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G.R. No.

L-47088 July 10, 1981

CONSOLACION DUQUE SALONGA, assisted by her husband WENCESLAO SALONGA, plaintiff-appellant,


vs.
JULITA B. FARRALES, and THE SHERIFF OF OLONGAPO CITY, defendants-appellees.

FERNANDEZ, J.:

This is an appeal certified to this Court by the Court of Appeals 1 from the decision of the Court of First Instance of
Zambales and Olongapo City, Third Judicial District, Branch III, Olongapo City, in Civil Case No. 1144-0, entitled
"Consolacion Duque Salonga, assisted by her husband, Wenceslao Salonga, Plaintiff, versus Julita B. Farrales, and
The Sheriff of Olongapo City, Defendants," the dispositive part of which reads:

FOR THE REASONS GIVEN, judgment is hereby rendered dismissing plaintiff's complaint, as well
as defendants' counterclaim.

Costs against plaintiff.

SO ORDERED. 2

The records disclose that on January 2, 1973; the appellant, Consolacion Duque Salonga assisted by her husband,
filed a complaint against Julita B. Farrales and the Sheriff of Olongapo City with the Court of First Instance of
Zambales and Olongapo City, Third Judicial District, Branch III, Olongapo City, seeking the following relief:

WHEREFORE, plaintiff most respectfully prays for the following relief:

a) Ordering defendant Julita Farrales to sell to plaintiff the parcel of land containing an area of 156
Square Meters, more or less, where the house of strong materials of plaintiff exists.

b) Ordering the defendants not to disturb nor interfere in the peaceful possession or occupation of
the land by plaintiff, until a final decision is rendered in this case.

c) Ordering defendants jointly and severally to pay costs; and

d) Granting plaintiff such other relief conformable to law, justice and equity.

Sta. Rita, Olongapo City, December 28, 1972. 3

that on January 9, 1973, plaintiff-appellant, Salonga filed an urgent petition for the issuance of a writ of preliminary
injunction which was duly amended on January 16, 1973, 4 with the following prayer:

WHEREFORE, plaintiff assisted by counsel most respectfully prays the Hon. Court the following
relief:

a) That a restraining order be issued pending resolution of the instant petition for issuance of a Writ
of Preliminary Injunction enjoining defendants, particularly the Sheriff of Olongapo City to restrain
from enforcing the Writ of Execution issued in connection with the judgment rendered in Civil Case
650 for ejectment in the City Court of Olongapo City;

b) That after due hearing of the present amended petition, a Writ of Preliminary Injunction
conditioned upon a reasonable bond be issued enjoining the defendants, particularly, the Sheriff of
Olongapo City, to restrain from enforcing the Writ of Execution issued in connection with the
judgment rendered in Civil Case No. 650 for ejectment in the City Court of Olongapo City, in order to
maintain the status of the parties; in order to prevent the infliction of irreparable injury to plaintiff; and
in order that whatever judgment may be rendered in this case, may not become moot, academic,
illusory and ineffectual, and

c) Granting plaintiff such other relief conformable to law, justice and equity;

that on January 22, 1973, the court a quo issued an order temporarily restraining the carrying out of the writ of
execution issued pursuant to the judgment rendered by the City Court of Olongapo City in Civil Case No. 650, a suit
for ejectment filed by defendant-appellee Farrales against five defendants, among whom the herein appellant,
Consolacion Duque Salonga; 5 that on January 23, 1973, defendant-appellee Farrales filed a motion to deny the
motion for the issuance of a preliminary injunction for being vague and her answer with counterclaim to the
complaint; 6 that an opposition to the amended petition for the issuance of a writ of preliminary injunction was also
filed by the defendant-appellee Farrales on January 25, 1973; 7 that in an order dated January 20, 1973, the court a
quo denied the petition for the issuance of a preliminary injunction and lifted the restraining order issued on January
22, 1973; 8 that plaintiff-appellant moved for reconsideration of the order denying the motion for issuance of a
preliminary injunction on January 5, 1973; 9 which was also denied by the court a quo on February 21, 1973; 10 that
after the trial on the merits of Civil Case No. 1144-0, the trial court rendered the judgment under review, dismissing
plaintiff's complaint; 11 that on August 13, 1973, the plaintiff, Consolacion Duque Salonga, appealed from the said
decision to the Court of Appeals; 12 that on February 25, 1974, the plaintiff-appellant, Consolacion Duque Salonga,
filed with the Court of Appeals a motion for the issuance of a writ of preliminary injunction in aid of appeal; 13 that in a
resolution dated March 6, 1974, the Court of Appeals denied the said motion on the ground that "the writ of
preliminary injunction prayed for being intended to restrain the enforcement of the writ of execution issued in Civil
Case No. 650 for Ejectment, which is not involved in this appeal, and there being no justification for the issuance of
the writ ... " 14 that on January 13, 1975, the defendant-appellee Julita B. Farrales filed a motion to dismiss the
appeal on the ground that the appeal has become moot and academic because "the house of the plaintiffs-
appellants, subject matter of this appeal was demolished on October 21, 1974, Annex "A", Sheriff's return and the
land where this house was built was delivered to her and she is now the one in possession ... ; 15 that the plaintiffs-
appellants having failed to comment on the said motion to dismiss when required by the Court of Appeals in its
resolution dated January 16, 1975, 16 the Court of Appeals resolved to submit the motion for decision in a resolution
dated April 17, 1975; 17 and that, likewise, the plaintiffs-appellants having failed to show cause why the case should
not be submitted for decision without the benefit of appellant's reply brief when required to do so in a Court of
Appeals resolution dated May 14, 1975, 18 the Court of Appeals resolved on July 8, 1975 to submit the case for
decision without the benefit of appellants' reply brief. 19

In a resolution promulgated on September 15, 1977 the Court of Appeals certified the case to the Supreme Court
because the issue raised in the appeal is purely legal. 20

The plaintiffs-appellants assign the following errors:

I THE COURT A QUO SERIOUSLY ERRED IN DISMISSING APPELLANTS' COMPLAINT AND


IN DENYING SAID APPELLANTS' RELIEF TO PURCHASE FROM DEFENDANT-APPELLEE
JULITA FARRALES THE PIECE OF LAND IN QUESTION.

II THE COURT A QUO SERIOUSLY ERRED IN NOT APPLYING TO THE SUIT AT BAR,
SECTION 6, UNDER ARTICLE 11 OF THE NEW CONSTITUTION, WHICH CONTROLS, DELIMITS
AND REGULATES PROPERTY RIGHTS AND PRIVATE GAINS. 21

The main legal question involved in this appeal is whether or not the court a quo erred in dismissing the complaint
for specific performance or the ground that there exists no legally enforceable compromise agreement upon which
the defendant-appellee Farrales can be compelled to sell the piece of land in question to plaintiff-appellant,
Consolacion Duque Salonga.

The facts, as found by the trial court, are:

At the pre-trial conference, the parties stipulated on the following facts -

(1) THAT the personal circumstances of the parties as alleged in the complaint are admitted:
(2) THAT defendant Farrales is the titled owner of a parcel of residential land situated in Sta. Rita,
Olongapo City, Identity of which is not disputed, formerly acquired by her from one Leoncio Dytuco
who, in turn, acquired the same from the Corpuz Family of which only 361 square meters, more or
less, not actually belong to said defendant after portions thereof had been sold to Marciala
Zarsadias, Catalino Pascual and Rosanna Quiocson*; (*Per Deed of Absolute Sale, Exhibit B, the
vendee is actually Dionisio Quiocson);

3) THAT even prior to the acquisition by defendant Farrales (if the land aforesaid, plaintiff was
already in possession as lessee of some 156 square meters thereof, on which she had erected a
house, paying rentals thereon first to the original owners and later to defendant Farrales.

(4) THAT, sometime prior to November, 1968, defendant Farrales filed an ejectment case for non-
payment of rentals against plaintiff and her husband-jointly with other lessees of other portions of the
land, to wit, Jorge Carvajal, Catalino Pascua, Marciala Zarsadias, and the spouses Cesar and
Rosalina Quiocson - Civil Case No. 650 of the Olongapo City Court, Branch 1, in which, on
November 20, 1968, and reiterated on February 4, 1970, a decision was rendered in favor of
defendant Farrales and ordering the therein defendants, including plaintiff herein and her husband,
to vacate the portion occupied by them and to pay rentals in arrears, attorney's fees and costs;

(5) THAT the decision aforesaid was elevated on appeal to the Court of First Instance of Zambales
and Olongapo City, Civil Case No. 581-0 thereof, and, in a Decision dated November 11, 1971 of
Branch III thereof, the same was affirmed with modification only as to the amount of rentals arrears
to be paid;

(6) THAT the affirmatory decision of the Court of First Instance aforesaid is now final and executory
the records of the case had been remanded to the Court for execution, and the corresponding writ of
execution had been issued partially satisfied, as far as plaintiff herein is concerned, by the payment
of all rentals in arrears although the removal of said plaintiff's house from the land still remains to be
carried out by defendant Sheriff: and

(7) THAT, even before the rendition of the affirmatory decision of the Court of First Instance, by
common consent amongst themselves defendant sold to Catalino Pascua, Marciala Zarsadias and
the spouses Cesar and Rosalina Quiocson the areas respectly occupied by them; while, with respect
to Jorge Carvajal, in a suit thereafter filed between him and defendant Farrales, a compromise.
agreement was entered into whereunder said defendant undertook to pay for Carvajal's house on
her land, so that the decision aforesaid is now being executed, as far as ejectment is concerned,
only against plaintiff herein. (Pre-Trial Order, May 17, 1973, pp. 2-5) 22

The lower court explained its conclusion thus:

... From the very allegations of the complaint, it is clearly admitted -

5. That plaintiff herein, in view of the sale to three tenants defendants of the portions of land
occupied by each of said three tenant-defendants, by defendant Julita B. Farrales, also offered to
purchase from said defendant the area of One Hundred Fifty-Six (156) Square Meters, more or less,
where plaintiff's house of strong materials exists, but, defendant Julita B. Farrales, despite the fact
that said plaintiff's order to purchase was just, fair and reasonable persistently refused such offer,
and instead insisted to execute the judgment rendered in the ejectment case, before the City Court
of Olongapo City, thru the herein defendant Sheriff of Olongapo City, with the sole and only purpose
of causing damage and prejudice to the plaintiff (Complaint, p. 3 emphasis supplied).

Being a judicial admission, the foregoing binds plaintiff who cannot subsequently take a position
contradictory thereto or inconsistent therewith (Section 2, Rule 129, Rules of Court; McDaniel vs.
Apacible, 44 Phil. 248 Cunanan vs. Amparo, 80 Phil., 227). Hence, if plaintiff's offer to purchase was,
as aforesaid persistently refused by defendant, it is obvious that no meeting of the and, took place
and, accordingly, no contract, either to sell or of sale, was ever perfected between them. This is only
firmed up even more by plaintiff's admission on the witness stand that no agreement respecting the
purchase and sale of the disputed land was finalized because, while defendant Farrales purportedly
wanted payment in cash, plaintiff did not have any money for that purpose and neither were
negotiations ever had respecting any possible arrangement for payment in installments. On all fours
to the case at bar, therefore, is Velasco et al., vs. Court of Appeals, et al, G.R. No. L-31018, June
29, 1973, which was a case for specific performance to compel the therein respondent Magdalena
Estate, Inc. to sell a parcel of land to petitioner per an alleged contract of sale in which the Supreme
Court ruled:

It is not difficult to glean from the aforequoted averments that the petitioners
themselves admit that they and the respondent still had to meet and agree on how
and when the down payment and the installment payments were to be paid. Such
being the situation, it cannot, therefore be said that a definite and firm sales
agreement between the parties had been perfected over the lot in question. Indeed
this Court has already ruled before that a definite agreement on the manner of
payment of the purchase price is an essential element in the formation of a binding
and enforceable contract of sale.

Since contracts are enforceable only from the moment of perfection (Articles 1315 and 1475, Civil
Code of the Philippines; Pacific Oxygen and Acetylene Co. vs. Central Bank, G.R. No. L-21881,
March 1, 1968; Atkins, Kroll and Co., Inc. vs. B. Cua Hian Teck G.R. No. L-9817, January 31, 1958),
and there is here no perfected contract at all, it goes without saying that plaintiff has absolutely
nothing to enforce against defendant Farrales, and the fact that defendant Farrales previously sold
portions of the land to other lessees similarly situated as plaintiff herein, does not change the
situation because, as to said other lessees, a perfected contract existed - which is not the case with
plaintiff. 23

The trial court found as a fact that no compromise agreement to sell the land in question was ever perfected
between the defendant-appellee as vendor and the plaintiffs-appellants as vendees. 24

It is elementary that consent is an essential element for the existence of a contract, and where it is wanting, the
contract is non-existent. The essence of consent is the conformity of the parties on the terms of the contract, the
acceptance by one of the offer made by the other. The contract to sell is a bilateral contract. Where there is merely
an offer by one party, without the acceptance of the other, there is no consent. 25

It appears in this case that the offeree, the defendant-appellee Julita B. Farrales not only did not accept, but rejected
the offer of plaintiffs-appellants, spouses Salonga to buy the land in question. There being no consent there is.
therefore, no contract to sell to speak of.

Likewise, it must be borne in mind that the alleged compromise agreement to sell the land in question is
unenforceable under the Statute of Frauds, 26 and thus, renders all the more ineffective the action for specific
performance in the court a quo.

Moreover, as correctly found by the trial court, the plaintiffs-appellants, as lessees, are neither builders in good faith
nor in bad faith. Their rights are governed not by Article 448 but by Art. 1678 of the New Civil Code. 27 As lessees,
they may remove the improvements should the lessor refuse to reimburse them, but the lessee does not have the
right to buy the land. 28

Anent the appellants' claim that since the appellee sold to the three (3) other defendants in the ejectment suit the
three (3) portions of the land in question occupied by them, it follows that "she must also sell that portion of the land
where appellants' residential house was found to appellants" is unmeritorious. The trial court correctly ruled that the
fact that defendant-appellee sold portions of the land to the other lessees similarly situated as plaintiffs-appellants
Salonga does not change the situation because as to said other lessees, a perfected contract of sale existed which,
as previously shown was not the case with the plaintiff. 29

As to the contention that Sec. 6, Article II of the New Constitution is applicable to the case at bar, it must be
remembered that social justice cannot be invoked to trample on the rights of property owners who under our
Constitution and laws are also entitled to protection. The social justice consecrated in our constitution was not
intended to take away rights from a person and give them to another who is not entitled thereto. Evidently, the plea
for social justice cannot nullify the law on obligations and contracts, and is, therefore, beyond the power of the Court
to grant.

There is no showing that the trial court committed any reversible error.

WHEREFORE, the appeal is DISMISSED for lack of merit and the judgment appealed from is hereby affirmed,
without pronouncement as to costs.

SO ORDERED

Teehankee (Chairman), Makasiar, Guerrero and Melencio-Herrera, JJ., concur.

Footnotes

1 Rollo, pp. 53-57. Resolution penned by Justice Pacifica de Castro and concurred in by Justices
Jose G. Bautista and Nestor B.Alampay.

2 Record on Appeal, pp. 73-87; Rollo, p. 15.

3 Record on Appeal, p. 5; Rollo, p. 15.

4 Idem, pp. 7-23.

5 Idem, p. 27.

6 Idem, pp. 28-33.

7 Idem, p. 33.

8 Idem,pp. 38-40.

9 Idem, pp. 41-52.

10 Idem, pp. 61-65.

11 Idem, pp. 73-87.

12 Idem, pp- 87-91.

13 Rollo, p. 29.

14 Rollo, p. 32.

15 Idem, p.44.

16 Idem, p.48.

17 Idem, p.49.

18 Idem p.50.

19 Idem, p. 51.
20 Rollo, pp. 53-57.

21 Brief for Plaintiff-Appellants, p. 6; Rollo, p. 40.

22 CFI Decision, Record on Appeal, pp. 74-77, Rollo, p. 15,

21 Idem pp. 80-83.

24 Arts. 1319, 1475, New Civil Code.

25 Gamboa v. Gonzales, 17 Phil. 381.

26 Art. 1403, par. (2) Subpar. (e).

27 Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use
for which the lease is intended, without altering the form or substance of the property leased, the
lessor upon the termination of the lease shall pay the lessee one- half of the value of the
improvements at that time. Should the lessor refuse to reimburse said amount, the lessee may
remove the improvements, even though the principal thing may suffer damage thereby. He shall not,
however, cause any more impairment upon the property leased than is necessary.

With regard to ornamental expenses, the lessee shall not be entitled to any reimbursement, but he
may remove the ornamental objects, provided no damage is cause to the principal thing, and the
lessor does not choose to retain them by paying their value at the time the lease is extinguished.

28 Southwestern University v. Salvador, 90 SCRA 318, 329-330.

29 CFI Decision, Record on Appeal, p. 83; Rollo, p. 15.

Section 10, Article II


Section 10, Article II states that The State shall promote social justice in all phases of national development.

Salonga vs. Farrales


Facts:
The defendant Julia B. Farrales is the titled owner of a residential lot in Sta. Rita Olongapo City.
Within the owned parcel of land by the defendant, the plaintiff, spouses Salonga are the lessees of the 156 sq.
meters of land where the latter erected a house and is paying rentals to the defendant.

Sometimes before 1968, the plaintiff failed to pay rental and that as a result, the defendant filed an
ejectment case for non-payment of rentals against the plaintiff. Thus, the defendant forced the plaintiff. The
plaintiff then offered that they will just buy their occupied parcel of land instead of vacating the land and the
house of strong materials, however, despite of the insistence of the plaintiff, the titled owner defendant
refused to accept the offer, Farrales wanted the payment of the portion of land under consideration to be in
cash but Salonga did not have any money for that purpose, thus there is no contract of sale or sell in the
aforesaid land was realized.

The plaintiff then, after a strict refusal from the defendant-owner to sell her land, filed for petition for
relief. The case was heard and elevated until the CA, praying for ordering to the defendant to sell her parcel
of land where the house of the plaintiff was erected and that the plaintiff invoke their right to be subjected
under Section 6, (9) Article II of the new constitution, referring to the application of social justice which they
contended that it delimits and regulated property rights and private gains.
Issue: WON the lower court erred in dismissing the complaint of Salonga on the ground that no legal contract
exists between Farrales and Salonga.

Held:
Contracts are only enforceable from the moment of perfection. In the case at bar, Farrales rejected and
did not accept the offer of Salonga to buy the land in question. There being no consent there is,
therefore, no contract to sell to speak of. In the case of the other lessees (Pascual et al.) who were able to
buy the portion of land that they occupy, there was an existing contract between them and Farrales,
unlike Salonga who does not have the right to buy the land in question because the contract between her
and Farrales is non-existent.
Section 10, Article II states that The State shall promote social justice in all phases of national
development. The aforementioned provision is applicable to the case at bar. The social justice cannot be
invoked to trample on the rights of property owners who are also entitled for protection under our
Constitution. The social justice consecrated in our Constitution was not intended to take away rights
from a person and give them to another who is not entitled thereto. The plea for social justice cannot
nullify the law on obligations and contracts.
Supreme Courts Decision: The appeal was dismissed for lack of merit and the judgment appealed is
hereby affirmed.

FIRST DIVISION

[G.R. No. 122544. January 28, 1999]

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER


ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON,
GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners, vs. COURT OF
APPEALS and OVERLAND EXPRESS LINES, INC., respondents.

[G.R. No. 124741. January 28, 1999]

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER


ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON,
GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners, vs. COURT OF
APPEALS, HON. MAXIMIANO C. ASUNCION, and OVERLAND EXPRESS
LINES, INC., respondents.

DECISION
MARTINEZ, J.:
Two consolidated petitions were filed before us seeking to set aside and annul the decisions and resolutions
of respondent Court of Appeals. What seemed to be a simple ejectment suit was juxtaposed with procedural
intricacies which finally found its way to this Court.

G. R. NO. 122544:

On May 23, 1974, private respondent Overland Express Lines, Inc. (lessee) entered into a Contract of
Lease with Option to Buy with petitioners[1] (lessors) involving a 1,755.80 square meter parcel of land situated
at corner MacArthur Highway and South "H" Street, Diliman, Quezon City. The term of the lease was for one
(1) year commencing from May 16, 1974 up to May 15, 1975. During this period, private respondent was
granted an option to purchase for the amount of P3,000.00 per square meter. Thereafter, the lease shall be on a
per month basis with a monthly rental of P3,000.00.
For failure of private respondent to pay the increased rental of P8,000.00 per month effective June 1976,
petitioners filed an action for ejectment (Civil Case No. VIII-29155) on November 10, 1976 before the then
City Court (now Metropolitan Trial Court) of Quezon City, Branch VIII. On November 22, 1982, the City
Court rendered judgment[2] ordering private respondent to vacate the leased premises and to pay the sum
of P624,000.00 representing rentals in arrears and/or as damages in the form of reasonable compensation for the
use and occupation of the premises during the period of illegal detainer from June 1976 to November 1982 at
the monthly rental of P8,000.00, less payments made, plus 12% interest per annum from November 18, 1976,
the date of filing of the complaint, until fully paid, the sum of P8,000.00 a month starting December 1982, until
private respondent fully vacates the premises, and to pay P20,000.00 as and by way of attorney's fees.
Private respondent filed a certiorari petition praying for the issuance of a restraining order enjoining the
enforcement of said judgment and dismissal of the case for lack of jurisdiction of the City Court.
On September 26, 1984, the then Intermediate Appellate Court[3] (now Court of Appeals) rendered a
decision[4] stating that:

"x x x, the alleged question of whether petitioner was granted an extension of the option
to buy the property; whether such option, if any, extended the lease or whether petitioner
actually paid the alleged P300,000.00 to Fidela Dizon, as representative of private
respondents in consideration of the option and, whether petitioner thereafter offered to pay
the balance of the supposed purchase price, are all merely incidental and do not remove the
unlawful detainer case from the jurisdiction of respondent court. In consonance with the
ruling in the case of Teodoro, Jr. vs. Mirasol (supra), the above matters may be raised and
decided in the unlawful detainer suit as, to rule otherwise, would be a violation of the
principle prohibiting multiplicity of suits. (Original Records, pp. 38-39)."

The motion for reconsideration was denied. On review, this Court dismissed the petition in a resolution
dated June 19, 1985 and likewise denied private respondent's subsequent motion for reconsideration in a
resolution dated September 9, 1985.[5]
On October 7, 1985, private respondent filed before the Regional Trial Court (RTC) of Quezon City (Civil
Case No. Q-45541) an action for Specific Performance and Fixing of Period for Obligation with prayer for the
issuance of a restraining order pending hearing on the prayer for a writ of preliminary injunction. It sought to
compel the execution of a deed of sale pursuant to the option to purchase and the receipt of the partial payment,
and to fix the period to pay the balance. In an Order dated October 25, 1985, the trial court denied the issuance
of a writ of preliminary injunction on the ground that the decision of the then City Court for the ejectment of the
private respondent, having been affirmed by the then Intermediate Appellate Court and the Supreme Court, has
become final and executory.
Unable to secure an injunction, private respondent also filed before the RTC of Quezon City, Branch 102
(Civil Case No. Q-46487) on November 15, 1985 a complaint for Annulment of and Relief from Judgment with
injunction and damages. In its decision[6] dated May 12, 1986, the trial court dismissed the complaint for
annulment on the ground of res judicata, and the writ of preliminary injunction previously issued was
dissolved. It also ordered private respondent to pay P3,000.00 as attorney's fees. As a consequence of private
respondent's motion for reconsideration, the preliminary injunction was reinstated, thereby restraining the
execution of the City Court's judgment on the ejectment case.
The two cases were thereafter consolidated before the RTC of Quezon City, Branch 77. On April 28, 1989,
a decision[7] was rendered dismissing private respondent's complaint in Civil Case No. Q-45541 (specific
performance case) and denying its motion for reconsideration in Civil Case No. 46487 (annulment of the
ejectment case). The motion for reconsideration of said decision was likewise denied.
On appeal,[8] respondent Court of Appeals rendered a decision[9] upholding the jurisdiction of the City Court
of Quezon City in the ejectment case. It also CoA concluded that there was a perfected contract of sale between
the parties on the leased premises and that pursuant to the option to buy agreement, private respondent had
acquired the rights of a vendee in a contract of sale. It opined that the payment by private respondent
of P300,000.00 on June 20, 1975 as partial payment for the leased property, which petitioners accepted (through
Alice A. Dizon) and for which an official receipt was issued, was the operative act that gave rise to a perfected
contract of sale, and that for failure of petitioners to deny receipt thereof, private respondent can therefore
assume that Alice A. Dizon, acting as agent of petitioners, was authorized by them to receive the money in their
behalf. The Court of Appeals went further by stating that in fact, what was entered into was a "conditional
contract of sale" wherein ownership over the leased property shall not pass to the private respondent until it has
fully paid the purchase price. Since private respondent did not consign to the court the balance of the purchase
price and continued to occupy the subject premises, it had the obligation to pay the amount of P1,700.00 in
monthly rentals until full payment of the purchase price. The dispositive portion of said decision reads:

"WHEREFORE, the appealed decision in Case No. 46487 is AFFIRMED. The appealed
decision in Case No. 45541 is, on the other hand, ANNULLED and SET ASIDE. The
defendants-appellees are ordered to execute the deed of absolute sale of the property in
question, free from any lien or encumbrance whatsoever, in favor of the plaintiff-appellant,
and to deliver to the latter the said deed of sale, as well as the owner's duplicate of the
certificate of title to said property upon payment of the balance of the purchase price by the
plaintiff-appellant. The plaintiff-appellant is ordered to pay P1,700.00 per month from June
1976, plus 6% interest per annum, until payment of the balance of the purchase price, as
previously agreed upon by the parties.

SO ORDERED."

Upon denial of the motion for partial reconsideration (Civil Case No. Q-45541) by respondent Court of
Appeals,[10] petitioners elevated the case via petition for certiorari questioning the authority of Alice A. Dizon
as agent of petitioners in receiving private respondent's partial payment amounting to P300,000.00 pursuant to
the Contract of Lease with Option to Buy. Petitioners also assail the propriety of private respondent's exercise
of the option when it tendered the said amount on June 20, 1975 which purportedly resulted in a perfected
contract of sale.

G. R. NO. 124741:

Petitioners filed with respondent Court of Appeals a motion to remand the records of Civil Case No. 38-
29155 (ejectment case) to the Metropolitan Trial Court (MTC), then City Court of Quezon City, Branch 38, for
execution of the judgment[11] dated November 22, 1982 which was granted in a resolution dated June 29,
1992. Private respondent filed a motion to reconsider said resolution which was denied.
Aggrieved, private respondent filed a petition for certiorari, prohibition with preliminary injunction and/or
restraining order with this Court (G.R. Nos. 106750-51) which was dismissed in a resolution dated September
16, 1992 on the ground that the same was a refiled case previously dismissed for lack of merit. On November
26, 1992, entry of judgment was issued by this Court.
On July 14, 1993, petitioners filed an urgent ex-parte motion for execution of the decision in Civil Case
No. 38-29155 with the MTC of Quezon City, Branch 38. On September 13, 1993, the trial court ordered the
issuance of a third alias writ of execution. In denying private respondent's motion for reconsideration, it ordered
the immediate implementation of the third writ of execution without delay.
On December 22, 1993, private respondent filed with the Regional Trial Court (RTC) of Quezon City,
Branch 104 a petition for certiorari and prohibition with preliminary injunction/restraining order (SP. PROC.
No. 93-18722) challenging the enforceability and validity of the MTC judgment as well as the order for its
execution.
On January 11, 1994, RTC of Quezon City, Branch 104 issued an order[12] granting the issuance of a writ of
preliminary injunction upon private respondent's posting of an injunction bond of P50,000.00.
Assailing the aforequoted order after denial of their motion for partial reconsideration, petitioners filed a
petition[13] for certiorari and prohibition with a prayer for a temporary restraining order and/or preliminary
injunction with the Court of Appeals. In its decision,[14] the Court of Appeals dismissed the petition and ruled
that:

"The avowed purpose of this petition is to enjoin the public respondent from
restraining the ejectment of the private respondent. To grant the petition would be to
allow the ejectment of the private respondent. We cannot do that now in view of the
decision of this Court in CA-G.R. CV Nos. 25153-54. Petitioners' alleged right to eject
private respondent has been demonstrated to be without basis in the said civil case. The
petitioners have been shown, after all, to have no right to eject private respondents.

WHEREFORE, the petition is DENIED due course and is accordingly DISMISSED.

SO ORDERED."[15]

Petitioners' motion for reconsideration was denied in a resolution[16] by the Court of Appeals stating that:

"This court in its decision in CA-G.R. CV Nos. 25153-54 declared that the plaintiff-
appellant (private respondent herein) acquired the rights of a vendee in a contract of sale, in
effect, recognizing the right of the private respondent to possess the subject
premises. Considering said decision, we should not allow ejectment; to do so would disturb
the status quo of the parties since the petitioners are not in possession of the subject
property. It would be unfair and unjust to deprive the private respondent of its possession of
the subject property after its rights have been established in a subsequent ruling.

WHEREFORE, the motion for reconsideration is DENIED for lack of merit.

SO ORDERED."[17]

Hence, this instant petition.


We find both petitions impressed with merit.
First. Petitioners have established a right to evict private respondent from the subject premises for non-
payment of rentals. The term of the Contract of Lease with Option to Buy was for a period of one (1) year (May
16, 1974 to May 15, 1975) during which the private respondent was given an option to purchase said property
at P3,000.00 per square meter. After the expiration thereof, the lease was for P3,000.00 per month.
Admittedly, no definite period beyond the one-year term of lease was agreed upon by petitioners and
private respondent. However, since the rent was paid on a monthly basis, the period of lease is considered to be
from month to month in accordance with Article 1687 of the New Civil Code.[18] Where the rentals are paid
monthly, the lease, even if verbal may be deemed to be on a monthly basis, expiring at the end of every month
pursuant to Article 1687, in relation to Article 1673 of the Civil Code.[19] In such case, a demand to vacate is not
even necessary for judicial action after the expiration of every month.[20]
When private respondent failed to pay the increased rental of P8,000.00 per month in June 1976, the
petitioners had a cause of action to institute an ejectment suit against the former with the then City Court. In this
regard, the City Court (now MTC) had exclusive jurisdiction over the ejectment suit. The filing by private
respondent of a suit with the Regional Trial Court for specific performance to enforce the option to purchase did
not divest the then City Court of its jurisdiction to take cognizance over the ejectment case. Of note is the fact
that the decision of the City Court was affirmed by both the Intermediate Appellate Court and this Court.
Second. Having failed to exercise the option within the stipulated one-year period, private respondent
cannot enforce its option to purchase anymore. Moreover, even assuming arguendo that the right to exercise the
option still subsists at the time private respondent tendered the amount on June 20, 1975, the suit for specific
performance to enforce the option to purchase was filed only on October 7, 1985 or more than ten (10) years
after accrual of the cause of action as provided under Article 1144 of the New Civil Code.[21]
In this case, there was a contract of lease for one (1) year with option to purchase. The contract of lease
expired without the private respondent, as lessee, purchasing the property but remained in possession
thereof. Hence, there was an implicit renewal of the contract of lease on a monthly basis. The other terms of the
original contract of lease which are revived in the implied new lease under Article 1670 of the New Civil
Code[22] are only those terms which are germane to the lessees right of continued enjoyment of the property
leased.[23] Therefore, an implied new lease does not ipso facto carry with it any implied revival of private
respondent's option to purchase (as lessee thereof) the leased premises. The provision entitling the lessee the
option to purchase the leased premises is not deemed incorporated in the impliedly renewed contract because it
is alien to the possession of the lessee. Private respondents right to exercise the option to purchase expired with
the termination of the original contract of lease for one year. The rationale of this Court is that:

This is a reasonable construction of the provision, which is based on the presumption that when the
lessor allows the lessee to continue enjoying possession of the property for fifteen days after the
expiration of the contract he is willing that such enjoyment shall be for the entire period
corresponding to the rent which is customarily paid in this case up to the end of the month because
the rent was paid monthly.Necessarily, if the presumed will of the parties refers to the enjoyment of
possession the presumption covers the other terms of the contract related to such possession, such
as the amount of rental, the date when it must be paid, the care of the property, the responsibility
for repairs, etc. But no such presumption may be indulged in with respect to special agreements
which by nature are foreign to the right of occupancy or enjoyment inherent in a contract of lease. [24]

Third. There was no perfected contract of sale between petitioners and private respondent. Private
respondent argued that it delivered the check of P300,000.00 to Alice A. Dizon who acted as agent of
petitioners pursuant to the supposed authority given by petitioner Fidela Dizon, the payee thereof. Private
respondent further contended that petitioners filing of the ejectment case against it based on the contract of lease
with option to buy holds petitioners in estoppel to question the authority of petitioner Fidela Dizon. It insisted
that the payment of P300,000.00 as partial payment of the purchase price constituted a valid exercise of the
option to buy.
Under Article 1475 of the New Civil Code, the contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the
parties may reciprocally demand performance, subject to the provisions of the law governing the form of
contracts. Thus, the elements of a contract of sale are consent, object, and price in money or its equivalent. It
bears stressing that the absence of any of these essential elements negates the existence of a perfected contract
of sale. Sale is a consensual contract and he who alleges it must show its existence by competent proof.[25]
In an attempt to resurrect the lapsed option, private respondent gave P300,000.00 to petitioners (thru Alice
A. Dizon) on the erroneous presumption that the said amount tendered would constitute a perfected contract of
sale pursuant to the contract of lease with option to buy. There was no valid consent by the petitioners (as co-
owners of the leased premises) on the supposed sale entered into by Alice A. Dizon, as petitioners alleged
agent, and private respondent. The basis for agency is representation and a person dealing with an agent is put
upon inquiry and must discover upon his peril the authority of the agent.[26] As provided in Article 1868 of the
New Civil Code,[27] there was no showing that petitioners consented to the act of Alice A. Dizon nor authorized
her to act on their behalf with regard to her transaction with private respondent. The most prudent thing private
respondent should have done was to ascertain the extent of the authority of Alice A. Dizon. Being negligent in
this regard, private respondent cannot seek relief on the basis of a supposed agency.
In Bacaltos Coal Mines vs. Court of Appeals,[28] we explained the rule in dealing with an agent:

Every person dealing with an agent is put upon inquiry and must discover upon his peril the
authority of the agent. If he does not make such inquiry, he is chargeable with knowledge of the
agents authority, and his ignorance of that authority will not be any excuse. Persons dealing with an
assumed agent, whether the assumed agency be a general or special one, are bound at their peril, if
they would hold the principal, to ascertain not only the fact of the agency but also the nature and
extent of the authority, and in case either is controverted, the burden of proof is upon them to
establish it.

For the long years that private respondent was able to thwart the execution of the ejectment suit rendered in
favor of petitioners, we now write finis to this controversy and shun further delay so as to ensure that this case
would really attain finality.
WHEREFORE, in view of the foregoing, both petitions are GRANTED. The decision dated March 29,
1994 and the resolution dated October 19, 1995 in CA-G.R. CV No. 25153-54, as well as the decision dated
December 11, 1995 and the resolution dated April 23, 1997 in CA-G.R. SP No. 33113 of the Court of Appeals
are hereby REVERSED and SET ASIDE.
Let the records of this case be remanded to the trial court for immediate execution of the judgment dated
November 22, 1982 in Civil Case No. VIII-29155 of the then City Court (now Metropolitan Trial Court) of
Quezon City, Branch VIII as affirmed in the decision dated September 26, 1984 of the then Intermediate
Appellate Court (now Court of Appeals) and in the resolution dated June 19, 1985 of this Court.
However, petitioners are ordered to REFUND to private respondent the amount of P300,000.00 which they
received through Alice A. Dizon on June 20, 1975.
SO ORDERED.
Davide, Jr., C.J. (Chairman), Melo, Kapunan and Pardo, JJ., concur.
[1]
The original petitioners were Fidela P. Dizon, Regina Dizon, Amparo D. Bartolome, Ester A. Dizon, Alice A. Dizon and Fidelina
D. Balza.
[2]
Per Judge Fernando Gorospe, Jr.
[3]
The Intermediate Appellate Court took cognizance over the case after it was referred by the Supreme Court.
[4]
Penned by Justice Simeon M. Gopengco and concurred in by Justices Lino M. Patajo, Jose F. Racela, Jr. and Fidel P. Purisima;
Annex "A" of Petition; Rollo, p. 60.
[5]
"Whatever claims petitioner (private respondent herein) may have as to what it allegedly paid to and received by private respondent
Fidela Dizon, under the receipt issued by Mrs. Alicia Dizon, or with regard to the enforceability or non-enforceability of its stated
option to buy, against the private respondents (petitioners herein), which were matters merely raised as defenses of the petitioner in the
unlawful detainer suit filed against it may be better presented for ultimate resolution in a separate suit and before the proper forum";
Annex "A" of Petition in G.R. No. 124741; Rollo, p. 48.
[6]
Per Judge Wilhelmo C. Fortun.
[7]
Per Judge Ignacio L. Salvador.
[8]
Docketed as CA-G.R. CV No. 25153-54, entitled "OVERLAND EXPRESS LINES, INC., Plaintiff-Appellant vs. FIDELA P.
DIZON, ET.AL., Defendants-Appellees."
[9]
CA Decision (Eighth Division) dated March 29, 1994, penned by Justice Eubulo G. Verzola, and concurred in by Justice Ricardo J.
Francisco, Chairman and Justice Serafin V.C. Guingona; Annex "A" of Petition; Rollo, pp. 57-72.
[10]
CA Resolution (Thirteenth Division) dated October 19, 1995, penned by Justice Eubulo G. Verzola, and concurred in by Justice
Justo P. Torres, Jr., Chairman and Justice Oswaldo D. Agcaoili; Annex "B" of Petition; Rollo, pp. 74-78.
[11]
See note 2.
[12]
Per Judge Maximiano C. Asuncion, ruling that:
"After evaluating the evidence and arguments presented by the parties during the hearing of this case, the Court believes that the
petitioner (herein private respondent) will suffer an irreparable injury unless a writ of preliminary injunction be issued enjoining the
respondents (herein petitioners) or any person acting in their behalf from implementing the execution of the Judgment and the
Resolution of the MTC, Br. 38 of Quezon City. Likewise, in view of the pendency of cases before the Court of Appeals under CA-
G.R. No. 25153-54 for Specific Performance and for Annulment and Relief of Judgment, following the ruling of Supreme Court in the
case of Vda. de Sayman vs. Court of Appeals, 121 SCRA 650, 'That it is the rule when a petition for relief is filed, the Court may issue
preliminary injunction as may be necessary for the preservation of the rights of the parties.' Further, it said that 'The judgment of the
trial court, the enforcement of which is sought to be restrained has not yet attained the status of being beyond modification or
reversal. Hence, the enforcement of the same at this stage of the proceedings is premature'." (Annex "A" of Petition; Rollo, pp. 50-51)
[13]
Docketed as CA-G.R. SP No. 33113, entitled "AMPARO DIZON, ET.AL., Petitioners vs. HON. MAXIMIANO C. ASUNCION,
as RTC Judge of Quezon City, Branch 104 and OVERLAND EXPRESS LINES, INC., Respondents."
[14]
CA Decision (Thirteenth Division) dated December 11, 1995, penned by Justice Eubulo G. Verzola, and concurred in by Justice
Justo P. Torres, Jr., Chairman and Justice Oswaldo D. Agcaoili; Annex "A" of Petition; Rollo, pp. 46-53.
NOTE: CA-G.R. SP No. 33113 was transferred to the Thirteenth Division by virtue of the Resolution from the Fifteenth Division
dated January 16, 1994 (pursuant to Section 7, Rule 3 of the Revised Internal Rules of the Court of Appeals) which states that a
Special Case may be consolidated to the Justice to whom the civil case is assigned for study or report when the cases involve the
same parties and/or related questions of fact and/or law.
[15]
Ibid., Rollo, p. 52.
[16]
CA Resolution (Special Former Thirteenth Division) dated April 23, 1997, penned by Justice Eubulo G. Verzola, and concurred in
by Justice Jaime M. Lantin (New member vice J. Torres, Jr.) and Justice B.A. Adefuin-dela Cruz (Vice J. Agcaoili, pursuant to Office
Order No. 19-96-DP); Annex "B" of Petition; Rollo, pp. 55-57.
[17]
Ibid., Rollo, pp. 56-57.
[18]
Article 1687. If the period for the lease has not been fixed; it is understood to be from year to year, if the rent agreed upon is
annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and from day to day, if the rent is to be paid
daily.
[19]
Heirs of Manuel T. Suico vs. Court of Appeals, 266 SCRA 444, 456 [1997], citing Rantael vs. Court of Appeals, 97 SCRA 453,
460 [1980]; Cruz vs. Puno, 120 SCRA 497, 502 [1983]; Lesaca vs. Cuevas, 125 SCRA 384, 388 [1983]; Baens vs. Court of Appeals,
125 SCRA 634, 644 [1983]; Zablan vs. Court of Appeals, 154 SCRA 487, 493 [1987].
"Article 1673. The lessor may judicially eject the lessee for any of the following causes:
(1) When the period agreed upon, or that which is fixed for the duration of lease under Articles 1682 and 1687, has expired; x x x."
[20]
Ibid., citing Racaza vs. Susan Realty, Inc., 18 SCRA 1172, 1176-1177 [1966].
[21]
Article 1144. The following actions must be brought within ten years from the time the right of action accrues:
(1) Upon a written contract;
x x x x x x.
[22]
"Article 1670. If at the end of the contract, the lessee should continue enjoying the thing leased for fifteen days with the
acquiescence of the lessor, and unless a notice to the contrary by either party has previously been given, it is understood that there is
an implied new lease, not for the period of the original contract, but for the time established in Articles 1682 and 1687. The other
terms of the original contract shall be revived."
[23] Dizon vs. Magsaysay, 57 SCRA 250, 254 [1974].

[24]
Ibid.
[25]
Villanueva vs. Court of Appeals, 267 SCRA 89, 101 [1997].
[26]
See Bordador vs. Luz, 283 SCRA 374, 382 [1997].
[27]
Article 1868. By the contract of agency, a person binds himself to render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter.
[28]
245 SCRA 460, 467 citing the cases of Pineda vs. Court of Appeals, 226 SCRA 754 [1993], Veloso vs. La Urbana, 58 Phil. 681
[1933], Harry E. Keller Electric Co. vs. Rodriguez, 44 Phil. 19 [1922], Deen vs. Pacific Commercial Co., 42 Phil. 738 [1922], and
Strong vs. Repide, 6 Phil. 680 [1906].

Regina Dizon et al v. CA and Overland Express Lines, Inc.


G.R. No. 122544 January 28, 1999
Martinez, J.

FACTS:

Overland Express Lines, Inc. entered into a Contract of Lease with Option to Buy with petitioners involving a
1,755.80 square meter parcel of land situated at corner MacArthur Highway and South H Street, Diliman, Quezon
City. The term of the lease was for 1 year commencing from May 16, 1974 up to May 15, 1975. During this period,
Overland Express Lines was granted an option to purchase for the amount of P3,000.00 per square meter.
Thereafter, the lease shall be on a per month basis with a monthly rental of P3,000.00.

For failure of Overland Express Lines to pay the increased rental of P8,000.00 per month effective June 1976,
petitioners filed an action for ejectment against it. The lower court rendered judgment ordering Overland Express
Lines to vacate the leased premises and to pay the sum of P624,000.00 representing rentals in arrears and/or as
damages in the form of reasonable compensation for the use and occupation of the premises during the period of
illegal detainer from June 1976 to November 1982 at the monthly rental of P8,000.00, less payments made, plus
12% interest per annum from November 18, 1976, the date of filing of the complaint, until fully paid, the sum of
P8,000.00 a month starting December 1982, until Overland Express Lines fully vacates the premises, and to pay
P20,000.00 as and by way of attorneys fees.

ISSUE: WON Overland Express Lines actually paid the alleged P300,000.00 to Fidela Dizon, as representative (agent) of
petitioners in consideration of the option

HELD: No.
CA opined that the payment by Overland Express Lines of P300,000.00 as partial payment for the leased property,
which petitioners accepted (through Alice A. Dizon) and for which an official receipt was issued, was the operative
act that gave rise to a perfected contract of sale, and that for failure of petitioners to deny receipt thereof,
Overland Express Lines can therefore assume that Alice A. Dizon, acting as agent of petitioners, was authorized by
them to receive the money in their behalf. CA went further by stating that in fact, what was entered into was a
conditional contract of sale wherein ownership over the leased property shall not pass to the Overland Express
Lines until it has fully paid the purchase price. Since Overland Express Lines did not consign to the court the
balance of the purchase price and continued to occupy the subject premises, it had the obligation to pay the
amount of P1,700.00 in monthly rentals until full payment of the purchase price.
In an attempt to resurrect the lapsed option, Overland Express Lines gave P300,000.00 to petitioners (thru Alice A.
Dizon) on the erroneous presumption that the said amount tendered would constitute a perfected contract of sale
pursuant to the contract of lease with option to buy. There was no valid consent by the petitioners (as co-owners of
the leased premises) on the supposed sale entered into by Alice A. Dizon, as petitioners alleged agent, and
Overland Express Lines. The basis for agency is representation and a person dealing with an agent is put upon
inquiry and must discover upon his peril the authority of the agent. As provided in Article 1868 of the New Civil
Code, there was no showing that petitioners consented to the act of Alice A. Dizon nor authorized her to act on
their behalf with regard to her transaction with private respondent. The most prudent thing private respondent
should have done was to ascertain the extent of the authority of Alice A. Dizon. Being negligent in this regard,
private respondent cannot seek relief on the basis of a supposed agency.

Every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent.
If he does not make such inquiry, he is chargeable with knowledge of the agents authority, and his ignorance of
that authority will not be any excuse. Persons dealing with an assumed agency, whether the assumed agency be a
general or special one, are bound at their peril, if they would hold the principal, to ascertain not only the fact of the
agency but also the nature and extent of the authority, and in case either is controverted, the burden of proof is
upon them to establish it.

MILA A. REYES , G.R. No. 188064


Petitioner,
Present:

CARPIO, J., Chairperson,


NACHURA,
- versus - PERALTA,
ABAD, and
MENDOZA, JJ.

VICTORIA T. TUPARAN, Promulgated:


Respondent. June 1, 2011
X -----------------------------------------------------------------------------------------------------X

DECISION

MENDOZA, J.:

Subject of this petition for review is the February 13, 2009 Decision[1] of the Court of
Appeals (CA) which affirmed with modification the February 22, 2006 Decision[2]of the
Regional Trial Court, Branch 172, Valenzuela City (RTC), in Civil Case No. 3945-V-92, an
action for Rescission of Contract with Damages.

On September 10, 1992, Mila A. Reyes (petitioner) filed a complaint for Rescission of
Contract with Damages against Victoria T. Tuparan (respondent) before the RTC. In her
Complaint, petitioner alleged, among others, that she was the registered owner of a 1,274 square
meter residential and commercial lot located in Karuhatan, Valenzuela City, and covered by
TCT No. V-4130; that on that property, she put up a three-storey commercial building known as
RBJ Building and a residential apartment building; that since 1990, she had been operating a
drugstore and cosmetics store on the ground floor of RBJ Building where she also had been
residing while the other areas of the buildings including the sidewalks were being leased and
occupied by tenants and street vendors.

In December 1989, respondent leased from petitioner a space on the ground floor of
the RBJ Building for her pawnshop business for a monthly rental of 4,000.00. A close
friendship developed between the two which led to the respondent investing thousands of pesos
in petitioners financing/lending business from February 7, 1990 to May 27, 1990, with interest
at the rate of 6% a month.

On June 20, 1988, petitioner mortgaged the subject real properties to the Farmers Savings
Bank and Loan Bank, Inc. (FSL Bank) to secure a loan of 2,000,000.00 payable in
installments. On November 15, 1990, petitioners outstanding account on the mortgage reached
2,278,078.13. Petitioner then decided to sell her real properties for at least 6,500,000.00 so
she could liquidate her bank loan and finance her businesses. As a gesture of friendship,
respondent verbally offered to conditionally buy petitioners real properties for 4,200,000.00
payable on installment basis without interest and to assume the bank loan. To induce the
petitioner to accept her offer, respondent offered the following conditions/concessions:

1. That the conditional sale will be cancelled if the plaintiff (petitioner) can
find a buyer of said properties for the amount of 6,500,000.00 within the next
three (3) months provided all amounts received by the plaintiff from the defendant
(respondent) including payments actually made by defendant to Farmers Savings
and Loan Bank would be refunded to the defendant with additional interest of six
(6%) monthly;

2. That the plaintiff would continue using the space occupied by her and
drugstore and cosmetics store without any rentals for the duration of the
installment payments;

3. That there will be a lease for fifteen (15) years in favor of the plaintiff
over the space for drugstore and cosmetics store at a monthly rental of only
8,000.00 after full payment of the stipulated installment payments are made by
the defendant;

4. That the defendant will undertake the renewal and payment of the fire
insurance policies on the two (2) subject buildings following the expiration of the
then existing fire insurance policy of the plaintiff up to the time that plaintiff is
fully paid of the total purchase price of 4,200,000.00.[3]

After petitioners verbal acceptance of all the conditions/concessions, both parties worked
together to obtain FSL Banks approval for respondent to assume her (petitioners) outstanding
bank account. The assumption would be part of respondents purchase price for petitioners
mortgaged real properties. FSL Bank approved their proposal on the condition that petitioner
would sign or remain as co-maker for the mortgage obligation assumed by respondent.

On November 26, 1990, the parties and FSL Bank executed the corresponding Deed of
Conditional Sale of Real Properties with Assumption of Mortgage. Due to their close personal
friendship and business relationship, both parties chose not to reduce into writing the other
terms of their agreement mentioned in paragraph 11 of the complaint. Besides, FSL Bank did
not want to incorporate in the Deed of Conditional Sale of Real Properties with Assumption of
Mortgage any other side agreement between petitioner and respondent.

Under the Deed of Conditional Sale of Real Properties with Assumption of Mortgage,
respondent was bound to pay the petitioner a lump sum of 1.2 million pesos without interest as
part of the purchase price in three (3) fixed installments as follows:

a) 200,000.00 due January 31, 1991


b) 200,000.00 due June 30, 1991
c) 800,000.00 due December 31, 1991

Respondent, however, defaulted in the payment of her obligations on their due dates.
Instead of paying the amounts due in lump sum on their respective maturity dates, respondent
paid petitioner in small amounts from time to time. To compensate for her delayed payments,
respondent agreed to pay petitioner an interest of 6% a month. As of August 31, 1992,
respondent had only paid 395,000.00, leaving a balance of 805,000.00 as principal on the
unpaid installments and 466,893.25 as unpaid accumulated interest.

Petitioner further averred that despite her success in finding a prospective buyer for the
subject real properties within the 3-month period agreed upon, respondent reneged on her
promise to allow the cancellation of their deed of conditional sale. Instead, respondent became
interested in owning the subject real properties and even wanted to convert the entire property
into a modern commercial complex. Nonetheless, she consented because respondent repeatedly
professed friendship and assured her that all their verbal side agreement would be honored as
shown by the fact that since December 1990, she (respondent) had not collected any rentals
from the petitioner for the space occupied by her drugstore and cosmetics store.
On March 19, 1992, the residential building was gutted by fire which caused the
petitioner to lose rental income in the amount of 8,000.00 a month since April 1992.
Respondent neglected to renew the fire insurance policy on the subject buildings.

Since December 1990, respondent had taken possession of the subject real properties and
had been continuously collecting and receiving monthly rental income from the tenants of the
buildings and vendors of the sidewalk fronting the RBJ building without sharing it with
petitioner.

On September 2, 1992, respondent offered the amount of 751,000.00 only payable


on September 7, 1992, as full payment of the purchase price of the subject real properties and
demanded the simultaneous execution of the corresponding deed of absolute sale.

Respondents Answer

Respondent countered, among others, that the tripartite agreement erroneously designated
by the petitioner as a Deed of Conditional Sale of Real Property with Assumption of Mortgage
was actually a pure and absolute contract of sale with a term period. It could not be considered a
conditional sale because the acquisition of contractual rights and the performance of the
obligation therein did not depend upon a future and uncertain event. Moreover, the capital gains
and documentary stamps and other miscellaneous expenses and real estate taxes up to 1990
were supposed to be paid by petitioner but she failed to do so.

Respondent further averred that she successfully rescued the properties from a definite
foreclosure by paying the assumed mortgage in the amount of 2,278,078.13 plus interest and
other finance charges. Because of her payment, she was able to obtain a deed of cancellation of
mortgage and secure a release of mortgage on the subject real properties including petitioners
ancestral residential property in Sta. Maria, Bulacan.

Petitioners claim for the balance of the purchase price of the subject real properties was
baseless and unwarranted because the full amount of the purchase price had already been paid,
as she did pay more than 4,200,000.00, the agreed purchase price of the subject real properties,
and she had even introduced improvements thereon worth more than 4,800,000.00. As the
parties could no longer be restored to their original positions, rescission could not be resorted
to.

Respondent added that as a result of their business relationship, petitioner was able to
obtain from her a loan in the amount of 400,000.00 with interest and took several pieces of
jewelry worth 120,000.00. Petitioner also failed and refused to pay the monthly rental of
20,000.00 since November 16, 1990 up to the present for the use and occupancy of the ground
floor of the building on the subject real property, thus, accumulating arrearages in the amount of
470,000.00 as of October 1992.

Ruling of the RTC

On February 22, 2006, the RTC handed down its decision finding that respondent failed to pay
in full the 4.2 million total purchase price of the subject real properties leaving a balance of
805,000.00. It stated that the checks and receipts presented by respondent refer to her
payments of the mortgage obligation with FSL Bank and not the payment of the balance of
1,200,000.00. The RTC also considered the Deed of Conditional Sale of Real Property with
Assumption of Mortgage executed by and among the two parties and FSL Bank a contract to
sell, and not a contract of sale. It was of the opinion that although the petitioner was entitled to a
rescission of the contract, it could not be permitted because her non-payment in full of the
purchase price may not be considered as substantial and fundamental breach of the contract as
to defeat the object of the parties in entering into the contract.[4] The RTC believed that the
respondents offer stated in her counsels letter dated September 2, 1992 to settle what she
thought was her unpaid balance of 751,000.00 showed her sincerity and willingness to settle
her obligation. Hence, it would be more equitable to give respondent a chance to pay the
balance plus interest within a given period of time.

Finally, the RTC stated that there was no factual or legal basis to award damages and attorneys
fees because there was no proof that either party acted fraudulently or in bad faith.

Thus, the dispositive portion of the RTC Decision reads:

WHEREFORE, judgment is hereby rendered as follows:

1. Allowing the defendant to pay the plaintiff within thirty (30) days from the
finality hereof the amount of 805,000.00, representing the unpaid purchase price of
the subject property, with interest thereon at 2% a month from January 1, 1992 until
fully paid. Failure of the defendant to pay said amount within the said period shall cause
the automatic rescission of the contract (Deed of Conditional Sale of Real Property with
Assumption of Mortgage) and the plaintiff and the defendant shall be restored to their
former positions relative to the subject property with each returning to the other
whatever benefits each derived from the transaction;

2. Directing the defendant to allow the plaintiff to continue using the space
occupied by her for drugstore and cosmetic store without any rental pending payment of
the aforesaid balance of the purchase price.

3. Ordering the defendant, upon her full payment of the purchase price together
with interest, to execute a contract of lease for fifteen (15) years in favor of the plaintiff
over the space for the drugstore and cosmetic store at a fixed monthly rental
of 8,000.00; and
4. Directing the plaintiff, upon full payment to her by the defendant of the
purchase price together with interest, to execute the necessary deed of sale, as well as to
pay the Capital Gains Tax, documentary stamps and other miscellaneous expenses
necessary for securing the BIR Clearance, and to pay the real estate taxes due on the
subject property up to 1990, all necessary to transfer ownership of the subject property
to the defendant.

No pronouncement as to damages, attorneys fees and costs.

SO ORDERED.[5]

Ruling of the CA

On February 13, 2009, the CA rendered its decision affirming with modification the RTC
Decision. The CA agreed with the RTC that the contract entered into by the parties is a contract
to sell but ruled that the remedy of rescission could not apply because the respondents failure to
pay the petitioner the balance of the purchase price in the total amount of 805,000.00 was not
a breach of contract, but merely an event that prevented the seller (petitioner) from conveying
title to the purchaser (respondent). It reasoned that out of the total purchase price of the subject
property in the amount of 4,200,000.00, respondents remaining unpaid balance was only
805,000.00. Since respondent had already paid a substantial amount of the purchase price, it
was but right and just to allow her to pay the unpaid balance of the purchase price plus interest.
Thus, the decretal portion of the CA Decision reads:
WHEREFORE, premises considered, the Decision dated 22 February 2006 and
Order dated 22 December 2006 of the Regional Trial Court of Valenzuela City, Branch
172 in Civil Case No. 3945-V-92 are AFFIRMED with MODIFICATION in that
defendant-appellant Victoria T. Tuparan is hereby ORDERED to pay plaintiff-
appellee/appellant Mila A. Reyes, within 30 days from finality of this Decision, the
amount of 805,000.00 representing the unpaid balance of the purchase price of the
subject property, plus interest thereon at the rate of 6% per annum from 11 September
1992 up to finality of this Decision and, thereafter, at the rate of 12% per annum until
full payment. The ruling of the trial court on the automatic rescission of the Deed of
Conditional Sale with Assumption of Mortgage is hereby DELETED. Subject to the
foregoing, the dispositive portion of the trial courts decision is AFFIRMED in all other
respects.

SO ORDERED.[6]

After the denial of petitioners motion for reconsideration and respondents motion for
partial reconsideration, petitioner filed the subject petition for review praying for the reversal
and setting aside of the CA Decision anchored on the following
ASSIGNMENT OF ERRORS

A. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS


DISCRETION IN DISALLOWING THE OUTRIGHT RESCISSION OF THE SUBJECT
DEED OF CONDITIONAL SALE OF REAL PROPERTIES WITH ASSUMPTION OF
MORTGAGE ON THE GROUND THAT RESPONDENT TUPARANS FAILURE TO
PAY PETITIONER REYES THE BALANCE OF THE PURCHASE PRICE OF
805,000.00 IS NOT A BREACH OF CONTRACT DESPITE ITS OWN FINDINGS
THAT PETITIONER STILL RETAINS OWNERSHIP AND TITLE OVER THE
SUBJECT REAL PROPERTIES DUE TO RESPONDENTS REFUSAL TO PAY THE
BALANCE OF THE TOTAL PURCHASE PRICE OF 805,000.00 WHICH IS EQUAL
TO 20% OF THE TOTAL PURCHASE PRICE OF 4,200,000.00 OR 66% OF THE
STIPULATED LAST INSTALLMENT OF 1,200,000.00 PLUS THE INTEREST
THEREON. IN EFFECT, THE COURT OF APPEALS AFFIRMED AND ADOPTED
THE TRIAL COURTS CONCLUSION THAT THE RESPONDENTS NON-PAYMENT
OF THE 805,000.00 IS ONLY A SLIGHT OR CASUAL BREACH OF CONTRACT.

B. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS


DISCRETION IN DISREGARDING AS GROUND FOR THE RESCISSION OF THE
SUBJECT CONTRACT THE OTHER FRAUDULENT AND MALICIOUS ACTS
COMMITTED BY THE RESPONDENT AGAINST THE PETITIONER WHICH BY
THEMSELVES SUFFICIENTLY JUSTIFY A DENIAL OF A GRACE PERIOD OF
THIRTY (30) DAYS TO THE RESPONDENT WITHIN WHICH TO PAY TO THE
PETITIONER THE 805,000.00 PLUS INTEREST THEREON.

C. EVEN ASSUMING ARGUENDO THAT PETITIONER IS NOT ENTITLED


TO THE RESCISSION OF THE SUBJECT CONTRACT, THE COURT OF APPEALS
STILL SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN REDUCING THE
INTEREST ON THE 805,000.00 TO ONLY 6% PER ANNUM STARTING FROM THE
DATE OF FILING OF THE COMPLAINT ON SEPTEMBER 11, 1992 DESPITE THE
PERSONAL COMMITMENT OF THE RESPONDENT AND AGREEMENT BETWEEN
THE PARTIES THAT RESPONDENT WILL PAY INTEREST ON THE 805,000.00 AT
THE RATE OF 6% MONTHLY STARTING THE DATE OF DELINQUENCY ON
DECEMBER 31, 1991.

D. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS


DISCRETION IN THE APPRECIATION AND/OR MISAPPRECIATION OF FACTS
RESULTING INTO THE DENIAL OF THE CLAIM OF PETITIONER REYES FOR
ACTUAL DAMAGES WHICH CORRESPOND TO THE MILLIONS OF PESOS OF
RENTALS/FRUITS OF THE SUBJECT REAL PROPERTIES WHICH RESPONDENT
TUPARAN COLLECTED CONTINUOUSLY SINCE DECEMBER 1990, EVEN WITH
THE UNPAID BALANCE OF 805,000.00 AND DESPITE THE FACT THAT
RESPONDENT DID NOT CONTROVERT SUCH CLAIM OF THE PETITIONER AS
CONTAINED IN HER AMENDED COMPLAINT DATED APRIL 22, 2006.
E. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS
DISCRETION IN THE APPRECIATION OF FACTS RESULTING INTO THE DENIAL
OF THE CLAIM OF PETITIONER REYES FOR THE 29,609.00 BACK RENTALS
THAT WERE COLLECTED BY RESPONDENT TUPARAN FROM THE OLD
TENANTS OF THE PETITIONER.

F. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS


DISCRETION IN DENYING THE PETITIONERS EARLIER URGENT MOTION FOR
ISSUANCE OF A PRELIMINARY MANDATORY AND PROHIBITORY INJUNCTION
DATED JULY 7, 2008 AND THE SUPPLEMENT THERETO DATED AUGUST 4, 2008
THEREBY CONDONING THE UNJUSTIFIABLE FAILURE/REFUSAL OF JUDGE
FLORO ALEJO TO RESOLVE WITHIN ELEVEN (11) YEARS THE PETITIONERS
THREE (3) SEPARATE MOTIONS FOR PRELIMINARY INJUNCTION/
TEMPORARY RESTRAINING ORDER, ACCOUNTING AND DEPOSIT OF RENTAL
INCOME DATED MARCH 17, 1995, AUGUST 19, 1996 AND JANUARY 7, 2006
THEREBY PERMITTING THE RESPONDENT TO UNJUSTLY ENRICH HERSELF
BY CONTINUOUSLY COLLECTING ALL THE RENTALS/FRUITS OF THE
SUBJECT REAL PROPERTIES WITHOUT ANY ACCOUNTING AND COURT
DEPOSIT OF THE COLLECTED RENTALS/FRUITS AND THE PETITIONERS
URGENT MOTION TO DIRECT DEFENDANT VICTORIA TUPARAN TO PAY THE
ACCUMULATED UNPAID REAL ESTATE TAXES AND SEF TAXES ON THE
SUBJECT REAL PROPERTIES DATED JANUARY 13, 2007 THEREBY EXPOSING
THE SUBJECT REAL PROPERTIES TO IMMINENT AUCTION SALE BY THE CITY
TREASURER OF VALENZUELA CITY.

G. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS


DISCRETION IN DENYING THE PETITIONERS CLAIM FOR MORAL AND
EXEMPLARY DAMAGES AND ATTORNEYS FEES AGAINST THE RESPONDENT.

In sum, the crucial issue that needs to be resolved is whether or not the CA was correct in
ruling that there was no legal basis for the rescission of the Deed of Conditional Sale with
Assumption of Mortgage.

Position of the Petitioner

The petitioner basically argues that the CA should have granted the rescission of the subject
Deed of Conditional Sale of Real Properties with Assumption of Mortgage for the following
reasons:

1. The subject deed of conditional sale is a reciprocal obligation whose


outstanding characteristic is reciprocity arising from identity of cause by virtue of
which one obligation is correlative of the other.

2. The petitioner was rescinding not enforcing the subject Deed of


Conditional Sale pursuant to Article 1191 of the Civil Code because of the
respondents failure/refusal to pay the 805,000.00 balance of the total purchase
price of the petitioners properties within the stipulated period ending December 31,
1991.

3. There was no slight or casual breach on the part of the respondent because
she (respondent) deliberately failed to comply with her contractual obligations with
the petitioner by violating the terms or manner of payment of the 1,200,000.00
balance and unjustly enriched herself at the expense of the petitioner by collecting
all rental payments for her personal benefit and enjoyment.

Furthermore, the petitioner claims that the respondent is liable to pay interest at the rate
of 6% per month on her unpaid installment of 805,000.00 from the date of the
delinquency, December 31, 1991, because she obligated herself to do so.
Finally, the petitioner asserts that her claim for damages or lost income as well as for the
back rentals in the amount of 29,609.00 has been fully substantiated and, therefore, should
have been granted by the CA. Her claim for moral and exemplary damages and attorneys fees
has been likewise substantiated.

Position of the Respondent

The respondent counters that the subject Deed of Conditional Sale with Assumption of
Mortgage entered into between the parties is a contract to sell and not a contract of sale because
the title of the subject properties still remains with the petitioner as she failed to pay the
installment payments in accordance with their agreement.

Respondent echoes the RTC position that her inability to pay the full balance on the purchase
price may not be considered as a substantial and fundamental breach of the subject contract and
it would be more equitable if she would be allowed to pay the balance including interest within
a certain period of time. She claims that as early as 1992, she has shown her sincerity by
offering to pay a certain amount which was, however, rejected by the petitioner.

Finally, respondent states that the subject deed of conditional sale explicitly provides that the
installment payments shall not bear any interest. Moreover, petitioner failed to prove that she
was entitled to back rentals.
The Courts Ruling

The petition lacks merit.

The Court agrees with the ruling of the courts below that the subject Deed of Conditional
Sale with Assumption of Mortgage entered into by and among the two parties and FSL Bank
on November 26, 1990 is a contract to sell and not a contract of sale. The subject contract was
correctly classified as a contract to sell based on the following pertinent stipulations:

8. That the title and ownership of the subject real properties shall remain with
the First Party until the full payment of the Second Party of the balance of the purchase
price and liquidation of the mortgage obligation of 2,000,000.00. Pending payment of
the balance of the purchase price and liquidation of the mortgage obligation that was
assumed by the Second Party, the Second Party shall not sell, transfer and convey and
otherwise encumber the subject real properties without the written consent of the First
and Third Party.

9. That upon full payment by the Second Party of the full balance of the purchase
price and the assumed mortgage obligation herein mentioned the Third Party shall issue
the corresponding Deed of Cancellation of Mortgage and the First Party shall execute
the corresponding Deed of Absolute Sale in favor of the Second Party.[7]

Based on the above provisions, the title and ownership of the subject properties remains
with the petitioner until the respondent fully pays the balance of the purchase price and the
assumed mortgage obligation. Thereafter, FSL Bank shall then issue the corresponding deed of
cancellation of mortgage and the petitioner shall execute the corresponding deed of absolute
sale in favor of the respondent.

Accordingly, the petitioners obligation to sell the subject properties becomes demandable
only upon the happening of the positive suspensive condition, which is the respondents full
payment of the purchase price. Without respondents full payment, there can be no breach of
contract to speak of because petitioner has no obligation yet to turn over the title. Respondents
failure to pay in full the purchase price is not the breach of contract contemplated under Article
1191 of the New Civil Code but rather just an event that prevents the petitioner from being
bound to convey title to the respondent. The 2009 case of Nabus v. Joaquin & Julia Pacson[8] is
enlightening:

The Court holds that the contract entered into by the Spouses Nabus and
respondents was a contract to sell, not a contract of sale.

A contract of sale is defined in Article 1458 of the Civil Code, thus:

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

xxx

Sale, by its very nature, is a consensual contract because it is perfected by mere


consent. The essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership
in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.

Under this definition, a Contract to Sell may not be considered as a Contract of


Sale because the first essential element is lacking. In a contract to sell, the prospective
seller explicitly reserves the transfer of title to the prospective buyer, meaning, the
prospective seller does not as yet agree or consent to transfer ownership of the property
subject of the contract to sell until the happening of an event, which for present
purposes we shall take as the full payment of the purchase price. What the seller agrees
or obliges himself to do is to fulfill his promise to sell the subject property when the
entire amount of the purchase price is delivered to him. In other words, the full payment
of the purchase price partakes of a suspensive condition, the non-fulfillment of which
prevents the obligation to sell from arising and, thus, ownership is retained by the
prospective seller without further remedies by the prospective buyer.

xxx xxx xxx


Stated positively, upon the fulfillment of the suspensive condition which is the
full payment of the purchase price, the prospective sellers obligation to sell the subject
property by entering into a contract of sale with the prospective buyer becomes
demandable as provided in Article 1479 of the Civil Code which states:

Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price


certain is binding upon the promissor if the promise is supported by a consideration
distinct from the price.

A contract to sell may thus be defined as a bilateral contract whereby the


prospective seller, while expressly reserving the ownership of the subject property
despite delivery thereof to the prospective buyer, binds himself to sell the said property
exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that
is, full payment of the purchase price.

A contract to sell as defined hereinabove, may not even be considered as a


conditional contract of sale where the seller may likewise reserve title to the property
subject of the sale until the fulfillment of a suspensive condition, because in a
conditional contract of sale, the first element of consent is present, although it is
conditioned upon the happening of a contingent event which may or may not occur. If
the suspensive condition is not fulfilled, the perfection of the contract of sale is
completely abated. However, if the suspensive condition is fulfilled, the contract of
sale is thereby perfected, such that if there had already been previous delivery of the
property subject of the sale to the buyer, ownership thereto automatically transfers to
the buyer by operation of law without any further act having to be performed by the
seller.

In a contract to sell, upon the fulfillment of the suspensive condition which is the
full payment of the purchase price, ownership will not automatically transfer to the
buyer although the property may have been previously delivered to him. The prospective
seller still has to convey title to the prospective buyer by entering into a contract of
absolute sale.

Further, Chua v. Court of Appeals, cited this distinction between a contract of sale
and a contract to sell:

In a contract of sale, the title to the property passes to the vendee upon
the delivery of the thing sold; in a contract to sell, ownership is, by agreement,
reserved in the vendor and is not to pass to the vendee until full payment of the
purchase price. Otherwise stated, in a contract of sale, the vendor loses
ownership over the property and cannot recover it until and unless the contract is
resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor
until full payment of the price. In the latter contract, payment of the price is a
positive suspensive condition, failure of which is not a breach but an event that
prevents the obligation of the vendor to convey title from becoming effective.

It is not the title of the contract, but its express terms or stipulations that
determine the kind of contract entered into by the parties. In this case, the contract
entitled Deed of Conditional Sale is actually a contract to sell. The contract stipulated
that as soon as the full consideration of the sale has been paid by the vendee, the
corresponding transfer documents shall be executed by the vendor to the vendee for the
portion sold. Where the vendor promises to execute a deed of absolute sale upon the
completion by the vendee of the payment of the price, the contract is only a contract to
sell. The aforecited stipulation shows that the vendors reserved title to the subject
property until full payment of the purchase price.

xxx

Unfortunately for the Spouses Pacson, since the Deed of Conditional Sale
executed in their favor was merely a contract to sell, the obligation of the seller to sell
becomes demandable only upon the happening of the suspensive condition. The full
payment of the purchase price is the positive suspensive condition, the failure of which
is not a breach of contract, but simply an event that prevented the obligation of the vendor
to convey title from acquiring binding force. Thus, for its non-fulfilment, there is no
contract to speak of, the obligor having failed to perform the suspensive condition which
enforces a juridical relation. With this circumstance, there can be no rescission or
fulfillment of an obligation that is still non-existent, the suspensive condition not having
occurred as yet. Emphasis should be made that the breach contemplated in Article 1191
of the New Civil Code is the obligors failure to comply with an obligation already extant,
not a failure of a condition to render binding that obligation. [Emphases and underscoring
supplied]

Consistently, the Court handed down a similar ruling in the 2010 case of Heirs of Atienza
v. Espidol, [9] where it was written:

Regarding the right to cancel the contract for non-payment of an installment, there
is need to initially determine if what the parties had was a contract of sale or a contract to
sell. In a contract of sale, the title to the property passes to the buyer upon the delivery of
the thing sold. In a contract to sell, on the other hand, the ownership is, by agreement,
retained by the seller and is not to pass to the vendee until full payment of the purchase
price. In the contract of sale, the buyers non-payment of the price is a negative
resolutory condition; in the contract to sell, the buyers full payment of the price is a
positive suspensive condition to the coming into effect of the agreement. In the first
case, the seller has lost and cannot recover the ownership of the property unless he takes
action to set aside the contract of sale. In the second case, the title simply remains in the
seller if the buyer does not comply with the condition precedent of making payment at
the time specified in the contract. Here, it is quite evident that the contract involved was
one of a contract to sell since the Atienzas, as sellers, were to retain title of ownership to
the land until respondent Espidol, the buyer, has paid the agreed price. Indeed, there
seems no question that the parties understood this to be the case.

Admittedly, Espidol was unable to pay the second installment of P1,750,000.00


that fell due in December 2002. That payment, said both the RTC and the CA, was a
positive suspensive condition failure of which was not regarded a breach in the sense
that there can be no rescission of an obligation (to turn over title) that did not yet exist
since the suspensive condition had not taken place. x x x. [Emphases and underscoring
supplied]

Thus, the Court fully agrees with the CA when it resolved: Considering, however, that
the Deed of Conditional Sale was not cancelled by Vendor Reyes (petitioner) and that out of the
total purchase price of the subject property in the amount of 4,200,000.00, the remaining
unpaid balance of Tuparan (respondent) is only 805,000.00, a substantial amount of the
purchase price has already been paid. It is only right and just to allow Tuparan to pay the said
unpaid balance of the purchase price to Reyes.[10]

Granting that a rescission can be permitted under Article 1191, the Court still cannot
allow it for the reason that, considering the circumstances, there was only a slight or casual
breach in the fulfillment of the obligation.

Unless the parties stipulated it, rescission is allowed only when the breach of the contract
is substantial and fundamental to the fulfillment of the obligation. Whether the breach is slight
or substantial is largely determined by the attendant circumstances.[11] In the case at bench, the
subject contract stipulated the following important provisions:

2. That the purchase price of 4,200,000.00 shall be paid as follows:

a) 278,078.13 received in cash by the First Party but directly paid to the
Third Party as partial payment of the mortgage obligation of the First Party in
order to reduce the amount to 2,000,000.00 only as of November 15, 1990;

b) 721,921.87 received in cash by the First Party as additional payment of


the Second Party;

c) 1,200,000.00 to be paid in installments as follows:


1. 200,000.00 payable on or before January 31, 1991;
2. 200,000.00 payable on or before June 30, 1991;
3. 800,000.00 payable on or before December 31, 1991;

Note: All the installments shall not bear any interest.

d) 2,000,000.00 outstanding balance of the mortgage obligation as


of November 15, 1990 which is hereby assumed by the Second Party.

xxx
3. That the Third Party hereby acknowledges receipts from the Second
Party P278,078.13 as partial payment of the loan obligation of First Party in order
to reduce the account to only 2,000,000.00 as of November 15, 1990 to be
assumed by the Second Party effective November 15, 1990.[12]

From the records, it cannot be denied that respondent paid to FSL Bank petitioners
mortgage obligation in the amount of 2,278,078.13, which formed part of the purchase price of
the subject property. Likewise, it is not disputed that respondent paid directly to petitioner the
amount of 721,921.87 representing the additional payment for the purchase of the subject
property. Clearly, out of the total price of 4,200,000.00, respondent was able to pay the total
amount of 3,000,000.00, leaving a balance of 1,200,000.00 payable in three (3) installments.

Out of the 1,200,000.00 remaining balance, respondent paid on several dates the first
and second installments of 200,000.00 each. She, however, failed to pay the third and last
installment of 800,000.00 due on December 31, 1991. Nevertheless, on August 31, 1992,
respondent, through counsel, offered to pay the amount of 751,000.00, which was rejected by
petitioner for the reason that the actual balance was 805,000.00 excluding the interest charges.

Considering that out of the total purchase price of 4,200,000.00, respondent has already
paid the substantial amount of 3,400,000.00, more or less, leaving an unpaid balance of only
805,000.00, it is right and just to allow her to settle, within a reasonable period of time, the
balance of the unpaid purchase price. The Court agrees with the courts below that the
respondent showed her sincerity and willingness to comply with her obligation when she
offered to pay the petitioner the amount of 751,000.00.

On the issue of interest, petitioner failed to substantiate her claim that respondent made a
personal commitment to pay a 6% monthly interest on the 805,000.00 from the date of
delinquency, December 31, 1991. As can be gleaned from the contract, there was a stipulation
stating that: All the installments shall not bear interest. The CA was, however, correct in
imposing interest at the rate of 6% per annum starting from the filing of the complaint
on September 11, 1992.

Finally, the Court upholds the ruling of the courts below regarding the non-imposition of
damages and attorneys fees. Aside from petitioners self-serving statements, there is not enough
evidence on record to prove that respondent acted fraudulently and maliciously against the
petitioner. In the case of Heirs of Atienza v. Espidol,[13] it was stated:

Respondents are not entitled to moral damages because contracts are not
referred to in Article 2219 of the Civil Code, which enumerates the cases when moral
damages may be recovered. Article 2220 of the Civil Code allows the recovery of moral
damages in breaches of contract where the defendant acted fraudulently or in bad faith.
However, this case involves a contract to sell, wherein full payment of the purchase price
is a positive suspensive condition, the non-fulfillment of which is not a breach of
contract, but merely an event that prevents the seller from conveying title to the
purchaser. Since there is no breach of contract in this case, respondents are not entitled
to moral damages.

In the absence of moral, temperate, liquidated or compensatory damages,


exemplary damages cannot be granted for they are allowed only in addition to any of the
four kinds of damages mentioned.

WHEREFORE, the petition is DENIED.

SO ORDERED.

JOSE CATRAL MENDOZA


Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson
ANTONIO EDUARDO B. NACHURA DIOSDADO M. PERALTA
Associate Justice Associate Justice

ROBERTO A. ABAD
Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Courts Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA
Chief Justice

[1]
Rollo, pp. 72-102; penned by Associate Justice Celia C. Librea-Leagogo and concurred in by Associate Justice Juan Q. Enriquez, Jr.
and Associate Justice Normandie B. Pizarro.
[2]
Id. at 147-162.
[3]
Paragraph 11 of the Complaint, id. at 176.
[4]
Id. at 160.
[5]
Id. at 162.
[6]
Id. at 101-102.
[7]
Memorandum for Respondent, id. at 395.
[8]
G.R. No. 161318, November 25, 2009, 605 SCRA 334, 348-353.
[9]
G.R. No. 180665, August 11, 2010, 628 SCRA 256, 262-263.
[10]
CA Decision, rollo, p. 100.
[11]
GG Sportswear Mfg. Corp. v. World Class Properties, Inc., G.R. No. 182720, March 2, 2010, 614 SCRA 75, 87.
[12]
Rollo, pp. 25-26.
[13]
Supra note 9.

REYES VS TUPARAN
FACTS

Petitioner Mila Reyes owns a three-storey commercial building in Valenzuela City. Respondent, Victoria Tuparan leased a
space on said building for a monthly rental of P4, 000. Aside from being a tenant, Tuparan also invested in Reyes's
financing business. On June 20, 1988, Reyes borrowed P2 Million from Farmers Savings and Loan Bank (FSL Bank) and
mortgaged the building and lot (subject real properties). Reyes decided to sell the property for P6.5 Million to liquidate her
loan and finance her business. Tuparan offered to conditionally buy the real properties for P4.2 Million on installment basis
without interest and to assume the bank loan. The conditions are the following:

1. Sale will be cancelled if the Reyes can find a buyer of said properties for the amount of P6.5 Million within the next
three months. All payments made by Tuparan to the Reyes and the bank will be refunded to Tuparan with an additional
6% monthly interest.
2. Petitioner Reyes will continue using the space occupied by her drug store without rentals for the duration of the
installment payments.
3. There will be a lease for 15 years in favor of Reyes for a monthly rental of P8, 000 after full payment has been made
by the defendant.
4. The defendant will undertake the renewal and payment of the fire insurance policies of the 2 buildings, following the
expiration of the current policies, up to the time the respondent has fully paid the purchase price.

They presented the proposal for Tuparan to assume the mortgage to FSL Bank. The bank approved on the condition that
the Reyes would remain as co-maker of the mortgage obligation.

Petitioner's Contention
Under their Deed of Conditional Sale, Tuparan is obliged to pay a lump sum of P1.2 Million in three fixed installments.
Tuparan, however defaulted in the payment of the installments. To compensate for her delayed payments, she agreed to
pay Reyes monthly interest. But again, Tuparan failed to fulfill this obligation. The Reyes further alleged that despite her
success in finding another buyer according to their conditional sale agreement, Tuparan refused to cancel their transaction.
The Tuparan also neglected to renew the fire insurance policy of the buildings.

Respondent Tuparans Answer


The deed of Conditional Sale of Real Property with Assumption of Mortgage was actually a pure and absolute contract of
sale with a term period. It could not be considered a conditional sale because the performance of the obligation therein did
not depend upon a future and uncertain event. She also averred that she was able to fully pay the loan and secure the
release of the mortgage. Since she also paid more than the P4.2 Million purchase price, rescission could not be resorted to
since the parties could no longer be restored to their original positions.

ISSUE
Can the transaction or obligation be rescinded given that the conditions were not satisfied?

RULING(S)
RTC
The deed of conditional sale was a contract to sell. It was of the opinion that although the petitioner was entitled to a
rescission of the contract, it could not be permitted because her non-payment in full of the purchase price may not be
considered as substantial and fundamental breach of the contract as to defeat the object of the parties in entering into the
contract. The RTC believed that respondent showed her sincerity and willingness to settle her obligation. Hence, it would
be more equitable to give respondent a chance to pay the balance plus interest within a given period of time. The court
ordered the respondent to pay the petitioner the unpaid balance of the purchase price.
CA
The CA agreed with the RTC that the remedy of rescission could not apply because the respondents failure to pay the
petitioner the balance of the purchase price in the total amount of 805,000.00 was not a breach of contract, but merely
an event that prevented the seller (petitioner) from conveying title to the purchaser (respondent). Since respondent had
already paid a substantial amount of the purchase price, it was but right and just to allow her to pay the unpaid balance of
the purchase price plus interest.
SC
The SC agrees that the conditional sale is a contract to sell. The title and ownership of the subject properties remains with
the petitioner until the respondent fully pays the balance of the purchase price and the assumed mortgage
obligation. Without respondents full payment, there can be no breach of contract to speak of because petitioner has no
obligation yet to turn over the title. The court agrees that a substantial amount of the purchase price has already been paid.
It is only right and just to allow Tuparan to pay the said unpaid balance of the purchase price to Reyes. Granting that a
rescission can be permitted under Article 1191, the Court still cannot allow it for the reason that, considering the
circumstances, there was only a slight or casual breach in the fulfillment of the obligation. The court considered fulfillment
of 20% of the purchase price is NOT a substantial breach. Unless the parties stipulated it, rescission is allowed only when
the breach of the contract is substantial and fundamental to the fulfillment of the obligation. Whether the breach is slight or
substantial is largely determined by the attendant circumstance. As for the 6% interest, petitioner failed to substantiate her
claim that the respondent committed to pay it. Petition is denied.

RELEVANT JURISPRUDENCE
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 therefore a price certain in money or its equivalent. The essential
elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
In a contract to sell, the seller explicitly reserves the transfer of title to the prospective buyer. The first element (in the
contract of sale) is missing. There is no consent yet to the transfer of ownership of the property. (Nabus v Joaquin). The
payment of the price is a positive suspensive condition, failure of which is not a breach but an event that prevents the
obligation of the vendor to convey title from becoming effective. (Chua v CA)
Art. 1191 does not apply in a contract to sell since the breach contemplated in said article is an obligors failure to comply
with an existing obligation. It does not apply in the failure of a condition to make that obligation arise.

[G.R. No. 111743. October 8, 1999]

VISITACION GABELO, ERLINDA ABELLA, PETRA PEREZ, ERLINDA


TRAQUENA, BEN CARDINAL, EDUARDO TRAQUENA, LEOPOLDO
TRAQUENA, MARIFE TUBALAS, ULYSIS MATEO, JOCELYN FERNANDEZ,
ALFONSO PLACIDO, LEONARDO TRAQUENA, SUSAN RENDON AND
MATEO TRINIDAD, petitioners, vs. COURT OF APPEALS, URSULA
MAGLENTE, CONSOLACION BERJA, MERCEDITA FERRER, THELMA
ABELLA, ANTONIO NGO, and PHILIPPINE REALTY
CORPORATION, respondents.

DECISION
PURISIMA, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, of the decision of
the Court of Appeals, dated April 29, 1993, in CA-G.R. CV No. 33178, affirming the decision of the Regional
Trial Court of Manila, Branch 38, in Civil Case No. 89-48057, entitled Philippine Realty Corporation vs. Ursula
Maglente, et al., declaring the defendants (herein respondents) as the rightful party to purchase the land under
controversy, and ordering the plaintiff, Philippine Realty Corporation (PRC, for brevity), to execute the
corresponding Contract of Sale/Contract to Sell in favor of the defendants aforenamed.
The antecedent facts culminating in the filing of the present petition are as follows:
On January 15, 1986, Philippine Realty Corporation, owner of a parcel of land at 400 Solana Street,
Intramuros, Manila, with an area of 675.80 square meters, and covered by Transfer Certificate of Title No.
43989, entered into a Contract of Lease thereover with the herein private respondent, Ursula Maglente. The
lease was for a period of three (3) years at a monthly rental of P3,000.00 during the first year, P3,189.78 per
month in the second year and P3,374.00 monthly for the third year. The lease contract stipulated:
12. That the LESSOR shall have the right to sell any part of the entire leased land for any amount
or consideration it deems convenient, subject to the condition, however, that the LESSEE shall be
notified about it sixty (60) days in advance; that the LESSEE shall be given the first priority to buy
it; and in the event that the LESSEE cannot afford to buy, the final buyer shall respect this lease for
the duration of the same, except in cases of expropriation.

It also prohibited the lessee to cede, transfer, mortgage, sublease or in any manner encumber the whole or part
of the leased land and its improvements or its rights as LESSEE of the leased land, without the previous consent
in writing of the LESSOR contained in a public instrument.
However, after the execution of the lease agreement, respondent Maglente started leasing portions of the
leased area to the herein petitioners, Visitacion Gabelo, Erlinda Abella, Petra Perez, Erlinda Traquena, Ben
Cardinal, Eduardo Traquena, Leopoldo Traquena, Marife Tubalas, Ulysis Mateo, Jocelyn Fernandez, Alfonso
Placido, Leonardo Traquena, Susan Rendon and Mateo Trinidad, who erected their respective houses thereon.
On March 9, 1987, when the lease contract was about to expire, the Philippine Realty Corporation, through
its Junior Trust and Property Officers, Mr. Leandro Buguis and Mr. Florentino B. Rosario, sent a written offer
to sell subject properties to respondent Ursula Maglente. The said letter stated:

We wish to inform you that the Archdiocese of Manila has now decided to open for sale the
properties it own (sic) in the District of Intramuros, Manila. However, before we acccept offers
from other parties we are of course giving the first priority to our tenants or lessees of Intramuros
lots.

Responding to such written offer, Maglente wrote a letter, dated February 2, 1988, to the Roman Catholic
Archbishop of Manila manifesting an intention to exercise her right of first priority to purchase the property as
stipulated in the lease contract.
On February 15, 1988, a Memorandum on the offer of Maglente to purchase the property was prepared and
presented to Msgr. Domingo Cirilos, president of Philippine Realty Corporation, at the offered price
of P1,800.00 per square meter or for a total amount of P1,216,440.00, with a downpayment of P100,000.00; the
balance of the purchase price payable within ten (10) years with interest at the rate of eighteen (18%) percent
per annum. Msgr. Cirilos found the offer acceptable and approved the same.
On May 11, 1988, Maglente gave a partial downpayment of P25,000.00 and additional P25,000.00 on May
20, 1988. In a letter, dated January 28, 1989, Maglente informed the said corporation that there were other
persons who were her co-buyers, actually occupying the premises, namely: Consolacion Berja, Mercedita
Ferrer, Thelma Abella and Antonio Ngo within their respective areas of 100, 50, 60 and 400 square meters.
On January 30, 1989 Maglente paid her back rentals of P60,642.16 and P50,000.00 more, to complete her
downpayment of P100,000.00.
On February 1989, Philippine Realty Corporation (PRC) received copy of a letter sent by the herein
petitioners to the Archbishop of Manila, Jaime Cardinal Sin, expressing their desire to purchase the portions of
subject property on which they have been staying for a long time. And so, PRC met with the petitioners who
apprised the corporation of their being actual occupants of the leased premises and of the impending demolition
of their houses which Maglente threatened to cause. Petitioners then asked PRC to prevent the demolition of
their houses which might result in trouble and violence.
On February 23, 1989, in order to resolve which group has the right to purchase subject property as
between the petitioners/sublessees of Maglente, and respondent Maglente, and her co-buyers, PRC brought a
Complaint in Interpleader against the herein petitioners and private respondents, docketed as Civil Case No. 89-
48057 before Branch 38 of the Regional Trial Court of Manila.
On March 11, 1991, after trial on the merits, the lower court of origin rendered judgment in favor of
respondent Maglente and her group, disposing thus:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Declaring the defendants Ursula Maglente, Consolacion Berja, Mercedita Ferrer, Thelma Abella and Antonio
Ngo as the rightful party to purchase the land in controversy; and
2. Ordering plaintiff Philippine Realty Corporation to execute the corresponding contract of sale/contract to sell
in favor of the defendants aforementioned in accordance with this Decision within thirty (30) days from
notice thereof.
Dissatisfied with the aforesaid decision below, the Gabelo group (petitioners here) appealed to the Court of
Appeals, which affirmed the disposition of the trial court appealed from.
Undaunted, petitioners found their way to this Court via the present petition, assigning as sole error the
ruling of the Court of Appeals upholding the right of the private respondents, Consolacion Berja and Antonio
Ngo, to purchase subject property.
Petitioners theorize that they are tenants of Ursula Maglente on the land in dispute, which they are
occupying, and as such actual occupants they have the preferential right to purchase the portions of land
respectively occupied by them; that the private respondents, Thelma Abella and Antonio Ngo, have never been
occupants of the contested lot, and that, as defined in the Pre-trial Order[1] issued below, the issue for resolution
should have been limited to whether or not Berja and Ngo actually occupied the premises in question because
occupation thereon is the basis of the right to purchase subject area.
Petitioners contention is untenable. There is no legal basis for the assertion by petitioners that as actual
occupants of the said property, they have the right of first priority to purchase the same.
As regards the freedom of contract, it signifies or implies the right to choose with whom to contract. PRC is
thus free to offer its subject property for sale to any interested person. It is not duty bound to sell the same to the
petitioners simply because the latter were in actual occupation of the property absent any prior agreement
vesting in them as occupants the right of first priority to buy, as in the case of respondent Maglente. As a matter
of fact, because it (PRC) contracted only with respondent Maglente, it could even evict the petitioners from the
premises occupied by them considering that the sublease contract between petitioners and Maglente was inked
without the prior consent in writing of PRC, as required under the lease contract. Thus, although the other
private respondents were not parties to the lease contract between PRC and Maglente, the former could freely
enter into a contract with them.
So also, the contract of sale having been perfected, the parties thereto are already bound thereby and
petitioners can no longer assert their right to buy. It is well-settled that a contract of sale is perfected the
moment there is a meeting of the minds of the contracting parties upon the thing which is the object of the
contract and upon the price.[2] From the time a party accepts the other partys offer to sell within the stipulated
period without qualification, a contract of sale is deemed perfected.[3]
In the case under consideration, the contract of sale was already perfected - PRC offered the subject lot for
sale to respondent Maglente and her group through its Junior Trust and Property Officers.Respondent Maglente
and her group accepted such offer through a letter addressed to the Roman Catholic Archbishop of Manila,
dated February 2, 1988, manifesting their intention to purchase the property as provided for under the lease
contract. Thus, there was already an offer and acceptance giving rise to a valid contract. As a matter of fact,
respondents have already completed payment of their downpayment of P100,000.00. Therefore, as borne by
evidence on record, the requisites under Article 1318 of the Civil Code[4] for a perfected contract have been met.
Anent petitioners submission that the sale has not been perfected because the parties have not affixed their
signatures thereto, suffice it to state that under the law, the meeting of the minds between the parties gives rise
to a binding contract although they have not affixed their signatures to its written form.[5]
WHEREFORE, the petition is hereby DENIED for lack of merit and the decision of the Court of Appeals
in CA-G.R. CV No. 33178 AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Melo, Acting C.J., (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.

[1]
...Thereafter, the parties delineated the issue which is whether Consolacion Berja and Antonio Ngo, actually occupied the premises
belonging to the plaintiff and therefore entitled to purchase the lots respectively possessed by them. (Rollo, p. 116)
[2]
C and C Commercial Corporation vs. PNB, 175 SCRA 1.
[3]
Uraca vs. CA, 278 SCRA 702.
[4]
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties:
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
[5]
Peoples Industrial and Commercial Corp. vs. CA, 281 SCRA 206.

GABELO v CA
FACTS: Philippine Realty Corporation, owner of a parcel of land at Intramuros, Manila entered into a Contract of Lease with the private
respondent Ursula Maglente. The lease was for a period of three (3) years. Their contract prohibited the lessee to cede, transfer, mortgage,
sublease or in any manner encumber the whole or part of the leased land and its improvements or its rights as LESSEE of the leased land,
without the previous consent in writing of the LESSOR contained in a public instrument. However, after the execution of the lease agreement,
respondent Maglente started leasing portions of the leased area to the herein petitioners who erected their respective houses thereon.
When the lease contract was about to expire, the Philippine Realty Corporation sent a written offer to sell subject properties to
respondent Ursula Maglente. Responding to such written offer, Maglente wrote a letter manifesting an intention to exercise her right of first
priority to purchase the property as stipulated in the lease contract.
A Memorandum on the offer of Maglente to purchase the property was approved with a downpayment; the balance of the purchase
price payable within ten (10) years with interest at the rate of eighteen (18%) percent per annum.
However, Philippine Realty Corporation (PRC) also received a copy of a letter sent by the herein petitioners expressing their desire
to purchase the portions of subject property on which they have been staying for a long time.

ISSUE: Whether petitioners have the right of first priority to purchase of the property because they are the actual occupants of the said
property and the contract between PRC and Maglente was not perfected for lack of consent.

RULING: No. The contract of sale was already perfected - PRC offered the subject lot for sale to respondent Maglente. Respondent Maglente
accepted such offer through a letter manifesting their intention to purchase the property as provided for under the lease contract. Thus,
there was already an offer and acceptance giving rise to a valid contract. As a matter of fact, respondents have already completed payment of
their downpayment. Therefore, as borne by evidence on record, the requisites under Article 1318 of the Civil Code for a perfected contract
have been met.
Anent petitioners submission that the sale has not been perfected because the parties have not affixed their signatures thereto,
suffice it to state that under the law, the meeting of the minds between the parties gives rise to a binding contract although they have not
affixed their signatures to its written form.
G.R. No. L-26937 October 5, 1927

PHILIPPINE NATIONAL BANK, plaintiff-appellee,


vs.
SEVERO EUGENIO LO, ET AL., defendants.
SEVERIO EUGENIO LO, NG KHEY LING and YEP SENG, appellants.

Jose Lopez Vito for appellants.


Roman Lacson for appellee.

VILLAMOR, J.:

On September 29, 1916, the appellants Severo Eugenio Lo and Ng Khey Ling, together with J. A. Say Lian Ping, Ko
Tiao Hun, On Yem Ke Lam and Co Sieng Peng formed a commercial partnership under the name of "Tai Sing and
Co.," with a capital of P40,000 contributed by said partners. In the articles of copartnership, Exhibit A, it appears that
the partnership was to last for five years from after the date of its organization, and that its purpose was to do
business in the City of Iloilo, Province of Iloilo, or in any other part of the Philippine Islands the partners might desire,
under the name of "Tai Sing & Co.," for the purchase and sale of merchandise, goods, and native, as well as
Chinese and Japanese, products, and to carry on such business and speculations as they might consider profitable.
One of the partners, J. A. Say Lian Ping was appointed general manager of the partnership, with the appointed
general manager of the partnership, with the powers specified in said articles of copartnership.

On June 4, 1917, general manager A. Say Lian Ping executed a power of attorney (Exhibit C-1) in favor of A. Y.
Kelam, authorizing him to act in his stead as manager and administrator of "Tai Sing & Co.," on July 26, 1918, for,
and obtained a loan of P8,000 in current account from the plaintiff bank. (Exhibit C). As security for said loan, he
mortgaged certain personal property of "Tai Sing & Co., (Exhibit C.)

This credit was renew several times and on March 25, 1919, A. Y. Kelam, as attorney-in-fact of "Tai Sing & Co.,
executed a chattel mortgage in favor of plaintiff bank as security for a loan of P20,000 with interest (Exhibit D). This
mortgage was again renewed on April 16, 1920 and A. Y. Kelam, as attorney-in-fact of "Tai Sing & Co., executed
another chattel mortgage for the said sum of P20,000 in favor of plaintiff bank. (Exhibit E.) According to this
mortgage contract, the P20,000 loan was to earn 9 per cent interest per annum.

On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. Kelam and Ng Khey Ling, the latter represented by M.
Pineda Tayenko, executed a power of attorney in favor of Sy Tit by virtue of which Sy Tit, representing "Tai Sing &
Co., obtained a credit of P20,000 from plaintiff bank on January 7, 1921, executing a chattel mortgage on certain
personal property belonging to "Tai Sing & Co.

Defendants had been using this commercial credit in a current account with the plaintiff bank, from the year 1918, to
May 22, 1921, and the debit balance of this account, with interest to December 31, 1924, is as follows:

TAI SING & CO.


To your outstanding account (C. O. D.) with us on June
30, 1922 P16,518.74
Interest on same from June 30, 1922 to December
31,1924, at 9 per cent per annum 3,720.86

Total 20, 239.00


=========

This total is the sum claimed in the complaint, together with interest on the P16,518.74 debt, at 9 per cent per
annum from January 1, 1925 until fully paid, with the costs of the trial.
Defendant Eugenio Lo sets up, as a general defense, that "Tai Sing & Co. was not a general partnership, and that
the commercial credit in current account which "Tai Sing & Co. obtained from the plaintiff bank had not been
authorized by the board of directors of the company, nor was the person who subscribed said contract authorized to
make the same, under the article of copartnership. The other defendants, Yap Sing and Ng Khey Ling, answered
the complaint denying each and every one of the allegations contained therein.

After the hearing, the court found:

(1) That defendants Eugenio Lo, Ng Khey Ling and Yap Seng Co., Sieng Peng indebted to plaintiff
Philippine National Bank in sum of P22,595.26 to July 29, 1926, with a daily interest of P4.14 on the balance
on account of the partnership "Tai Sing & Co. for the sum of P16,518.74 until September 9, 1922;

(2) Said defendants are ordered jointly and severally to pay the Philippine National Bank the sum of
P22,727.74 up to August 31, 1926, and from the date, P4.14 daily interest on the principal; and

(3) The defendants are furthermore ordered to pay the costs of the action. 1awph!l.net

Defendants appealed, making the following assignments of error:

I. The trial court erred in finding that article 126 of the Code of Commerce at present in force is not
mandatory.

II. The trial court erred in finding that the partnership agreement of "Tai Sing & Co., (Exhibit A), is in
accordance with the requirements of article 125 of the Code of Commerce for the organization of a regular
partnership.

III. The trial court erred in not admitting J. A. Sai Lian Ping's death in China in November, 1917, as a proven
fact.

IV. The trial court erred in finding that the death of J. A. Say Lian Ping cannot extinguish the defendants'
obligation to the plaintiff bank, because the last debt incurred by the commercial partnership "Tai Sing & Co.,
was that evidence by Exhibit F, signed by Sy Tit as attorney-in-fact of the members of "Tai Sing & Co., by
virtue of Exhibit G.

V. The trial court erred in not finding that plaintiff bank was not able to collect its credit from the goods of "Tai
Sing & Co., given as security therefor through its own fault and negligence; and that the action brought by
plaintiff is a manifest violation of article 237 of the present Code of Commerce.

VI. The trial court erred in finding that the current account of "Tai Sing & Co. with plaintiff bank shows a debit
balance of P16,518.74, which in addition to interest at 9 per cent per annum from July 29, 1926, amount to
P16,595.26, with a daily interest of P4.14 on the sum of P16,518.74.

VII. The trial court erred in ordering the defendants appellants to pay jointly and severally to the Philippine
National Bank the sum of P22,727.74 up to August 31, 1926, and interest on P16,518.74 from that date until
fully paid, with the costs of the action.

VIII. The trial court erred in denying the motion for a new trial filed by defendants-appellants.

Appellants admit, and it appears from the context of Exhibit A, that the defendant association formed by the
defendants is a general partnership, as defined in article 126 of the Code Commerce. This partnership was
registered in the mercantile register of the Province of Iloilo. The only anomaly noted in its organization is that
instead of adopting for their firm name the names of all of the partners, of several of them, or only one of them, to be
followed in the last two cases, by the words "and to be followed in the last two cases, by the words "and company"
the partners agreed upon "Tai Sing & Co." as the firm name.

In the case of Hung-Man-Yoc, under the name of Kwong-Wo-Sing vs. Kieng-Chiong-Seng, cited by appellants, this
court held that, as the company formed by defendants had existed in fact, though not in law due to the fact that it
was not recorded in the register, and having operated and contracted debts in favor of the plaintiff, the same must
be paid by someone. This applies more strongly to the obligations contracted by the defendants, for they formed a
partnership which was registered in the mercantile register, and carried on business contracting debts with the
plaintiff bank. The anomalous adoption of the firm name above noted does not affect the liability of the general
partners to third parties under article 127 of the Code of Commerce. And the Supreme Court so held in the case
of Jo Chung Cang vs. Pacific Commercial Co., (45 Phil., 142), in which it said that the object of article 126 of the
Code of Commerce in requiring a general partnership to transact business under the name of all its members, of
several of them, or of one only, is to protect the public from imposition and fraud; and that the provision of said
article 126 is for the protection of the creditors rather than of the partners themselves. And consequently the
doctrine was enunciated that the law must be unlawful and unenforceable only as between the partners and at the
instance of the violating party, but not in the sense of depriving innocent parties of their rights who may have dealt
with the offenders in ignorance of the latter having violated the law; and that contracts entered into by commercial
associations defectively organized are valid when voluntarily executed by the parties, and the only question is
whether or not they complied with the agreement. Therefore, the defendants cannot invoke in their defense the
anomaly in the firm name which they themselves adopted.

As to the alleged death of the manager of the company, Say Lian Ping, before the attorney-in-fact Ou Yong Kelam
executed Exhibits C, D and E, the trial court did not find this fact proven at the hearing. But even supposing that the
court had erred, such an error would not justify the reversal of the judgment, for two reasons at least: (1) Because
Ou Yong Kelam was a partner who contracted in the name of the partnership, without any objection of the other
partners; and (2) because it appears in the record that the appellant-partners Severo Eugenio Lo, Ng Khey Ling and
Yap Seng, appointed Sy Tit as manager, and he obtained from the plaintiff bank the credit in current account, the
debit balance of which is sought to be recovered in this action.

Appellants allege that such of their property as is not included in the partnership assets cannot-be seized for the
payment of the debts contracted by the partnership until after the partnership property has been exhausted. The
court found that the partnership property described in the mortgage Exhibit F no loner existed at the time of the filing
of the herein complaint nor has its existence been proven, nor was it offered to the plaintiff for sale. We find no just
reason to reverse this conclusion of the trial court, and this being so, it follows that article 237 of the Code of
Commerce, invoked by the appellant, can in no way have any application here.

Appellants also assign error to the action of the trial court in ordering them to pay plaintiff, jointly and severally, the
sums claimed with 9 per cent interest on P16,518.74, owing from them.

The judgment against the appellants is in accordance with article 127 of the Code of Commerce which provides that
all the members of a general partnership, be they managing partners thereof or not, shall be personally and
solidarily liable with all their property, for the results of the transactions made in the name and for the account of the
partnership, under the signature of the latter, and by a person authorized to use it.

As to the amount of the interest suffice it to remember that the credit in current account sued on in this case as been
renewed by the parties in such a way that while it appears in the mortgage Exhibit D executed on March 25, 1919 by
the attorney-in-fact Ou Yong Kelam that the P20,000 credit would earn 8 per cent interest annually, yet from that
executed on April 16, 1920, Exhibit E, it appears that the P20,000 would earn 9 per cent interest per annum. The
credit was renewed in January, 1921, and in the deed of pledge, Exhibit F, executed by "Tai Sing & Co.,
represented by the attorney-in-fact Sy Tit, it appears that this security is for the payment of the sums received by the
partnership, not to exceed P20,000 with interest and collection fees. There can be no doubt that the parties agreed
upon the rate of interest fixed in the document Exhibit E, namely 9 per cent per annum.

The judgment appealed from is in accordance with the law, and must therefore be, as it is hereby, affirmed with
costs against the appellants. So ordered.

Avancea, C.J., Johnson, Street, Malcolm, Johns and Romualdez, JJ., concur.
PNB v. LO
G.R. No. 26937; October 5, 1927

Ponente: J. Villamor

FACTS:

In September 1916, Severo Eugenio Lo and Ling, together with Ping, Hun, Lam and Peng formed a commercial
partnership under the name of Tai Sing and Co., with a capital of P40,000 contributed by said partners. The firm name was
registered in the mercantile registrar in the Province of Iloilo. Ping, in the articles of partnership, was assigned as the general
manager. However, in 1917, he executed a special power of attorney in favor of Lam to act in his behalf as the manager of the
firm. Subsequently, Lam obtained a loan from PNB the loan was under the firms name. In the same year, Ping died in
China. From 1918 to 1920, the firm, via GM Lam, incurred other loans from PNB. The loans were not objected by any of the
partners. Later, PNB sued the firm for non-payment. Lo, in his defense, argued that he cannot be liable as a partner because
the partnership, according to him, is void; that it is void because the firms name did not comply with the requirement of the
Code of Commerce that a firm name should contain the names of all of the partners, of several of them, or only one of
them. Lo also argued that the acts of Lam after the death of Ping is not binding upon the other partners because the special
power of attorney shall have already ceased.

ISSUE: Whether or not Lo is correct in both arguments

HELD: No. The anomalous adoption of the firm name above noted does not affect the liability of the general partners to
third parties under Article 127 of the Code of Commerce. The object of the Code of Commerce in requiring a general
partnership to transact business under the name of all its members, of several of them, or of one only, is to protect the public
from imposition and fraud; it is for the protection of the creditors rather than of the partners themselves. It is unenforceable
as between the partners and at the instance of the violating party, but not in the sense of depriving innocent parties of their
rights who may have dealt with the offenders in ignorance of the latter having violated the law; and that contracts entered into
by a partnership firm defectively organized are valid when voluntarily executed by the parties, and the only question is whether
or not they complied with the agreement. Therefore, Lo cannot invoke in his defense the anomaly in the firm name which
they themselves adopted. Lo was not able to prove his second argument. But even assuming arguendo, his second contention
does not deserve merit because (a) Lam, in acting as a GM, is also a partner and his actions were never objected to by the
partners, and (b) it also appeared from the evidence that Lo, Lam and the other partners authorized some of the loans.

NOTE: Under the New Civil Code, a firm name may or may not include the name of one or more of the partners (Article
1815).

Parties:

Philippine National Bank, plaintiff-appellee,

Severo Eugenio Lo, et al. defendants

Severio Eugenio Lo, Ng Khey Ling and Yep Seng, appellants

Facts:

1916 Severo Eugenio Lo and Ng Khey Ling together with J.A. Say Lian Ping, Ko Tiao Hun, On Yem Ke Lam and
Co Sieng Peng formed a commercial partnership under the name of Tai Sing Co., with a capital of P40,000 contributed by
said partners.

Articles of Copartnership states that:

o Partnership was to last for 5 years from after the date of its organization
o Purpose: to do business in the City of Iloilo or in any other part of the Philippines the partners might desire; purchase
and sale of merchandise, goods, and native, as well as Chinese and Japanese products

o J.A. Say Lian Ping was appointed general manager

A. Say Lian Ping executed a power of attorney in favor of A. Y. Kelam, authorizing him to act in his stead as manager
and administrator of Tai Sing & Co. and to obtain a loan of P8,000 in current account from PNB.

Kelam mortgaged certain personal property of the partnership.

The credit was renewed several times and Kelam, as attorney-in-fact of Tai Sing & Co., executed a chattel mortgage
in favor of PNB as security as security for a loan P20,000.

This mortgage was again renewed and Kelam as attorney-in-fact of Tai Sing & Co. executed another chattel
mortgage for the said sum of P20,000.

1920 Yap Seng, Severo Lo, Kelam and Ng Khey Ling, the latter represented by M. Pineda Tayenko, executed a
power of attorney in favor of Sy Tit.

By virtue of the power of attorney, Sy Tit representing Tai Sing & Co. obtained a credit of P20,000 from PNB in
1921 and executed a chattel mortgage on certain personal property belonging to the partnership.

Defendants had been using this commercial credit in a current account with the plaintiff bank from 1918 1922 and
as of December 31, 1924 the debit balance of this account P 20, 239.

PNB claims in the complaint this amount and an interest of P16, 518.74.

Eugenio Los defense:

o Tai Sing & Co. was not a general partnership.

o Commercial credit in current account which Tai Sing & Co. obtained from PNB had not been authorized by the
board nor was the person who subscribed said contract authorized under the articles of copartnership

Trial Court: in favor of PNB

ISSUE:

Whether or not Tai Sing & Co. is a general partnership in that the appellants can be held liable to pay PNB

HELD: Yes. Tai Sing & Co. is a general partnership

RATIO:

Appellants admit and it appears from the articles of copartnership that Tai Sing & Co. is a general partnership and it
was registered in the mercantile register of Iloilo.

The fact that the partners opt to use Tai Sing & Co. as the firm name does not affect the liability of the general
partners to third parties under Article127 of the Code of Commerce. Jurisprudence states that:

o The object of article 126 of the Code of Commerce in requiring a general partnership to transact business under the
name of all its members, of several of them, or of one only, is to protect the public from imposition and fraud

o It is for the protection of the creditors rather than of the partners themselves.
o The law must be unlawful and unenforceable only as between the partners and at the instance of the violating party,
but not in the sense of depriving innocent parties of their rights who may have dealt with the offenders in ignorance of the
latter having violated the law.

o Contracts entered into by commercial associations defectively organized are valid when voluntarily executed
by the parties, and the only question is whether or not they complied with the agreement. Therefore, the defendants
cannot invoke in their defense the anomaly in the firm name which they themselves adopted.

As to the alleged death of the manager, Say Lian Ping before Kelam executed the contracts of mortgage with PNB,
this would not affect the liability of the partnership

o Kelam was a partner who contracted in the name of the partnership and the other partners did not object

o Lo, Khey Ling, and Yap Seng appointed Sy Tit as manager, and he obtained from PNB the credit in current account

Trial Court correctly held defendants to be jointly and severally liable to PNB

This is in accordance with Article 127 of the Code of Commerce all the members of a general partnership, be they
managing partners thereof or not, shall be personally and solidarily liable with all their property, for the results of the
transactions made in the name and for the account of the partnership, under the signature of the latter, and by a person
authorized to use it.

[G.R. No. 133879. November 21, 2001]

EQUATORIAL REALTY DEVELOPMENT, Inc., petitioner, vs. MAYFAIR THEATER,


Inc., respondent.

DECISION
PANGANIBAN, J.:

General propositions do not decide specific cases. Rather, laws are interpreted in the context of the peculiar
factual situation of each proceeding. Each case has its own flesh and blood and cannot be ruled upon on the
basis of isolated clinical classroom principles.
While we agree with the general proposition that a contract of sale is valid until rescinded, it is equally true
that ownership of the thing sold is not acquired by mere agreement, but by tradition or delivery.The peculiar
facts of the present controversy as found by this Court in an earlier relevant Decision show that delivery was not
actually effected; in fact, it was prevented by a legally effective impediment. Not having been the owner,
petitioner cannot be entitled to the civil fruits of ownership like rentals of the thing sold. Furthermore,
petitioners bad faith, as again demonstrated by the specific factual milieu of said Decision, bars the grant of
such benefits. Otherwise, bad faith would be rewarded instead of punished.

The Case

Filed before this Court is a Petition for Review[1] under Rule 45 of the Rules of Court, challenging the
March 11, 1998 Order[2] of the Regional Trial Court of Manila (RTC), Branch 8, in Civil Case No. 97-
85141. The dispositive portion of the assailed Order reads as follows:
WHEREFORE, the motion to dismiss filed by defendant Mayfair is hereby GRANTED, and the
complaint filed by plaintiff Equatorial is hereby DISMISSED.[3]

Also questioned is the May 29, 1998 RTC Order[4] denying petitioners Motion for Reconsideration.

The Facts

The main factual antecedents of the present Petition are matters of record, because it arose out of an earlier
case decided by this Court on November 21, 1996, entitled Equatorial Realty Development, Inc. v. Mayfair
Theater, Inc.[5] (henceforth referred to as the mother case), docketed as GR No. 106063.
Carmelo & Bauermann, Inc. (Carmelo) used to own a parcel of land, together with two 2-storey buildings
constructed thereon, located at Claro M. Recto Avenue, Manila, and covered by TCT No. 18529 issued in its
name by the Register of Deeds of Manila.
On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc. (Mayfair) for a period
of 20 years. The lease covered a portion of the second floor and mezzanine of a two-storey building with about
1,610 square meters of floor area, which respondent used as a movie house known as Maxim Theater.
Two years later, on March 31, 1969, Mayfair entered into a second Contract of Lease with Carmelo for the
lease of another portion of the latters property -- namely, a part of the second floor of the two-storey building,
with a floor area of about 1,064 square meters; and two store spaces on the ground floor and the mezzanine,
with a combined floor area of about 300 square meters. In that space, Mayfair put up another movie house
known as Miramar Theater. The Contract of Lease was likewise for a period of 20 years.
Both leases contained a provision granting Mayfair a right of first refusal to purchase the subject
properties. However, on July 30, 1978 - within the 20-year-lease term -- the subject properties were sold by
Carmelo to Equatorial Realty Development, Inc. (Equatorial) for the total sum of P11,300,000, without their
first being offered to Mayfair.
As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint before the Regional
Trial Court of Manila (Branch 7) for (a) the annulment of the Deed of Absolute Sale between Carmelo and
Equatorial, (b) specific performance, and (c) damages. After trial on the merits, the lower court rendered a
Decision in favor of Carmelo and Equatorial. This case, entitled Mayfair Theater, Inc. v. Carmelo and
Bauermann, Inc., et al., was docketed as Civil Case No. 118019.
On appeal (docketed as CA-GR CV No. 32918), the Court of Appeals (CA) completely reversed and set
aside the judgment of the lower court.
The controversy reached this Court via GR No. 106063. In this mother case, it denied the Petition for
Review in this wise:

WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23,
1992, in CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed of Absolute Sale between
petitioners Equatorial Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed
rescinded; Carmelo & Bauermann is ordered to return to petitioner Equatorial Realty Development
the purchase price.The latter is directed to execute the deeds and documents necessary to return
ownership to Carmelo & Bauermann of the disputed lots. Carmelo & Bauermann is ordered to
allow Mayfair Theater, Inc. to buy the aforesaid lots for P11,300,000.00.[6]

The foregoing Decision of this Court became final and executory on March 17, 1997. On April 25, 1997,
Mayfair filed a Motion for Execution, which the trial court granted.
However, Carmelo could no longer be located. Thus, following the order of execution of the trial court,
Mayfair deposited with the clerk of court a quo its payment to Carmelo in the sum of P11,300,000
less P847,000 as withholding tax. The lower court issued a Deed of Reconveyance in favor of Carmelo and a
Deed of Sale in favor of Mayfair. On the basis of these documents, the Registry of Deeds of Manila cancelled
Equatorials titles and issued new Certificates of Title[7] in the name of Mayfair.
Ruling on Equatorials Petition for Certiorari and Prohibition contesting the foregoing manner of execution,
the CA in its Resolution of November 20, 1998, explained that Mayfair had no right to deduct the P847,000 as
withholding tax. Since Carmelo could no longer be located, the appellate court ordered Mayfair to deposit the
said sum with the Office of the Clerk of Court, Manila, to complete the full amount of P11,300,000 to be turned
over to Equatorial.
Equatorial questioned the legality of the above CA ruling before this Court in GR No. 136221 entitled
Equatorial Realty Development, Inc. v. Mayfair Theater, Inc. In a Decision promulgated on May 12,
2000,[8] this Court directed the trial court to follow strictly the Decision in GR No. 106063, the mother case. It
explained its ruling in these words:

We agree that Carmelo and Bauermann is obliged to return the entire amount of eleven million
three hundred thousand pesos (P11,300,000.00) to Equatorial. On the other hand, Mayfair may not
deduct from the purchase price the amount of eight hundred forty-seven thousand pesos
(P847,000.00) as withholding tax. The duty to withhold taxes due, if any, is imposed on the seller,
Carmelo and Bauermann, Inc.[9]

Meanwhile, on September 18, 1997 -- barely five months after Mayfair had submitted its Motion for
Execution before the RTC of Manila, Branch 7 -- Equatorial filed with the Regional Trial Court of Manila,
Branch 8, an action for the collection of a sum of money against Mayfair, claiming payment of rentals or
reasonable compensation for the defendants use of the subject premises after its lease contracts had
expired. This action was the progenitor of the present case.
In its Complaint, Equatorial alleged among other things that the Lease Contract covering the premises
occupied by Maxim Theater expired on May 31, 1987, while the Lease Contract covering the premises occupied
by Miramar Theater lapsed on March 31, 1989.[10] Representing itself as the owner of the subject premises by
reason of the Contract of Sale on July 30, 1978, it claimed rentals arising from Mayfairs occupation thereof.

Ruling of the RTC Manila, Branch 8

As earlier stated, the trial court dismissed the Complaint via the herein assailed Order and denied the
Motion for Reconsideration filed by Equatorial.[11]
The lower court debunked the claim of petitioner for unpaid back rentals, holding that the rescission of the
Deed of Absolute Sale in the mother case did not confer on Equatorial any vested or residual proprietary rights,
even in expectancy.
In granting the Motion to Dismiss, the court a quo held that the critical issue was whether Equatorial was
the owner of the subject property and could thus enjoy the fruits or rentals therefrom. It declared the rescinded
Deed of Absolute Sale as void at its inception as though it did not happen.
The trial court ratiocinated as follows:

The meaning of rescind in the aforequoted decision is to set aside. In the case of Ocampo v. Court
of Appeals, G.R. No. 97442, June 30, 1994, the Supreme Court held that, to rescind is to declare a
contract void in its inception and to put an end as though it never were. It is not merely to terminate
it and release parties from further obligations to each other but to abrogate it from the beginning
and restore parties to relative positions which they would have occupied had no contract ever been
made.

Relative to the foregoing definition, the Deed of Absolute Sale between Equatorial and Carmelo
dated July 31, 1978 is void at its inception as though it did not happen.

The argument of Equatorial that this complaint for backrentals as reasonable compensation for use
of the subject property after expiration of the lease contracts presumes that the Deed of Absolute
Sale dated July 30, 1978 from whence the fountain of Equatorials alleged property rights flows is
still valid and existing.

xxx xxx xxx

The subject Deed of Absolute Sale having been rescinded by the Supreme Court, Equatorial is not
the owner and does not have any right to demand backrentals from the subject property. x x x.[12]

The trial court added: The Supreme Court in the Equatorial case, G.R. No. 106063, has categorically
stated that the Deed of Absolute Sale dated July 31, 1978 has been rescinded subjecting the present complaint
to res judicata.[13]
Hence, the present recourse.[14]

Issues

Petitioner submits, for the consideration of this Court, the following issues:[15]
A.

The basis of the dismissal of the Complaint by the Regional Trial Court not only disregards basic
concepts and principles in the law on contracts and in civil law, especially those on rescission and
its corresponding legal effects, but also ignores the dispositive portion of the Decision of the
Supreme Court in G.R. No. 106063 entitled Equatorial Realty Development, Inc. & Carmelo &
Bauermann, Inc. vs. Mayfair Theater, Inc.
B.

The Regional Trial Court erred in holding that the Deed of Absolute Sale in favor of petitioner by
Carmelo & Bauermann, Inc., dated July 31, 1978, over the premises used and occupied by
respondent, having been deemed rescinded by the Supreme Court in G.R. No. 106063, is void at its
inception as though it did not happen.
C.

The Regional Trial Court likewise erred in holding that the aforesaid Deed of Absolute Sale, dated
July 31, 1978, having been deemed rescinded by the Supreme Court in G.R. No. 106063, petitioner
is not the owner and does not have any right to demand backrentals from the subject property, and
that the rescission of the Deed of Absolute Sale by the Supreme Court does not confer to petitioner
any vested right nor any residual proprietary rights even in expectancy.
D.

The issue upon which the Regional Trial Court dismissed the civil case, as stated in its Order of
March 11, 1998, was not raised by respondent in its Motion to Dismiss.
E.

The sole ground upon which the Regional Trial Court dismissed Civil Case No. 97-85141 is not
one of the grounds of a Motion to Dismiss under Sec. 1 of Rule 16 of the 1997 Rules of Civil
Procedure.

Basically, the issues can be summarized into two: (1) the substantive issue of whether Equatorial is entitled
to back rentals; and (2) the procedural issue of whether the court a quos dismissal of Civil Case No. 97-85141
was based on one of the grounds raised by respondent in its Motion to Dismiss and covered by Rule 16 of the
Rules of Court.

This Courts Ruling

The Petition is not meritorious.

First Issue:
Ownership of Subject Properties

We hold that under the peculiar facts and circumstances of the case at bar, as found by this Court en banc in
its Decision promulgated in 1996 in the mother case, no right of ownership was transferred from Carmelo to
Equatorial in view of a patent failure to deliver the property to the buyer.

Rental - a Civil Fruit of Ownership

To better understand the peculiarity of the instant case, let us begin with some basic parameters. Rent is a
civil fruit[16] that belongs to the owner of the property producing it[17] by right of accession.[18]Consequently and
ordinarily, the rentals that fell due from the time of the perfection of the sale to petitioner until its rescission by
final judgment should belong to the owner of the property during that period.
By a contract of sale, one of the contracting parties obligates himself to transfer ownership of and to deliver
a determinate thing and the other to pay therefor a price certain in money or its equivalent.[19]
Ownership of the thing sold is a real right,[20] which the buyer acquires only upon delivery of the thing to
him in any of the ways specified in articles 1497 to 1501, or in any other manner signifying an agreement that
the possession is transferred from the vendor to the vendee.[21] This right is transferred, not by contract alone, but
by tradition or delivery.[22] Non nudis pactis sed traditione dominia rerum transferantur. And there is said to be
delivery if and when the thing sold is placed in the control and possession of the vendee. [23] Thus, it has been
held that while the execution of a public instrument of sale is recognized by law as equivalent to the delivery of
the thing sold,[24] such constructive or symbolic delivery, being merely presumptive, is deemed negated by the
failure of the vendee to take actual possession of the land sold.[25]
Delivery has been described as a composite act, a thing in which both parties must join and the minds of
both parties concur. It is an act by which one party parts with the title to and the possession of the property, and
the other acquires the right to and the possession of the same. In its natural sense, delivery means something in
addition to the delivery of property or title; it means transfer of possession. [26] In the Law on Sales, delivery may
be either actual or constructive, but both forms of delivery contemplate the absolute giving up of the control and
custody of the property on the part of the vendor, and the assumption of the same by the vendee.[27]

Possession Never Acquired by Petitioner

Let us now apply the foregoing discussion to the present issue. From the peculiar facts of this case, it is
clear that petitioner never took actual control and possession of the property sold, in view of respondents timely
objection to the sale and the continued actual possession of the property. The objection took the form of a court
action impugning the sale which, as we know, was rescinded by a judgment rendered by this Court in the
mother case. It has been held that the execution of a contract of sale as a form of constructive delivery is a legal
fiction. It holds true only when there is no impediment that may prevent the passing of the property from the
hands of the vendor into those of the vendee.[28] When there is such impediment, fiction yields to reality - the
delivery has not been effected.[29]
Hence, respondents opposition to the transfer of the property by way of sale to Equatorial was a legally
sufficient impediment that effectively prevented the passing of the property into the latters hands.
This was the same impediment contemplated in Vda. de Sarmiento v. Lesaca,[30] in which the Court held as
follows:

The question that now arises is: Is there any stipulation in the sale in question from which we can
infer that the vendor did not intend to deliver outright the possession of the lands to the vendee? We
find none. On the contrary, it can be clearly seen therein that the vendor intended to place the
vendee in actual possession of the lands immediately as can be inferred from the stipulation that the
vendee takes actual possession thereof x x x with full rights to dispose, enjoy and make use thereof
in such manner and form as would be most advantageous to herself. The possession referred to in
the contract evidently refers to actual possession and not merely symbolical inferable from the mere
execution of the document.

Has the vendor complied with this express commitment? she did not. As provided in Article 1462,
the thing sold shall be deemed delivered when the vendee is placed in
the control and possession thereof, which situation does not here obtain because from the execution
of the sale up to the present the vendee was never able to take possession of the lands due to the
insistent refusal of Martin Deloso to surrender them claiming ownership thereof. And although it is
postulated in the same article that the execution of a public document is equivalent to delivery, this
legal fiction only holds true when there is no impediment that may prevent the passing of the
property from the hands of the vendor into those of the vendee. x x x. [31]

The execution of a public instrument gives rise, therefore, only to a prima facie presumption of
delivery. Such presumption is destroyed when the instrument itself expresses or implies that delivery was not
intended; or when by other means it is shown that such delivery was not effected, because a third person was
actually in possession of the thing. In the latter case, the sale cannot be considered consummated.
However, the point may be raised that under Article 1164 of the Civil Code, Equatorial as buyer acquired a
right to the fruits of the thing sold from the time the obligation to deliver the property to petitioner arose.[32] That
time arose upon the perfection of the Contract of Sale on July 30, 1978, from which moment the laws provide
that the parties to a sale may reciprocally demand performance.[33] Does this mean that despite the judgment
rescinding the sale, the right to the fruits[34] belonged to, and remained enforceable by, Equatorial?
Article 1385 of the Civil Code answers this question in the negative, because [r]escission creates the
obligation to return the things which were the object of the contract, together with their fruits, and the price with
its interest; x x x. Not only the land and building sold, but also the rental payments paid, if any, had to be
returned by the buyer.
Another point. The Decision in the mother case stated that Equatorial x x x has received rents from Mayfair
during all the years that this controversy has been litigated. The Separate Opinion of Justice Teodoro Padilla in
the mother case also said that Equatorial was deriving rental income from the disputed property. Even
herein ponentes Separate Concurring Opinion in the mother case recognized these rentals. The question now is:
Do all these statements concede actual delivery?
The answer is No. The fact that Mayfair paid rentals to Equatorial during the litigation should not be
interpreted to mean either actual delivery or ipso facto recognition of Equatorials title.
The CA Records of the mother case[35] show that Equatorial - as alleged buyer of the disputed properties
and as alleged successor-in-interest of Carmelos rights as lessor - submitted two ejectment suits against
Mayfair. Filed in the Metropolitan Trial Court of Manila, the first was docketed as Civil Case No. 121570 on
July 9, 1987; and the second, as Civil Case No. 131944 on May 28, 1990. Mayfair eventually won them both.
However, to be able to maintain physical possession of the premises while awaiting the outcome of the mother
case, it had no choice but to pay the rentals.
The rental payments made by Mayfair should not be construed as a recognition of Equatorial as the new
owner. They were made merely to avoid imminent eviction. It is in this context that one should understand the
aforequoted factual statements in the ponencia in the mother case, as well as the Separate Opinion of Mr.
Justice Padilla and the Separate Concurring Opinion of the herein ponente.
At bottom, it may be conceded that, theoretically, a rescissible contract is valid until rescinded. However,
this general principle is not decisive to the issue of whether Equatorial ever acquired the right to collect
rentals. What is decisive is the civil law rule that ownership is acquired, not by mere agreement, but by tradition
or delivery. Under the factual environment of this controversy as found by this Court in the mother case,
Equatorial was never put in actual and effective control or possession of the property because of Mayfairs
timely objection.
As pointed out by Justice Holmes, general propositions do not decide specific cases. Rather, laws are
interpreted in the context of the peculiar factual situation of each case. Each case has its own flesh and blood
and cannot be decided on the basis of isolated clinical classroom principles.[36]
In short, the sale to Equatorial may have been valid from inception, but it was judicially rescinded before it
could be consummated. Petitioner never acquired ownership, not because the sale was void, as erroneously
claimed by the trial court, but because the sale was not consummated by a legally effective delivery of the
property sold.

Benefits Precluded by Petitioners Bad Faith

Furthermore, assuming for the sake of argument that there was valid delivery, petitioner is not entitled
to any benefits from the rescinded Deed of Absolute Sale because of its bad faith. This being the law of the
mother case decided in 1996, it may no longer be changed because it has long become final and
executory. Petitioners bad faith is set forth in the following pertinent portions of the mother case:
First and foremost is that the petitioners acted in bad faith to render Paragraph 8 inutile.

xxx xxx xxx

Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question
rescissible. We agree with respondent Appellate Court that the records bear out the fact that
Equatorial was aware of the lease contracts because its lawyers had, prior to the sale, studied the
said contracts. As such, Equatorial cannot tenably claim to be a purchaser in good faith, and,
therefore, rescission lies.

xxx xxx xxx

As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized
by bad faith, since it was knowingly entered into in violation of the rights of and to the prejudice of
Mayfair.In fact, as correctly observed by the Court of Appeals, Equatorial admitted that its lawyers
had studied the contract of lease prior to the sale. Equatorials knowledge of the stipulations therein
should have cautioned it to look further into the agreement to determine if it involved stipulations
that would prejudice its own interests.

xxx xxx xxx

On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with
notice and full knowledge that Mayfair had a right to or interest in the property superior to its
own. Carmelo and Equatorial took unconscientious advantage of Mayfair.[37] (Italics supplied)

Thus, petitioner was and still is entitled solely to the return of the purchase price it paid to Carmelo; no
more, no less. This Court has firmly ruled in the mother case that neither of them is entitled to any consideration
of equity, as both took unconscientious advantage of Mayfair.[38]
In the mother case, this Court categorically denied the payment of interest, a fruit of ownership. By the
same token, rentals, another fruit of ownership, cannot be granted without mocking this Courts en banc
Decision, which has long become final.
Petitioners claim of reasonable compensation for respondents use and occupation of the subject property
from the time the lease expired cannot be countenanced. If it suffered any loss, petitioner must bear it in silence,
since it had wrought that loss upon itself. Otherwise, bad faith would be rewarded instead of punished.
We uphold the trial courts disposition, not for the reason it gave, but for (a) the patent failure to deliver the
property and (b) petitioners bad faith, as above discussed.

Second Issue:
Ground in Motion to Dismiss

Procedurally, petitioner claims that the trial court deviated from the accepted and usual course of judicial
proceedings when it dismissed Civil Case No. 97-85141 on a ground not raised in respondents Motion to
Dismiss. Worse, it allegedly based its dismissal on a ground not provided for in a motion to dismiss as
enunciated in the Rules of Court.
We are not convinced. A review of respondents Motion to Dismiss Civil Case No. 97-85141 shows that
there were two grounds invoked, as follows:
(A)

Plaintiff is guilty of forum-shopping.


(B)

Plaintiffs cause of action, if any, is barred by prior judgment.[39]

The court a quo ruled, inter alia, that the cause of action of petitioner (plaintiff in the case below) had been
barred by a prior judgment of this Court in GR No. 106063, the mother case.
Although it erred in its interpretation of the said Decision when it argued that the rescinded Deed of
Absolute Sale was void, we hold, nonetheless, that petitioners cause of action is indeed barred by a prior
judgment of this Court. As already discussed, our Decision in GR No. 106063 shows that petitioner is not
entitled to back rentals, because it never became the owner of the disputed properties due to a failure of
delivery. And even assuming arguendo that there was a valid delivery, petitioners bad faith negates its
entitlement to the civil fruits of ownership, like interest and rentals.
Under the doctrine of res judicata or bar by prior judgment, a matter that has been adjudicated by a court of
competent jurisdiction must be deemed to have been finally and conclusively settled if it arises in any
subsequent litigation between the same parties and for the same cause.[40] Thus, [a] final judgment on the merits
rendered by a court of competent jurisdiction is conclusive as to the rights of the parties and their privies and
constitutes an absolute bar to subsequent actions involving the same claim, demand, or cause of action.[41] Res
judicata is based on the ground that the party to be affected, or some other with whom he is in privity, has
litigated the same matter in a former action in a court of competent jurisdiction, and should not be permitted to
litigate it again.[42]
It frees the parties from undergoing all over again the rigors of unnecessary suits and repetitive trials. At the
same time, it prevents the clogging of court dockets. Equally important, it stabilizes rights and promotes the rule
of law.
We find no need to repeat the foregoing disquisitions on the first issue to show satisfaction of the elements
of res judicata. Suffice it to say that, clearly, our ruling in the mother case bars petitioner from claiming back
rentals from respondent. Although the court a quo erred when it declared void from inception the Deed of
Absolute Sale between Carmelo and petitioner, our foregoing discussion supports the grant of the Motion to
Dismiss on the ground that our prior judgment in GR No. 106063 has already resolved the issue of back rentals.
On the basis of the evidence presented during the hearing of Mayfairs Motion to Dismiss, the trial court
found that the issue of ownership of the subject property has been decided by this Court in favor of Mayfair. We
quote the RTC:

The Supreme Court in the Equatorial case, G.R. No. 106063 has categorically stated that the Deed
of Absolute Sale dated July 31, 1978 has been rescinded subjecting the present complaint to res
judicata.[43] (Emphasis in the original)

Hence, the trial court decided the Motion to Dismiss on the basis of res judicata, even if it erred in
interpreting the meaning of rescinded as equivalent to void. In short, it ruled on the ground raised; namely, bar
by prior judgment. By granting the Motion, it disposed correctly, even if its legal reason for nullifying the sale
was wrong. The correct reasons are given in this Decision.
WHEREFORE, the Petition is hereby DENIED. Costs against petitioner.
SO ORDERED.
Davide, Jr., C.J., Quisumbing, Pardo, Buena, Ynares-Santiago, and Carpio, JJ., concur.
Bellosillo, J., join the dissenting opinion of J. Sandoval-Gutierrez.
Melo, J., see concurring opinion.
Puno, and Mendoza, JJ., concur and join the concurring opinion of J. Melo.
Vitug, and Sandoval-Gutierrez, JJ., see dissenting opinion.
Kapunan, J., join the dissenting opinion of J. Vitug and Sandoval-Gutierrez.
De Leon, Jr., J., join the dissenting opinion of J. Vitug.

[1]
Originally assigned to the Second Division, this case was transferred to the Third Division and later on referred to the Court en
banc.
[2]
Rollo, pp. 261-270; penned by Judge Felixberto T. Olalia Jr.
[3]
RTC Decision, p. 10; rollo, p. 270.
[4]
Rollo, pp. 310-311.
[5]
264 SCRA 483, November 21, 1996, per Hermosisima, J., concurred in by Justices Padilla (with Separate Opinion), Regalado,
Davide, Bellosillo, Melo, Puno, Kapunan, Mendoza, Francisco, and Panganiban (with Separate Concurring Opinion). Justice Vitug
wrote a Dissenting Opinion, joined by Justice Torres, while Justice Romero filed a Concurring and Dissenting Opinion. Chief Justice
Narvasa took no part.
[6]
Ibid., p. 512.
[7]
TCT Nos. 235120, 235121, 235122, and 235123.
[8]
332 SCRA 139, May 12, 2000; penned by Justice Bernardo T. Pardo (First Division) with the concurrence of Chief Justice Hilario
G. Davide Jr. and Justices Santiago M. Kapunan and Consuelo Ynares-Santiago. Justice Reynato S. Puno took no part.
[9]
Ibid., p. 149.
[10]
Complaint, pp. 3-4; rollo, pp. 47-48.
[11]
Rollo, pp. 261-270 and 301-311.
[12]
Rollo, pp. 265-266.
[13]
RTC Order dated May 11, 1998, p. 9; rollo, p. 269.
[14]
The case was deemed submitted for decision on June 13, 2000, upon receipt by the Court of the letter of Virginia A. Bautista,
officer-in-charge of RTC Manila, Branch 8, transmitting the complete records of Civil Case No. 97-85141, the progenitor of the
present case. After the final deliberations on this case on November 13, 2001, the writing of this Decision was assigned to
herein ponente.
[15]
Petition pp. 11-12, 24; rollo, pp. 24-25, 37; original in upper case.
[16]
Art. 442, Civil Code, provides in its third paragraph that [c]ivil fruits are the rents of buildings, the price of leases of lands and
other property and the amount or perpetual or life annuities or other similar incomes.
[17]
Art. 441, par (3), provides: To the owner belong xxx (3) [t]he civil fruits.
[18]
Art. 440 reads: The ownership of the property gives the right by accession to everything produced thereby, or which is
incorporated or attached thereto, either naturally or artificially.
[19]
Art. 1458, Civil Code.
[20]
See Arts. 712 and 1164, Civil Code.
[21]
Art. 1496, Civil Code.
[22]
Tolentino, Civil Code, 1992 ed., Vol. II, pp. 451-452; Roman v. Grimlt, 6 Phil. 96, April 11, 1906; Ocejo, Perez & Co.
v. International Bank, 37 Phil. 631, February 14, 1918.
[23]
Art. 1497, Civil Code.
[24]
Art. 1498, Civil Code.
[25]
Pasagui v. Villablanca, 68 SCRA 18, November 10, 1975; Tolentino, op. cit., Vol. V, p. 54.
[26]
CJS, Vol. 26A, p. 165.
[27]
Words and Phrases, Vol. IIA, p. 522.
[28]
Vda. de Sarmiento v. Lesaca, 108 Phil. 900, 903, June 30, 1960.
[29]
Addison v. Felix, 38 Phil. 404, August 3, 1918; as cited in Vda. de Sarmiento v. Lesaca, supra, at p. 904.
[30]
Supra, per Bautista-Angelo, J.
[31]
Ibid., p. 903.
[32]
Art. 1164 reads: The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall
acquire no real right over it until the same has been delivered to him.
[33]
See Art. 1475, Civil Code.
[34]
Rentals that accrued from the execution of the Deed of Sale from July 30, 1978 until November 21, 1996. Equatorial Realty
Development, Inc. v. Mayfair Theater, Inc., supra.
[35]
CA Records in the mother case, pp. 460 and 516. These ejectment suits are also referred to in the Petition and Comment in the
present case.
[36]
Philippines Today v. NLRC, 267 SCRA 202, January 30, 1997, per Panganiban, J.
[37]
Ibid., pp. 506-512.
[38]
Id., p. 511.
[39]
Respondents Motion to Dismiss, p. 1; rollo, p. 67; original in upper case.
[40]
Development, Bank of the Philippines v. CA, GR No. 110203, May 9, 2001, citing Gosnell v. Webb, 66 CA2d 518, 521, 152 P2d
463 (1944); Poochigan v. Layne, 120 CA2d 757, 261 P2d 738 (1953).
[41]
Ibid., per Panganiban, J., citing Republic v. Court of Appeals, 324 SCRA 560, February 3, 2000.
[42]
Id., citing Watkins v. Watkins, 117 CA2d 610, 256 P2d 339 (1953).
[43]
RTC Order dated March 11, 1978, p. 9; rollo, p. 269.

EQUATORIAL V. MAYFAIR- Sale of Land


While execution of a public instrument of sale is recognized by law as equivalent to the delivery of the thing sold, such
constructive or symbolic delivery is merely presumptive. It is nullified by the failure of the vendee to take actual possession of the
land sold.

FACTS:
Carmelo & Bauermann, Inc. owned a land, together with two 2-storey buildings at Claro M. Recto Avenue, Manila, and covered
by TCT No. 18529.

On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc. fpr 20 years. The lease covered a portion
of the second floor and mezzanine of a two-storey building with about 1,610 square meters of floor area, which respondent
used as Maxim Theater.

Two years later, on March 31, 1969, Mayfair entered into a second Lease with Carmelo for another portion of the latters
property this time, a part of the second floor of the two-storey building, and two store spaces on the ground floor. In that
space, Mayfair put up another movie house known as Miramar Theater. The Contract of Lease was likewise for a period of 20
years.

Both leases contained a clause giving Mayfair a right of first refusal to purchase the subject properties. Sadly, on July 30, 1978 -
within the 20-year-lease term -- the subject properties were sold by Carmelo to Equatorial Realty Development, Inc. for eleven
million smackers, without their first being offered to Mayfair.

As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint before the Regional Trial Court of Manila
for the recission of the Deed of Absolute Sale between Carmelo and Equatorial, specific performance, and damages. RTC
decided for Carmelo and Equatorial. Tsk tsk.
CA reversed and ruled for Mayfair. The SC denied a petition questioning the CA decision. What happened is that the contract
did get rescinded, Equatorial got its money back and asserted that Mayfair have the right to purchase the lots for 11 million
bucks.

Decision became final and executory, so Mayfair deposited with the clerk the 11M (less 847grand withholding) payment for the
properties (Carmelo somehow disappeared).
Meanwhile, on Sept 18, 1997, barely five months after Mayfair submitted its Motion for Execution, Equatorial demanded from
Mayfair backrentals and reasonable compensation for the Mayfairs continued use of the subject premises after its lease
contracts expired. Remember that Mayfair was still occupying the premises during all this hullabaloo.

ISSUE:
Whether or not Equatorial was the owner of the subject property and could thus enjoy the fruits and rentals.

HELD:NO.
Nor right of ownership was transferred from Carmelo to Equatorial since there was failure to deliver the property to the buyer.
Compound this with the fact that the sale was even rescinded.

The court went on to assert that rent is a civil fruit that belonged to the owner of the property producing it by right of
accession. Hence, the rentals that fell due from the time of the perfection of the sale to petitioner until its rescission by final
judgment should belong to the owner of the property during that period.

We remember from SALES that in a contract of sale, one of the contracting parties obligates himself to transfer ownership of
and to deliver a determinate thing and the other to pay therefor a price certain in money or its equivalent.

Ownership of the thing sold is a real right, which the buyer acquires only upon delivery of the thing to him in any of the ways
specified in articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the
vendor to the vendee. This right is transferred, not by contract alone, but by tradition or delivery. There is delivery if and when
the thing sold is placed in the control and possession of the vendee.

While execution of a public instrument of sale is recognized by law as equivalent to the delivery of the thing sold, such
constructive or symbolic delivery is merely presumptive. It is nullified by the failure of the vendee to take actual possession of
the land sold.

For property to be delivered, we need two things. Delivery of property or title, and transfer of control or custody to the buyer.

Possession was never acquired by the petitioner. It therefore had no rights to rent.