exhibition, and to pay for the advertisement expenses for the
same; and to order the beds by the dozen and in no other manner. As may be
seen, with the exception of the obligation on the part of the defendant to order
the beds by the dozen and in no other manner, none of the obligations
imputed to the defendant in the two causes of action are expressly set forth in
the contract. But the plaintiff alleged that the defendant was his agent for the
sale of his beds in Iloilo, and that said obligations are implied in a contract of
commercial agency. The whole question, therefore, reduces itself to a
determination as to whether the defendant, by reason of the contract
hereinbefore transcribed, was a purchaser or an agent of the plaintiff for the
sale of his beds.
In order to classify a contract, due regard must be given to its essential
clauses. In the contract in question, what was essential, as constituting its
cause and subject matter, is that the plaintiff was to furnish the defendant with
the beds which the latter might order, at the price stipulated) and that the
defendant was to pay the price in the manner stipulated. The price agreed

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upon was the one determined by the plaintiff for the sale of these beds in
Manila, with a discount of from 20 to 25 per cent, according to their class.
Payment was to be made at the end of sixty days, or before, at the plaintiff's
request, or in cash, if the defendant so preferred, and in these last two cases
an additional discount was to be allowed for prompt payment. These are
precisely the essential features of a contract of purchase and sale. There was
the obligation on the part of the plaintiff to supply the beds, and, on the part of
the defendant, to pay their price. These features exclude the legal conception
of an agency or order to sell whereby the mandatory or agent received the
thing to sell it, and does not pay its price, but delivers to the principal the price
he obtains from the sale of the thing to a third person, and if he does not
succeed in selling it, he returns it. By virtue of the contract between the
plaintiff and the defendant, the latter, on receiving the beds, was necessarily
obliged to pay their price within the term fixed, without any other consideration
and regardless as to whether he had or had not sold the beds.
It would be enough to hold, as we do, that the contract by and between
the defendant and the plaintiff is one of purchase and sale, in order to show
that it was not one made on the basis of a commission on sales, as the
plaintiff claims it was, for these contracts are incompatible with each other.
But, besides, examining the clauses of this contract, none of them is found
that substantially supports the plaintiff's contention. Not a single one of these
clauses necessarily conveys the idea of an agency. The
words commission on sales used in clause (A) of article 1 mean nothing else,
as stated in the contract itself, than a mere discount on the invoice price. The
word agency, also used in articles 2 and 3, only expresses that the defendant
was the only one that could sell the plaintiff's beds in the Visayan Islands.
With regard to the remaining clauses, the least that can be said is that they
are not incompatible with the contract of purchase and sale.
The plaintiff calls attention to the testimony of Ernesto Vidal, a former
vice-president of the defendant corporation and who established and
managed the latter's business in Iloilo. It appears that this witness, prior to the
time of his testimony, had serious trouble with the defendant, had maintained
a civil suit against it, and had even accused one of its partners, Guillermo
Parsons, of falsification. He testified that it was he who drafted the contract
Exhibit A, and when questioned as to what was his purpose in contracting
with the plaintiff, replied that it was to be an agent for his beds and to collect a
commission on sales. However, according to the defendant's evidence, it was
Mariano Lopez Santos, a director of the corporation, who prepared Exhibit A.
But, even supposing that Ernesto Vidal has stated the truth, his statement as
to what was his idea in contracting with the plaintiff is of no importance,
inasmuch as the agreements contained in Exhibit A which he claims to have
drafted, constitute, as we have said, a contract of purchase and sale, and not

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one of commercial agency. This only means that Ernesto Vidal was mistaken
in his classification of the contract. But it must be understood that a contract is
what the law defines it to be, and not what it is called by the contracting
parties.
The plaintiff also endeavored to prove that the defendant had returned
beds that it could not sell; that, without previous notice, it forwarded to the
defendant the beds that it wanted; and that the defendant received its
commission for the beds sold by the plaintiff directly to persons in Iloilo. But all
this, at the most only shows that, on the part of both of them, there was
mutual tolerance in the performance of the contract in disregard of its terms;
and it gives no right to have the contract considered, not as the parties
stipulated it, but as they performed it. Only the acts of the contracting parties,
subsequent to, and in connection with, the execution of the contract, must be
considered for the purpose interpreting the contract, when such interpretation
is necessary, but not when, as in the instant case, its essential agreements
are clearly set forth and plainly show that the contract belongs to a certain
kind and not to another. Furthermore, the return made was of certain brass
beds, and was not effected in exchange for the price paid for them, but was
for other beds of another kind; and for the purpose of making this return, the
defendant, in its letter Exhibit L-1, requested the plaintiff's prior consent with
respect to said beds, which shows that it was not considered that the
defendant had a right, by virtue of the contract, to make this return. As
regards the shipment of beds without previous notice, it is insinuated in the
record that these brass beds were precisely the ones so shipped, and that, for
this very reason, the plaintiff agreed to their return. And with respect to the so-
called commissions, we have said that they merely constituted a discount on
the invoice price, and the reason for applying this benefit to the beds sold
directly by the plaintiff to persons in Iloilo was because, as the defendant
obligated itself in the contract to incur the expenses of advertisement of the
plaintiff's beds, such sales were to be considered as a result of that
advertisement.
In respect to the defendant's obligation to order by the dozen, the only
one expressly imposed by the contract, the effect of its breach would only
entitle the plaintiff to disregard the orders which the defendant might place
under other conditions; but if the plaintiff consents to fill them, he waives his
right and cannot complain for having acted thus at his own free will.
For the foregoing reasons, we are of opinion that the contract by and
between the plaintiff and the defendant was one of purchase and sale, and
that the obligations the breach of which is alleged as a cause of action are not
imposed upon the defendant, either by agreement or by law. The judgment
appealed from is affirmed, with costs against the appellant. So ordered.
Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur.
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||| (Quiroga v. Parsons Hardware Co., G.R. No. 11491, [August 23, 1918], 38 PHIL
501-507)

#10 ANG YU ASUNCION v. CA

December 2, 1994

[G.R. No. 109125. December 2, 1994.]

ANG YU ASUNCION, ARTHUR GO AND KEH

TIONG, petitioners, vs. THE HON. COURT OF APPEALS and
BUEN REALTY DEVELOPMENT CORPORATION,respondents.

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DECISION

VITUG, J :p

Assailed, in this petition for review, is the

decision of the Court of Appeals, dated 04 December 1991, in CA-G.R. SP
No. 26345 setting aside and declaring without force and effect the
orders of execution of the trial court, dated 30 August 1991 and 27 September
1991, in Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court thusly:
"On July 29, 1987 a Second Amended Complaint for Specific
Performance was filed by Ann Yu Asuncion and Keh Tiong, et al.,
against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the
Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058,
alleging, among others, that plaintiffs are tenants or lessees ofresidential
and commercial spaces owned by defendants described as Nos. 630-
638 Ongpin Street, Binondo, Manila; that they have occupied said
spaces since 1935 and have been religiously paying the rental and
complying with all the conditions of the lease contract; that on several
occasions before October 9, 1986, defendants informed plaintiffs that
they are offering to sell the premises and are giving them priority to
acquire the same; that during the negotiations, Bobby Cu Unjieng
offered a price of P6-million while plaintiffs made a counter offer of P5-
million; that plaintiffs thereafter asked the defendants to put their offer in
writing to which request defendants acceded; that in reply to defendant's
letter, plaintiffs wrote them on October 24, 1986 asking that they specify
the terms and conditions of the offer to sell; that when plaintiffs did not
receive any reply, they sent another letter dated January 28, 1987 with
the same request; that since defendants failed to specify the terms and
conditions of the offer to sell and because of information received that
defendants were about to sell the property, plaintiffs were compelled to
file the complaint to compel defendants to sell the property to them.
"Defendants filed their answer denying the material
allegations of the complaint and interposing a special
defense of lack of cause of action.
"After the issues were joined, defendants filed a motion for
summary judgment which was granted by the lower court. The
trial court found that defendants' offer to sell was never accepted by the
plaintiffs for the reason that the parties did not agree upon the terms and
conditions of the proposed sale, hence, there was no contract of sale at
all. Nonetheless, the lower court ruled that should the defendants
subsequently offer their property for sale at a price of P11-million or

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below, plaintiffs will have the right of first refusal. Thus the dispositive
portion of the decision states:
"'WHEREFORE, judgment is hereby rendered in
favor of the defendants and against the plaintiffs summarily
dismissing the complaint subject to the aforementioned condition
that if the defendants subsequently decide to offer their property
for sale for a purchase price of Eleven Million Pesos or lower,
then the plaintiffs has the option to purchase the property
or of first refusal, otherwise, defendants need not offer the
property to the plaintiffs if the purchase price is higher than
Eleven Million Pesos.
"'SO ORDERED.'
"Aggrieved by the decision, plaintiffs appealed to this Court in CA-
G.R. CV No. 21123. In a decision promulgated on September 21, 1990
(penned by Justice Segundino G. Chua and concurred in by Justices
Vicente V. Mendoza and Fernando A. Santiago), this Court affirmed with
modification the lower court's judgment, holding:
"'In resume, there was no meeting of the minds between
the parties concerning the sale of the property. Absent such
requirement, the claim for specific performance will not lie.
Appellants' demand for actual, moral and exemplary damages will
likewise fail as there exists no justifiable ground for its award.
Summary judgment for defendants was properly granted. Courts
may render summary judgment when there is no genuine issue as
to any material fact and the moving party is entitled to a judgment
as a matter of law (Garcia vs. Court of Appeals, 176 SCRA 815).
All requisites obtaining, the decision of the court a quo is legally
justifiable.
'WHEREFORE, finding the appeal unmeritorious, the
judgment appealed from is hereby AFFIRMED, but subject to the
following modification: The court a quo in the aforestated decision
gave the plaintiffs-appellants the right of first refusal only if the
property is sold for a purchase price of Eleven Million pesos or
lower; however, considering the mercurial and uncertain forces in
our market economy today. We find no reason not to grant the
same right of first refusal to herein appellants in the event that the
subject property is sold for a price in excess of Eleven Million
pesos. No pronouncement as to costs.
'SO ORDERED.'
"The decision of this Court was brought to the Supreme Court by
petition for review on certiorari. The Supreme Court denied the appeal

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on May 6, 1991 'for insufficiency in form and substances' (Annex H,
Petition).
"On November 15, 1990, while CA-G.R. CV No. 21123 was
pending consideration by this Court, the Cu Unjieng spouses executed a
Deed of Sale (Annex D, Petition) transferring the property in question to
herein petitioner Buen Realty and Development Corporation, subject to
the following terms and conditions:
"'1. That for and in consideration of the sum of FIFTEEN
MILLION PESOS (P15,000,000.00), receipt of which in full is
hereby acknowledged, the VENDORS hereby sells, transfers and
conveys for and in favor of the VENDEE, his heirs, executors,
administrators or assigns, the above-described property with all
the improvements found therein including all the rights and
interest in the said property free from all liens and
encumbrances of whatever nature, except the pending ejectment
proceeding;
'2. That the VENDEE shall pay the Documentary Stamp
Tax, registration fees for the transfer of title in his favor and other
expenses incidental to the sale of above-described property
including capital gains tax and accrued real estate taxes.'
"As a consequence of the sale, TCT No. 105254/T-881 in the
name of the Cu Unjieng spouses was cancelled and, in lieu thereof, TCT
No. 195816 was issued in the name of petitioner on December 3, 1990.
"On July 1, 1991, petitioner as the new owner of the subject
property wrote a letter to the lessees demanding that the latter vacate
the premises.
"On July 16, 1991, the lessees wrote a reply to petitioner stating
that petitioner brought the property subject to the notice of lis pendens
regarding Civil Case No. 87-41058 annotated on TCT No. 105254/T-881
in the name of the Cu Unjiengs.
"The lessees filed a Motion for Execution dated August 27,
1991 of the Decision in Civil Case No. 87-41058 as modified by
the Court of Appeals in CA-G.R. CV No. 21123.
"On August 30, 1991, respondent Judge issued an order (Annex
A, Petition) quoted as follows:
"'Presented before the Court is a Motion for Execution filed
by plaintiff represented by Atty. Antonio Albano. Both defendants
Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty.
Vicente Sison and Atty. Anacleto Magno respectively were duly
notified in today's consideration of the motion as evidenced by the

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rubber stamp and signatures upon the copy of the Motion for
Execution.
'The gist of the motion is that the
Decision of the Court dated September 21, 1990 as modified by
the Court of Appeals in its decision in CA G.R. CV-21123, and
elevated to the Supreme Court upon the petition for review and
that the same was denied by the highest tribunal in its resolution
dated May 6, 1991 in G.R. No. L-97276, had now become final
and executory. As a consequence, there was an
Entry of Judgment by the Supreme Court as of June 6, 1991,
stating that the aforesaid modified decision had already become
final and executory.
'It is the observation of the Court that this property in
dispute was the subject of the Notice of Lis Pendens and that the
modified decision of this Courtpromulgated by
the Court of Appeals which had become final to the effect that
should the defendants decide to offer the property for sale for a
price of P11 Million or lower, and considering the mercurial and
uncertain forces in our market economy today, the same
right of first refusal to herein plaintiffs/appellants in the event that
the subject property is sold for a price in excess of Eleven Million
pesos or more.
'WHEREFORE, defendants are hereby ordered to execute
the necessary Deed of Sale of the property in litigation in
favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for
the consideration of P15 Million pesos in recognition of plaintiffs'
right of first refusal and that a new Transfer Certificate of Title be
issued in favor of the buyer.
'All previous transactions involving the same property
notwithstanding the issuance of another title to Buen Realty
Corporation, is hereby set aside as having been executed in bad
faith.
'SO ORDERED.'
"On September 22, 1991 respondent Judge issue another order,
the dispositive portion of which reads:
"'WHEREFORE, let there be Writ of Execution issue in the
above-entitled case directing the Deputy Sheriff Ramon
Enriquez of this Court to implement said Writ of Execution
ordering the defendants among others to comply with the
aforesaid Order of this Court within a period of one (1) week from
receipt of this Order and for defendants to execute the necessary
Deed of Sale of the property in litigation in favor of the

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plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15,000,000.00 and ordering the
Register of Deeds of the City of Manila, to cancel and set aside
the title already issued in favor of Buen Realty Corporation which
was previously executed between the latter and defendants and
to register the new title in favor of the aforesaid
plaintiffs Ang YuAsuncion, Keh Tiong and Arthur Go.
'SO ORDERED.'
"On the same day, September 27, 1991 the corresponding
writ of execution (Annex C, Petition) was issued". 1

On 04 December 1991, the appellate court, on appeal to it by private

respondent, set aside and declared without force and effect the above
questioned ordersof the court a quo.
In this petition for review on certiorari, petitioners contend that Buen
Realty can be held bound by the writ of execution by virtue of the notice of lis
pendens, carried over on TCT No. 195816 issued in the name of Buen Realty,
at the time of the latter's purchase of the property on 15 November 1991 from
the Cu Unjiengs. prcd

We affirm the decision of the appellate court.

A not too recent development in real estate transactions is the
adoption of such arrangements as the right of first refusal, a purchase option
and a contract to sell. For ready reference, we might point out some
fundamental precepts that may find some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art.
1156, Civil Code). The obligation is constituted upon the concurrence of the
essential elements thereof, viz: (a) The vinculum juris or juridical tie which is
the efficient cause established by the various sources of obligations (law,
contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is
the prestation or conduct; required to be observed (to give, to do or not to do);
and (c) the subject-personswho, viewed from the demandability of the
obligation, are the active (obligee) and the passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code),
which is a meeting of minds between two persons whereby one binds himself,
with respect to the other, to give something or to render some service (Art.
1305, Civil Code). A contract undergoes various stages that include its
negotiation or preparation, its perfection and, finally, its
consummation. Negotiation covers the period from the time the prospective
contracting parties indicate interest in the contract to the time the contract is
concluded (perfected). The perfection of the contract takes place upon the
concurrence of the essential elements thereof. A contract which

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is consensual as to perfection is so established upon a mere
meeting of minds, i.e., the concurrence of offer and acceptance, on the object
and on the cause thereof. A contract which requires, in addition to the above,
the delivery of the object of the agreement, as in a pledge or commodatum, is
commonly referred to as a real contract. In a solemn contract, compliance
with certain formalities prescribed by law, such as in a donation of real
property, is essential in order to make the act valid, the prescribed form being
thereby an essential element thereof. The stage of consummation begins
when the parties perform their respective undertakings under the contract
culminating in the extinguishment thereof. cdrep

Until the contract is perfected, it cannot, as an independent

source of obligation, serve as a binding juridical relation. In sales, particularly,
to which the topic for discussion about the case at bench belongs, the
contract is perfected when a person, called the seller, obligates himself, for a
price certain, to deliver and to transfer ownership of a thing or right to another,
called the buyer, over which the latter agrees. Article 1458 of the Civil Code
provides:
"Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in money
or its equivalent.
"A contract of sale may be absolute or conditional.

When the sale is not absolute but conditional, such as in a "Contract to

Sell" where invariably the ownership of the thing sold is retained until the
fulfillment ofa positive suspensive condition (normally, the full payment of the
purchase price), the breach of the condition will prevent the obligation to
convey title from acquiring an obligatory
force. 2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that,
although denominated a "Deed of Conditional Sale," a sale is still absolute
where the contract is devoid of any proviso that title is reserved or the right to
unilaterally rescind is stipulated, e.g., until or unless the price is paid.
Ownership will then be transferred to the buyer upon actual or constructive
delivery (e.g., by the execution of a public document) of the property sold.
Where the condition is imposed upon the perfection of the contract itself, the
failure of the condition would prevent such perfection. 3 If the condition is
imposed on the obligation of a party which is not fulfilled, the other party may
either waive the condition or refuse to proceed with the sale (Art. 1545, Civil
Code). 4
An unconditional mutual promise to buy and sell, as long as the object
is made determinate and the price is fixed, can be obligatory on the parties,
and compliance therewith may accordingly be exacted. 5

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An accepted unilateral promise which specifies the thing to be sold and
the price to be paid, when coupled with a valuable consideration
distinct and separate from the price, is what may properly be termed a
perfected contract of option. This contract is legally binding, and in sales, it
conforms with the second paragraph ofArticle 1479 of the Civil Code, viz:
"ART. 1479. . . . .
"An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price. (1451a) 6
Observe, however, that the option is not the contract of sale itself.7 The
optionee has the right, but not the obligation, to buy. Once the option is
exercised timely, i.e., the offer is accepted before a breach of the option, a
bilateral promise to sell and to buy ensues and both parties are then
reciprocally bound to comply with their respective undertakings. 8
Let us elucidate a little. A negotiation is formally initiated by an offer. An
imperfect promise (policitacion) is merely an offer. Public advertisements or
solicitations and the like are ordinarily construed as mere invitations to make
offers or only as proposals. These relations, until a contract is perfected, are
not considered binding commitments. Thus, at any time prior to the
perfection of the contract, either negotiating party may stop the negotiation.
The offer, at this stage, may be withdrawn; the withdrawal is effective
immediately after its manifestation, such as by its mailing and not necessarily
when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270).
Where a period is given to the offeree within which to accept the offer, the
following rules generally govern:
(1) If the period is not itself founded upon or supported by a
consideration, the offeror is still free and has the right to withdrawal the offer
before its acceptance, or, if an acceptance has been made, before the
offeror's coming to know of such fact, by communicating that withdrawal to the
offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102
Phil. 948, holding that this rule is applicable to a unilateral promise to sell
under Art. 1479, modifying the previous decision in South Western Sugar vs.
Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural
Bank of Parañaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos,
45 SCRA 368). The right to withdraw, however, must not be exercised
whimsically or arbitrarily; otherwise, it could give rise to a damage claim under
Article 19of the Civil Code which ordains that "every person must, in the
exercise of his rights and in the performance of his duties, act with justice,
give everyone his due, and observe honesty and good faith." LLjur

(2) If the period has a separate consideration, a contract of "option" is

deemed perfected, and it would be a breach of that contract to withdraw the

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offer during the agreed period. The option, however, is an independent
contract by itself, and it is to be distinguished from the projected main
agreement (subject matterof the option) which is obviously yet to be
concluded. If, in fact, the optioner-offeror withdraws the offer before its
acceptance (exercise of the option) by the optionee-offeree, the latter may not
sue for specific performance on the proposed contract ("object" of the option)
since it has failed to reach its own stage ofperfection. The optioner-offeror,
however, renders himself liable for damages for breach of the option. In these
cases, care should be taken of the real nature of theconsideration given, for if,
in fact, it has been intended to be part of the consideration for the main
contract with a right of withdrawal on the part of the optionee, the main
contract could be deemed perfected; a similar instance would be an "earnest
money" in a contract of sale that can evidence its perfection (Art. 1482, Civil
Code).
In the law on sales, the so-called "right of first refusal" is an innovative
juridical relation. Needless to point out, it cannot be deemed a perfected
contract of sale under Article 1458 of the Civil Code. Neither can the
right of first refusal, understood in its normal concept, per se be brought within
the purview of an option under the second paragraph of Article 1479,
aforequoted, or possibly of an offer under Article 1319 9 of the same Code. An
option or an offer would require, among other things, 10 a clear certainty on
both the object and the cause or consideration of the envisioned contract. In a
right of first refusal, while the object might be made determinate, the
exercise of the right, however, would be dependent not only on the grantor's
eventual intention to enter into a binding juridical relation with another but also
on terms, including the price, that obviously are yet to be later firmed up. Prior
thereto, it can at best be so described as merely belonging to a
classof 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. LexLib

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

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The final judgment in Civil Case No. 87-41058, it must be stressed, has
merely accorded a "right of first refusal" in favor of petitioners. The
consequence of such a declaration entails no more than what has heretofore
been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved
by the failure of private respondents to honor the right of first refusal, the
remedy is not a writ of execution on the judgment, since there is none to
execute, but an action for damages in a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development
Corporation, the alleged purchaser of the property, has acted in good faith or
bad faith and whether or not it should, in any case, be considered bound to
respect the registration of the lis pendens in Civil Case No. 87-41058 are
matters that must be independently addressed in appropriate proceedings.
Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot
be held subject to the writ ofexecution issued by respondent Judge, let alone
ousted from the ownership and possession of the property, without first being
duly afforded its day in court.
We are also unable to agree with petitioners that
the Court of Appeals has erred in holding that the writ of execution varies the
terms of the judgment in Civil Case No. 87-41058, later affirmed in CA-G.R.
CV-21123. The Court of Appeals, in this regard, has observed: Cdpr

"Finally, the questioned writ of execution is in variance with the

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

It is likewise quite obvious to us that the decision in Civil Case No. 87-41058
could not have decreed at the time the execution of any deed of sale between
the Cu Unjiengs and petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting
aside the questioned Orders, dated 30 August 1991 and 27 September
1991, of the court a quo. Costs against petitioners.
SO ORDERED.
Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo,
Melo, Quiason, Puno and Mendoza, JJ., concur.
Kapunan, J., took no part.
Feliciano, J., is on leave.

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||| (Asuncion v. Court of Appeals, G.R. No. 109125, [December 2, 1994], 308 PHIL
624-638)

#11 BIBLE BAPTIST CHURCH v. CA

November 26, 2004

[G.R. No. 126454. November 26, 2004.]

BIBLE BAPTIST CHURCH and PASTOR REUBEN

BELMONTE, petitioners, vs. COURT OF APPEALS and MR. &
MRS. ELMER TITO MEDINA VILLANUEVA,respondents.
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DECISION

AZCUNA, J : p

This petition for review on certiorari seeks to annul the Decision 1 dated
August 7, 1996, of the Court of Appeals in CA-G.R. CV No. 45956, and its
Resolution 2 dated September 12, 1996, denying reconsideration of the decision.
In the questioned issuances, the Court of Appeals affirmed the Decision 3 dated
June 8, 1993, of the Regional Trial Court of Manila, Branch 3, in Civil Case No.
90-55437.
The antecedents are:
On June 7, 1985, the Bible Baptist Church (petitioner Baptist Church)
entered into a contract of lease 4 with Mr. & Mrs. Elmer Tito Medina Villanueva
(respondent spouses Villanueva). The latter are the registered owners of a
property located at No. 2436 (formerly 2424) Leon Guinto St., Malate, Manila.
The pertinent stipulations in the lease contract were:
1. That the LESSOR lets and leases to the LESSEE a store space
known as 2424 Leon Guinto Sr. St., Malate, Manila, of which
property the LESSOR is the registered owner in accordance with
the Land Registration Act.
2. That the lease shall take effect on June 7, 1985 and shall be for the
period of Fifteen (15) years.
3. That LESSEE shall pay the LESSOR within five (5) days of each
calendar month, beginning Twelve (12) months from the
date of this agreement, a monthly rental ofTen Thousand Pesos
(P10,000.00) Philippine Currency, plus 10% escalation clause per
year starting on June 7, 1988.
4. That upon signing of the LEASE AGREEMENT, the LESSEE shall
pay the sum of Eighty Four Thousand Pesos (P84,000.00)
Philippine Currency. Said sum is to be paid directly to the Rural
Bank, Valenzuela, Bulacan for the purpose of redemption of said
property which is mortgaged by the LESSOR.
5. That the title will remain in the safe
keeping of the Bible Baptist Church, Malate, Metro Manila until
the expiration of the lease agreement or the leased premises be
purchased by the LESSEE, whichever comes first. In the event
that the said title will be lost or destroyed while in the
possession of the LESSEE, the LESSEE agrees to pay all costs
involved for the re-issuance of the title.

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6. That the leased premises may be renovated by the LESSEE, to the
satisfaction of the LESSEE to be fit and usable as a Church.
7. That the LESSOR will remove all other tenants from the leased
premises no later than March 15, 1986. It is further agreed that if
those tenants are not vacated by June 1, 1986, the rental will be
lowered by the sum of Three Thousand Pesos (P3,000.00) per
month until said tenants have left the leased premises.
8. That the LESSEE has the option to buy the leased premises during
the Fifteen (15) years of the lease. If the LESSEE decides to
purchase the premises the terms will be: A) A selling Price of One
Million Eight Hundred Thousand Pesos (P1.8 million), Philippine
Currency. B) A down payment agreed upon by both parties. C)
The balance of the selling price may be paid at the rate of One
Hundred Twenty Thousand Pesos (P120,000.00), Philippine
Currency, per year.
xxx xxx xxx. 5

The foregoing stipulations of the lease contract are the subject of the
present controversy. SaAcHE

Although the same lease contract resulted in several cases 6 filed between
the same parties herein, petitioner submits, for this Court's review, only the
following errors allegedly committed by the Court of Appeals:
a) Respondent Court of Appeals erred in finding that the option to buy
granted the petitioner Baptist Church under its contract of lease
with the Villanuevas did not have a consideration and, therefore,
did not bind the latter;
b) [R]espondent court again also erred in finding that the option to buy
did not have a fixed price agreed upon by the parties for the
purchase of the property; and
c) [F]inally, respondent court erred in not awarding
petitioners Baptist Church and its pastor attorney's fees. 7

In sum, this Court has three issues to resolve: 1) Whether or not the option
to buy given to the Baptist Church is founded upon a consideration; 2) Whether
or not by the terms of the lease agreement, a price certain for the purchase of the
land had been fixed; and 3) Whether or not the Baptist Church is entitled to an
award for attorney's fees.
The stipulation in the lease contract which purportedly gives the lessee an
option to buy the leased premises at any time within the duration of the lease, is
found in paragraph 8 of the lease contract, viz:

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8. That the LESSEE has the option to buy the leased premises
during the Fifteen (15) years of the lease. If the LESSEE decides to
purchase the premises the terms will be: A) A selling Price of One Million
Eight Hundred Thousand Pesos (P1.8 million), Philippine Currency. B) A
down payment agreed upon by both parties. C) The balance of the
selling price may be paid at the rate of One Hundred Twenty Thousand
Pesos (P120,000.00), Philippine Currency, per year.

Under Article 1479 of the Civil Code, it is provided:

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.

The second paragraph of Article 1479 provides for the definition and
consequent rights and obligations under an option contract. For an option
contract to be valid and enforceable against the promissor, there must be a
separate and distinct consideration that supports it.
In this case, petitioner Baptist Church seeks to buy the leased premises
from the spouses Villanueva, under the option given to them. Petitioners claim
that theBaptist 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." 8 They argue that
the consideration supporting the option was their agreement to pay off the
Villanueva's P84,000 loan with the bank, thereby freeing the subject property
from the mortgage encumbrance. They state further that
the Baptist Church 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.
In the petition, 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." 9 They rely on
the case of Teodoro v. Court of Appeals 10 to support their stand.
This Court finds no merit in these contentions.
First, petitioners cannot insist that the P84,000 they paid in order to
release the Villanuevas' property from the mortgage should be deemed the
separate consideration to support the contract of option. It must be pointed out
that said amount was in fact apportioned into monthly rentals spread over a
period of one year, at P7,000 per month. Thus, for the entire period of June 1985

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to May 1986, petitioner Baptist Church's monthly rent had already been paid for,
such that it only again commenced paying the rentals in June 1986. This is
shown by the testimony of petitioner Pastor Belmonte where he states that the
P84,000 was advance rental equivalent to monthly rent of P7,000 for one year,
such that for the entire year from 1985 to 1986 the Baptist Church did not pay
monthly rent. 11
This Court agrees with respondents 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. 12
Second, petitioners' reliance on the
case of Teodoro v. Court of Appeals 13 is misplaced. The
facts of the Teodoro case reveal that therein respondent Ariola was the
registered lessee of a property owned by the Manila Railroad Co. She entered
into an agreement whereby she allowed Teodoro to occupy a portion of the
rented property and gave Teodoro an option to buy the same, should Manila
Railroad Co. decide to sell the property to Ariola. In addition, Teodoro, who was
occupying only a portion of the subject rented property, also undertook to pay the
Manila Railroad Co., the full amount of the rent supposed to be paid by the
registered lessor Ariola. Consequently, unlike this case, Teodoro paid over and
above the amount due for her own occupation of a portion of the property. That
amount, which should have been paid by Ariola as lessor, and for her own
occupation of the property, was deemed by the Court as sufficient consideration
for the option to buy which Ariola gave to Teodoro upon Ariola's acquiring the
property.
Hence, in Teodoro, this Court was able to find that a separate
consideration supported the option contract and thus, its enforcement may be
demanded. Petitioners, therefore, cannot rely on Teodoro, for the case even
supports the respondents' stand that a consideration that is separate and distinct
from the purchase price is required to support an option contract.
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.
In Villamor v. Court of Appeals, 14 this Court defined consideration as "the
why of the contracts, the essential reason which moves the contracting parties to
enter into the contract." 15 This definition illustrates that the consideration
contemplated to support an option contract need not be monetary. Actual cash
need not be exchanged for the option. However, by the very nature of an option
contract, as defined in Article 1479, the same is an onerous contract for which
the consideration must be something of value, although its kind may vary. CAIaDT

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Specifically, in Villamor v. Court of Appeals, 16 half of a parcel of land was

sold to the spouses Villamor for P70 per square meter, an amount much higher
than the reasonable prevailing price. Thereafter, a deed of option was executed
whereby the sellers undertook to sell the other half to the same spouses. It
was stated in the deed that the only reason the spouses bought the first
half of the parcel of land at a much higher price, was the undertaking of the
sellers to sell the second half of the land, also at the same price. This Court held
that the cause or consideration for the option, on the part of the spouses-buyers,
was the undertaking of the sellers to sell the other half of the property. On the
part of the sellers, the consideration supporting the option was the much higher
amount at which the buyers agreed to buy the property. It was explicit from the
deed therein that for the parties, this was the consideration for their entering into
the contract.
It can be seen that the Court found that the buyer/optionee had parted with
something of value, which was the amount he paid over and above the actual
prevailing price of the land. Such amount, different from the price of the land
subject of the option, was deemed sufficient and distinct consideration supporting
the option contract. Moreover, the parties stated the same in their contract.
Villamor is distinct from the present case because, First, this Court cannot
find that petitioner Baptist Church parted with anything of value, aside from the
amountof P84,000 which was in fact eventually utilized as rental
payments. Second, there is no document that contains an agreement between
the parties that petitionerBaptist Church's supposed rescue of the mortgaged
property was the consideration which the parties contemplated in support of the
option clause in the contract. As previously stated, the amount advanced had
been fully utilized as rental payments over a period of one year. While the
Villanuevas may have them to thank for extending the payment at a time of need,
this is not the separate consideration contemplated by law.
Noting that the option clause was part of a lease contract,
this Court looked into its previous ruling in the early case of Vda. De Quirino v.
Palarca, 17 where theCourt did say that "in reciprocal contracts, like the one in
question, 18 the obligation or promise of each party is the consideration for
that of the other." 19 However, it must be noted that in that case, it was also
expressly stated in the deed that should there be failure to exercise the option to
buy the property, the optionee undertakes to sell the building and/or
improvements he has made on the premises. In addition, the optionee had also
been paying an amount of rent that was quite high and in fact turned out to be
too burdensome that there was a subsequent agreement to reduce said rentals.
The Court found that "the amount of rentals agreed upon . . . — which amount
turned out to be so burdensome upon the lessee, that the lessor agreed, five

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years later, to reduce it — as well as the building and/or improvements
contemplated to be constructed and/or introduced by the lessee, were,
undoubtedly, part of the consideration for his option to purchase the leased
premises." 20
Again, this Court notes that the parties therein clearly stipulated in their
contract that there was an undertaking on the part of the optionee to sell the
improvements made on the property if the option was not exercised. Such is a
valuable consideration that could support the option contract. Moreover, there
was the excessive rental payments that the optionee paid for five years, which
the Court also took into account in deciding that there was a separate
consideration supporting the option.
To summarize the rules, an option contract needs to be supported by a
separate consideration. The consideration need not be monetary but could
consist ofother 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.
This Court also notes that in the present case both the Regional
Trial Court and the Court of Appeals agree that the option was not founded upon
a separate and distinct consideration and that, hence, respondents Villanuevas
cannot be compelled to sell their property to petitioner Baptist Church.
The Regional Trial Court found that "[a]ll payments made under the
contract of lease were for rentals. No money [was] ever exchanged for and in
consideration ofthe option." Hence, the Regional Trial Court found the
action of the Baptist Church to be "premature and without basis to compel the
defendant to sell the leased premises." The Regional Trial Court consequently
ruled:
WHEREFORE, judgment is rendered:
1) Denying plaintiffs' application for writ of injunction;
2) That defendant cannot be compelled to sell to plaintiffs the leased
premises in accordance with par. 8 of the contract of lease;
3) Defendant is hereby ordered to reimburse plaintiffs the
sum of P15,919.75 plus 12% interest representing real estate
taxes, plaintiffs paid the City Treasurer's Office of Manila;
4) Declaring that plaintiff made a valid and legal consignation to
the Court of the initial amount of P18,634.00 for the

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month of November and December 1990 and every month
thereafter.
All other claims of the plaintiffs are hereby dismissed for
lack of merit.
No pronouncement as to costs.
SO ORDERED. 21

On appeal, the Court of Appeals agreed with the Regional Trial Court and
found that 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 considerationof the option." In addition, the appellate court determined that
in the instant case, "the price for the object is not yet certain." Thus,
the Court of Appeals affirmed the Regional Trial Court decision and dismissed
the appeal for lack of merit. 22
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. CDaSAE

Anent the claim for attorney's fees, it is stipulated in paragraph 13 of the

lease agreement that in the event of failure of either of the parties to comply with
any ofthe conditions of the agreement, the aggrieved party can collect
reasonable attorney's fees. 23
In view of this Court's finding that the option contract is not enforceable for
being without consideration, the respondents Villanueva spouses' refusal to
comply with it cannot be the basis of a claim for attorney's fees.
Hence, this Court agrees with as the Court of Appeals, which affirmed the
findings of the Regional Trial Court, that such claim is to be dismissed for
lack of factual and legal basis.
WHEREFORE, the Decision and
Resolution of the Court of Appeals subject of the petition are hereby AFFIRMED.
No costs.
SO ORDERED.
Davide, Jr., C .J ., Quisumbing, Ynares-Santiago and Carpio, JJ ., concur.
||| (Bible Baptist Church v. Court of Appeals, G.R. No. 126454, [November 26,
2004], 486 PHIL 625-637)

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#12 LIMSON v. CA
357 SCRA 209

[G.R. No. 135929. April 20, 2001.]

LOURDES ONG LIMSON, petitioner, vs. COURT OF APPEALS,

SPOUSES LORENZO DE VERA and ASUNCION SANTOS-DE
VERA, TOMAS CUENCA, JR., and SUNVAR REALTY
DEVELOPMENT CORPORATION, respondents.

DECISION

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BELLOSILLO, J : p

Filed under Rule 45 of the Rules of Court this Petition for Review on
Certiorari seeks to review, reverse and set aside the Decision 1 of the Court of
Appeals dated 18 May 1998 reversing that of the Regional Trial Court dated 30
June 1993. The petition likewise assails the Resolution 2 of the appellate court of
19 October 1998 denying petitioner's Motion for Reconsideration.
Petitioner Lourdes Ong Limson, in her 14 May 1979 Complaint filed before
the trial court, 3 alleged that in July 1978 respondent spouses Lorenzo de Vera
and Asuncion Santos-de Vera, through their agent Marcosa Sanchez, offered to
sell to petitioner a parcel of land consisting of 48,260 square meters, more or
less, situated in Barrio San Dionisio, Parañaque, Metro Manila; that respondent
spouses informed her that they were the owners of the subject property; that on
31 July 1978 she agreed to buy the property at the price of P34.00 per square
meter and gave the sum of P20,000.00 to respondent spouses as "earnest
money;" that respondent spouses signed a receipt therefor and gave her a 10-
day option period to purchase the property; that respondent Lorenzo de Vera
then informed her that the subject property was mortgaged to Emilio Ramos and
Isidro Ramos; that respondent Lorenzo de Vera asked her to pay the balance of
the purchase price to enable him and his wife to settle their obligation with the
Ramoses.
Petitioner also averred that she agreed to meet respondent spouses and
the Ramoses on 5 August 1978 at the Office of the Registry of Deeds of Makati,
Metro Manila, to consummate the transaction but due to the failure of respondent
Asuncion Santos-de Vera and the Ramoses to appear, no transaction was
formalized. In a second meeting scheduled on 11 August 1978 she claimed that
she was willing and ready to pay the balance of the purchase price but the
transaction again did not materialize as respondent spouses failed to pay the
back taxes of subject property. Subsequently, on 23 August 1978 petitioner
allegedly gave respondent Lorenzo de Vera three (3) checks in the total amount
of P36,170.00 for the settlement of the back taxes of the property and for the
payment of the quitclaims of the three (3) tenants of subject land. The amount
was purportedly considered part of the purchase price and respondent Lorenzo
de Vera signed the receipts therefor.
Petitioner alleged that on 5 September 1978 she was surprised to learn
from the agent of respondent spouses that the property was the subject of a
negotiation for the sale to respondent Sunvar Realty Development Corporation
(SUNVAR) represented by respondent Tomas Cuenca, Jr. On 15 September
1978 petitioner discovered that although respondent spouses purchased the
property from the Ramoses on 20 March 1970 it was only on 15 September 1978
that TCT No. S-72946 covering the property was issued to respondent spouses.

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As a consequence, she filed on the same day an Affidavit of Adverse Claim with
the Office of the Registry of Deeds of Makati, Metro Manila, which was annotated
on TCT No. S-72946. She also claimed that on the same day she informed
respondent Cuenca of her "contract" to purchase the property. ESDcIA

The Deed of Sale between respondent spouses and respondent SUNVAR

was executed on 15 September 1978 and TCT No. S-72377 was issued in favor
of the latter on 26 September 1978 with the Adverse Claim of petitioner
annotated thereon. Petitioner claimed that when respondent spouses sold the
property in dispute to SUNVAR, her valid and legal right to purchase it was
ignored if not violated. Moreover, she maintained that SUNVAR was in bad faith
as it knew of her "contract" to purchase the subject property from respondent
spouses.
Finally, for the alleged unlawful and unjust acts of respondent spouses,
which caused her damage, prejudice and injury, petitioner claimed that the Deed
of Sale, should be annulled and TCT No. S-72377 in the name of respondent
SUNVAR canceled and TCT No. S-72946 restored. She also insisted that
a Deed of Sale between her and respondent spouses be now executed upon her
payment of the balance of the purchase price agreed upon, plus damages and
attorney's fees.
In their Answer 4 respondent spouses maintained that petitioner had no
sufficient cause of action against them; that she was not the real party in interest;
that the option to buy the property had long expired; that there was no perfected
contract to sell between them; and, that petitioner had no legal capacity to sue.
Additionally, respondent spouses claimed actual, moral and exemplary damages,
and attorney's fees against petitioner.
On the other hand, respondents SUNVAR and Cuenca, in
their Answer, 5 alleged that petitioner was not the proper party in interest and/or
had no cause of action against them. But, even assuming that petitioner was the
proper party in interest, they claimed that she could only be entitled to the return
of any amount received by respondent spouses. In the alternative, they argued
that petitioner had lost her option to buy the property for failure to comply with the
terms and conditions of the agreement as embodied in the receipt issued
therefor. Moreover, they contended that at the time of the execution of the Deed
of Sale and the payment of consideration to respondent spouses, they "did not
know nor was informed" of petitioner's interest or claim over the subject property.
They claimed furthermore that it was only after the signing of the Deed of
Sale and the payment of the corresponding amounts to respondent spouses that
they came to know of the claim of petitioner as it was only then that they were
furnished copy of the title to the property where the Adverse Claim of petitioner
was annotated. Consequently, they also instituted aCross-Claim against

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respondent spouses for bad faith in encouraging the negotiations between them
without telling them of the claim of petitioner. The same respondents maintained
that had they known of the claim of petitioner, they would not have initiated
negotiations with respondent spouses for the purchase of the property. Thus,
they prayed for reimbursement of all amounts and monies received from them by
respondent spouses, attorney's fees and expenses for litigation in the event that
the trial court should annul the Deed of Sale and deprive them of their ownership
and possession of the subject land.
In their Answer to the Cross-Claim 6 of respondents SUNVAR and
Cuenca, respondent spouses insisted that they negotiated with the former only
after the expiration of the option period given to petitioner and her failure to
comply with her commitments thereunder. Respondent spouses contended that
they acted legally and validly, in all honesty and good faith. According to them,
respondent SUNVAR made a verification of the title with the Office of the
Register of Deeds of Metro Manila District IV before the execution of the Deed of
Absolute Sale. Also, they claimed that the Cross-Claim was barred by a written
waiver executed by respondent SUNVAR in their favor. Thus, respondent
spouses prayed for actual damages for the unjustified filing of the Cross-Claim,
moral damages for the mental anguish and similar injuries they suffered by
reason thereof, exemplary damages "to prevent others from emulating the bad
example" of respondents SUNVAR and Cuenca, plus attorney's fees.
After a protracted trial and reconstitution of the court records due to the fire
that razed the Pasay City Hall on 18 January 1992, the Regional Trial Court
rendered its 30 June 1993 Decision 7 in favor of petitioner. It ordered (a) the
annulment and rescission of the Deed of Absolute Sale executed on 15
September 1978 by respondent spouses in favor of respondent SUNVAR; (b) the
cancellation and revocation of TCT No. S-75377 of the Registry of Deeds,
Makati, Metro Manila, issued in the name of respondent Sunvar Realty
Development Corporation, and the restoration or reinstatement of TCT No. S-
72946 of the same Registry issued in the name of respondent spouses; (c)
respondent spouses to execute a deed of sale conveying ownership of the
property covered by TCT No. S-72946 in favor of petitioner upon her payment of
the balance of the purchase price agreed upon; and, (d) respondent spouses to
pay petitioner P50,000.00 as and for attorney's fees, and to pay the costs. HTSaEC

On appeal, the Court of Appeals completely reversed the decision of the

trial court. It ordered (a) the Register of Deeds of Makati City to lift the Adverse
Claim and such other encumbrances petitioner might have filed or caused to be
annotated on TCT No. S-75377; and, (b) petitioner to pay (1) respondent
SUNVAR P50,000.00 as nominal damages, P30,000.00 as exemplary damages
and P20,000 as attorney's fees; (2) respondent spouses, P15,000.00 as nominal

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damages, P10,000.00 as exemplary damages and P10,000.00 as attorney's
fees; and, (3) the costs.
Petitioner timely filed a Motion for Reconsideration which was denied by
the Court of Appeals on 19 October 1998. Hence, this petition.
At issue for resolution by the Court is the nature of the contract entered
into between petitioner Lourdes Ong Limson on one hand, and respondent
spouses Lorenzo de Vera and Asuncion Santos-de Vera on the other.
The main argument of petitioner is that there was a perfected contract to
sell between her and respondent spouses. On the other hand, respondent
spouses and respondents SUNVAR and Cuenca argue that what was perfected
between petitioner and respondent spouses was a mere option.
A scrutiny of the facts as well as the evidence of the parties
overwhelmingly leads to the conclusion that the agreement between the parties
was a contract of option and not a contract to sell.
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 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. 8 It is
not a sale of property but a sale of the right to purchase. 9 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, i.e., the right
or privilege to buy at the election or option of the other party. 10 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,
properly speaking, a contract, and does not vest, transfer, or agree to transfer,
any title to, or any interest or right in the subject matter, but is merely a contract
by which the owner of the property gives the optionee the right or privilege of
accepting the offer and buying the property on certain terms. 11
On the other hand, a contract, like a contract to sell, involves the meeting
of minds between two persons whereby one binds himself, with respect to the
other, to give something or to render some service. 12 Contracts, in general, are
perfected by mere consent, 13 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. 14

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The Receipt 15 that contains the contract between petitioner and
respondent spouses provides —
Received from Lourdes Limson the sum of Twenty Thousand
Pesos (P20,000.00) under Check No. 22391 dated July 31, 1978 as
earnest money with option to purchase a parcel of land owned by
Lorenzo de Vera located at Barrio San Dionisio, Municipality of
Parañaque, Province of Rizal with an area of forty eight thousand two
hundred sixty square meters more or less at the price of Thirty Four
Pesos (P34.00) 16 cash subject to the condition and stipulation that have
been agreed upon by the buyer and me which will form part of the
receipt. Should the transaction of the property not materialize not on the
fault of the buyer, I obligate myself to return the full amount of
P20,000.00 earnest money with option to buy or forfeit on the fault of the
buyer. I guarantee to notify the buyer Lourdes Limson or her
representative and get her conformity should I sell or encumber this
property to a third person. This option to buy is good within ten (10) days
until the absolute deed of sale is finally signed by the parties or the
failure of the buyer to comply with the terms of the option to buy as
herein attached.

In the interpretation of contracts, the ascertainment of the intention of the

contracting parties is to be discharged by looking to the words they used to
project that intention in their contract, all the words, not just a particular word or
two, and words in context, not words standing alone. 17 The
above Receipt readily shows that respondent spouses and petitioner only
entered into a contract of option; a contract by which respondent spouses agreed
with petitioner that the latter shall have the right to buy the former's property at a
fixed price of P34.00 per square meter within ten (10) days from 31 July 1978.
Respondent spouses did not sell their property; they did not also agree to sell it;
but they sold something, i.e., the privilege to buy at the election or option of
petitioner. The agreement imposed no binding obligation on petitioner, aside from
the consideration for the offer.
The consideration of P20,000.00 paid by petitioner to respondent spouses
was referred to as "earnest money." However, a careful examination of the words
used indicates that the money is not earnest money but option money. "Earnest
money" and "option money" are not the same but distinguished thus: (a) earnest
money is part of the purchase price, while option money is the money given as a
distinct consideration for 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, 18 but may even forfeit it depending on the terms of the option.

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There is nothing in the Receipt which indicates that the P20,000.00 was
part of the purchase price. 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. That the contract
between the parties is one of option is buttressed by the provision therein that
should the transaction of the property not materialize without fault of petitioner as
buyer, respondent Lorenzo de Vera obligates himself to return the full amount of
P20,000.00 "earnest money" with option to buy or forfeit the same on the fault of
petitioner. It is further bolstered by the provision therein that guarantees
petitioner that she or her representative would be notified in case the subject
property was sold or encumbered to a third person. Finally, the Receipt provided
for a period within which the option to buy was to be exercised, i.e., "within ten
(10) days" from 31 July 1978. aSIETH

Doubtless, the agreement 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 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.
The rule is that except where a formal acceptance is not required, although
the acceptance must be affirmatively and clearly made and evidenced by some
acts or conduct communicated to the offeror, it may be made either in a formal or
an informal manner, and may be shown by acts, conduct or words by the
accepting party that clearly manifest a present intention or determination to
accept the offer to buy or sell. But there is nothing in the acts, conduct or words
of petitioner that clearly manifest a present intention or determination to accept
the offer to buy the property of respondent spouses within the 10-day option
period. The only occasion within the option period when petitioner could have
demonstrated her acceptance was on 5 August 1978 when, according to her,
she agreed to meet respondent spouses and the Ramoses at the Office of the
Register of Deeds of Makati. Petitioner's agreement to meet with respondent
spouses presupposes an invitation from the latter, which only emphasizes their
persistence in offering the property to the former. But whether that showed
acceptance by petitioner of the offer is hazy and dubious.
On or before 10 August 1978, the last day of the option period, no
affirmative or clear manifestation was made by petitioner to accept the offer.
Certainly, there was no concurrence of private respondent spouses' offer and

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petitioner's acceptance thereof within the option period. Consequently, there was
no perfected contract to sell between the parties.
On 11 August 1978 the option period expired and the exclusive right of
petitioner to buy the property of respondent spouses ceased. The subsequent
meetings and negotiations, specifically on 11 and 23 August 1978, between the
parties only showed the desire of respondent spouses to sell their property to
petitioner. Also, on 14 September 1978 when respondent spouses sent a
telegram to petitioner demanding full payment of the purchase price on even date
simply demonstrated an inclination to give her preference to buy subject
property. Collectively, these instances did not indicate that petitioner still had the
exclusive right to purchase subject property. Verily, the commencement of
negotiations between respondent spouses and respondent SUNVAR clearly
manifested that their offer to sell subject property to petitioner was no longer
exclusive to her.
We cannot subscribe to the argument of petitioner that respondent
spouses extended the option period when they extended the authority of their
agent until 31 August 1978. The extension of the contract of agency could not
operate to extend the option period between the parties in the instant case. The
extension must not be implied but categorical and must show the clear intention
of the parties.
As to whether respondent spouses were at fault for the non-consummation
of their contract with petitioner, we agree with the appellate court that they were
not to be blamed. First, within the option period, or on 4 August 1978, it was
respondent spouses and not petitioner who initiated the meeting at the Office of
the Register of Deeds of Makati. Second, that the Ramoses failed to appear on 4
August 1978 was beyond the control of respondent spouses. Third, the
succeeding meetings that transpired to consummate the contract were all beyond
the option period and, as declared by the Court of Appeals, the question of who
was at fault was already immaterial. Fourth, even assuming that the meetings
were within the option period, the presence of petitioner was not enough as she
was not even prepared to pay the purchase price in cash as agreed
upon. Finally, even without the presence of the Ramoses, petitioner could have
easily made the necessary payment in cash as the price of the property was
already set at P34.00 per square meter and payment of the mortgage could very
well be left to respondent spouses.
Petitioner further claims that when respondent spouses sent her a
telegram demanding full payment of the purchase price on 14 September 1978 it
was an acknowledgment of their contract to sell, thus denying them the right to
claim otherwise.

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We do not agree. As explained above, there was no contract to sell
between petitioner and respondent spouses to speak of. Verily, the telegram
could not operate to estop them from claiming that there was such contract
between them and petitioner. Neither could it mean that respondent spouses
extended the option period. The telegram only showed that respondent spouses
were willing to give petitioner a chance to buy subject property even if it was no
longer exclusive.
The option period having expired and acceptance was not effectively made
by petitioner, the purchase of subject property by respondent SUNVAR was
perfectly valid and entered into in good faith. Petitioner claims that in August
1978 Hermigildo Sanchez, the son of respondent spouses' agent, Marcosa
Sanchez, informed Marixi Prieto, a member of the Board of Directors of
respondent SUNVAR, that the property was already sold to petitioner. Also,
petitioner maintains that on 5 September 1978 respondent Cuenca met with her
and offered to buy the property from her at P45.00 per square meter. Petitioner
contends that these incidents, including the annotation of her Adverse Claim on
the title of subject property on 15 September 1978 show that respondent
SUNVAR was aware of the perfected sale between her and respondent spouses,
thus making respondent SUNVAR a buyer in bad faith.
Petitioner is not correct. The dates mentioned, at least 5 and 15
September 1978, are immaterial as they were beyond the option period given to
petitioner. On the other hand, the referral to sometime in August 1978 in the
testimony of Hermigildo Sanchez as emphasized by petitioner in her petition is
very vague. It could be within or beyond the option period. Clearly then, even
assuming that the meeting with Marixi Prieto actually transpired, it could not
necessarily mean that she knew of the agreement between petitioner and
respondent spouses for the purchase of subject property as the meeting could
have occurred beyond the option period. In which case, no bad faith could be
attributed to respondent SUNVAR. If, on the other hand, the meeting was within
the option period, petitioner was remiss in her duty to prove so. Necessarily, we
are left with the conclusion that respondent SUNVAR bought subject property
from respondent spouses in good faith, for value and without knowledge of any
flaw or defect in its title.
The appellate court awarded nominal and exemplary damages plus
attorney's fees to respondent spouses and respondent SUNVAR. But nominal
damages are adjudicated to vindicate or recognize the right of the plaintiff that
has been violated or invaded by the defendant. 19 In the instant case, the Court
recognizes the rights of all the parties and finds no violation or invasion of the
rights of respondents by petitioner. Petitioner, in filing her complaint, only seeks
relief, in good faith, for what she believes she was entitled to and should not be
made to suffer therefor. Neither should exemplary damages be awarded to

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respondents as they are imposed only by way of example or correction for the
public good and only in addition to the moral, temperate, liquidated or
compensatory damages. 20 No such kinds of damages were awarded by the
Court of Appeals, only nominal, which was not justified in this case. Finally,
attorney's fees could not also be recovered as the Court does not deem it just
and equitable under the circumstances. DHcESI

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

Appeals ordering the Register of Deeds of Makati City to lift the adverse claim
and such other encumbrances petitioner Lourdes Ong Limson may have filed or
caused to be annotated on TCT No. S-75377 is AFFIRMED, with the
MODIFICATION that the award of nominal and exemplary damages as well as
attorney's fees is DELETED. IHcTDA

SO ORDERED.
Mendoza, Quisumbing and Buena, JJ., concur.
De Leon, Jr., J., is on leave.
||| (Limson v. Court of Appeals, G.R. No. 135929, [April 20, 2001], 409 PHIL 221-
238)

#13 ATKINS KROLL & CO. v. CUA HIAN TEK

102 PHIL 948

[G.R. No. L-9871. January 31, 1958.]

ATKINS, KROLL & CO., INC., petitioner, vs. B. CUA HIAN

TEK, respondent.

Ross, Selph, Carrascoso & Janda for petitioner.

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Ponciano T. Castro for respondent.

SYLLABUS

1. OBLIGATION AND CONTRACTS; SALES; OFFER TO SELL A

DETERMINATE THING FOR A PRICE CERTAIN; ACCEPTANCE OF
OFFER; EFFECT OF; LIABILITY OF THE OFFEROR AND OFFEREE. —
The acceptance of an offer to sell a determinate thing for a price certain
creates a bilateral contract to sell and to but. The offeree, upon
acceptance, ipso facto assumes the obligations of a purchaser. On the other
hand, the offeror would be liable for damages if he fails to deliver the thing he
had offered for sale.
2. ID.; ID.; ID.; ID.; OPTION WITHOUT CONSIDERATION. — If an
option is given without, it is mere offer of contract of sale, which is not binding
until accepted. If, however, acceptance is made before a withdrawal, it
constitute a binding contract of sale, even though the option was not
supported by a sufficient consideration.
3. PLEADING AND PRACTICE; APPEAL; CHANGE OF THEORY ON
APPEAL NOT PERMITTED. —Where. a deliberately adopts a certain theory,
and the case is tried and decided upon that theory in the court below, he will
not be permitted to change his theory on appeal.

DECISION

BENGZON, J : p

Review of a Court of Appeals' decision.

For its failure to deliver one thousand cartons of sardines, which it had
sold to B. Cua Hian Tek, petitioner was sued, and after trial was ordered by
the Manila court of first instance to pay damages, which on appeal was
reduced by the Court of Appeals to P3,240.15 representing unrealized profits.
There was no such contract of sale, says petitioner, but only an option
to buy, which was not enforceable for lack of consideration because in
accordance with Art. 1479 of the New Civil Code "an accepted unilateral
promise to buy or to sell a determinate thing for a price certain is binding upon
the promisor if the promise is supported by a consideration distinct from the
price."

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Simple are the facts of this case: Dated September 13, 1951, petitioner
sent to respondent a letter of the following tenor:
"Sir(s)/Madam:
We are pleased to make you herewith the following firm offer,
subject to reply by September 23, 1951:
Quantity and Commodity:
400 Ctns. Luneta brand Sardines in Tomato Sauce 48/15-oz.
Ovals at $8.25 Ctn.
300 Ctns. Luneta brand Sardines Natural 48/15 oz. talls at
$6.25 Ctn.
300 Ctns. Luneta brand Sardines in Tomato Sauce 100/5-oz. talls
at $7.48 Ctn.
Price(s):
All prices are C and F Manila Consular Fees of $6.00 to
be added.
Shipment:
During September/October from US Ports.
Supplier:
Atkins, Kroll & Co., San Francisco, Cal. U.S.A.
We are looking forward to receive your valued order and remain
Very truly yours,"
The court of first instance and the Court of Appeals 1 found that B. Cua
Hian Tek accepted the offer unconditionally and delivered his letter of
acceptance Exh. B on September 21, 1951. However, due to shortage of
catch of sardines by the packers in California, Atkins, Kroll & Co., Inc., failed
to deliver the commodities it had offered for sale. There are other details to
which reference shall not be made, as they touch the question whether the
acceptance had been handed on time; and on that issue the Court of Appeals
definitely found for plaintiff.
Anyway, in presenting its case before this Court petitioner does not
dispute such timely acceptance. It merely raises the point that the acceptance
only createdan option, which, lacking consideration, had no obligatory force.
The offer Exh. A, petitioner argues, "was a promise to sell a
determinate thing for a price certain. Upon its acceptance by respondent, the
offer became an accepted unilateral promise to sell a determinate thing for a
price certain. Inasmuch as there was no consideration to support the promise
to sell distinct from the price, it follows that under Art. 1479 aforequoted, the
promise is not binding on the petitioner even if it was accepted by
respondent." (p. 12 brief of petitioner.)
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The argument, manifestly assumes that only a unilateral promise arose
when the offeree accepted. Such assumption is a mistake, because
a bilateral contract to sell and to buy was created upon acceptance. So much
so that B. Cua Hian Tek could be sued, had he backed out after accepting, by
refusing to get the sardines and/or to pay for their price. Indeed, the word
"option" is found neither in the offer nor in the acceptance. On the contrary
Exh. B accepted "the firm offer for thesale" and adds, "the undersigned buyer
has immediately filed an application for import license . . . ." (Italics Ours.)
Petitioner, however, insists the offer was a mere offer of option,
because the "firm offer" Exh. A was a continuing offer to sell until September
23, and "an option is nothing more than a continuing offer" for a specified
time. In our opinion, an option implies more than that: it implies the
legal obligation to keep the offer open for the time specified. 2 Yet the letter
Exh. A did not by itself produce the legal obligation of keeping the offer open
up to September 23. It could be withdrawn before acceptance, because it is
admitted, there was no consideration for it.
"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." (n)
(New Civil Code.)
"Ordinarily an offer to buy or sell may be withdrawn or
countermanded before acceptance, even though the offer provides that it
will not be withdrawn or countermanded, or allows the offeree a certain
time within which to accept it, unless such provision or agreement in
supported by an independent consideration. . . ." (77 Corpus Juris
Secundum p. 636.)
Furthermore, an option is unilateral: a promise to sell 3 at the price fixed
whenever the offeree should decide to exercise his option within the specified
time. After accepting the promise and before he exercises his option, the
holder of the option is not bound to buy. He is free either to buy or not to buy
later. In this case, however, upon accepting herein petitioner's offer a bilateral
promise to sell and to buy ensued, and the respondent ipso facto assumed
the obligations of a purchaser. He did not just get the right subsequently to
buy or not to buy. It was not a mere option then; it was bilateral contract of
sale.
Lastly, even supposing that Exh. A granted an option which is not
binding for lack of consideration, the authorities hold that
"If the option is given without a consideration, it is a mere offer of
a contract of sale, which is not binding until accepted.
If, however, acceptance is made before a withdrawal, it
constitutes a binding contract of sale, even though the option was not

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supported by a sufficient consideration. . . .." (77 Corpus Juris
Secundum p. 652. See also 27 Ruling Case Law 339 and cases cited.)
"It can be taken for granted, as contended by the defendants, that
the option contract was not valid for lack of consideration. But it was, at
least, an offer to sell, which was accepted by letter, and of this
acceptance the offerer had knowledge before said offer was withdrawn.
The concurrence of both acts — the offer and the acceptance—could at
all events have generated a contract, if none there was before (arts.
1254 and 1262 of the Civil Code)." (Zayco vs. Serra, 44 Phil. 331.)
One additional observation should be made before closing this opinion.
The defense in the court of first instance rested on the proposition or
propositions that the offer had not been accepted in due time, and/or that
certain conditions precedent had not been fulfilled. This option-without-
consideration idea was never mentioned in the answer. A change of theory in
the appellate courts is not permitted.
"In order that a question may be raised on appeal, it is essential
that it be within the issues made by the parties in their pleadings.
Consequently, when a party deliberately adopts a certain theory, and the
case is tried and decided upon that theory in the court below, he will not
be permitted to change his theory on appeal because, to permit him to,
do so, would be unfair to the adverse party." (Rules of Court by Moran'
— 1957 Ed. Vol. I p. 715 citing Agoncillo vs. Javier, 38 Phil. 424;
American Express Company vs. Natividad, 46 Phil. 207; San
Agustin vs. Barrios, 68 Phil. 475, 480; Toribio vs. Dacasa, 55 Phil. 461.)
We must therefore hold, as the lower courts have held that there was a
contract of sale between the parties. And as no legal excuse has been
proven, the seller's failure to comply therewith gave ground to an award for
damages, which has been fixed by the Court of Appeals at P3,240.15 —
amount which petitioner does not dispute in this final instance.
Consequently, the decision under review should be, and it is hereby
affirmed, with costs against petitioner.
Paras, C. J., Padilla, Montemayor, Reyes, A., Concepcion, Reyes, J. B.
L., Endencia and Felix, JJ., concur.
Bautista Angelo, J., concurs in the result.
||| (Atkins, Kroll & Co., Inc. v. Cua Hian Tek, G.R. No. L-9871, [January 31, 1958],
102 PHIL 948-952)

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#14 GREGORIO v. CRISOLOGO VDA. DE CULIG

GR No. 180559; January 20, 2016

[G.R. No. 180559. January 20, 2016.]

ANECITA GREGORIO, petitioner, vs. MARIA CRISOLOGO VDA.

DE CULIG, THRU HER ATTORNEY-IN-FACT ALFREDO CULIG,
JR., respondent.

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DECISION

JARDELEZA, J : p

The issues in this petition are neither novel nor complicated. Petitioner
questions the ruling of the Court of Appeals that tender of payment is not a
requisite for the valid exercise of redemption, and that the failure of counsel to
file a motion for reconsideration does not amount to gross negligence.
Respondent Maria Crisologo Vda. de Culig (respondent) is the widow of
Alfredo Culig, Sr. (Alfredo). During his lifetime, Alfredo was granted a
homestead patent under the Public Land Act (C.A. 141) over a 54,730-square
meter parcel of land (the property) in Nuangan, Kidapawan, North
Cotabato. 1 Alfredo died sometime in 1971, and on October 9, 1974, his heirs,
including respondent, executed an extra-judicial settlement of estate with
simultaneous sale of the property in favor of spouses Andres Seguritan and
Anecita Gregorio (petitioner). The property was sold for P25,0000.00, n and
title to the property was issued in the name of the spouses. 2
On September 26, 1979, respondent filed a complaint demanding the
repurchase of the property under the provisions of the Public Land Act. She
alleged that she first approached the spouses personally and offered to pay
back the purchase price of P25,000.00 but the latter refused. Subsequently,
respondent and her son, Alfredo Culig, Jr. (petitioner's attorney-in-fact) wrote
letters reiterating their desire to repurchase the property but the spouses did
not answer. 3
For their part, the spouses Seguritan countered that the respondent had
no right to repurchase the property since the latter only wanted to redeem the
property to sell it for a greater profit. 4 Meanwhile, Andres Seguritan died on
May 15, 1981, and was substituted by petitioner. 5
Before trial could commence, the parties made the following
stipulations:
1. That the property subject of the complaint was acquired as homestead
during the existence of the marriage between plaintiff and her
deceased husband, and, therefore, it is admittedly a conjugal
property;
2. That the plaintiff and six of her eight children executed an extra-
judicial settlement and simultaneous sale in favor of the
defendants and title was transferred to them;
3. That the complaint was filed within the [reglementary] period of five (5)
years;

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4. That the amount of P25,000.00 was fully paid at the time of the extra-
judicial settlement and sale;
5. That there was no consignment with the Court of the repurchase price
of P25,000.00. 6
On January 5, 1998, the Regional Trial Court (RTC), Branch 17,
Kidapawan, North Cotabato (the trial court) rendered its decision dismissing
the complaint. 7 The trial court, relying on the case of Lee Chuy Realty
Corporation v. Court of Appeals 8 ruled that a formal offer alone, or the filing
of a case alone, within the prescribed period of five (5) years is not sufficient
to effect a valid offer to redeem — either must or should be coupled with
consignation of the repurchase price if bona fidetender of payment has been
refused. 9 The dispositive portion of the decision reads:
WHEREFORE, prescinding from all of the foregoing
considerations, the Court finds and so holds that plaintiffs failed to
validly exercise their right of legal redemption or repurchase within the
reglementary period of five (5) years from the execution of their sale
and consequently DISMISSES this case, with costs of suit against
plaintiffs. In the absence of any evidence, the court likewise dismiss
defendants' counterclaim. CAIHTE

SO ORDERED. 10 (Emphasis in the original.)

Aggrieved, respondent appealed to the Court of Appeals (CA).
In its decision 11 dated July 11, 2006, the CA granted the appeal. It
ruled that the Lee Chuy case is not applicable because: 1.) it does not involve
the exercise of the right of redemption of homestead or free patent lots, but
instead the right of legal pre-emption or redemption in relation to the rights of
co-owners under theCivil Code; 12 2.) the Civil Code provisions on
conventional and legal redemption do not apply, even suppletorily, to the legal
redemption of homestead or free patent lands under the Public Land
Act; 13 and 3.) the conclusions of the trial court is contrary to the doctrine
in Hulganza v. Court of Appeals, 14 which is the case cited in Lee Chuy. 15
According to the CA, consignation should not be considered a requisite
element for the repurchase of homestead or free patent lots, citing Adelfa
Properties, Inc. v. Court of Appeals, 16 wherein this Court held that
consignation is not necessary in a sale with right of repurchase because it
involves "an exercise of a right or privilege . . . rather than the discharge of an
obligation, hence tender of payment would be sufficient to preserve [a] right or
[a] privilege." 17
The CA thus held:
IN FINE, We hold that appellants have validly exercised the
right of redemption. The decision of the trial [court] will be reversed.

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Upon returning the purchase price of P25,000.00 and, in addition, the
expenses enumerated under Article 1616 of the Civil Code,the
appellant may avail of the right of repurchase.
ACCORDINGLY, the assailed decision is hereby REVERSED.
Appellants are hereby declared to have exercised their right to
repurchase the subject property within the period established by law
for them to do so. The case is hereby REMANDED to the court of
origin for further proceedings to determine the amounts appellant is to
return to appellees, namely, the price appellees paid for the property
and, in addition, the expenses of the contract and any other legitimate
payments made by reason of the sale, and the necessary and useful
expenses made on the property. Upon the return of the said amount,
appellees are hereby ORDERED to reconvey the property to
appellant. 18
Petitioner 19 filed her motion for reconsideration 20 on March 19, 2007,
way beyond the fifteen (15) day reglementary period. She alleged that she
and the other heirs learned of the July 11, 2006 decision only on March 5,
2007 when they personally verified with the records of the CA. 21 She also
assailed the decision of the CA for being contrary to law, jurisprudence and
facts of the case. 22
On September 27, 2007, the CA denied the motion, holding that "notice
to counsel is notice to client". The CA noted that then counsel of record of the
petitioner received the decision on July 31, 2006, thus the 15-day period for
filing a motion for reconsideration should be reckoned from this date. Her
counsel allowed the period to lapse and the motion for reconsideration filed by
petitioner's new counsel is seven months late. 23
Before us, petitioner submits that the CA resolved the case in a manner
contrary to law and settled rulings of this court, particularly: a.) its decision
holding that respondent validly exercised the right of redemption; b.) its act of
remanding the case to the court of origin for further proceedings and
subsequent reconveyance of the property to the respondent; and c.) its
outright dismissal of the motion for reconsideration for being filed out of
time. 24
Petitioner insists that there was no valid redemption since there was no
valid tender of payment nor consignation of the amount of repurchase made
by the respondent. 25 Citing Lee v. Court of Appeals, 26 which in turn cites
Article 1616 of the Civil Code,27 petitioner maintains that tender of payment of
the repurchase price is necessary to exercise the right of redemption. Thus,
when respondent filed to tender payment of the repurchase price, and
admitted her failure to consign the amount in court, she lost her right to
repurchase the property. 28 Petitioner also states that respondent is not
entitled to the right of repurchase because the latter's aim in redeeming the

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land is purely for speculation and profit. 29 She points out that respondent and
her siblings are professionals and most are living in Canada, and cannot
possibly comply with the express provision of the law that the land must be
cultivated personally by the holder of the homestead. 30
Section 119 of the Public Land Act provides:
Sec. 119. Every conveyance of land acquired under the free
patent or homestead provisions, when proper, shall be subject to
repurchase by the applicant, his widow, or legal heirs, within a period
of five years from the date of the conveyance.
It is undisputed, in fact, the parties already stipulated, that the complaint
for repurchase was filed within the reglementary period of five years. The
parties also agreed that there was no consignment of the repurchase
price. 31 However, petitioner argues that consignment is necessary to validly
exercise the right of redemption.
The argument fails.
In Hulganza v. Court of Appeals, 32 we held that the bona fide tender of
the redemption price or its equivalent — consignation of said price in court is
not essential or necessary where the filing of the action itself is equivalent to a
formal offer to redeem. 33 As explained in the said case, DETACa

"The formal offer to redeem, accompanied by a bona fide tender

of the redemption price, within the period of redemption prescribed by
law, is only essential to preserve the right of redemption for future
enforcement beyond such period of redemption and within the period
prescribed for the action by the statute of limitations. Where, as in the
instant case, the right to redeem is exercised thru the filing of judicial
action within the period of redemption prescribed by the law, the formal
offer to redeem, accompanied by a bona fide tender of the redemption
price, might be proper, but is not essential. The filing of the action
itself, within the period of redemption, is equivalent to a formal offer to
redeem. . . ." 34
The case of Vda. de Panaligan v. Court of Appeals 35 further clarified
that tender of payment of the repurchase price is not among the requisites,
and thus unnecessary for redemption under the Public Land Act.
Citing Philippine National Bank v. De los Reyes, 36 we ruled that it is not even
necessary for the preservation of the right of redemption to make an offer to
redeem or tender of payment of purchase price within five years. The filing of
an action to redeem within that period is equivalent to a formal offer to
redeem, and that there is even no need for consignation of the redemption
price. 37 Thus, even in the case before us, it is immaterial that the repurchase
price was not deposited with the Clerk of Court.

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We also do not agree with petitioner's insistence that Article 1616 of
the Civil Code applies in this case. As found by the CA, the provision only
speaks of the amount to be tendered when exercising the right to repurchase,
but it does not state the procedure to be followed in exercising the right. In
fact, in Peralta v. Alipio,38 we rejected the argument that the provisions on
conventional redemption apply as supplementary law to the Public Land Act,
and clarified that:
. . . . The Public Land Law does not fix the form and manner in which
reconveyance may be enforced, nor prescribe the method and manner
in which demand therefor should be made; any act which should
amount to a demand for reconveyance should, therefore, be
sufficient. 39 (Underscoring supplied.)
In Lee v. Court of Appeals, 40 the case cited by petitioner, we held that
the mere sending of letters expressing the desire to repurchase is not
sufficient to exercise the right of redemption. In the said case, the original
owners of a homestead lot sought to compel the buyers to resell the property
to them by writing demand letters within the five-year period. The latter
refused, but the former filed a case for redemption after the lapse of the five-
year period. We ruled that the letters did not preserve the former owners' right
to redeem. The case finds no application in this case because while
respondent also sent letters to the petitioner, she also filed a complaint for
repurchase within the five-year period. As ruled in Hulganza, the filing of the
complaint is the formal offer to redeem recognized by law.
Petitioner claims that even if the redemption is timely made, respondent
is not entitled to the right of repurchase because respondent intends to resell
the property again for profit, and that her "aim in redeeming the land is purely
for speculation and profit." To support her claim, petitioner states that
respondent and her heirs are professionals and her siblings are residing in
Canada.
Indeed, the main purpose in the grant of a free patent or homestead is
to preserve and keep in the family of the homesteader that portion of public
land which the State has given to him so he may have a place to live with his
family and become a happy citizen and a useful member of the society. 41 We
have ruled in several instances, that the right to repurchase of a patentee
should fail if the purpose was only speculative and for profit, 42 or "to dispose
of it again for greater profit" 43 or "to recover the land only to dispose of it
again to amass a hefty profit to themselves." 44 In all these instances, we
found basis for ruling that there was intent to sell the property for a higher
profit. We find no such purpose in this case.
The lower courts did not make any definitive finding that the intent to
repurchase was for profit. In its decision, the RTC merely glossed over the

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issue of intent, anchoring its dismissal on the respondent's failure to consign
the purchase price. Even the CA observed that the RTC found that the claim
of speculative repurchase is insufficient to warrant the denial of the
redemption, as the latter's denial of the redemption was based on the lack of a
formal offer of redemption and consignation. 45
The burden of proof of such speculative intent is on the petitioner.
Petitioner's bare allegations as to respondent's "manifestation of the
affluence," 46 "bulging coffers," 47 their being "professionals" 48 and "most of
them are residing in Canada" 49 are not enough to show that petitioner
intended to resell the property for profit.
We also do not find merit in petitioner's claim that the CA should not
have dismissed her motion for reconsideration.
Petitioner claims that her previous counsel failed to file the motion for
reconsideration due to gross neglect of duties. Her counsel, Atty. Jeorge D.
Zerrudo did not inform her of the appeal filed by the respondent and the
subsequent proceedings which took place after the RTC decision issued in
1998, all the while thinking that the RTC decision became final and binding. In
2007, she was informed by Atty. Zerrudo that they have lost the case and
should just enter into a compromise with the respondent, as "nothing can be
done." 50 It was only upon personal verification with the CA that petitioner
learned of the CA decision against her. Thus, petitioner maintains that she
should not be made responsible for the gross negligence of her counsel. aDSIHc

While Atty. Zerrudo's failure to file a motion for reconsideration may be

considered as negligence, we see no reason to modify the CA's resolution.
Petitioner is still bound by her counsel's acts.
A client is bound by the negligence of his counsel. A counsel, once
retained, holds the implied authority to do all acts necessary or, at least,
incidental to the prosecution and management of the suit in behalf of his
client, such that any act or omission by counsel within the scope of the
authority is regarded, in the eyes of the law, as the act or omission of the
client himself. A recognized exception to the rule is when the reckless or
gross negligence of the counsel deprives the client of due process of law. For
the exception to apply, however, the gross negligence should not be
accompanied by the client's own negligence or malice, considering that the
client has the duty to be vigilant in respect of his interests by keeping himself
up-to-date on the status of the case. Failing in this duty, the client should
suffer whatever adverse judgment is rendered against him. 51
In Pasiona, Jr. v. Court of Appeals, 52 we declared that the failure to file
a motion for reconsideration is only simple negligence, since it did not
necessarily deny due process to his client party who had the opportunity to be

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heard at some point of the proceedings. In Victory Liner, Inc. v.
Gammad, 53 we held that the question is not whether petitioner succeeded in
defending its rights and interests, but simply, whether it had the opportunity to
present its side of the controversy. Verily, as petitioner retained the services
of counsel of its choice, it should, as far as this suit is concerned, bear the
consequences of its choice of a faulty option. 54
Moreover, petitioner is also guilty of negligence. By her own admission,
she had no knowledge about the subsequent proceedings after the trial court
rendered its decision in 1998, and she just assumed that the decision was
final and binding. A litigant bears the responsibility to monitor the status of his
case, for no prudent party leaves the fate of his case entirely in the hands of
his lawyer. 55 Petitioner should have maintained contact with her counsel from
time to time, and informed herself of the progress of their case, thereby
exercising that standard of care "which an ordinarily prudent man bestows
upon his business." 56 It took nine years before petitioner showed interest in
her own case. Had she vigilantly monitored the case, she would have sooner
discovered the adverse decision and avoided her plight. 57
WHEREFORE, the petition is DENIED. The Decision and Resolution of
the Court of Appeals in CA-G.R. CV No. 62401 dated July 11, 2006 and
September 27, 2007, respectively are AFFIRMED.
SO ORDERED.
Velasco, Jr., Peralta, Perez * and Reyes, JJ., concur.
||| (Gregorio v. Vda. de Culig, G.R. No. 180559, [January 20, 2016])

#15 OSMEÑA III v. POWER SECTOR ASSETS AND LIABILITIES

MANAGEMENT CORP.
GR No. 212686; September 28, 2015

[G.R. No. 212686. September 28, 2015.]

SERGIO R. OSMEÑA III, petitioner, vs. POWER SECTOR

ASSETS AND LIABILITIES MANAGEMENT CORPORATION,
EMMANUEL R. LEDESMA, JR., SPC POWER CORPORATION
and THERMA POWER VISAYAS, INC., respondents.

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DECISION

VILLARAMA, JR., J : p

In a direct recourse to this Court, Senator Sergio R. Osmeña III

(petitioner) seeks to enjoin the sale of the Naga Power Plant Complex (NPPC)
to respondent SPC Power Corporation (SPC) resulting from the latter's
exercise of the right to top the winning bid of respondent Therma Power
Visayas, Inc. (TPVI), and to declare such stipulation in the Lease Agreement
as void for being contrary to public policy.
Antecedents
Respondent Power Sector Assets and Liabilities Management
Corporation (PSALM) is a government-owned and controlled corporation
created by virtue ofRepublic Act (R.A.) No. 9136, otherwise known as
the Electric Power Industry Reform Act (EPIRA) of 2001. Its principal purpose
is to manage the orderly sale, disposition, and privatization of the National
Power Corporation's (NPC's) generation assets, real estate and other
disposable assets, and Independent Power Producer (IPP) contracts, with the
objective of liquidating all NPC financial obligations and stranded contract
costs in an optimal manner. 1 Respondent Emmanuel R. Ledesma, Jr.
(Ledesma) is the incumbent President and Chief Executive Officer of PSALM.
SPC is a joint venture corporation between Salcon Power Corporation
and Korea Power Corporation (Kepco). 2 TPVI is a subsidiary of
AboitizPower, the power generation company of the Aboitiz Group.
PSALM provided the following brief description of the two (2) facilities
subject of the present controversy:
Facility Name Naga Power Plant Land-Based Gas
Complex Turbine (LBGT)
(NPPCx)

Location Brgy. Colon, Naga, Cebu Brgy. Colon, Naga, Cebu

Power Plants a. 52.5 MW Cebu 1 coal- 55-MW Naga LBGT

Installed fired thermal power Power Plant
plant;

b. 56.8 MW Cebu 2 coal-

fired thermal power

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plants; and

c. 43.8 MW Cebu Diesel

Power Plant 1 composed
of six (6) 7.3 MW
bunker-C fed power
units

Total Rated 153.10 MW 55.00 MW

Capacity

Land Area 209,000.000 [sq.m.] 5,504.02 [sq.m.] 3

The Naga Land-Based Gas Turbine (LBGT) is located inside the same
compound as the NPPC. 4
On October 16, 2009, PSALM privatized the 55-MW Naga Power Plant
(LBGT) by way of negotiated sale after a failed bidding in accordance with the
LBGT Bidding Procedures. 5 The land underlying the LBGT was also leased
out for a period of 10 years. This bidding resulted in SPC's acquisition of the
LBGT through an Asset Purchase Agreement (LBGT-APA) and lease of the
land under a Land Lease Agreement (LBGT-LLA). The LBGT-LLA would
expire on January 29, 2020. The LBGT-LLA contained a provision for SPC's
right to top in the event of lease or sale of property which is not part of the
leased premises.
On December 27, 2013, the Board of Directors of PSALM approved the
commencement of the 3rd Round of Bidding for the sale of the 153.1-MW
NPPC. Only SPC and TPVI submitted bids. On March 31, 2014, TPVI was
declared as the highest bidder. Consequently, a Notice of Award 6 was issued
to TPVI on April 30, 2014, subject to SPC's right under Section 3.02 of the
LBGT-LLA, as previously stated in Section 1B-20 of the Bidding
Procedures. DETACa

The results of the NPPC bidding are as follows:

TPVI SPC

a. Purchase Price 441,191,500.00 211,391,388.88

b. Rentals 588,735,000.00 588,735,000.00
c. Option Price_ 58,873,500.00 58,873,500.00
––––––––––––––– –––––––––––––––

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Financial Bid, PHP 1,088,800,000.00 858,999,888.88 7
============= =============

In a letter dated April 29, 2014, PSALM notified SPC of TPVI's winning
bid which covers the purchase of the NPPC and lease of the land. It also
advised SPC that under the terms of LBGT-LLA (Sections 2.01 and 3.02), the
lease of the land (as governed by the LBGT-LLA) will likewise expire on
January 29, 2020. 8 In a letter-reply dated May 7, 2014, SPC confirmed that it
is exercising the right to top the winning bid of TPVI and will pay the amount
of Php1,143,240,000.00 on the understanding that the term of the lease is 25
years from Closing Date. SPC argued that —
As SPC also participated in the bidding, the bid for the lease
component clearly computed on the basis of, and was for twenty-five
(25) years. However, by now stating in your letter that the "lease has a
Term of ten (10) years and will expire on 29 January 2020," SPC would
effectively have less than six (6) years from today to use the property,
which is extremely short for the lease component computed and based
on the twenty-five (25) year term that was offered during the bidding.
While we are aware that the second paragraph of Section 3.02 of the
LLA-LBGT provides that the property covered by the right to top will be
"governed" by the LLA-LBGT, we are of the reasonable belief that this
does not include "Term" under Section 2.01 thereof considering that
the "Draft Land Lease Agreement for the 153.1-MW Naga Power
Plant," which formed part of the bid documents, specifically provided
for a "Term" of twenty-five (25) years. 9
PSALM then wrote the Office of the Government Corporate Counsel
(OGCC) requesting for legal opinion or confirmation of its position that the
term of the lease of the NPPC upon SPC's exercise of its right to top would be
for the remaining period of the lease of the land of the Naga LBGT Power
Plant, which will expire in 2020. 10
On May 21, 2014, the OGCC rendered Opinion No. 098, Series of 2014
which upheld PSALM's position that SPC may exercise the right to top under
the LBGT-LLA provisions, the source of such right. It explained that the
NPPC-LLA is a separate and distinct transaction which is inapplicable with
respect to SPC's right to top.11
However, upon re-evaluation of the arguments in the position papers
submitted by SPC and PSALM, the OGCC submitted its study and
recommendation to Secretary of Justice Leila M. De Lima. The study
concluded that the right to top exercised by SPC in the NPPC bidding is a
right to top on a sale, which must then be separately governed by the NPPC-

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APA, and implemented in accordance with the NPPC-APA and LLA
provisions. 12
On June 16, 2014, the present petition was filed in this Court praying
that (1) a temporary restraining order (TKO) be issued ex parte, and after
hearing the parties, a writ of preliminary injunction be issued enjoining PSALM
from implementing SPC's exercise of its right to top in connection with the
NPPC bidding; (2) SPC's right to top as provided in Section 3.02 of the LBGT-
LLA be declared void; and (3) a permanent injunction be issued enjoining
respondents Ledesma and PSALM from committing any act in furtherance of
SPC's exercise of the right to top. 13
SPC, TPVI and PSALM filed their respective Comments on the petition,
while SPC filed a Reply to TPVI's Comment and petitioner his Reply to
PSALM's Comment.
On August 7, 2014, SPC filed a Manifestation with Motion informing this
Court that on July 28, 2014, PSALM advised that PSALM's Board of Directors
has already declared SPC as the winning bidder for the privatization of NPPC.
It thus contended that with this development, the present petition had become
moot. 14
On August 11, 2014, petitioner filed a Supplemental Petition with
Motion for Early Resolution of the Application for Temporary Restraining
Order and/or Writ of Preliminary Injunction. 15 According to petitioner, the
transfer and possession to SPC of the NPPC and of the land on which it is
built should be deferred until after this Court has ruled on his petition due to
the following reasons: (1) there seems to be no urgency for PSALM to rush
the award of the NPPC; (2) by the execution of the subject NPPC-APA and
LLA in favor of SPC, PSALM has invalidly awarded a government property
without the requisite public bidding; and (3) there are practical difficulties and
expense that will be incurred in order to reverse acts that are committed
before any provisional or preventive relief is issued, such as transfer of
ownership and/or possession of the properties in SPC's name or to third
parties, and potential liability of the Government under suit for damages to be
filed by any interested party.
On November 11, 2014, PSALM filed a Manifestation in Lieu of
Comment to the Supplemental Petition, 16 stating that: (1) PSALM's Board of
Directors, in a meeting held on July 25, 2014, taking into consideration the
OGCC's letter dated June 13, 2014 and the DOJ's opinion-letter dated June
23, 2014, declared SPC as the winning bidder for the sale of 153.1-MW
NPPC; (2) PSALM issued on July 28, 2014 the Notice of Award and
Certificate of Effectivity in favor of SPC; (3) the NPPC-APA and LLA were
already signed and delivered to SPC; and (4) PSALM turned over the
properties to SPC last September 25, 2014. aDSIHc

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Petitioner's Arguments
Petitioner asserts that the right to top provision in the LBGT-LLA is an
option contract which must be supported by a consideration separate from the
lease contract and may be withdrawn at any time by PSALM in the absence of
such consideration. He submits that SPC's preferential right to buy or lease
"any property in the vicinity of the Leased Premises which is not part of the
Leased Premises" was a gratuitous concession to SPC, and most likely was
part of a scheme to bar any competition to SPC and to restrict the production
of energy. Citing Power Sector Assets and Liabilities Management
Corporation v. Pozzolanic Philippines Incorporated, 17 petitioner argues that
the right of first refusal is upheld only in cases where the holder of such right
holds an existing, or at least, a vested interest in the object for which the right
is to be exercised. Thus, even if SPC has a legal interest in the vicinity lots, its
right to top can no longer be exercised because it is not operating the Naga
LBGT itself.
Another legal ground for the nullity of the option raised by petitioner
pertains to the policy requiring competitive public bidding in all government
contracts. Petitioner contends that by granting SPC the right to top, PSALM
violated the express provisions of R.A. No. 9136 (EPIRA Law) and R.A. No.
9184 (Procurement Law) on public bidding by failing to maintain bidders on
equal footing in order to give the government the best possible and available
offer for public assets being sold or leased. He posits that SPC's exercise of
its right to top is disadvantageous to the Government and that the provision
enables SPC to skirt around eligibility requirements for a qualified bidder.
Alleging an anomalous track record for SPC since 1994 when as then
Salcon Power Corporation it entered into a 15-year contract to "Rehabilitate,
Operate, Maintain and Manage" a coal plant, petitioner argues that the 2009
Naga LBGT contract should have been terminated for SPC's failure to comply
with its obligations. Under the 2009 Naga LBGT, not only does SPC enjoy an
invalid option or preferential right unsupported by any consideration, such
right to top is also without a determinate object and founded on illegal cause
considering that it was merely intended to maintain SPC's dominance and to
assist SPC in restricting competition.
Respondents' Arguments
At the outset, SPC questions petitioner's legal standing to file the
present petition, having failed to establish any personal benefit in the event
relief is granted, and there being no expenditure of public funds involved that
would impress upon the petition the character of a taxpayer's suit. Neither
could petitioner invoke his office as a Senator because legislators may only
be accorded standing to sue if there is a claim that official action complained
of infringes upon their prerogative as legislators. Petitioner could also not

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have anchored his standing upon his status as a citizen as he failed to
demonstrate how he would suffer personal injury as a result of respondents'
acts and erroneously invoked this Court's jurisdiction to rule on a policy issue
relating to the manner PSALM carries out its mandate, even as he failed to
cite specific provision in the law and in EPIRA which was supposedly violated
by the petitioner.
On procedural grounds, SPC seeks the dismissal of the petition as
there is no basis for annulling PSALM's acts by way of a petition
for certiorari or prohibition, and said petition was not filed within the 60-day
reglementary period from the time the Naga LBGT contract incorporating the
right to top was awarded to SPC in 2009 and the issuance of DOJ opinion
dated January 9, 2013 wherein SPC's right to top was held to be valid and not
disallowed by law.
SPC asserts that even on substantive grounds, the petition should still
be dismissed as the right to top is clearly not an option contract and the Naga
LBGT was validly awarded to SPC through a public bidding. Citing JG Summit
Holdings, Inc. v. Court of Appeals, 18 SPC maintains that the right to top
granted under the LBGT-LLA and exercised by it did not violate the rules of
competitive bidding. The implementation of such right to top, moreover, does
not place the Government in a disadvantaged position but rather assures the
Government of an additional 5% of the highest reasonable bid. SPC thus
argues that the right to top provision in the LBGT-LLA is consistent with public
policy and there is no law that invalidates such provision, such that SPC's
vested right should not be disregarded.
On its part, PSALM notes that similar right to top provisions are found in
several other land lease agreements in its privatization undertakings. In the
2013 Bidding Procedures for the 3rd Round of Bidding for the NPPC, PSALM
duly disclosed to the potential bidders the right to top provision under the
LBGT-LLA (Sections 1B-05 and 1B-20 and Form of Certificate Closing for
Seller). PSALM avers that it simply complied with the opinions rendered by
the DOJ and the second opinion of the OGCC, which have been held
persuasive and hence it acted in good faith in subsequently allowing SPC to
exercise its right to top the winning bid for the purchase of NPPC and lease of
the land.
TPVI concurs with the allegations in the petition which it said are
sufficient to vest standing upon petitioner as citizen, taxpayer, Senator and
Chairman of the Joint Congressional Power Committee (Committee). It
likewise finds the petition for certiorari as the proper remedy in view of the
grave abuse of discretion committed by PSALM in determining the terms of
reference of the public bidding to be conducted, as well as in determining the
qualifications of the bidders. As to the timeliness of the petition, TPVI points

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out that SPC exercised its right to top only on May 29, 2014 and therefore the
60-day period within which to file a petition for certiorari under Rule 65 started
only from that date.
Citing LTFRB v. Stronghold Insurance Company, Inc., 19 TPVI argues
that the right of first refusal and right to top provisions contravene the public
policy on competitive public bidding and are valid only in specific cases. In this
case, SPC owns a power generation asset (LBGT) and has interest only over
the land on which the LBGT is located. TPVI underscores that the right to top
in the LBGT does not stand in the same footing as the right to top granted
under the other Land Lease Agreements entered into by PSALM, considering
the nature of the gas turbine facility it owns. TPVI further contends that aside
from SPC's continuous breach of its obligation to operate the Naga LBGT, the
right to top provision in the LBGT-LLA provides SPC with the ability to prevent
any entity from successfully bidding for and ultimately owning the LBGT and
leasing the land. Hence, the Government does not stand to benefit from the
right to top provision in the LBGT-LLA. TIADCc

Assuming the right to top is valid, still TPVI maintains that SPC failed to
timely exercise the same within the period provided therefor, or until May 30,
2014. Moreover, SPC's letter dated May 7, 2014 and subsequent deposit in
PSALM's account of the amount to cover the right to top is not the exercise
sanctioned under the LBGT-LLA, and SPC's insistence on a 25-year term
instead of the remaining term of the LBGT-LLA is an erroneous and invalid
exercise of such right to top.
Replying to TPVI's arguments, SPC contends that the right to top is
valid and its validity was upheld by the DOJ in its Opinion dated January 9,
2013. Contrary to the averment that the right to top was a gratuitous
concession, SPC clarified that it participated and won in the bidding
conducted for the sale of LBGT and lease of the land which included the right
to top provision, of which TPVI was well aware. During the bidding for the
NPPC, all bidders were given an equal chance of winning and none of them
challenged SPC's right to top which was duly disclosed to them. SPC further
asserts that the right to top is more advantageous to the Government
considering that the bidders tend to offer only competitive bids knowing that
their bids can be "topped out" by SPC, and hence the Government is assured
of receiving an offer even better than the best bid tendered during the bidding
proper.
As to the alleged lack of interest over the object of the right to top, SPC
points out that it was the bidders' concern that the buyer of the power plant
obtain reasonable access to properties or lands in close proximity to the
power plant for purposes of security, right of way or other operational
requirements. SPC further avers that it has timely exercised the right to top as

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can be gleaned from its May 20, 2014 letter informing PSALM that SPC
already wired to PSALM the winning bid of Php1,143,240,000.00, which is
equivalent to the amount tendered by the winning bidder plus 5%.
Issues
From the foregoing, the issues may be summarized as follows: (1)
Is certiorari the proper remedy and was it timely filed?; (2) Does petitioner
possess legal standing to institute the present action questioning the validity
of SPC's right to top?; (3) Do right to top provisions in the land lease
agreements entered into by PSALM contravene public policy on competitive
bidding?; and (4) Did PSALM gravely abuse its discretion in allowing SPC's
exercise of the right to top under the LBGT-LLA? cSEDTC

Our Ruling
The petition is meritorious.
Propriety of Certiorari
The Constitution under Section 1, Article VIII expressly directs the
Judiciary, as a matter of power and duty, not only to settle actual
controversies involving rights which are legally demandable and enforceable
but, to determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch
or instrumentality of the Government. We thus have the duty to take
cognizance of allegations of grave abuse of discretion in this
case, 20 involving the sale by PSALM of a power plant, which supposedly
contravenes the policy on competitive public bidding.
R.A. No. 9136 created PSALM for the principal purpose of undertaking
the mandated privatization of all disposable assets of the NPC as well as IPP
contracts in an optional manner. 21 Such disposition is made subject to all
existing laws, rules and regulations. Thus, the implementing rules of R.A. No.
9136 provided guidelines in the privatization to be conducted by PSALM,
among which are:
(a) The Privatization value to the National Government of the NPC
generation assets, real estate, other disposable assets as well as
IPP contracts shall beoptimized;
xxx xxx xxx
(d) All assets of NPC shall be sold in an open and transparent
manner through public bidding, and the same shall apply to the
disposition of IPP contracts;
xxx xxx xxx 22 (Emphasis supplied)
Specifically Section 51 (m) of the EPIRA empowered PSALM "[t]o
restructure the sale, privatization or disposition of NPC assets and IPP

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contracts and/or their energy output based on such terms and conditions
which shall optimize the value and sale prices of said assets." Any act of
PSALM that violates these provisions and other applicable laws may
constitute grave abuse of discretion. There is grave abuse of discretion (1)
when an act is done contrary to the Constitution, the law or jurisprudence; or
(2) when it is executed whimsically, capriciously or arbitrarily out of malice, ill
will or personal bias. 23
However, the implementation of EPIRA may not be restrained or
enjoined except by order issued by this Court. 24 Petitioner's resort to this
Court to obtain an order enjoining PSALM's privatization of the NPPC through
SPC's invalid exercise of its right to option, was therefore proper and justified.
Legal Standing
We have held that legislators have the standing to maintain inviolate the
prerogatives, powers and privileges vested by the Constitution in their office
and are allowed to sue to question the validity of any official action which they
claim infringes their prerogatives as legislators. 25 In this case, there was no
allegation of usurpation of legislative function as petitioner is suing in his
capacity as Chairperson of the Committee created pursuant to Section 62
of R.A. No. 9136. Such position by itself is not sufficient to vest petitioner with
standing to institute the present suit. Notably, the enumerated functions of the
Committee under the aforesaid provision are basically "in aid of legislation."
Notwithstanding, the Court leans on the doctrine that "the rule on
standing is a matter of procedure, hence, can be relaxed for nontraditional
plaintiffs like ordinary citizens, taxpayers, and legislators when the public
interest so requires, such as when the matter is of transcendental importance,
of overreaching significance to society, or of paramount public
interest." 26 When the proceeding involves the assertion of a public right, the
mere fact that the petitioner is a citizen satisfies the requirement of personal
interest. 27
The privatization of power plants in a manner that ensures the reliability
and affordability of electricity in our country pursuant to the EPIRA is an issue
of paramount public interest. Petitioner has underscored the effect of the right
to top provision in preventing a competitive public bidding for the NPPC. While
the alleged detrimental result referred to the severe power shortage that
occurred in only one region, PSALM had admitted that the right to top
provisions are also found in several other land lease agreements.
In the light of the foregoing considerations, we hold that petitioner
possesses the requisite legal standing to file this case.
Validity of Right to Top
provision in LBGT-LLA

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The provision in the LBGT-LLA which is assailed in the present petition
reads:
3.02 Exclusive Right of LESSOR
Nothing in this Agreement shall limit the right of the LESSOR to sell,
lease, alienate or encumber any property in the vicinity of the Leased
Premises which is not part of the Leased Premises to any
Person; provided, the LESSEE shall have the right to top the price of
the winning bidder for the sale or lease of such property. In exercising
the right to top, the LESSEE must exceed the bid of the winning bidder
by five percent (5%). The right to top granted to the LESSEE must be
exercised and paid within a period of thirty (30) days from the receipt of
written notice from the LESSOR notifying the LESSEE of the result of
the bidding or negotiation and the price of the winning bid.
In the event of a lease, upon the exercise by the LESSEE of the right
to top granted herein, the property covered by it shall form part of the
Leased Premises and shall be governed by this Agreement. In the
event of a sale, upon the exercise by the LESSEE of the right to top
granted herein, the property covered by the sale shall not form part of
the Leased Premises. 28
A right to top is a variation of the right of first refusal often incorporated
in lease contracts. When a lease contract contains a right of first refusal, the
lessor is under a legal duty to the lessee not to sell to anybody at any price
until after he has made an offer to sell to the latter at a certain price and the
lessee has failed to accept it. The lessee has a right that the lessor's first offer
shall be in his favor. 29 While sometimes referred to as a "first option to buy"
or "option of first refusal," a right of first refusal is not an option contract. We
explained the distinction between a right of first refusal and option to purchase
in Spouses Vasquez v. Ayala Corporation, 30 to wit: SDAaTC

The Court has clearly distinguished between an option contract

and a right of first refusal. An option is a preparatory contract in which
one party grants to another, for a fixed period and at a determined
price, the privilege to buy or sell, or 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 and distinct contract from that
which the parties may enter into upon the consummation of the option.
It must be supported by consideration.
In a right of first refusal, on the other hand, while the object
might be made determinate, the exercise of the right would be
dependent not only on the grantor's eventual intention to enter into a

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binding juridical relation with another but also on terms, including the
price, that are yet to be firmed up. 31
We disagree with petitioner's theory that SPC's right of first refusal
should be declared void as it was not supported by a separate consideration.
As we held inPolytechnic University of the Philippines v. Golden Horizon
Realty Corporation: 32
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. 33 (Emphasis supplied)
Stipulations on right of first refusal over the leased premises have been
held to be valid as they are commonly inserted in contracts of lease for the
benefit of lessees who wanted to be assured that they shall be given the first
crack or the first option to buy the property at the price which the owner is
willing to accept. Where such right of first refusal is incorporated in lease
contracts involving public assets, however, courts go beyond ascertaining and
giving effect to the intent of the contracting parties. For in this jurisdiction,
public bidding is the established procedure in the grant of government
contracts. The award of public contracts, through public bidding, is a matter of
public policy. 34
In the award of government contracts, the law requires a competitive
public bidding, which aims to protect the public interest by giving the public
the best possible advantages thru open competition. It is a mechanism that
enables the government agency to avoid or preclude anomalies in the
execution of public contracts. 35
In JG Summit Holdings, Inc. v. Court of Appeals, 36 this Court was
presented with the issue of validity of right of first refusal granted to both
parties under a joint venture agreement between a government corporation
(National Investment and Development Corporation) and private firm
(Kawasaki Heavy Industries, Ltd. of Kobe, Japan) should either of them
decide to sell, assign or transfer its interest in the joint venture. In the
subsequent negotiations for the sale of the government's interest, it was
agreed that Kawasaki's right of first refusal be exchanged for the right to top

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by five percent (5%) the highest bid for the subject shares. We initially granted
the petition for review on certiorari and reversed the Court of Appeals'
dismissal of the petition for mandamus questioning the aforesaid right to top
which was held illegal not only because it violates the rules on competitive
bidding but more so because it allows foreign corporations to own more than
40% equity in the shipyard.
On motions for reconsideration filed by the parties, we ruled that the
right to top granted to and exercised by Kawasaki did not violate the rules on
competitive bidding, viz.:
We also hold that the right to top granted to KAWASAKI and
exercised by private respondent did not violate the rules of competitive
bidding.
The word "bidding" in its comprehensive sense means making
an offer or an invitation to prospective contractors whereby the
government manifests its intention to make proposals for the purpose
of supplies, materials and equipment for official business or public use,
or for public works or repair. The three principles of public bidding
are: (1) the offer to the public; (2) an opportunity for competition;
and (3) a basis for comparison of bids. As long as these three
principles are complied with, the public bidding can be
considered valid and legal. . . .
xxx xxx xxx
In the instant case, the sale of the Government shares in
PHILSECO was publicly known. All interested bidders were welcomed.
The basis for comparing the bids were laid down. All bids were
accepted sealed and were opened and read in the presence of the
COA's official representative and before all interested bidders. The
only question that remains is whether or not the existence of
KAWASAKI's right to top destroys the essence of competitive bidding
so as to say that the bidders did not have an opportunity for
competition. We hold that it does not. acEHCD

The essence of competition in public bidding is that the

bidders are placed on equal footing. This means that all qualified
bidders have an equal chance of winning the auction through
their bids. In the case at bar, all of the bidders were exposed to the
same risk and were subjected to the same condition,i.e., the existence
of KAWASAKI's right to top. Under the ASBR, the Government
expressly reserved the right to reject any or all bids, and manifested its
intention not to accept the highest bid should KAWASAKI decide to
exercise its right to top under the ABSR. This reservation or
qualification was made known to the bidders in a pre-bidding
conference held on September 28, 1993. They all expressly accepted
this condition in writing without any qualification. Furthermore, when

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the Committee on Privatization notified petitioner of the approval of the
sale of the National Government shares of stock in PHILSECO, it
specifically stated that such approval was subject to the right of
KAWASAKI Heavy Industries, Inc./Philyards Holdings, Inc. to top
JGSMI's bid by 5% as specified in the bidding rules. Clearly, the
approval of the sale was a conditional one. Since Philyards eventually
exercised its right to top petitioner's bid by 5%, the sale was not
consummated. Parenthetically, it cannot be argued that the
existence of the right to top "set for naught the entire public
bidding." Had Philyards Holdings, Inc. failed or refused to exercise its
right to top, the sale between the petitioner and the National
Government would have been consummated. In like manner, the
existence of the right to top cannot be likened to a second bidding,
which is countenanced, except when there is failure to bid as when
there is only one bidder or none at all. A prohibited second bidding
presupposes that based on the terms and conditions of the sale, there
is already a highest bidder with the right to demand that the seller
accept its bid. In the instant case, the highest bidder was well aware
that the acceptance of its bid was conditioned upon the non-
exercise of the right to top.
To be sure, respondents did not circumvent the requirements for
bidding by granting KAWASAKI, a non-bidder, the right to top the
highest bidder. The fact that KAWASAKI's nominee to exercise the
right to top has among its stockholders some losing bidders cannot
also be deemed "unfair."
It must be emphasized that none of the parties questions the
existence of KAWASAKI's right of first refusal, which is
concededly the basis for the grant of the right to top. Under
KAWASAKI's right of first refusal, the National Government is under
the obligation to give preferential right to KAWASAKI in the event it
decides to sell its shares in PHILSECO. It has to offer to KAWASAKI
the shares and give it the option to buy or refuse under the same
terms for which it is willing to sell the said shares to third parties.
KAWASAKI is not a mere non-bidder. It is a partner in the joint venture;
the incidents of which are governed by the law on contracts and on
partnership.
It is true that properties of the National Government, as a rule,
may be sold only after a public bidding is held. Public bidding is the
accepted method in arriving at a fair and reasonable price and ensures
that overpricing, favoritism and other anomalous practices are
eliminated or minimized. But the requirement for public bidding
does not negate the exercise of the right of first refusal. In fact,
public bidding is an essential first step in the exercise of the right
of first refusal because it is only after the public bidding that the
terms upon which the Government may be said to be willing to

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sell its shares to third parties may be known. It is only after the
public bidding that the Government will have a basis with which
to offer KAWASAKI the option to buy or forego the
shares. 37(Emphasis supplied) EcTCAD

The above-cited case involved a right of first refusal in favor of a

contracting party which did not participate in the bidding conducted for the
sale of the subject shares. In Power Sector Assets and Liabilities
Management Corporation v. Pozzolanic Philippines Incorporated, 38 the right
of first refusal was held invalid for being contrary to public policy, as it
dispensed with public bidding for future sale of waste products by the NPC.
Respondent therein had earlier won the public bidding for the purchase of the
fly ash generated by NPC's power plant in Batangas. Subsequently, after
negotiations, NPC entered into a long-term contract with respondent for the
purchase of fly ash to be produced by NPC's future coal-fired plants. The
provision granting the right of first refusal to respondent reads:
PURCHASER has first option to purchase Fly Ash under similar
terms and conditions as herein contained from the second unit of
Batangas Coal-Fired Thermal Plant that the CORPORATION may
construct. PURCHASER may also exercise the right of first refusal to
purchase fly ash from any new coal-fired plants which will be put
up by CORPORATION. 39
We held that the grant of first refusal to respondent constitutes an
unauthorized provision in the contract that was entered into pursuant to the
bidding, having been contractually bargained for by respondent after it won
the public bidding for the purchase of fly ash from NPC's Batangas Power
Plant. We noted that not only did the provision substantially amended the
terms of the contract bidded upon — so that resultantly, the other bidders
were deprived of the terms and opportunities granted to respondent after it
won the public auction — it so altered the bid terms by effectively barring any
and a true biddings in the future. The right of first refusal being contrary to
public policy that government contracts must be awarded through public
bidding, it was therefore invalid and have no binding effect nor does it confer a
preferential right upon respondent to the fly ash of NPC's power plants.
Relevantly, we also held that the grant of right of first refusal to
respondent has no basis whatsoever considering that the bidding subject was
still inexistent. Thus:
Two: The right to buy fly ash precedes and is the basis of the right of
first refusal, and the consequent right cannot be acquired together with
and at the same time as the precedent right.
The right of first refusal has long been recognized, both legally
and jurisprudentially, as valid in our jurisdiction. It is significant to note,
however, that in those cases where the right of refusal is upheld

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by both law and jurisprudence, the party in whose favor the right
is granted has an interest on the object over which the right of
first refusal is to be exercised. In those instances, the grant of the
right of first refusal is a means to protect such interest.
Thus, Presidential Decree (P.D.) No. 1517, as amended by P.D.
No. 2016, grants to qualified tenants of land in areas declared as urban
land reform zones, the right of first refusal to purchase the same within
a reasonable time and at a reasonable price. The same right is
accorded by Republic Act No. 7279 (Urban Development and Housing
Act of 1992) to qualified beneficiaries of socialized housing, with
respect to the land they are occupying. Accordingly, in Valderama
v. Macalde, Parañaque Kings Enterprises, Inc. v. Court of
Appeals, and Conculada v. Court of Appeals, the Supreme Court
sustained the tenant's right of first refusal pursuant to P.D. 1517.
In Polytechnic University of the Philippines v. Court of
Appeals and Polytechnic University of the Philippines v. Golden
Horizon Realty Corporation, this Court upheld the right of refusal of
therein respondent private corporations concerning lots they are
leasing from the government.
In the case of Republic v. Sandiganbayan, the Presidential
Commission on Good Government (PCGG) sought to exercise its right
of first refusal as a stockholder of Eastern Telecommunications
Philippines, Inc. (ETPI), a corporation sequestered by the PCGG, to
purchase ETPI shares being sold by another stockholder to a
non-stockholder. While the Court recognized that PCGG had a right
of first refusal with respect to ETPI's shares, it nevertheless did not
sustain such right on the ground that the same was not seasonably
exercised.
Finally, in Litonjua v. L & R Corporation, the Supreme Court
recognized the validity and enforceability of a stipulation in a mortgage
contract granting the mortgagee the right of first refusal should
the mortgagor decide to sell the property subject of the mortgage.
In all the foregoing cases, the party seeking to exercise the
right has a vested interest in, if not a right to, the subject of the
right of first refusal. Thus, on account of such interest, a tenant (with
respect to the land occupied), a lessee (vis-à-vis the property leased),
a stockholder (as regards shares of stock), and a mortgagor (in relation
to the subject of the mortgage), are all granted first priority to buy the
property over which they have an interest in the event of its sale. Even
in the JG Summit Case, which case was heavily relied upon by the
lower court in its decision and by respondent in support of its
arguments, the right of first refusal to the corporation's shares of stock
— later exchanged for the right to top — granted to KAWASAKI was
based on the fact that it was a shareholder in the joint venture for the

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construction, operation, and management of the Philippine Shipyard
and Engineering Corporation (PHILSECO).
In the case at bar, however, there is no basis whatsoever for
the grant to respondent of the right of first refusal with respect to
the fly ash of NPC power plants since the right to purchase at the
time of bidding is that which is precisely the bidding subject, not
yet existent much more vested in respondent. 40 (Emphasis and
underscoring supplied; citations omitted)
In this case, all potential bidders were aware of the existence of SPC's
right to top as duly disclosed in the Bidding Procedures for the 3rd Round of
Bidding for the NPPC. 41 TPVI did not question the said right to top and
participated in the bidding where SPC was also a bidder. Emerging as the
winning bidder, TPVI nevertheless knew that the acceptance of its bid was
subject to SPC's exercise of the right to top by confirming its exercise of the
right of first refusal and paying the amount of the winning bid plus five percent
(5%).
Notwithstanding compliance with the conduct of bidding and
procedures, we hold that SPC's right to top under the LBGT-LLA is void for
lack of a valid interest or right to the object over which the right of first refusal
is to be exercised. First, the property subject of the right of first refusal is
outside the leased premises covered by the LBGT-LLA. Second, the right of
first refusal refers not only to land but to any property within the vicinity of the
leased premises, as in this case, an entire power plant complex (NPPC) and
the land on which it is built. And third, while SPC cited concerns regarding
security, right of way or other operational requirements, these are clearly not
analogous to a lessee's legitimate interest on the property being leased.
Indeed, acquisition of a three coal-fired thermal plants with far greater
generating capacity than the gas turbine plant currently owned by SPC will not
be merely for purposes of the latter's reasonable access, security or present
operational needs. Besides, no such right or interest may be invoked by SPC
because, as confirmed by PSALM itself, SPC never operated the Naga
LBGT. HSAcaE

More recently, in LTFRB v. Stronghold Insurance Company, 42 we

declared as void the right to match clause in a memorandum of agreement
which was being invoked by respondent after it failed to meet capitalization
requirements and was consequently excluded by the petitioner from the pool
of qualified bidders for the third round of bidding to accredit providers of
accident insurance to operators of passenger public utility vehicles. The CA
granted respondent's petition for prohibition and nullified the said bidding
proceedings. On appeal, we reversed the CA and found no grave abuse of
discretion committed by the LTFRB, viz.:

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The Matching Clause in the First MOA, which Stronghold
invokes as basis for its right to participate in the third round of bidding,
provides:
[T]he two management groups herein shall be given the
right to match the best bid/proposal in event another
management group qualifies at the end of the term of this
agreement[.]
The Court of Appeals sustained Stronghold's claim, effectively reading
the Matching Clause to vest in Stronghold not only "the right to match
the best bid/proposal in event another management group qualifies at
the end of the term of this agreement," but also the prerogative not to
comply with the terms of the succeeding bidding. We find it
unnecessary to pass upon the correctness of the Court of Appeals'
construction of the Matching Clause. It is, in the first place, void.
The Matching Clause contains what is referred to in contract law
as the right of first refusal or the "right to match." Such stipulations
grant to a party the right to offer the same amount as the highest bid to
beat the highest bidder. "Right to match" stipulations are different from
agreements granting to a party the so-called "right to top." Under the
latter arrangement, a party is accorded the right to offer
a higher amount, usually a fixed sum or percentage, to beat the
highest bid.
In the field of public contracts, these stipulations are
weighed with the taint of invalidity for contravening the policy
requiring government contracts to be awarded through public
bidding. Unless clearly falling under statutory exceptions,
government contracts for the procurement of goods or services are
required to undergo public bidding "to protect the public interest by
giving the public the best possible advantages thru open competition."
The inclusion of a right of first refusal in a government contract
executed post-bidding, as here, negates the essence of public bidding
because the stipulation "gives the winning bidder an . . . advantage
over the other bidders who participated in the bidding . . . ."
Moreover, a "right of first refusal", or "right to top," whether
granted to a bidder or non-bidder, discourages other parties from
submitting bids, narrowing the number of possible bidders and
thus preventing the government from securing the best bid.
These clauses escape the taint of invalidity only in the
narrow instance where the right of first refusal (or "right to top")
is founded on the beneficiary's "interest on the object over which
the right of first refusal is to be exercised" (such as a "tenant with
respect to the land occupied, a lessee vis-à-vis the property leased, a
stockholder as regards shares of stock, and a mortgagor in relation to
the subject of the mortgage") and the government stands to benefit

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from the stipulation. Thus, we upheld the validity of a "right to top"
clause allowing a private stockholder in a corporation to top by 5% the
highest bid for the shares disposed by the government in that
corporation. Under the joint venture agreement creating the
corporation, a party had the right of first refusal in case the other party
disposed its shares. The government, the disposing party in the joint
venture agreement, benefitted from the 5% increase in price under the
"right to top," on outcome better than the right of first refusal.
The Matching Clause in this case does not fall under this
narrow exception. The First MOA (and for that matter the Second
MOA) was a contract for the procurement of services; hence, there is
no "object" over which Stronghold can claim an interest which the
Matching Clause protects. Nor did the government benefit from the
inclusion of the Matching Clause in the First MOA. The Matching
Clause was added in the First MOA "in consideration, . . . of the initial
investment and the assumption of initial risk" of the two accredited
management groups. These "initial investment" and "initial risk,"
however, are inherent in the business of providing accident insurance
to public utility vehicle operators, which the bidders for the First MOA,
including Stronghold's group UNITRANS, logically took into account
when they submitted their bids to LTFRB. The government was under
no obligation to reward the accredited insurers' investment and risk-
taking with a right of first refusal stipulation at the expense of denying
the public the benefits public bidding brings, and did bring, to select the
insurance providers in the Second MOA. 43 (Emphasis supplied) AScHCD

In the light of the foregoing, we hold that the grant of right to top to SPC
under the LBGT-LLA is void as it is not founded on the said lessee's legitimate
interest over the leased premises. SPC's argument that the privatization of
NPPC was even more advantageous to the Government, simply because it
resulted in a higher price (Php54 million more) than TPVI's winning bid, is
likewise untenable. Whatever initial gain from the higher price obtained for the
NPPC compared to the original bid price of TPVI is negated by the fact that
SPC's right to top had discouraged more potential buyers from submitting
their bids, knowing that even their most reasonable bid can be defeated by
SPC's exercise of its right to top. In fact, only SPC and TPVI participated in
the 3rd Round of Bidding. Attracting as many bidders to participate in the
bidding for public assets is still the better means to secure the best bid for the
Government, and achieve the objective under the EPIRA to private NPC's
assets in the most optimal manner.
WHEREFORE, the petition is hereby GIVEN DUE COURSE and the
writ prayed for accordingly GRANTED. The right of first refusal (right to top)
granted to Salcon Power Corporation under the 2009 Naga LBGT-LLA is
hereby declared NULL and VOID. Consequently, the Asset Purchase
Agreement (NPPC-APA) and Land Lease Agreement (NPPC-LLA) executed
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by the Power Sector Assets and Liabilities Management Corporation and SPC
are ANNULLED and SET ASIDE.
No costs.
SO ORDERED.
Peralta, Perez * and Jardeleza, JJ., concur.
Velasco, Jr., J., please see concurring opinion.
Separate Opinions
VELASCO, JR., J., concurring:

I concur with the ruling in the ponencia.

Jurisprudence is clear that "right to top" stipulations are weighed with
the taint of invalidity for contravening the policy requiring government
contracts to be awarded through public bidding. 1 These clauses are cleansed
of the stain only in the narrow instance wherein the right is founded on the
beneficiary's interest on the object over which the right is to be
exercised, 2 and only when the government stands to benefit from the
stipulation. 3
There is no quibbling, in the case at bar, that SPC Power Corporation's
(SPC's) right to top falls not within the ambit of the narrowly carved exception.
It is the requirement that the alleged beneficiary must first prove a subsisting
interest in the object in order to avail of the right to top. In this case, however,
SPC's alleged right is contained in the Land-Based Gas Turbine-Land Lease
Agreement (LBGT-LLA) that the company inked with Power Sector Assets
and Liabilities Management Corporation (PSALM). 4 As such, it cannot be
deemed applicable to give SPC an undue advantage against the other
bidders in PSALM's privatization of the Naga Power Plant Complex (NPPC),
which is a project distinct and separate from LBGT. 5 Stated in the alternative,
SPC does not possess the requisite interest over NPPC that would have
justified its right to top, for it only has a subsisting one in LBGT.
Having failed to prove its existing interest in the NPPC, SPC's improved
proposal for its acquisition, although better than that of the highest bidder,
Therma Power Visayas, Inc. (TVPI), becomes of no weight and significance,
and the fact that the government stands to additionally benefit by a margin of
Php54,440,000.00 6from SPC's enhanced offer, irrelevant and of no
importance.
Notwithstanding my concurrence in the result, I would nevertheless like
to express my misgivings anent the interchangeable use of the terms "right of
first refusal" and "right to top," and "right to match" for that matter, in our

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jurisprudence. Indeed, they all bear the same taint of invalidity for they
constitute undue advantage to their beneficiary that discourages others from
participating in the bidding process. Additionally, they share the same
requirement of a subsisting interest in the object of their exercise as a
precondition for their validity. Be that as it may, there is variance in the stage
of the bidding process they may be exercised, and in the basis of the contract
price at which the project will be offered to the clauses' beneficiary.
To elucidate, the "right of first refusal," as the phrase itself connotes,
requires that the contract be offered first to the beneficiary before being
offered to the public. In order to have full compliance with the contractual right
granting a party the first option to purchase, the sale of the properties for the
price for which they were finally sold to a third person should have likewise
been first offered to the former. Further, there should be identity of the terms
and conditions to be offered to the buyer holding a right of first refusal if such
right is not to be rendered illusory. 7
The concept of "right of first refusal" is not irreconcilable with the
national policy requiring government disposition to be subject to public
bidding. In fact, public bidding is an essential first step in the exercise of the
right because it is only after the public bidding that the Government will have
basis with which to offer the beneficiary the option to accept or reject the
terms of the subject of procurement. 8 If the beneficiary so participates, he will
automatically be awarded the project so long as he is eligible and meets the
minimum requirements outlined in the bid documents. In awarding the project,
the procuring entity, in effect, disregards the offers from other bidders,
regardless of whether or not they are more advantageous to the government.
In contradistinction, the "right to match" and "right to top" can only be
exercised once the best or highest bid is determined. The "right to match"
grants the beneficiary the right to offer the same amount as the highest bid to
beat the highest bidder, while the "right to top" accords the beneficiary the
right to offer a higher amount to beat the highest bid. 9 CAIHTE

There lies the distinction. While the "right of first refusal" entails the right
to be offered the project first, the "right to match" and "right to top" can be
seen as the right to be offered last. Moreover, in exercising the right of first
refusal, the contract price is dictated primarily by the bid documents and the
offer by the beneficiary need not exceed the minimum requirements set by the
government. On the other hand, the contract price, in the exercise of the right
to match or right to top, is dependent on the highest bid from the participants
in the bidding process.
Having clarified the conceptual differences between the three, I vote
to GRANT the petition.

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||| (Osmeña III v. Power Sector Assets and Liabilities Management Corp., G.R. No.
212686, [September 28, 2015]) (Osmeña III v. Power Sector Assets and
|||

Liabilities Management Corp., G.R. No. 212686, [September 28, 2015])

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