THIRD DIVISION In the meantime, petitioner filed an action for reversion of donation against the City of Cebu docketed

as Civil Case No. 238-BC before Branch 7 of the then Court of First Instance of Cebu. On May 7,
PROVINCE OF CEBU, G.R. No. 170115
Petitioner, 1974, petitioner and the City of Cebu entered into a compromise agreement which the court
Vs. approved on July 17, 1974.[8] The agreement provided for the return of the donated lots to petitioner
HEIRS OF RUFINA MORALES,
except those that have already been utilized by the City of Cebu. Pursuant thereto, Lot No. 646-A-3
NAMELY: FELOMINA V. PANOPIO,
NENITA VILLANUEVA, ERLINDA V. was returned to petitioner and registered in its name under TCT No. 104310.[9]
ADRIANO and CATALINA V. QUESADA, Morales died on February 20, 1969 during the pendency of Civil Case No. 238-BC.[10] Apart
Respondents. Promulgated:
from the deposit and down payment, she was not able to make any other payments on the balance
February 19, 2008
of the purchase price for the lot.
DECISION
On March 11, 1983, one of the nieces of Morales, respondent Catalina V. Quesada, wrote

YNARES-SANTIAGO, J.: to then Cebu Governor Eduardo R. Gullas asking for the formal conveyance of Lot No. 646-A-3 to

Morales surviving heirs, in accordance with the award earlier made by the City of Cebu.[11] This was
This is a petition for review on certiorari of the Decision[1] of the Court of Appeals dated March 29,
followed by another letter of the same tenor dated October 10, 1986 addressed to Governor
2005 in CA-G.R. CV No. 53632, which affirmed in toto the Decision[2] of
Osmundo G. Rama.[12]
the Regional Trial Court of CebuCity, Branch 6, in Civil Case No. CEB-11140 for specific performance 1
and reconveyance of property. Also assailed is the Resolution[3] dated August 31, 2005 denying the The requests remained unheeded thus, Quesada, together with the other nieces of Morales

motion for reconsideration. namely, respondents Nenita Villanueva and Erlinda V. Adriano, as well as Morales sister, Felomina V.

Panopio, filed an action for specific performance and reconveyance of property against petitioner,
On September 27, 1961, petitioner Province of Cebu leased[4] in favor of Rufina Morales a 210-square
which was docketed as Civil Case No. CEB-11140 before Branch 6 of
meter lot which formed part of Lot No. 646-A of the Banilad Estate. Subsequently or sometime in
the Regional Trial Court of Cebu City.[13] They also consigned with the court the amount of
1964, petitioner donated several parcels of land to the City of Cebu. Among those donated
P13,450.00 representing the balance of the purchase price which petitioner allegedly refused to
was Lot No. 646-A which the City of Cebu divided into sub-lots. The area occupied by Morales was
accept.[14]
thereafter denominated as Lot No. 646-A-3, for which Transfer Certificate of Title (TCT) No.

30883[5] was issued in favor of the City of Cebu. Panopio died shortly after the complaint was filed.[15]

On July 19, 1965, the city sold Lot No. 646-A-3 as well as the other donated lots at public auction in Respondents averred that the award at public auction of the lot to Morales was a valid and binding

order to raise money for infrastructure projects. The highest bidder for Lot No. 646-A-3 was Hever contract entered into by the City of Cebu and that the lot was inadvertently returned to petitioner

Bascon but Morales was allowed to match the highest bid since she had a preferential right to the under the compromise judgment in Civil Case No. 238-BC. They alleged that they could not pay the

lot as actual occupant thereof.[6] Morales thus paid the required deposit and partial payment for the balance of the purchase price during the pendency of said case due to confusion as to whom and

lot.[7] where payment should be made. They thus prayed that judgment be rendered ordering petitioner

to execute a final deed of absolute sale in their favor, and that TCT No. 104310 in the name of
petitioner be cancelled.[16]
Petitioner filed its answer but failed to present evidence despite several opportunities given thus, it
was deemed to have waived its right to present evidence.[17]
On March 6, 1996, the trial court rendered judgment, the dispositive part of which reads:
WHEREFORE, judgment is rendered in favor of the plaintiffs and against
the defendant Province of Cebu, hereby directing the latter to convey Lot 646-A-3
to the plaintiffs as heirs of Rufina Morales, and in this connection, to execute the
necessary deed in favor of said plaintiffs.
No pronouncement as to costs.
SO ORDERED.[18]
In ruling for the respondents, the trial court held thus:
[T]he Court is convinced that there was already a consummated sale between the
City of Cebu and Rufina Morales. There was the offer to sell in that public auction
sale. It was accepted by Rufina Morales with her bid and was granted the award
for which she paid the agreed downpayment. It cannot be gainsaid that at that
time the owner of the property was the City of Cebu. It has the absolute right to
dispose of it thru that public auction sale. The donation by the defendant Province
of Cebu to Cebu City was not voided in that Civil Case No. 238-BC. The compromise
agreement between the parties therein on the basis of which judgment was
rendered did not provide nullification of the sales or disposition made by the City
of Cebu. Being virtually successor-in-interest of City of Cebu, the defendant is
bound by the contract lawfully entered into by the former. Defendant did not
initiate any move to invalidate the sale for one reason or another. Hence, it stands
as a perfectly valid contract which defendant must respect. Rufina Morales had a
vested right over the property. The plaintiffs being the heirs or successors-in-
interest of Rufina Morales, have the right to ask for the conveyance of the property
to them. While it may be true that the title of the property still remained in the
name of the City of Cebu until full payment is made, and this could be the reason
why the lot in question was among those reverted to the Province, the sellers
obligation under the contract was, for all legal purposes, transferred to, and
assumed by, the defendant Province of Cebu. It is then bound by such contract. [19]
Petitioner appealed to the Court of Appeals which affirmed the decision of the trial court in toto. Upon
denial of its motion for reconsideration, petitioner filed the instant petition under Rule 45 of the Rules
of Court, alleging that the appellate court erred in:
FINDING THAT RUFINA MORALES AND RESPONDENTS, AS HER HEIRS, HAVE THE
RIGHT TO EQUAL THE BID OF THE HIGHEST BIDDER OF THE SUBJECT PROPERTY
AS LESSEES THEREOF;
FINDING THAT WITH THE DEPOSIT AND PARTIAL PAYMENT MADE BY RUFINA
MORALES, THE SALE WAS IN EFFECT CLOSED FOR ALL LEGAL PURPOSES, AND
THAT THE TRANSACTION WAS PERFECTED AND CONSUMMATED;
FINDING THAT LACHES AND/OR PRESCRIPTION ARE NOT APPLICABLE AGAINST
RESPONDENTS;
FINDING THAT DUE TO THE PENDENCY OF CIVIL CASE NO. 238-BC, PLAINTIFFS
WERE NOT ABLE TO PAY THE AGREED INSTALLMENTS;
AFFIRMING THE DECISION OF THE TRIAL COURT IN FAVOR OF THE
RESPONDENTS AND AGAINST THE PETITIONERS.[20]
The petition lacks merit.
The appellate court correctly ruled that petitioner, as successor-in-interest of the City of Cebu, is
2
bound to respect the contract of sale entered into by the latter pertaining to Lot No. 646-A-3. The
City of Cebuwas the owner of the lot when it awarded the same to respondents predecessor-in-
interest, Morales, who later became its owner before the same was erroneously returned to petitioner
under the compromise judgment. The award is tantamount to a perfected contract of sale between
Morales and the City of Cebu, while partial payment of the purchase price and actual occupation of
the property by Morales and respondents effectively transferred ownership of the lot to the
latter. This is true notwithstanding the failure of Morales and respondents to pay the balance of the
purchase price.
Petitioner can no longer assail the award of the lot to Morales on the ground that she had no right
to match the highest bid during the public auction. Whether Morales, as actual occupant and/or
lessee of the lot, was qualified and had the right to match the highest bid is a foregone matter that
could have been questioned when the award was made. When the City of Cebu awarded the lot to
Morales, it is assumed that she met all qualifications to match the highest bid. The subject lot was
auctioned in 1965 or more than four decades ago and was never questioned. Thus, it is safe to
assume, as the appellate court did, that all requirements for a valid public auction sale were complied of the vendor to either demand specific performance or rescission of the contract of sale.[25] It did

with. not abolish the contract of sale or result in its automatic invalidation.

A sale by public auction is perfected when the auctioneer announces its perfection by the As correctly found by the appellate court, the contract of sale between the City of Cebu and

fall of the hammer or in other customary manner.[21] It does not matter that Morales merely matched Morales was also partially consummated. The latter had paid the deposit and downpayment for the

the bid of the highest bidder at the said auction sale. The contract of sale was nevertheless perfected lot in accordance with the terms of the bid award. She first occupied the property as a lessee in

as to Morales, since she merely stepped into the shoes of the highest bidder. 1961, built a house thereon and was continuously in possession of the lot as its owner until her death

Consequently, there was a meeting of minds between the City of Cebu and Morales as to in 1969. Respondents, on the other hand, who are all surviving heirs of Morales, likewise occupied

the lot sold and its price, such that each party could reciprocally demand performance of the contract the property during the latters lifetime and continue to reside on the property to this day.[26]

from the other.[22] A contract of sale is a consensual contract and is perfected at the moment there The stages of a contract of sale are as follows: (1) negotiation, covering the period from

is a meeting of minds upon the thing which is the object of the contract and upon the price. From the time the prospective contracting parties indicate interest in the contract to the time the contract

that moment, the parties may reciprocally demand performance subject to the provisions of the law is perfected; (2) perfection, which takes place upon the concurrence of the essential elements of the

governing the form of contracts. The elements of a valid contract of sale under Article 1458 of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the

Civil Code are: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price price; and (3) consummation, which begins when the parties perform their respective undertakings

certain in money or its equivalent.[23] All these elements were present in the transaction between the under the contract of sale, culminating in the extinguishment thereof.[27] In this case, respondents
3
City of Cebu and Morales. predecessor had undoubtedly commenced performing her obligation by making a down payment on

There is no merit in petitioners assertion that there was no perfected contract of sale the purchase price. Unfortunately, however, she was not able to complete the payments due to legal

because no Contract of Purchase and Sale was ever executed by the parties. As previously stated, a complications between petitioner and the city.

contract of sale is a consensual contract that is perfected upon a meeting of minds as to the object Thus, the City of Cebu could no longer dispose of the lot in question when it was included

of the contract and its price. Subject to the provisions of the Statute of Frauds, a formal document as among those returned to petitioner pursuant to the compromise agreement in Civil Case No. 238-

is not necessary for the sale transaction to acquire binding effect. [24] For as long as the essential BC. The City of Cebu had sold the property to Morales even though there remained a balance on the

elements of a contract of sale are proved to exist in a given transaction, the contract is deemed purchase price and a formal contract of sale had yet to be executed. Incidentally, the failure of

perfected regardless of the absence of a formal deed evidencing the same. respondents to pay the balance on the purchase price and the non-execution of a formal agreement

Similarly, petitioner erroneously contends that the failure of Morales to pay the balance of was sufficiently explained by the fact that the trial court, in Civil Case No. 238-BC, issued a writ of

the purchase price is evidence that there was really no contract of sale over the lot between Morales preliminary injunction enjoining the city from further disposing the donated lots. According to

and the City of Cebu. On the contrary, the fact that there was an agreed price for the lot proves that respondents, there was confusion as to the circumstances of payment considering that both the city

a contract of sale was indeed perfected between the parties. Failure to pay the balance of the and petitioner had refused to accept payment by virtue of the injunction. [28] It appears that the

purchase price did not render the sale inexistent or invalid, but merely gave rise to a right in favor parties simply mistook Lot 646-A-3 as among those not yet sold by the city.
 The City of Cebu was no longer the owner of Lot 646-A-3 when it ceded the same to Finally, petitioner cannot raise the issue of prescription and laches at this stage of the

petitioner under the compromise agreement in Civil Case No. 238-BC. At that time, the city merely proceedings. Contrary to petitioners assignment of errors, the appellate court made no findings on
retained rights as an unpaid seller but had effectively transferred ownership of the lot to Morales. As the issue because petitioner never raised the matter of prescription and laches either before the trial

successor-in-interest of the city, petitioner could only acquire rights that its predecessor had over court or Court of Appeals. It is basic that defenses and issues not raised below cannot be considered

the lot. These rights include the right to seek rescission or fulfillment of the terms of the contract on appeal.[31] Thus, petitioner cannot plead the matter for the first time before this Court.

and the right to damages in either case.[29] WHEREFORE, in view of the foregoing, the petition is hereby DENIED and the decision and

In this regard, the records show that respondent Quesada wrote to then Cebu Governor resolution of the Court of Appeals in CA-G.R. CV No. 53632 are AFFIRMED.

Eduardo R. Gullas on March 11, 1983, asking for the formal conveyance of Lot 646-A-3 pursuant to SO ORDERED.
the award and sale earlier made by the City of Cebu. On October 10, 1986, she again wrote to

Governor Osmundo G. Rama reiterating her previous request. This means that petitioner had known,

at least as far back as 1983, that the city sold the lot to respondents predecessor and that the latter

had paid the deposit and the required down payment. Despite this knowledge, however, petitioner

did not avail of any rightful recourse to resolve the matter.

Article 1592 of the Civil Code pertinently provides:

4
Article 1592. In the sale of immovable property, even though it may have been
stipulated that upon failure to pay the price at the time agreed upon the rescission
of the contract shall of right take place, the vendee may pay, even after the
expiration of the period, as long as no demand for rescission of the contract has
been made upon him either judicially or by notarial act. After the demand, the
court may not grant him a new term. (Underscoring supplied)

Thus, respondents could still tender payment of the full purchase price as no demand for rescission

had been made upon them, either judicially or through notarial act. While it is true that it took a long

time for respondents to bring suit for specific performance and consign the balance of the purchase

price, it is equally true that petitioner or its predecessor did not take any action to have the contract

of sale rescinded. Article 1592 allows the vendee to pay as long as no demand for rescission has

been made.[30] The consignation of the balance of the purchase price before the trial court thus
operated as full payment, which resulted in the extinguishment of respondents obligation under the

contract of sale.
 G.R. No. L-25494 June 14, 1972
NICOLAS SANCHEZ, plaintiff-appellee,
vs.
SEVERINA RIGOS, defendant-appellant.
CONCEPCION, C.J.:p
Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals, which
certified the case to Us, upon the ground that it involves a question purely of law.
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos
executed an instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and
committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of land situated in the barrios of
Abar and Sibot, municipality of San Jose, province of Nueva Ecija, and more particularly described in
Transfer Certificate of Title No. NT-12528 of said province, within two (2) years from said date with
the understanding that said option shall be deemed "terminated and elapsed," if "Sanchez shall fail
to exercise his right to buy the property" within the stipulated period. Inasmuch as several tenders
of payment of the sum of Pl,510.00, made by Sanchez within said period, were rejected by Mrs.
Rigos, on March 12, 1963, the former deposited said amount with the Court of First Instance of
Nueva Ecija and commenced against the latter the present action, for specific performance and
damages.
After the filing of defendant's answer — admitting some allegations of the complaint, denying other
allegations thereof, and alleging, as special defense, that the contract between the parties "is a
unilateral promise to sell, and the same being unsupported by any valuable consideration, by force
of the New Civil Code, is null and void" — on February 11, 1964, both parties, assisted by their
respective counsel, jointly moved for a judgment on the pleadings. Accordingly, on February 28,
1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos to accept the sum
judicially consigned by him and to execute, in his favor, the requisite deed of conveyance. Mrs. Rigos
was, likewise, sentenced to pay P200.00, as attorney's fees, and other costs. Hence, this appeal by
Mrs. Rigos.
This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which
provides:
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.
In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant agreed
and committed to sell" and "the plaintiff agreed and committed to buy" the land described in the
option, copy of which was annexed to said pleading as Annex A thereof and is quoted on the
margin.1 Hence, plaintiff maintains that the promise contained in the contract is "reciprocally
demandable," pursuant to the first paragraph of said Article 1479. Although defendant had really
"agreed, promised and committed" herself to sell the land to the plaintiff, it is not true that the latter
had, in turn, "agreed and committed himself " to buy said property. Said Annex A does not bear out
plaintiff's allegation to this effect. What is more, since Annex A has been made "an integral part" of
his complaint, the provisions of said instrument form part "and parcel"2 of said pleading.
The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A
is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so
understood it, as indicated by the caption, "Option to Purchase," given by them to said instrument.
Under the provisions thereof, the defendant "agreed, promised and committed" herself to sell the
land therein described to the plaintiff for P1,510.00, but there is nothing in the contract to indicate
that her aforementioned agreement, promise and undertaking is supported by a consideration
"distinct from the price" stipulated for the sale of the land.
Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said
consideration, and this would seem to be the main factor that influenced its decision in plaintiff's
favor. It should be noted, however, that:
(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers
to "sales" in particular, and, more specifically, to "an accepted unilateral promise to buy or to sell."
In other words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be "binding upon the promisor, Article 1479 requires
the concurrence of a condition, namely, that the promise be "supported by a consideration distinct
from the price." Accordingly, the promisee can not compel the promisor to comply with the promise,
unless the former establishes the existence of said distinct consideration. In other words,
the promisee has the burden of proving such consideration. Plaintiff herein has not even alleged the
existence thereof in his complaint.
(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special
defense, the absence of said consideration for her promise to sell and, by joining in the petition for
a judgment on the pleadings, plaintiff has impliedly admitted the truth of said averment in
defendant's answer. Indeed as early as March 14, 1908, it had been held, in Bauermann v. 5
Casas,3 that:
One who prays for judgment on the pleadings without offering proof as to the
truth of his own allegations, and without giving the opposing party an opportunity
to introduce evidence, must be understood to admit the truth of all the material
and relevant allegations of the opposing party, and to rest his motion for judgment
on those allegations taken together with such of his own as are admitted in the
pleadings. (La Yebana Company vs. Sevilla, 9 Phil. 210). (Emphasis supplied.)
This view was reiterated in Evangelista v. De la Rosa4 and Mercy's Incorporated v. Herminia Verde.5
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co. ,6 from which
We quote:
The main contention of appellant is that the option granted to appellee to sell to
it barge No. 10 for the sum of P30,000 under the terms stated above has no legal
effect because it is not supported by any consideration and in support thereof it
invokes article 1479 of the new Civil Code. The article provides:
"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 sell a determinate thing
for a price certain is binding upon the promisor if the promise is
supported by a consideration distinct from the price."
On the other hand, Appellee contends that, even granting that the "offer of option"
is not supported by any consideration, that option became binding on appellant
when the appellee gave notice to it of its acceptance, and that having accepted it
 within the period of option, the offer can no longer be withdrawn and in any event
such withdrawal is ineffective. In support this contention, appellee invokes article
1324 of the Civil Code which provides:
"ART. 1324. When the offerer has allowed the offeree a certain
period to accept, the offer may be withdrawn any time before
acceptance by communicating such withdrawal, except when
the option is founded upon consideration as something paid or
promised."
There is no question that under article 1479 of the new Civil Code "an option to
sell," or "a promise to buy or to sell," as used in said article, to be valid must be
"supported by a consideration distinct from the price." This is clearly inferred from
the context of said article that a unilateral promise to buy or to sell, even if
accepted, is only binding if supported by consideration. In other words, "an
accepted unilateral promise can only have a binding effect if supported by a
consideration which means that the option can still be withdrawn, even if
accepted, if the same is not supported by any consideration. It is not disputed that
the option is without consideration. It can therefore be withdrawn notwithstanding
the acceptance of it by appellee.
It is true that under article 1324 of the new Civil Code, the general rule regarding
offer and acceptance is that, when the offerer gives to the offeree a certain period
to accept, "the offer may be withdrawn at any time before acceptance" except
when the option is founded upon consideration, but this general rule must be
interpreted as modified by the provision of article 1479 above referred to, which
applies to "a promise to buy and sell" specifically. As already stated, this rule
requires that a promise to sell to be valid must be supported by a consideration
distinct from the price.
We are not oblivious of the existence of American authorities which hold that an
offer, once accepted, cannot be withdrawn, regardless of whether it is supported
or not by a consideration (12 Am. Jur. 528). These authorities, we note, uphold
the general rule applicable to offer and acceptance as contained in our new Civil
Code. But we are prevented from applying them in view of the specific provision
embodied in article 1479. While under the "offer of option" in question appellant
has assumed a clear obligation to sell its barge to appellee and the option has
been exercised in accordance with its terms, and there appears to be no valid or
justifiable reason for appellant to withdraw its offer, this Court cannot adopt a
different attitude because the law on the matter is clear. Our imperative duty is to
apply it unless modified by Congress.
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek,8 decided later
that Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co. ,9 saw no distinction between
Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral promise to sell
similar to the one sued upon here was involved, treating such promise as an option which, although
not binding as a contract in itself for lack of a separate consideration, nevertheless generated a
bilateral contract of purchase and sale upon acceptance. Speaking through Associate Justice, later
Chief Justice, Cesar Bengzon, this Court said:
Furthermore, an option is unilateral: a promise to sell at the price fixed whenever
the offeree should decide to exercise his option within the specified time. After
accepting the promise and before he exercises his option, the holder of the option
is not bound to buy. He is free either to buy or not to buy later. In this case,
however, upon accepting herein petitioner's offer a bilateral promise to sell and to
buy ensued, and the respondent ipso facto assumed the obligation of a purchaser.
He did not just get the right subsequently to buy or not to buy. It was not a mere
option then; it was a bilateral contract of sale.
Lastly, even supposing that Exh. A granted an option which is not binding for lack
of consideration, the authorities hold that:
"If the option is given without a consideration, it is a mere offer
of a contract of sale, which is not binding until accepted. If,
however, acceptance is made before a withdrawal, it constitutes
a binding contract of sale, even though the option was not
supported by a sufficient consideration. ... . (77 Corpus Juris
Secundum, p. 652. See also 27 Ruling Case Law 339 and cases
cited.)
"It can be taken for granted, as contended by the defendant,
that the option contract was not valid for lack of consideration.
But it was, at least, an offer to sell, which was accepted by letter,
and of the acceptance the offerer had knowledge before said
offer was withdrawn. The concurrence of both acts — the offer
and the acceptance — could at all events have generated a
contract, if none there was before (arts. 1254 and 1262 of the
Civil Code)." (Zayco vs. Serra, 44 Phil. 331.)
6
In other words, since there may be no valid contract without a cause or consideration, the promisor
is not bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his
accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a
perfected contract of sale.
This view has the advantage of avoiding a conflict between Articles 1324 — on the general principles
on contracts — and 1479 — on sales — of the Civil Code, in line with the cardinal rule of statutory
construction that, in construing different provisions of one and the same law or code, such
interpretation should be favored as will reconcile or harmonize said provisions and avoid a conflict
between the same. Indeed, the presumption is that, in the process of drafting the Code, its author
has maintained a consistent philosophy or position. Moreover, the decision in Southwestern Sugar &
Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art. 1324 is modified by Art. 1479 of the
Civil Code, in effect, considers the latter as an exception to the former, and exceptions are not
favored, unless the intention to the contrary is clear, and it is not so, insofar as said two (2) articles
are concerned. What is more, the reference, in both the second paragraph of Art. 1479 and Art.
1324, to an option or promise supported by or founded upon a consideration, strongly suggests that
the two (2) provisions intended to enforce or implement the same principle.
Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby reiterates
the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar as inconsistent therewith, the
view adhered to in the Southwestern Sugar & Molasses Co. case should be deemed abandoned or
modified.
WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendant-appellant
Severina Rigos. It is so ordered.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 103577 October 7, 1996
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C.
GONZALES (for herself and on behalf of Florida C. Tupper, as attorney-in-fact), CIELITO
A. CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS MABANAG, petitioners,
vs.
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and RAMONA PATRICIA ALCARAZ,
assisted by GLORIA F. NOEL as attorney-in-fact, respondents.
MELO, J.:p
The petition before us has its roots in a complaint for specific performance to compel herein
petitioners (except the last named, Catalina Balais Mabanag) to consummate the sale of a parcel of
land with its improvements located along Roosevelt Avenue in Quezon City entered into by the parties
sometime in January 1985 for the price of P1,240,000.00.
The undisputed facts of the case were summarized by respondent court in this wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et al. (hereinafter
referred to as Coronels) executed a document entitled "Receipt of Down Payment"
(Exh. "A") in favor of plaintiff Ramona Patricia Alcaraz (hereinafter referred to as
Ramona) which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 — Total amount
50,000 — Down payment
———————————
P1,190,000.00 — Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum
of Fifty Thousand Pesos purchase price of our inherited house and lot, covered by
TCT No. 119627 of the Registry of Deeds of Quezon City, in the total amount of
P1,240,000.00.
We bind ourselves to effect the transfer in our names from our deceased father,
Constancio P. Coronel, the transfer certificate of title immediately upon receipt of
the down payment above-stated.
On our presentation of the TCT already in or name, We will immediately execute
the deed of absolute sale of said property and Miss Ramona Patricia Alcaraz shall
immediately pay the balance of the P1,190,000.00.
Clearly, the conditions appurtenant to the sale are the following:
1. Ramona will make a down payment of Fifty Thousand (P50,000.00) Pesos upon
execution of the document aforestated;
2. The Coronels will cause the transfer in their names of the title of the property
registered in the name of their deceased father upon receipt of the Fifty Thousand
(P50,000.00) Pesos down payment;
3. Upon the transfer in their names of the subject property, the Coronels will
execute the deed of absolute sale in favor of Ramona and the latter will pay the
former the whole balance of One Million One Hundred Ninety Thousand
(P1,190,000.00) Pesos.
On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz
(hereinafter referred to as Concepcion), mother of Ramona, paid the down
payment of Fifty Thousand (P50,000.00) Pesos (Exh. "B", Exh. "2").
On February 6, 1985, the property originally registered in the name of the
Coronels' father was transferred in their names under TCT
No. 327043 (Exh. "D"; Exh. "4")
On February 18, 1985, the Coronels sold the property covered by TCT No. 327043
to intervenor-appellant Catalina B. Mabanag (hereinafter referred to as Catalina)
for One Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the
latter has paid Three Hundred Thousand (P300,000.00) Pesos (Exhs. "F-3"; Exh.
"6-C")
For this reason, Coronels canceled and rescinded the contract (Exh. "A") with
Ramona by depositing the down payment paid by Concepcion in the bank in trust
for Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et al., filed a complaint for specific
performance against the Coronels and caused the annotation of a notice of lis
pendens at the back of TCT No. 327403 (Exh. "E"; Exh. "5").
On April 2, 1985, Catalina caused the annotation of a notice of adverse claim
covering the same property with the Registry of Deeds of Quezon City (Exh. "F"; 7
Exh. "6").
On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject
property in favor of Catalina (Exh. "G"; Exh. "7").
On June 5, 1985, a new title over the subject property was issued in the name of
Catalina under TCT No. 351582 (Exh. "H"; Exh. "8").
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch 83, RTC, Quezon City) the parties
agreed to submit the case for decision solely on the basis of documentary exhibits. Thus, plaintiffs
therein (now private respondents) proffered their documentary evidence accordingly marked as
Exhibits "A" through "J", inclusive of their corresponding submarkings. Adopting these same exhibits
as their own, then defendants (now petitioners) accordingly offered and marked them as Exhibits
"1" through "10", likewise inclusive of their corresponding submarkings. Upon motion of the parties,
the trial court gave them thirty (30) days within which to simultaneously submit their respective
memoranda, and an additional 15 days within which to submit their corresponding comment or reply
thereof, after which, the case would be deemed submitted for resolution.
On April 14, 1988, the case was submitted for resolution before Judge Reynaldo Roura, who was
then temporarily detailed to preside over Branch 82 of the RTC of Quezon City. On March 1, 1989,
judgment was handed down by Judge Roura from his regular bench at Macabebe, Pampanga for the
Quezon City branch, disposing as follows:
WHEREFORE, judgment for specific performance is hereby rendered ordering
defendant to execute in favor of plaintiffs a deed of absolute sale covering that
parcel of land embraced in and covered by Transfer Certificate of Title No. 327403
 (now TCT No. 331582) of the Registry of Deeds for Quezon City, together with all
the improvements existing thereon free from all liens and encumbrances, and once
accomplished, to immediately deliver the said document of sale to plaintiffs and
upon receipt thereof, the said document of sale to plaintiffs and upon receipt
thereof, the plaintiffs are ordered to pay defendants the whole balance of the
purchase price amounting to P1,190,000.00 in cash. Transfer Certificate of Title
No. 331582 of the Registry of Deeds for Quezon City in the name of intervenor is
hereby canceled and declared to be without force and effect. Defendants and
intervenor and all other persons claiming under them are hereby ordered to vacate
the subject property and deliver possession thereof to plaintiffs. Plaintiffs' claim
for damages and attorney's fees, as well as the counterclaims of defendants and
intervenors are hereby dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioner before the new presiding judge of the Quezon
City RTC but the same was denied by Judge Estrella T. Estrada, thusly:
The prayer contained in the instant motion, i.e., to annul the decision and to render
anew decision by the undersigned Presiding Judge should be denied for the
following reasons: (1) The instant case became submitted for decision as of April
14, 1988 when the parties terminated the presentation of their respective
documentary evidence and when the Presiding Judge at that time was Judge
Reynaldo Roura. The fact that they were allowed to file memoranda at some future
date did not change the fact that the hearing of the case was terminated before
Judge Roura and therefore the same should be submitted to him for decision; (2)
When the defendants and intervenor did not object to the authority of Judge
Reynaldo Roura to decide the case prior to the rendition of the decision, when
they met for the first time before the undersigned Presiding Judge at the hearing
of a pending incident in Civil Case No. Q-46145 on November 11, 1988, they were
deemed to have acquiesced thereto and they are now estopped from questioning
said authority of Judge Roura after they received the decision in question which
happens to be adverse to them; (3) While it is true that Judge Reynaldo Roura
was merely a Judge-on-detail at this Branch of the Court, he was in all respects
the Presiding Judge with full authority to act on any pending incident submitted
before this Court during his incumbency. When he returned to his Official Station
at Macabebe, Pampanga, he did not lose his authority to decide or resolve such
cases submitted to him for decision or resolution because he continued as Judge
of the Regional Trial Court and is of co-equal rank with the undersigned Presiding
Judge. The standing rule and supported by jurisprudence is that a Judge to whom
a case is submitted for decision has the authority to decide the case
notwithstanding his transfer to another branch or region of the same court (Sec.
9, Rule 135, Rule of Court).
Coming now to the twin prayer for reconsideration of the Decision dated March 1,
1989 rendered in the instant case, resolution of which now pertains to the
undersigned Presiding Judge, after a meticulous examination of the documentary
evidence presented by the parties, she is convinced that the Decision of March 1,
1989 is supported by evidence and, therefore, should not be disturbed.
IN VIEW OF THE FOREGOING, the "Motion for Reconsideration and/or to Annul
Decision and Render Anew Decision by the Incumbent Presiding Judge" dated
March 20, 1989 is hereby DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court of Appeals (Buena,
Gonzaga-Reyes, Abad Santos (P), JJ.) rendered its decision fully agreeing with the trial court.
Hence, the instant petition which was filed on March 5, 1992. The last pleading, private respondents'
Reply Memorandum, was filed on September 15, 1993. The case was, however, re-raffled to
undersigned ponente only on August 28, 1996, due to the voluntary inhibition of the Justice to whom
the case was last assigned.
While we deem it necessary to introduce certain refinements in the disquisition of respondent court
in the affirmance of the trial court's decision, we definitely find the instant petition bereft of merit.
The heart of the controversy which is the ultimate key in the resolution of the other issues in the
case at bar is the precise determination of the legal significance of the document entitled "Receipt
of Down Payment" which was offered in evidence by both parties. There is no dispute as to the fact
that said document embodied the binding contract between Ramona Patricia Alcaraz on the one
hand, and the heirs of Constancio P. Coronel on the other, pertaining to a particular house and lot
covered by TCT No. 119627, as defined in Article 1305 of the Civil Code of the Philippines which 8
reads as follows:
Art. 1305. A contract is a meeting of minds between two persons whereby one
binds himself, with respect to the other, to give something or to render some
service.
While, it is the position of private respondents that the "Receipt of Down Payment" embodied a
perfected contract of sale, which perforce, they seek to enforce by means of an action for specific
performance, petitioners on their part insist that what the document signified was a mere executory
contract to sell, subject to certain suspensive conditions, and because of the absence of Ramona P.
Alcaraz, who left for the United States of America, said contract could not possibly ripen into a
contract absolute sale.
Plainly, such variance in the contending parties' contentions is brought about by the way each
interprets the terms and/or conditions set forth in said private instrument. Withal, based on whatever
relevant and admissible evidence may be available on record, this, Court, as were the courts below,
is now called upon to adjudge what the real intent of the parties was at the time the said document
was executed.
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing, and the other to
pay therefor a price certain in money or its equivalent.
Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The
essential elements of a contract of sale are the following:
 a) Consent or meeting of the minds, that is, consent to transfer ownership in have been previously delivered to him. The prospective seller still has to convey title to the
exchange for the price; prospective buyer by entering into a contract of absolute sale.
b) Determinate subject matter; and It is essential to distinguish between a contract to sell and a conditional contract of sale specially in
c) Price certain in money or its equivalent. cases where the subject property is sold by the owner not to the party the seller contracted with,
but to a third person, as in the case at bench. In a contract to sell, there being no previous sale of
Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first
the property, a third person buying such property despite the fulfillment of the suspensive condition
essential element is lacking. In a contract to sell, the prospective seller explicity reserves the transfer
such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith
of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to
and the prospective buyer cannot seek the relief of reconveyance of the property. There is no double
transfer ownership of the property subject of the contract to sell until the happening of an event,
sale in such case. Title to the property will transfer to the buyer after registration because there is
which for present purposes we shall take as the full payment of the purchase price. What the seller
no defect in the owner-seller's title per se, but the latter, of course, may be used for damages by
agrees or obliges himself to do is to fulfill is promise to sell the subject property when the entire
the intending buyer.
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 In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale
from arising and thus, ownership is retained by the prospective seller without further remedies by becomes absolute and this will definitely affect the seller's title thereto. In fact, if there had been
the prospective buyer. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court had occasion to rule: previous delivery of the subject property, the seller's ownership or title to the property is
automatically transferred to the buyer such that, the seller will no longer have any title to transfer
Hence, We hold that the contract between the petitioner and the respondent was
to any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who
a contract to sell where the ownership or title is retained by the seller and is not
may have had actual or constructive knowledge of such defect in the seller's title, or at least was
to pass until the full payment of the price, such payment being a positive
charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second
suspensive condition and failure of which is not a breach, casual or serious, but
buyer cannot defeat the first buyer's title. In case a title is issued to the second buyer, the first buyer
simply an event that prevented the obligation of the vendor to convey title from
may seek reconveyance of the property subject of the sale.
acquiring binding force.
With the above postulates as guidelines, we now proceed to the task of deciphering the real nature
Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the
of the contract entered into by petitioners and private respondents.
purchase price, the prospective seller's 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 It is a canon in the interpretation of contracts that the words used therein should be given their 9
Civil Code which states: natural and ordinary meaning unless a technical meaning was intended (Tan vs. Court of
Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared in the said "Receipt of Down
Art. 1479. A promise to buy and sell a determinate thing for a price certain is
Payment" that they —
reciprocally demandable.
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum
An accepted unilateral promise to buy or to sell a determinate thing for a price
of Fifty Thousand Pesos purchase price of our inherited house and lot, covered by
certain is binding upon the promissor if the promise is supported by a consideration
TCT No. 1199627 of the Registry of Deeds of Quezon City, in the total amount of
distinct from the price.
P1,240,000.00.
A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while
without any reservation of title until full payment of the entire purchase price, the natural
expressly reserving the ownership of the subject property despite delivery thereof to the prospective
and ordinary idea conveyed is that they sold their property.
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. When the "Receipt of Down Payment" is considered in its entirety, it becomes more manifest that
there was a clear intent on the part of petitioners to transfer title to the buyer, but since the transfer
A contract to sell as defined hereinabove, may not even be considered as a conditional contract of
certificate of title was still in the name of petitioner's father, they could not fully effect such transfer
sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment
although the buyer was then willing and able to immediately pay the purchase price. Therefore,
of a suspensive condition, because in a conditional contract of sale, the first element of consent is
petitioners-sellers undertook upon receipt of the down payment from private respondent Ramona P.
present, although it is conditioned upon the happening of a contingent event which may or may not
Alcaraz, to cause the issuance of a new certificate of title in their names from that of their father,
occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely
after which, they promised to present said title, now in their names, to the latter and to execute the
abated (cf. Homesite and housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if
deed of absolute sale whereupon, the latter shall, in turn, pay the entire balance of the purchase
the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had
price.
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 The agreement could not have been a contract to sell because the sellers herein made no express
performed by the seller. reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which
prevented the parties from entering into an absolute contract of sale pertained to the sellers
In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the
themselves (the certificate of title was not in their names) and not the full payment of the purchase
purchase price, ownership will not automatically transfer to the buyer although the property may
price. Under the established facts and circumstances of the case, the Court may safely presume that,
had the certificate of title been in the names of petitioners-sellers at that time, there would have
been no reason why an absolute contract of sale could not have been executed and consummated
right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell the
properly to private respondent upon the fulfillment of the suspensive condition. On the contrary,
having already agreed to sell the subject property, they undertook to have the certificate of title
changed to their names and immediately thereafter, to execute the written deed of absolute sale.
Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by
the buyer with certain terms and conditions, promised to sell the property to the latter. What may
be perceived from the respective undertakings of the parties to the contract is that petitioners had
already agreed to sell the house and lot they inherited from their father, completely willing to transfer
full ownership of the subject house and lot to the buyer if the documents were then in order. It just
happened, however, that the transfer certificate of title was then still in the name of their father. It
was more expedient to first effect the change in the certificate of title so as to bear their names.
That is why they undertook to cause the issuance of a new transfer of the certificate of title in their
names upon receipt of the down payment in the amount of P50,000.00. As soon as the new certificate
of title is issued in their names, petitioners were committed to immediately execute the deed of
absolute sale. Only then will the obligation of the buyer to pay the remainder of the purchase price
arise.
There is no doubt that unlike in a contract to sell which is most commonly entered into so as to
protect the seller against a buyer who intends to buy the property in installment by withholding
ownership over the property until the buyer effects full payment therefor, in the contract entered
into in the case at bar, the sellers were the one who were unable to enter into a contract of absolute
sale by reason of the fact that the certificate of title to the property was still in the name of their
father. It was the sellers in this case who, as it were, had the impediment which prevented, so to
speak, the execution of an contract of absolute sale.
What is clearly established by the plain language of the subject document is that when the said
"Receipt of Down Payment" was prepared and signed by petitioners Romeo A. Coronel, et al., the
parties had agreed to a conditional contract of sale, consummation of which is subject only to the
successful transfer of the certificate of title from the name of petitioners' father, Constancio P.
Coronel, to their names.
The Court significantly notes this suspensive condition was, in fact, fulfilled on February 6, 1985
(Exh. "D"; Exh. "4"). Thus, on said date, the conditional contract of sale between petitioners and
private respondent Ramona P. Alcaraz became obligatory, the only act required for the
consummation thereof being the delivery of the property by means of the execution of the deed of
absolute sale in a public instrument, which petitioners unequivocally committed themselves to do as
evidenced by the "Receipt of Down Payment."
Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case at
bench. Thus,
Art. 1475. The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price.
From the moment, the parties may reciprocally demand performance, subject to
the provisions of the law governing the form of contracts.
Art. 1181. In conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the happening
of the event which constitutes the condition.
Since the condition contemplated by the parties which is the issuance of a certificate of title in
petitioners' names was fulfilled on February 6, 1985, the respective obligations of the parties under
the contract of sale became mutually demandable, that is, petitioners, as sellers, were obliged to
present the transfer certificate of title already in their names to private respondent Ramona P.
Alcaraz, the buyer, and to immediately execute the deed of absolute sale, while the buyer on her
part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of their petition, petitioners
conclusively admitted that:
3. The petitioners-sellers Coronel bound themselves "to effect the transfer in our
names from our deceased father Constancio P. Coronel, the transfer certificate of
title immediately upon receipt of the downpayment above-stated". The sale was
still subject to this suspensive condition. (Emphasis supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a contract of sale subject to a suspensive
condition. Only, they contend, continuing in the same paragraph, that:
. . . Had petitioners-sellers not complied with this condition of first transferring the
title to the property under their names, there could be no perfected contract of
sale. (Emphasis supplied.)
(Ibid.)
10
not aware that they set their own trap for themselves, for Article 1186 of the Civil Code
expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment.
Besides, it should be stressed and emphasized that what is more controlling than these mere
hypothetical arguments is the fact that the condition herein referred to was actually and indisputably
fulfilled on February 6, 1985, when a new title was issued in the names of petitioners as evidenced
by TCT No. 327403 (Exh. "D"; Exh. "4").
The inevitable conclusion is that on January 19, 1985, as evidenced by the document denominated
as "Receipt of Down Payment" (Exh. "A"; Exh. "1"), the parties entered into a contract of sale subject
only to the suspensive condition that the sellers shall effect the issuance of new certificate title from
that of their father's name to their names and that, on February 6, 1985, this condition was fulfilled
(Exh. "D"; Exh. "4").
We, therefore, hold that, in accordance with Article 1187 which pertinently provides —
Art. 1187. The effects of conditional obligation to give, once the condition has been
fulfilled, shall retroact to the day of the constitution of the obligation . . .
In obligation to do or not to do, the courts shall determine, in each case, the
retroactive effect of the condition that has been complied with.
the rights and obligations of the parties with respect to the perfected contract of sale
became mutually due and demandable as of the time of fulfillment or occurrence of the
suspensive condition on February 6, 1985. As of that point in time, reciprocal obligations of
both seller and buyer arose.
Petitioners also argue there could been no perfected contract on January 19, 1985 because they
were then not yet the absolute owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of transferring ownership as follows:
Art. 774. Succession is a mode of acquisition by virtue of which the property, rights
and obligations to be extent and value of the inheritance of a person are
transmitted through his death to another or others by his will or by operation of
law.
Petitioners-sellers in the case at bar being the sons and daughters of the decedent
Constancio P. Coronel are compulsory heirs who were called to succession by operation of
law. Thus, at the point their father drew his last breath, petitioners stepped into his shoes
insofar as the subject property is concerned, such that any rights or obligations pertaining
thereto became binding and enforceable upon them. It is expressly provided that rights to
the succession are transmitted from the moment of death of the decedent (Article 777, Civil
Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).
Be it also noted that petitioners' claim that succession may not be declared unless the creditors have
been paid is rendered moot by the fact that they were able to effect the transfer of the title to the
property from the decedent's name to their names on February 6, 1985.
Aside from this, petitioners are precluded from raising their supposed lack of capacity to enter into
an agreement at that time and they cannot be allowed to now take a posture contrary to that which
they took when they entered into the agreement with private respondent Ramona P. Alcaraz. The
Civil Code expressly states that:
Art. 1431. Through estoppel an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against the
person relying thereon.
Having represented themselves as the true owners of the subject property at the time of
sale, petitioners cannot claim now that they were not yet the absolute owners thereof at
that time.
Petitioners also contend that although there was in fact a perfected contract of sale between them
and Ramona P. Alcaraz, the latter breached her reciprocal obligation when she rendered impossible
the consummation thereof by going to the United States of America, without leaving her address,
telephone number, and Special Power of Attorney (Paragraphs 14 and 15, Answer with Compulsory
Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners
conclude, they were correct in unilaterally rescinding rescinding the contract of sale.
We do not agree with petitioners that there was a valid rescission of the contract of sale in the instant
case. We note that these supposed grounds for petitioners' rescission, are mere allegations found
only in their responsive pleadings, which by express provision of the rules, are deemed controverted
even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are
absolutely bereft of any supporting evidence to substantiate petitioners' allegations. We have
stressed time and again that allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng
Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]. Mere allegation is not an
evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the United States of America on February
6, 1985, we cannot justify petitioner-sellers' act of unilaterally and extradicially rescinding the
contract of sale, there being no express stipulation authorizing the sellers to extarjudicially rescind
the contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de Leon, 132 SCRA
722 [1984])
Moreover, petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because
although the evidence on record shows that the sale was in the name of Ramona P. Alcaraz as the
buyer, the sellers had been dealing with Concepcion D. Alcaraz, Ramona's mother, who had acted
for and in behalf of her daughter, if not also in her own behalf. Indeed, the down payment was made
by Concepcion D. Alcaraz with her own personal check (Exh. "B"; Exh. "2") for and in behalf of
Ramona P. Alcaraz. There is no evidence showing that petitioners ever questioned Concepcion's
authority to represent Ramona P. Alcaraz when they accepted her personal check. Neither did they
raise any objection as regards payment being effected by a third person. Accordingly, as far as
petitioners are concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind the
contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as her obligation to
pay the full purchase price is concerned. Petitioners who are precluded from setting up the defense
of the physical absence of Ramona P. Alcaraz as above-explained offered no proof whatsoever to
show that they actually presented the new transfer certificate of title in their names and signified
their willingness and readiness to execute the deed of absolute sale in accordance with their
agreement. Ramona's corresponding obligation to pay the balance of the purchase price in the
amount of P1,190,000.00 (as buyer) never became due and demandable and, therefore, she cannot
be deemed to have been in default.
Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations may
be considered in default, to wit:
Art. 1169. Those obliged to deliver or to do something, incur in delay from the 11
time the obligee judicially or extrajudicially demands from them the fulfillment of
their obligation.
xxx xxx xxx
In reciprocal obligations, neither party incurs in delay if the other does not comply
or is not ready to comply in a proper manner with what is incumbent upon him .
From the moment one of the parties fulfill his obligation, delay by the other begins.
(Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the contract of sale between petitioners and
respondents.
With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave rise to a
case of double sale where Article 1544 of the Civil Code will apply, to wit:
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Should if be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in
good faith was first in the possession; and, in the absence thereof to the person
who presents the oldest title, provided there is good faith.
The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof of the
second contract of sale was registered with the Registry of Deeds of Quezon City giving rise to the
issuance of a new certificate of title in the name of Catalina B. Mabanag on June 5, 1985. Thus, the Tanega, 87 SCRA 349 [1978]; citing Palarca vs. Director of Land, 43 Phil. 146;
second paragraph of Article 1544 shall apply. Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)
The above-cited provision on double sale presumes title or ownership to pass to the first buyer, the Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz, perfected
exceptions being: (a) when the second buyer, in good faith, registers the sale ahead of the first on February 6, 1985, prior to that between petitioners and Catalina B. Mabanag on February 18,
buyer, and (b) should there be no inscription by either of the two buyers, when the second buyer, 1985, was correctly upheld by both the courts below.
in good faith, acquires possession of the property ahead of the first buyer. Unless, the second buyer Although there may be ample indications that there was in fact an agency between Ramona as
satisfies these requirements, title or ownership will not transfer to him to the prejudice of the first principal and Concepcion, her mother, as agent insofar as the subject contract of sale is concerned,
buyer. the issue of whether or not Concepcion was also acting in her own behalf as a co-buyer is not
In his commentaries on the Civil Code, an accepted authority on the subject, now a distinguished squarely raised in the instant petition, nor in such assumption disputed between mother and
member of the Court, Justice Jose C. Vitug, explains: daughter. Thus, We will not touch this issue and no longer disturb the lower courts' ruling on this
The governing principle is prius tempore, potior jure (first in time, stronger in point.
right). Knowledge by the first buyer of the second sale cannot defeat the first WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the appealed
buyer's rights except when the second buyer first registers in good faith the second judgment AFFIRMED.
sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the SO ORDERED.
second buyer of the first sale defeats his rights even if he is first to register, since
knowledge taints his registration with bad faith (see also Astorga vs. Court of
Appeals, G.R. No. 58530, 26 December 1984). In Cruz vs. Cabana (G.R. No.
56232, 22 June 1984, 129 SCRA 656), it has held that it is essential, to merit the
protection of Art. 1544, second paragraph, that the second realty buyer must act
in good faith in registering his deed of sale (citing Carbonell vs. Court of Appeals,
69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02 September 1992).
(J. Vitug Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).
Petitioner point out that the notice of lis pendens in the case at bar was annoted on the title of the 12
subject property only on February 22, 1985, whereas, the second sale between petitioners Coronels
and petitioner Mabanag was supposedly perfected prior thereto or on February 18, 1985. The idea
conveyed is that at the time petitioner Mabanag, the second buyer, bought the property under a
clean title, she was unaware of any adverse claim or previous sale, for which reason she is buyer in
good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality is not whether or not the second buyer
was a buyer in good faith but whether or not said second buyer registers such second sale in good
faith, that is, without knowledge of any defect in the title of the property sold.
As clearly borne out by the evidence in this case, petitioner Mabanag could not have in good faith,
registered the sale entered into on February 18, 1985 because as early as February 22, 1985, a
notice of lis pendens had been annotated on the transfer certificate of title in the names of
petitioners, whereas petitioner Mabanag registered the said sale sometime in April, 1985. At the time
of registration, therefore, petitioner Mabanag knew that the same property had already been
previously sold to private respondents, or, at least, she was charged with knowledge that a previous
buyer is claiming title to the same property. Petitioner Mabanag cannot close her eyes to the defect
in petitioners' title to the property at the time of the registration of the property.
This Court had occasions to rule that:
If a vendee in a double sale registers that sale after he has acquired knowledge
that there was a previous sale of the same property to a third party or that another
person claims said property in a pervious sale, the registration will constitute a
registration in bad faith and will not confer upon him any right. (Salvoro vs.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 111238 January 25, 1995
ADELFA PROPERTIES, INC., petitioner,
vs.
COURT OF APPEALS, ROSARIO JIMENEZ-CASTAÑEDA and SALUD JIMENEZ, respondents.
REGALADO, J.:
The main issues presented for resolution in this petition for review on certiorari of the judgment of
respondent Court of appeals, dated April 6, 1993, in CA-G.R. CV No. 347671 are (1) whether of not
the "Exclusive Option to Purchase" executed between petitioner Adelfa Properties, Inc. and private
respondents Rosario Jimenez-Castañeda and Salud Jimenez is an option contract; and (2) whether
or not there was a valid suspension of payment of the purchase price by said petitioner, and the
legal effects thereof on the contractual relations of the parties.
The records disclose the following antecedent facts which culminated in the present appellate review,
to wit:
1. Herein private respondents and their brothers, Jose and Dominador Jimenez, were the registered
co-owners of a parcel of land consisting of 17,710 square meters, covered by Transfer Certificate of
Title (TCT) No. 309773,2situated in Barrio Culasi, Las Piñas, Metro Manila.
2. On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of one-half of said
parcel of land, specifically the eastern portion thereof, to herein petitioner pursuant to a " Kasulatan
sa Bilihan ng Lupa."3Subsequently, a "Confirmatory Extrajudicial Partition Agreement"4 was executed
by the Jimenezes, wherein the eastern portion of the subject lot, with an area of 8,855 square meters
was adjudicated to Jose and Dominador Jimenez, while the western portion was allocated to herein
private respondents.
3. Thereafter, herein petitioner expressed interest in buying the western portion of the property from
private respondents. Accordingly, on November 25, 1989, an "Exclusive Option to Purchase" 5 was
executed between petitioner and private respondents, under the following terms and conditions:
1. The selling price of said 8,655 square meters of the subject property is TWO
MILLION EIGHT HUNDRED FIFTY SIX THOUSAND ONE HUNDRED FIFTY PESOS
ONLY (P2,856,150.00)
2. The sum of P50,000.00 which we received from ADELFA PROPERTIES, INC. as
an option money shall be credited as partial payment upon the consummation of
the sale and the balance in the sum of TWO MILLION EIGHT HUNDRED SIX
THOUSAND ONE HUNDRED FIFTY PESOS (P2,806,150.00) to be paid on or before
November 30, 1989;
3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said balance
in accordance with paragraph 2 hereof, this option shall be cancelled and 50% of
the option money to be forfeited in our favor and we will refund the remaining
50% of said money upon the sale of said property to a third party;
4. All expenses including the corresponding capital gains tax, cost of documentary
stamps are for the account of the VENDORS, and expenses for the registration of
the deed of sale in the Registry of Deeds are for the account of ADELFA
PROPERTIES, INC.
Considering, however, that the owner's copy of the certificate of title issued to respondent Salud
Jimenez had been lost, a petition for the re-issuance of a new owner's copy of said certificate of title
was filed in court through Atty. Bayani L. Bernardo, who acted as private respondents' counsel.
Eventually, a new owner's copy of the certificate of title was issued but it remained in the possession
of Atty. Bernardo until he turned it over to petitioner Adelfa Properties, Inc.
4. Before petitioner could make payment, it received summons6 on November 29, 1989, together
with a copy of a complaint filed by the nephews and nieces of private respondents against the latter,
Jose and Dominador Jimenez, and herein petitioner in the Regional Trial Court of Makati, docketed
as Civil Case No. 89-5541, for annulment of the deed of sale in favor of Household Corporation and
recovery of ownership of the property covered by TCT No. 309773.7
5. As a consequence, in a letter dated November 29, 1989, petitioner informed private respondents
that it would hold payment of the full purchase price and suggested that private respondents settle
the case with their nephews and nieces, adding that ". . . if possible, although November 30, 1989
is a holiday, we will be waiting for you and said plaintiffs at our office up to 7:00 p.m." 8 Another
letter of the same tenor and of even date was sent by petitioner to Jose and Dominador
Jimenez.9 Respondent Salud Jimenez refused to heed the suggestion of petitioner and attributed the
suspension of payment of the purchase price to "lack of word of honor."
6. On December 7, 1989, petitioner caused to be annotated on the title of the lot its option contract
with private respondents, and its contract of sale with Jose and Dominador Jimenez, as Entry No. 13
1437-4 and entry No. 1438-4, respectively.
7. On December 14, 1989, private respondents sent Francisca Jimenez to see Atty. Bernardo, in his
capacity as petitioner's counsel, and to inform the latter that they were cancelling the transaction.
In turn, Atty. Bernardo offered to pay the purchase price provided that P500,000.00 be deducted
therefrom for the settlement of the civil case. This was rejected by private respondents. On December
22, 1989, Atty. Bernardo wrote private respondents on the same matter but this time reducing the
amount from P500,000.00 to P300,000.00, and this was also rejected by the latter.
8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil Case No. 89-5541. Thus,
on February 28, 1990, petitioner caused to be annotated anew on TCT No. 309773 the exclusive
option to purchase as Entry No. 4442-4.
9. On the same day, February 28, 1990, private respondents executed a Deed of Conditional Sale 10 in
favor of Emylene Chua over the same parcel of land for P3,029,250, of which P1,500,000.00 was
paid to private respondents on said date, with the balance to be paid upon the transfer of title to the
specified one-half portion.
10. On April 16, 1990, Atty. Bernardo wrote private respondents informing the latter that in view of
the dismissal of the case against them, petitioner was willing to pay the purchase price, and he
requested that the corresponding deed of absolute sale be executed. 11 This was ignored by private
respondents.
11. On July 27, 1990, private respondents' counsel sent a letter to petitioner enclosing therein a
check for P25,000.00 representing the refund of fifty percent of the option money paid under the
exclusive option to purchase. Private respondents then requested petitioner to return the owner's
duplicate copy of the certificate of title of respondent Salud Jimenez. 12 Petitioner failed to surrender
the certificate of title, hence private respondents filed Civil Case No. 7532 in the Regional Trial Court
of Pasay City, Branch 113, for annulment of contract with damages, praying, among others, that the
exclusive option to purchase be declared null and void; that defendant, herein petitioner, be ordered
to return the owner's duplicate certificate of title; and that the annotation of the option contract on
TCT No. 309773 be cancelled. Emylene Chua, the subsequent purchaser of the lot, filed a complaint
in intervention.
12. The trial court rendered judgment 13 therein on September 5, 1991 holding that the agreement
entered into by the parties was merely an option contract, and declaring that the suspension of
payment by herein petitioner constituted a counter-offer which, therefore, was tantamount to a
rejection of the option. It likewise ruled that herein petitioner could not validly suspend payment in
favor of private respondents on the ground that the vindicatory action filed by the latter's kin did not
involve the western portion of the land covered by the contract between petitioner and private
respondents, but the eastern portion thereof which was the subject of the sale between petitioner
and the brothers Jose and Dominador Jimenez. The trial court then directed the cancellation of the
exclusive option to purchase, declared the sale to intervenor Emylene Chua as valid and binding, and
ordered petitioner to pay damages and attorney's fees to private respondents, with costs.
13. On appeal, respondent Court of appeals affirmed in toto the decision of the court a quo and held
that the failure of petitioner to pay the purchase price within the period agreed upon was tantamount
to an election by petitioner not to buy the property; that the suspension of payment constituted an
imposition of a condition which was actually a counter-offer amounting to a rejection of the option;
and that Article 1590 of the Civil Code on suspension of payments applies only to a contract of sale
or a contract to sell, but not to an option contract which it opined was the nature of the document
subject of the case at bar. Said appellate court similarly upheld the validity of the deed of conditional
sale executed by private respondents in favor of intervenor Emylene Chua.
In the present petition, the following assignment of errors are raised:
1. Respondent court of appeals acted with grave abuse of discretion in making its finding that the
agreement entered into by petitioner and private respondents was strictly an option contract;
2. Granting arguendo that the agreement was an option contract, respondent court of Appeals acted
with grave abuse of discretion in grievously failing to consider that while the option period had not
lapsed, private respondents could not unilaterally and prematurely terminate the option period;
3. Respondent Court of Appeals acted with grave abuse of discretion in failing to appreciate fully the
attendant facts and circumstances when it made the conclusion of law that Article 1590 does not
apply; and
4. Respondent Court of Appeals acted with grave abuse of discretion in conforming with the sale in
favor of appellee Ma. Emylene Chua and the award of damages and attorney's fees which are not
only excessive, but also without in fact and in law. 14
An analysis of the facts obtaining in this case, as well as the evidence presented by the parties,
irresistibly leads to the conclusion that the agreement between the parties is a contract to sell, and
not an option contract or a contract of sale.
I 2. Irrefragably, the controverted document should legally be considered as a perfected contract to
1. In view of the extended disquisition thereon by respondent court, it would be worthwhile at this
juncture to briefly discourse on the rationale behind our treatment of the alleged option contract as
a contract to sell, rather than a contract of sale. The distinction between the two is important for in
contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a
contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the
full payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership
until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained
by the vendor until the full payment of the price, such payment being a positive suspensive condition
and failure of which is not a breach but an event that prevents the obligation of the vendor to convey
title from becoming effective. Thus, a deed of sale is considered absolute in nature where there is
neither a stipulation in the deed that title to the property sold is reserved in the seller until the full
payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the
moment the buyer fails to pay within a fixed period. 15
There are two features which convince us that the parties never intended to transfer ownership to
petitioner except upon the full payment of the purchase price. Firstly, the exclusive option to
purchase, although it provided for automatic rescission of the contract and partial forfeiture of the
amount already paid in case of default, does not mention that petitioner is obliged to return
possession or ownership of the property as a consequence of non-payment. There is no stipulation
anent reversion or reconveyance of the property to herein private respondents in the event that
petitioner does not comply with its obligation. With the absence of such a stipulation, although there
is a provision on the remedies available to the parties in case of breach, it may legally be inferred
that the parties never intended to transfer ownership to the petitioner to completion of payment of
the purchase price.
In effect, there was an implied agreement that ownership shall not pass to the purchaser until he
had fully paid the price. Article 1478 of the civil code does not require that such a stipulation be
expressly made. Consequently, an implied stipulation to that effect is considered valid and, therefore,
binding and enforceable between the parties. It should be noted that under the law and
jurisprudence, a contract which contains this kind of stipulation is considered a contract to sell.
Moreover, that the parties really intended to execute a contract to sell, and not a contract of sale, is 14
bolstered by the fact that the deed of absolute sale would have been issued only upon the payment
of the balance of the purchase price, as may be gleaned from petitioner's letter dated April 16,
1990 16 wherein it informed private respondents that it "is now ready and willing to pay you
simultaneously with the execution of the corresponding deed of absolute sale."
Secondly, it has not been shown there was delivery of the property, actual or constructive, made to
herein petitioner. The exclusive option to purchase is not contained in a public instrument the
execution of which would have been considered equivalent to delivery. 17 Neither did petitioner take
actual, physical possession of the property at any given time. It is true that after the reconstitution
of private respondents' certificate of title, it remained in the possession of petitioner's counsel, Atty.
Bayani L. Bernardo, who thereafter delivered the same to herein petitioner. Normally, under the law,
such possession by the vendee is to be understood as a delivery.18 However, private respondents
explained that there was really no intention on their part to deliver the title to herein petitioner with
the purpose of transferring ownership to it. They claim that Atty. Bernardo had possession of the
title only because he was their counsel in the petition for reconstitution. We have no reason not to
believe this explanation of private respondents, aside from the fact that such contention was never
refuted or contradicted by petitioner.
sell. On this particular point, therefore, we reject the position and ratiocination of respondent Court
of Appeals which, while awarding the correct relief to private respondents, categorized the instrument
as "strictly an option contract."
The important task in contract interpretation is always the ascertainment of the intention of the
contracting parties and that task is, of course, to be discharged by looking to the words they used
to project that intention in their contract, all the words not just a particular word or two, and words
in context not words standing alone. 19 Moreover, judging from the subsequent acts of the parties
which will hereinafter be discussed, it is undeniable that the intention of the parties was to enter into
a contract to sell. 20 In addition, the title of a contract does not necessarily determine its true
nature. 21 Hence, the fact that the document under discussion is entitled "Exclusive Option to
Purchase" is not controlling where the text thereof shows that it is a contract to sell.
An option, as used in the law on sales, is a continuing offer or contract by which the owner stipulates
with another that the latter shall have the right to buy the property at a fixed price within a certain
time, or under, or in compliance with, certain terms and conditions, or which gives to the owner of
the property the right to sell or demand a sale. It is also sometimes called an "unaccepted offer." An
option is not of itself a purchase, but merely secures the privilege to buy. 22 It is not a sale of property
but a sale of property but a sale of the right to purchase. 23 It is simply a contract by which the
owner of property agrees with another person that he shall have the right to buy his property at a
fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he
does sell something, that it is, the right or privilege to buy at the election or option of the other
party. 24 Its distinguishing characteristic is that it imposes no binding obligation on the person holding
the option, aside from the consideration for the offer. Until acceptance, it is not, properly speaking,
a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in
the subject matter, but is merely a contract by which the owner of property gives the optionee the
right or privilege of accepting the offer and buying the property on certain terms. 25
On the other hand, a contract, like a contract to sell, involves a meeting of minds two persons
whereby one binds himself, with respect to the other, to give something or to render some
service. 26 Contracts, in general, are perfected by mere consent, 27 which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. 28
The distinction between an "option" and a contract of sale is that an option is an unaccepted offer.
It states the terms and conditions on which the owner is willing to sell the land, if the holder elects
to accept them within the time limited. If the holder does so elect, he must give notice to the other
party, and the accepted offer thereupon becomes a valid and binding contract. If an acceptance is
not made within the time fixed, the owner is no longer bound by his offer, and the option is at an
end. A contract of sale, on the other hand, fixes definitely the relative rights and obligations of both
parties at the time of its execution. The offer and the acceptance are concurrent, since the minds of
the contracting parties meet in the terms of the agreement. 29
A perusal of the contract in this case, as well as the oral and documentary evidence presented by
the parties, readily shows that there is indeed a concurrence of petitioner's offer to buy and private
respondents' acceptance thereof. The rule is that except where a formal acceptance is so required,
although the acceptance must be affirmatively and clearly made and must be evidenced by some
acts or conduct communicated to the offeror, it may be made either in a formal or an informal
manner, and may be shown by acts, conduct, or words of the accepting party that clearly manifest
a present intention or determination to accept the offer to buy or sell. Thus, acceptance may be
shown by the acts, conduct, or words of a party recognizing the existence of the contract of sale. 30
The records also show that private respondents accepted the offer of petitioner to buy their property
under the terms of their contract. At the time petitioner made its offer, private respondents suggested
that their transfer certificate of title be first reconstituted, to which petitioner agreed. As a matter of
fact, it was petitioner's counsel, Atty. Bayani L. Bernardo, who assisted private respondents in filing
a petition for reconstitution. After the title was reconstituted, the parties agreed that petitioner would
pay either in cash or manager's check the amount of P2,856,150.00 for the lot. Petitioner was
supposed to pay the same on November 25, 1989, but it later offered to make a down payment of
P50,000.00, with the balance of P2,806,150.00 to be paid on or before November 30, 1989. Private
respondents agreed to the counter-offer made by petitioner. 31 As a result, the so-called exclusive
option to purchase was prepared by petitioner and was subsequently signed by private respondents,
thereby creating a perfected contract to sell between them.
It cannot be gainsaid that the offer to buy a specific piece of land was definite and certain, while the
acceptance thereof was absolute and without any condition or qualification. The agreement as to the
object, the price of the property, and the terms of payment was clear and well-defined. No other
significance could be given to such acts that than they were meant to finalize and perfect the
transaction. The parties even went beyond the basic requirements of the law by stipulating that "all
expenses including the corresponding capital gains tax, cost of documentary stamps are for the
account of the vendors, and expenses for the registration of the deed of sale in the Registry of Deeds
are for the account of Adelfa properties, Inc." Hence, there was nothing left to be done except the
performance of the respective obligations of the parties.
We do not subscribe to private respondents' submission, which was upheld by both the trial court
and respondent court of appeals, that the offer of petitioner to deduct P500,000.00, (later reduced
to P300,000.00) from the purchase price for the settlement of the civil case was tantamount to a
counter-offer. It must be stressed that there already existed a perfected contract between the parties
at the time the alleged counter-offer was made. Thus, any new offer by a party becomes binding
only when it is accepted by the other. In the case of private respondents, they actually refused to
concur in said offer of petitioner, by reason of which the original terms of the contract continued to
be enforceable.
At any rate, the same cannot be considered a counter-offer for the simple reason that petitioner's
sole purpose was to settle the civil case in order that it could already comply with its obligation. In 15
fact, it was even indicative of a desire by petitioner to immediately comply therewith, except that it
was being prevented from doing so because of the filing of the civil case which, it believed in good
faith, rendered compliance improbable at that time. In addition, no inference can be drawn from that
suggestion given by petitioner that it was totally abandoning the original contract.
More importantly, it will be noted that the failure of petitioner to pay the balance of the purchase
price within the agreed period was attributed by private respondents to "lack of word of honor" on
the part of the former. The reason of "lack of word of honor" is to us a clear indication that private
respondents considered petitioner already bound by its obligation to pay the balance of the
consideration. In effect, private respondents were demanding or exacting fulfillment of the obligation
from herein petitioner. with the arrival of the period agreed upon by the parties, petitioner was
supposed to comply with the obligation incumbent upon it to perform, not merely to exercise an
option or a right to buy the property.
The obligation of petitioner on November 30, 1993 consisted of an obligation to give something, that
is, the payment of the purchase price. The contract did not simply give petitioner the discretion to
pay for the property. 32 It will be noted that there is nothing in the said contract to show that
petitioner was merely given a certain period within which to exercise its privilege to buy. The agreed
period was intended to give time to herein petitioner within which to fulfill and comply with its
obligation, that is, to pay the balance of the purchase price. No evidence was presented by private
respondents to prove otherwise.
The test in determining whether a contract is a "contract of sale or purchase" or a mere "option" is
whether or not the agreement could be specifically enforced. 33 There is no doubt that the obligation
of petitioner to pay the purchase price is specific, definite and certain, and consequently binding and
enforceable. Had private respondents chosen to enforce the contract, they could have specifically
compelled petitioner to pay the balance of P2,806,150.00. This is distinctly made manifest in the
contract itself as an integral stipulation, compliance with which could legally and definitely be
demanded from petitioner as a consequence.
This is not a case where no right is as yet created nor an obligation declared, as where something
further remains to be done before the buyer and seller obligate themselves. 34 An agreement is only
an "option" when no obligation rests on the party to make any payment except such as may be
agreed on between the parties as consideration to support the option until he has made up his mind
within the time specified. 35 An option, and not a contract to purchase, is effected by an agreement
to sell real estate for payments to be made within specified time and providing forfeiture of money
paid upon failure to make payment, where the purchaser does not agree to purchase, to make
payment, or to bind himself in any way other than the forfeiture of the payments made. 36 As
hereinbefore discussed, this is not the situation obtaining in the case at bar.
While there is jurisprudence to the effect that a contract which provides that the initial payment shall
be totally forfeited in case of default in payment is to be considered as an option contract, 37 still we
are not inclined to conform with the findings of respondent court and the court a quo that the
contract executed between the parties is an option contract, for the reason that the parties were
already contemplating the payment of the balance of the purchase price, and were not merely
quoting an agreed value for the property. The term "balance," connotes a remainder or something
remaining from the original total sum already agreed upon.
In other words, the alleged option money of P50,000.00 was actually earnest money which was
intended to form part of the purchase price. The amount of P50,000.00 was not distinct from the
cause or consideration for the sale of the property, but was itself a part thereof. It is a statutory rule
that whenever earnest money is given in a contract of sale, it shall be considered as part of the price
and as proof of the perfection of the contract. 38 It constitutes an advance payment and must,
therefore, be deducted from the total price. Also, earnest money is given by the buyer to the seller
to bind the bargain.
There are clear distinctions between earnest money and option money, viz.: (a) earnest money is
part of the purchase price, while option money ids the money given as a distinct consideration for
an option contract; (b) earnest money is given only where there is already a sale, while option money
applies to a sale not yet perfected; and (c) when earnest money is given, the buyer is bound to pay
the balance, while when the would-be buyer gives option money, he is not required to buy. 39
The aforequoted characteristics of earnest money are apparent in the so-called option contract under
review, even though it was called "option money" by the parties. In addition, private respondents
failed to show that the payment of the balance of the purchase price was only a condition precedent
to the acceptance of the offer or to the exercise of the right to buy. On the contrary, it has been
sufficiently established that such payment was but an element of the performance of petitioner's
obligation under the contract to sell. 40
II
1. This brings us to the second issue as to whether or not there was valid suspension of payment of
the purchase price by petitioner and the legal consequences thereof. To justify its failure to pay the
purchase price within the agreed period, petitioner invokes Article 1590 of the civil Code which
provides:
Art. 1590. Should the vendee be disturbed in the possession or ownership of the
thing acquired, or should he have reasonable grounds to fear such disturbance, by
a vindicatory action or a foreclosure of mortgage, he may suspend the payment
of the price until the vendor has caused the disturbance or danger to cease, unless
the latter gives security for the return of the price in a proper case, or it has been
stipulated that, notwithstanding any such contingency, the vendee shall be bound
to make the payment. A mere act of trespass shall not authorize the suspension
of the payment of the price.
Respondent court refused to apply the aforequoted provision of law on the erroneous assumption
that the true agreement between the parties was a contract of option. As we have hereinbefore
discussed, it was not an option contract but a perfected contract to sell. Verily, therefore, Article
1590 would properly apply.
Both lower courts, however, are in accord that since Civil Case No. 89-5541 filed against the parties
herein involved only the eastern half of the land subject of the deed of sale between petitioner and
the Jimenez brothers, it did not, therefore, have any adverse effect on private respondents' title and
ownership over the western half of the land which is covered by the contract subject of the present
case. We have gone over the complaint for recovery of ownership filed in said case 41 and we are
not persuaded by the factual findings made by said courts. At a glance, it is easily discernible that,
although the complaint prayed for the annulment only of the contract of sale executed between
petitioner and the Jimenez brothers, the same likewise prayed for the recovery of therein plaintiffs'
share in that parcel of land specifically covered by TCT No. 309773. In other words, the plaintiffs
therein were claiming to be co-owners of the entire parcel of land described in TCT No. 309773, and
not only of a portion thereof nor, as incorrectly interpreted by the lower courts, did their claim pertain
exclusively to the eastern half adjudicated to the Jimenez brothers.
Such being the case, petitioner was justified in suspending payment of the balance of the purchase
price by reason of the aforesaid vindicatory action filed against it. The assurance made by private
respondents that petitioner did not have to worry about the case because it was pure and simple 16
harassment 42 is not the kind of guaranty contemplated under the exceptive clause in Article 1590
wherein the vendor is bound to make payment even with the existence of a vindicatory action if the
vendee should give a security for the return of the price.
2. Be that as it may, and the validity of the suspension of payment notwithstanding, we find and
hold that private respondents may no longer be compelled to sell and deliver the subject property to
petitioner for two reasons, that is, petitioner's failure to duly effect the consignation of the purchase
price after the disturbance had ceased; and, secondarily, the fact that the contract to sell had been
validly rescinded by private respondents.
The records of this case reveal that as early as February 28, 1990 when petitioner caused its exclusive
option to be annotated anew on the certificate of title, it already knew of the dismissal of civil Case
No. 89-5541. However, it was only on April 16, 1990 that petitioner, through its counsel, wrote
private respondents expressing its willingness to pay the balance of the purchase price upon the
execution of the corresponding deed of absolute sale. At most, that was merely a notice to pay.
There was no proper tender of payment nor consignation in this case as required by law.
The mere sending of a letter by the vendee expressing the intention to
pay, without the accompanying payment, is not considered a valid tender of payment. 43 Besides, a
mere tender of payment is not sufficient to compel private respondents to deliver the property and
execute the deed of absolute sale. It is consignation which is essential in order to extinguish
petitioner's obligation to pay the balance of the purchase price. 44 The rule is different in case of an
option contract 45 or in legal redemption or in a sale with right to repurchase, 46 wherein consignation
is not necessary because these cases involve an exercise of a right or privilege (to buy, redeem or
repurchase) rather than the discharge of an obligation, hence tender of payment would be sufficient
to preserve the right or privilege. This is because the provisions on consignation are not applicable
when there is no obligation to pay. 47 A contract to sell, as in the case before us, involves the
performance of an obligation, not merely the exercise of a privilege of a right. consequently,
performance or payment may be effected not by tender of payment alone but by both tender and
consignation.
Furthermore, petitioner no longer had the right to suspend payment after the disturbance ceased
with the dismissal of the civil case filed against it. Necessarily, therefore, its obligation to pay the
balance again arose and resumed after it received notice of such dismissal. Unfortunately, petitioner
failed to seasonably make payment, as in fact it has deposit the money with the trial court when this
case was originally filed therein.
By reason of petitioner's failure to comply with its obligation, private respondents elected to resort
to and did announce the rescission of the contract through its letter to petitioner dated July 27, 1990.
That written notice of rescission is deemed sufficient under the circumstances. Article 1592 of the
Civil Code which requires rescission either by judicial action or notarial act is not applicable to a
contract to sell. 48 Furthermore, judicial action for rescission of a contract is not necessary where the
contract provides for automatic rescission in case of breach, 49 as in the contract involved in the
present controversy.
We are not unaware of the ruling in University of the Philippines vs. De los Angeles, etc. 50 that the
right to rescind is not absolute, being ever subject to scrutiny and review by the proper court. It is
our considered view, however, that this rule applies to a situation where the extrajudicial rescission
is contested by the defaulting party. In other words, resolution of reciprocal contracts may be made
extrajudicially unless successfully impugned in court. If the debtor impugns the declaration, it shall
be subject to judicial determination51 otherwise, if said party does not oppose it, the extrajudicial
rescission shall have legal effect. 52 17
In the case at bar, it has been shown that although petitioner was duly furnished and did receive a
written notice of rescission which specified the grounds therefore, it failed to reply thereto or protest
against it. Its silence thereon suggests an admission of the veracity and validity of private
respondents' claim. 53 Furthermore, the initiative of instituting suit was transferred from the rescinder
to the defaulter by virtue of the automatic rescission clause in the contract. 54 But then, the records
bear out the fact that aside from the lackadaisical manner with which petitioner treated private
respondents' latter of cancellation, it utterly failed to seriously seek redress from the court for the
enforcement of its alleged rights under the contract. If private respondents had not taken the
initiative of filing Civil Case No. 7532, evidently petitioner had no intention to take any legal action
to compel specific performance from the former. By such cavalier disregard, it has been effectively
estopped from seeking the affirmative relief it now desires but which it had theretofore disdained.
WHEREFORE, on the foregoing modificatory premises, and considering that the same result has been
reached by respondent Court of Appeals with respect to the relief awarded to private respondents
by the court a quo which we find to be correct, its assailed judgment in CA-G.R. CV No. 34767 is
hereby AFFIRMED.
SO ORDERED.
 [G.R. No. 106418. July 11, 1996]
DANIEL L. BORDON II AND FRANCISCO L. BORBON, petitioners, vs. SERVICEWIDE
SPECIALISTS, INC. & HON. COURT OF APPEALS, respondents.
DECISION
VITUG, J.:
From the decision of the Court of Appeals in CA-G.R. CV No. 30693 which affirmed that of the
Regional Trial Court, NCJR, Branch 39, Manila, in Civil Case No. 85-29954, confirming the disputed
possession of a motor vehicle in favor of private respondent and ordering the payment to it by
petitioners of liquidated damages and attorney's fees, the instant appeal was interposed.
The appellate court adopted the factual findings of the court a quo, to wit:
"The plaintiff's evidence shows among others that on December 7, 1984, defendants Daniel L. Borbon
and Francisco Borbon signed a promissory note (Exh. A) which states among others as follows:
"'PROMISSORY NOTE
Acct. No. 115008276
Makati, Metro Manila,
Philippines
December 7, 1984
'P122,856.00
'For value received (installment price of the chattel/s purchased), I/We jointly and severally promised
to pay Pangasinan Auto Mart, Inc. or order, at its office at NMI Bldg. Buendia Avenue, Makati, MM
the sum of One Hundred Twenty Two Thousand Eight Hundred Fifty Six only (P122,856.00),
Philippine Currency, to be payable without need of notice or demand, in installments of the amounts
following and at the dates hereinafter set forth, to wit: P10,238.00 monthly for Twelve (12) months
due and payable on the 7 day of each month starting January, 1985, provided that a late payment
charge of 3% per month shall be added on each unpaid installment from due date thereof until fully
paid.
xxx xxx xxx
'It is further agreed that if upon such default, attorney's services are availed of, an additional sum
equal to twenty five percent (25%) of the total sum due thereon, which shall not be less than five
hundred pesos, shall be paid to the holder hereof for attorney's fees plus an additional sum equivalent
to twenty five percent (25%) of the total sum due which likewise shall not be less than five hundred
pesos for liquidated damages, aside from expenses of collection and the legal costs provided for in
the Rules of Court.
'It is expressly agreed that all legal actions arising out of this note or in connection with the chattel(s)
subject hereof shall only be brought in or submitted to the jurisdiction of the proper court either in
the City of Manila or in the province, municipality or city where the branch of the holder hereof is
located.
'Acceptance by the holder hereof of payment of any installment or any part thereof after due dated
(sic) shall not be considered as extending the time for the payment or any of the installments
aforesaid or as a modification of any of the conditions hereof. Nor shall the failure of the holder
hereof to exercise any of its right under this note constitute or be deemed as a waiver of such rights.
'Maker:
(S/t) DANIEL L. BORBON, II
Address: 14 Colt St., Rancho Estate I, Concepcion Dos, Marikina, MM
(S/t) FRANCISCO BORBON
Address: 73 Sterling Life Home Pamplona, Las Pias, MM
"WITNESSES
(illegible) ____(illegible)_____
'PAY TO THE ORDER OF
FILINVEST CREDIT CORPORATION
without recourse, notice, presentment and demand waived
PANGASINAN AUTO MART, INC.
BY:
(S/T) K.N. DULCE
Dealer'
"To secure the Promissory Note, the defendants executed a Chattel Mortgage (Exh. B) on
'One (1) Brand new 1984 Isuzu
KCD 20 Crew Cab (Conv.)
Serial No. KC20D0F 207685
Key No. 5509
(Exhs. A and B, p. 2 tsn, September 10, 1985)
"The rights of Pangasinan Auto Mart, Inc. was later assigned to Filinvest Credit Corporation on
December 10, 1984, with notice to the defendants (Exh. C, p. 10, Record). 18
"On March 21, 1985, Filinvest Credit Corporation assigned all its rights, interest and title over the
Promissory Note and the chattel mortgage to the plaintiff (Exh. D; p. 3, tsn, Sept. 30, 1985).
"The promissory note stipulates that the installment of P10,238.00 monthly should be paid on the
7th day of each month starting January 1985, but the defendants failed to comply with their
obligation (p. 3, tsn, Sept. 30, 1985).
"Because the defendants did not pay their monthly installments, Filinvest demanded from the
defendants the payment of their installments due on January 29, 1985 by telegram (Exh. E; pp. 3-
4, tsn, Sept. 30, 1985).
"After the accounts were assigned to the plaintiff, the plaintiff attempted to collect by sending a
demand letter to the defendants for them to pay their entire obligation which, as of March 12, 1985,
totaled P185,257.80 (Exh. H; pp. 3-4, tsn, Sept. 30, 1985).
"For their defense, the defendants claim that what they intended to buy from Pangasinan Auto Mart
was a jeepney type Isuzu K. C. Cab. The vehicle that they bought was not delivered (pp. 11-12, tsn,
Oct. 17, 1985). Instead, through misrepresentation and machination, the Pangasinan Motor, Inc.
delivered an Isuzu crew cab, as this is the unit available at their warehouse. Later the representative
of Pangasinan Auto Mart, Inc. (assignor) told the defendants that their available stock is an Isuzu
Cab but minus the rear body, which the defendants agreed to deliver with the understanding that
the Pangasinan Auto Mart, Inc. will refund the defendants the amount of P10,000.00 to have the
rear body completed (pp. 12-34, Exhs. 2 to 3-3A).
"Despite Communications with the Pangasinan Auto Mart, Inc., the latter was not able to replace the
vehicle until the vehicle delivered was seized by order of this court. The defendants argue that an
assignee stands in the place of an assignor which, to the mind of the court, is correct. The assignee
exercise all the rights of the assignor (Gonzales vs. Rama Plantation Co., C.V. 08630, Dec. 2, 1986).
"The defendants further claim that they are not in default of their obligation because the Pangasinan
Auto Mart was first guilty of not fulfilling its obligation in the contract. The defendants claim that
neither party incurs delay if the other does not comply with his obligation. (citing Art. 1169, N.C.C.)"[1]
In sustaining the decision of the court a quo, the appellate court ruled that petitioners could
not avoid liability under the promissory note and the chattel mortgage that secured it since private
respondent took the note for value and in good faith.
In their appeal to this Court, petitioners merely seek a modification of the decision of the
appellate court insofar as it has upheld the court a quo in the award of liquidated damages and
attorney's fees in favor of private respondent. Petitioners invoke the provisions of Article 1484 of the
Civil Code which reads:
ART. 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:
"(1) Exact fulfillment of the obligation, should the vendee fail to pay;
"(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
"(3) Foreclose the chattel mortgage or the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further action
against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary
shall be void."
The remedies under Article 1484 of the Civil Code are not cumulative but alternative and
exclusive,[2] which means, as so held in Nonato vs. Intermediate Appellate Court and Investor's
Finance Corporation,[3] that -
"x x x Should the vendee or purchaser of a personal property default in the payment of two or more
of the agreed installments, the vendor or seller has the option to avail of any of these three remedies
either to exact fulfillment by the purchaser of the obligation, or to cancel the sale, or to foreclose the
mortgage on the purchased personal property, if one was constituted. These remedies have been
recognized as alternative, not cumulative, that the exercise of one would bar the exercise of the
others."[4]
When the seller assigns his credit to another person, the latter is likewise bound by the same
law. Accordingly, when the assignee forecloses on the mortgage, there can be no further recovery
of the deficiency,[5] and the seller-mortgagee is deemed to have renounced any right
thereto.[6] A contrario, in the event the seller-mortgagee first seeks, instead, the enforcement of the
additional mortgages, guarantees or other security arrangements, he must then be held to have lost
by waiver or non-choice his lien on the chattel mortgage of the personal property sold by any
mortgaged back to him, although, similar to an action for specific performance, he may still levy on
it.
In ordinary alternative obligations, a mere choice categorically and unequivocally made and
then communicated by the person entitled to exercise the option concludes the parties. The creditor
may not thereafter exercise any other option, unless the chosen alternative proves to be ineffectual
or unavailing due to no fault on his part. This rule, in essence, is the difference between alternative
obligations, on the one hand, and alternative remedies, upon the other hand, where, in the latter
case, the choice generally becomes conclusive only upon the exercise of the remedy. For instance,
in one of the remedies expressed in Article 1484 of the Civil Code, it is only when there has been a
foreclosure of the chattel mortgage that the vendee-mortgagor would be permitted to escape from
a deficiency liability. Thus, if the case is one for specific performance, even when this action is
selected after the vendee has refused to surrender the mortgaged property to permit an extrajudicial
foreclosure, that property may still be levied on execution and an alias writ may be issued if the
proceeds thereof are insufficient to satisfy the judgment credit.[7] So, also, a mere demand to
surrender the object which is not heeded by the mortgagor will not amount to a foreclosure, [8] but
the repossession thereof by the vendor-mortgagee would have the effect of foreclosure.
The parties here concede that the action for replevin has been instituted for the foreclosure of
the vehicle in question (now in the possession of private respondent). The sole issue raised before
us in this appeal is focused on the legal propriety of the affirmance by the appellate court of the
awards made by the court a quo of liquidated damages and attorney's fees to private
respondent. Petitioners hold that under Article 1484 of the Civil Code, aforequoted, the vendor-
mortgagee or its assignees loses any right "to recover any unpaid balance of the price" and any
"agreement to the contrary (would be) void."
The argument is aptly made. In Macondray & Co. vs. Eustaquio[9] we have said that the phrase
"any unpaid balance" can only mean the deficiency judgment to which the mortgagee may be entitled
to when the proceeds from the auction sale are insufficient to cover the "full amount of the secured
obligation which x x x include interest on the principal, attorney's fees, expenses of collection, and
costs." In sum, we have observed that the legislative intent is not to merely limit the proscription of
any further action to the "unpaid balance of the principal" but, as so later ruled in Luneta Motor Co.
vs. Salvador,[10] to all other claims that may likewise be called for in the accompanying promissory
note against the buyer-mortgagor or his guarantor, including costs and attorney's fees.
In Filipinas Investment & Finance Corporation vs. Ridad[11] while we reiterated and expressed
our agreement on the basic philosophy behind Article 1484, we stressed, nevertheless, that the
protection given to the buyer-mortgagor should not be considered to be without circumscription or 19
as being preclusive of all other laws or legal principles. Hence, borrowing from the examples made
in Filipinas Investment, where the mortgagor unjustifiably refused to surrender the chattel subject
of the mortgage upon failure of two or more installments, or if he concealed the chattel to place it
beyond the reach of the mortgagee, that thereby constrained the latter to seek court relief, the
expenses incurred for the prosecution of the case, such as attorney's fees, could rightly be awarded.
Private respondent bewails the instant petition in that petitioners have failed to specifically raise
the issue on liquidated damages and attorney's fees stipulated in the actionable documents. In
several cases, we have ruled that as long as the questioned items bear relevance and close relation
to those specifically raised, the interest of justice would dictate that they, too, must be considered
and resolved and that the rule that only theories raised in the initial proceedings may be taken up
by a party thereto on appeal should only refer to independent, not concomitant matters, to support
or oppose the cause of action.[12]
Given the circumstances, we must strike down the award for liquidated damages made by the
court a quo but we uphold the grant of attorney's fees which we, like the appellate court, find to be
reasonable.Parenthetically, while the promissory note may appear to have been a negotiable
instrument, private respondent, however, clearly cannot claim unawareness of its accompanying
documents so as to thereby gain a right greater than that of the assignor.
WHEREFORE, the appealed decision is MODIFIED by deleting therefrom the award for
liquidated damages; in all other respects the judgment of the appellate court is AFFIRMED. No cost.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 172036 April 23, 2010
SPOUSES FAUSTINO AND JOSEFINA GARCIA, SPOUSES MELITON GALVEZ AND HELEN
GALVEZ, and CONSTANCIA ARCAIRA represented by their Attorney-in-Fact JULIANA O.
MOTAS, Petitioners,
vs.
COURT OF APPEALS, EMERLITA DE LA CRUZ, and DIOGENES G.
BARTOLOME, Respondents.
DECISION
CARPIO, J.:
G.R. No. 172036 is a petition for review1 assailing the Decision2 promulgated on 25 January 2006 as
well as the Resolution3 promulgated on 16 March 2006 of the Court of Appeals (appellate court) in
CA-G.R. CV No. 63651. The appellate court reversed and set aside the decision of Branch 23 of the
Regional Trial Court of Trece Martires City, Cavite (trial court) in Civil Case No. TM-622. The appellate
court ordered Emerlita Dela Cruz (Dela Cruz) to return to spouses Faustino and Josefina Garcia,
spouses Meliton and Helen Galvez, and Constancia Arcaira (collectively, petitioners) the amount in
excess of one-half percent of ₱1,500,000. Dela Cruz’s co-defendant, Diogenes Bartolome
(Bartolome), did not incur any liability.
The appellate court narrated the facts as follows:
On May 28, 1993, plaintiffs spouses Faustino and Josefina Garcia and spouses Meliton and Helen
Galvez (herein appellees) and defendant Emerlita dela Cruz (herein appellant) entered into a Contract
to Sell wherein the latter agreed to sell to the former, for Three Million One Hundred Seventy
Thousand Two Hundred Twenty (₱3,170,220.00) Pesos, five (5) parcels of land situated at Tanza,
Cavite particularly known as Lot Nos. 47, 2768, 2776, 2767, 2769 and covered by Transfer Certificate
of Title Nos. T-340674, T-340673, T-29028, T-29026, T-29027, respectively. At the time of the
execution of the said contract, three of the subject lots, namely, Lot Nos. 2776, 2767, and 2769 were
registered in the name of one Angel Abelida from whom defendant allegedly acquired said properties
by virtue of a Deed of Absolute Sale dated March 31, 1989.
As agreed upon, plaintiffs shall make a down payment of Five Hundred Thousand (₱500,000.00)
Pesos upon signing of the contract. The balance of Two Million Six Hundred Seventy Thousand Two
Hundred Twenty (₱2,670,220.00) Pesos shall be paid in three installments, viz: Five Hundred
Thousand (₱500,000.00) Pesos on June 30, 1993; Five Hundred Thousand (₱500,000.00) Pesos on
August 30, 1993; One Million Six Hundred Seventy Thousand Two Hundred Twenty (₱1,670,220.00)
Pesos on December 31, 1993.
On its due date, December 31, 1993, plaintiffs failed to pay the last installment in the amount of One
Million Six Hundred Seventy Thousand Two Hundred Twenty (₱1,670,220.00) Pesos. Sometime in
July 1995, plaintiffs offered to pay the unpaid balance, which had already been delayed by one and
[a] half year, which defendant refused to accept. On September 23, 1995, defendant sold the same
parcels of land to intervenor Diogenes G. Bartolome for Seven Million Seven Hundred Ninety Three
Thousand (₱7,793,000.00) Pesos.
In order to compel defendant to accept plaintiffs’ payment in full satisfaction of the purchase price
and, thereafter, execute the necessary document of transfer in their favor, plaintiffs filed before the
RTC a complaint for specific performance.
In their complaint, plaintiffs alleged that they discovered the infirmity of the Deed of Absolute Sale
covering Lot Nos. 2776, 2767 and 2769, between their former owner Angel Abelida and defendant,
the same being spurious because the signature of Angel Abelida and his wife were falsified; that at
the time of the execution of the said deed, said spouses were in the United States; that due to their
apprehension regarding the authenticity of the document, they withheld payment of the last
installment which was supposedly due on December 31, 1993; that they tendered payment of the
unpaid balance sometime in July 1995, after Angel Abelida ratified the sale made in favor [of]
defendant, but defendant refused to accept their payment for no jusitifiable reason.
In her answer, defendant denied the allegation that the Deed of Absolute Sale was spurious and
argued that plaintiffs failed to pay in full the agreed purchase price on its due date despite repeated
demands; that the Contract to Sell contains a proviso that failure of plaintiffs to pay the purchase
price in full shall cause the rescission of the contract and forfeiture of one-half (1/2%) percent of the
total amount paid to defendant; that a notarized letter stating the indended rescission of the contract
to sell and forfeiture of payments was sent to plaintiffs at their last known address but it was returned
with a notation "insufficient address."
Intervenor Diogenes G. Bartolome filed a complaint in intervention alleging that the Contract to Sell
dated May 31, 1993 between plaintiffs and defendant was rescinded and became ineffective due to
unwarranted failure of the plaintiffs to pay the unpaid balance of the purchase price on or before the
stipulated date; that he became interested in the subject parcels of land because of their clean titles;
that he purchased the same from defendant by virtue of an Absolute Deed of Sale executed on
September 23, 1995 in consideration of the sum of Seven Million Seven Hundred Ninety Three 20
Thousand (₱7,793,000.00) Pesos.4
The Decision of the Trial Court
In its Decision dated 15 April 1999, the trial court ruled that Dela Cruz’s rescission of the contract
was not valid. The trial court applied Republic Act No. 6552 (Maceda Law) and stated that Dela Cruz
is not allowed to unilaterally cancel the Contract to Sell. The trial court found that petitioners are
justified in withholding the payment of the balance of the consideration because of the alleged
spurious sale between Angel Abelida and Emerlita Dela Cruz. Moreover, intervenor Diogenes
Bartolome (Bartolome) is not a purchaser in good faith because he was aware of petitioners’ interest
in the subject parcels of land.
The dispositive portion of the trial court’s decision reads:
ACCORDINGLY, defendant Emerlita dela Cruz is ordered to accept the balance of the purchase price
in the amount of ₱1,670,220.00 within ten (10) days after the judgment of this Court in the above-
entitled case has become final and executory and to execute immediately the final deed of sale in
favor of plaintiffs.
Defendant is further directed to pay plaintiffs the amount of ₱400,000.00 as moral damages and
₱100,000.00 as exemplary damages.
The deed of sale executed by defendant Emerlita dela Cruz in favor of Atty. Diogenes Bartolome is
declared null and void and the amount of ₱7,793,000.00 which was paid by intervenor Bartolome to
Emerlita dela Cruz as the consideration of the sale of the five (5) parcels of land is hereby directed
to be returned by Emerlita dela Cruz to Atty. Diogenes Bartolome within ten (10) days from the
finality of judgment.
Further, defendant is directed to pay plaintiff the sum of ₱100,000.00 as attorney’s fees.
SO ORDERED.5
Dela Cruz and Bartolome appealed from the judgment of the trial court.
The Decision of the Appellate Court
The appellate court reversed the trial court’s decision and dismissed Civil Case No. TM-622. Dela
Cruz’s obligation under the Contract to Sell did not arise because of petitioners’ undue failure to pay
in full the agreed purchase price on the stipulated date. Moreover, judicial action for the rescission
of a contract is not necessary where the contract provides that it may be revoked and cancelled for
violation of any of its terms and conditions. The dispositive portion of the appellate court’s decision
reads:
WHEREFORE, in view of all the foregoing, the appealed decision of the Regional Trial Court is hereby
REVERSED and SET ASIDE and Civil Case No. TM-622 is, consequently, DISMISSED. Defendant is
however ordered to return to plaintiffs the amount in excess of one-half (1/2%) percent of One
Million Five Hundred Thousand (₱1,500,000.00) Pesos which was earlier paid by plaintiffs.
SO ORDERED.6
The appellate court likewise resolved to deny petitioners’ Motion for Reconsideration for lack of
merit.7
Hence, this petition.
Issues
Petitioners raised the following grounds for the grant of their petition:
I. The Honorable Court of Appeals erred when it failed to consider the provisions of Republic
Act 6552, otherwise known as the Maceda Law.
II. The Honorable Court of Appeals erred when it failed to consider that Respondent Dela
Cruz could not pass title over the three (3) properties at the time she entered to a Contract
to Sell as her purported ownership was tainted with fraud, thereby justifying Petitioners
Spouses Garcia, Spouses Galvez and Arcaira’s suspension of payment.
III. The Honorable Court of Appeals gravely erred when it failed to consider that Respondent
Dela Cruz’s "rescission" was done in evident bad faith and malice on account of a second
sale she entered with Respondent Bartolome for a much bigger amount.
IV. The Honorable Court of Appeals erred when it failed to declare Respondent Bartolome
is not an innocent purchaser for value despite the presence of evidence as to his bad faith.8
The Court’s Ruling
The petition has no merit.
Both parties admit the following: (1) the contract between petitioners and Dela Cruz was a contract
to sell; (2) petitioners failed to pay in full the agreed purchase price of the subject property on the
stipulated date; and (3) Dela Cruz did not want to accept petitioners’ offer of payment and did not
want to execute a document of transfer in petitioners’ favor.
The pertinent provisions of the contract, denominated Contract to Sell, between the parties read:
Failure on the part of the vendees to comply with the herein stipulation as to the terms of payment
shall cause the rescission of this contract and the payments made shall be returned to the vendees
subject however, to forfeiture in favor of the Vendor equivalent to 1/2% of the total amount paid.
xxx
It is hereby agreed and covenanted that possession shall be retained by the VENDOR until a Deed
of Absolute Sale shall be executed by her in favor of the Vendees. Violation of this provision shall
authorize/empower the VENDOR [to] demolish any construction/improvement without need of
judicial action or court order.
That upon and after the full payment of the balance, a Deed of Absolute Sale shall be executed by
the Vendor in favor of the Vendees.
That the duplicate original of the owner’s copy of the Transfer Certificate of Title of the above subject
parcels of land shall remain in the possession of the Vendor until the execution of the Deed of
Absolute Sale.9
Contracts are law between the parties, and they are bound by its stipulations. It is clear from the
above-quoted provisions that the parties intended their agreement to be a Contract to Sell: Dela Cruz
retains ownership of the subject lands and does not have the obligation to execute a Deed of Absolute
Sale until petitioners’ payment of the full purchase price. 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. Strictly speaking, there can be no rescission or resolution of an
obligation that is still non-existent due to the non-happening of the suspensive condition.10 Dela Cruz
is thus not obliged to execute a Deed of Absolute Sale in petitioners’ favor because of petitioners’
failure to make full payment on the stipulated date.
We ruled thus in Pangilinan v. Court of Appeals:11
Article 1592 of the New Civil Code, requiring demand by suit or by notarial act in case the vendor of
realty wants to rescind does not apply to a contract to sell but only to contract of sale. In contracts
to sell, where ownership is retained by the seller and is not to pass until the full payment, such
payment, as we said, is a positive suspensive condition, the failure of which is not a breach, casual 21
or serious, but simply an event that prevented the obligation of the vendor to convey title from
acquiring binding force. To argue that there was only a casual breach is to proceed from the
assumption that the contract is one of absolute sale, where non-payment is a resolutory condition,
which is not the case.
The applicable provision of law in instant case is Article 1191 of the New Civil Code which provides
as follows:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.
The Court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing,
in accordance with Articles 1385 and 1388 and the Mortgage Law. (1124)
Pursuant to the above, the law makes it available to the injured party alternative remedies such as
the power to rescind or enforce fulfillment of the contract, with damages in either case if the obligor
does not comply with what is incumbent upon him. There is nothing in this law which prohibits the
parties from entering into an agreement that a violation of the terms of the contract would cause its
cancellation even without court intervention. The rationale for the foregoing is that in contracts
providing for automatic revocation, judicial intervention is necessary not for purposes of obtaining a
judicial declaration rescinding a contract already deemed rescinded by virtue of an agreement
providing for rescission even without judicial intervention, but in order to determine whether or not
the rescission was proper. Where such propriety is sustained, the decision of the court will be merely
declaratory of the revocation, but it is not in itself the revocatory act. Moreover, the vendor’s right
in contracts to sell with reserved title to extrajudicially cancel the sale upon failure of the vendee to
pay the stipulated installments and retain the sums and installments already received has long been
recognized by the well-established doctrine of 39 years standing. The validity of the stipulation in
the contract providing for automatic rescission upon non-payment cannot be doubted. It is in the
nature of an agreement granting a party the right to rescind a contract unilaterally in case of breach
without need of going to court. Thus, rescission under Article 1191 was inevitable due to petitioners’
failure to pay the stipulated price within the original period fixed in the agreement.
Petitioners justify the delay in payment by stating that they had notice that Dela Cruz is not the
owner of the subject land, and that they took pains to rectify the alleged defect in Dela Cruz’s title.
Be that as it may, Angel Abelida’s (Abelida) affidavit12 confirming the sale to Dela Cruz only serves
to strengthen Dela Cruz’s claim that she is the absolute owner of the subject lands at the time the
Contract to Sell between herself and petitioners was executed. Dela Cruz did not conceal from
petitioners that the title to Lot Nos. 2776, 2767 and 2769 still remained under Abelida’s
name, and the Contract to Sell13 even provided that petitioners should shoulder
the attendant expenses for the transfer of ownership from Abelida to Dela Cruz.
The trial court erred in applying R.A. 6552,14 or the Maceda Law, to the present case. The Maceda
Law applies to contracts of sale of real estate on installment payments, including residential
condominium apartments but excluding industrial lots, commercial buildings and sales to tenants.
The subject lands, comprising five (5) parcels and aggregating 69,028 square meters, do not
comprise residential real estate within the contemplation of the Maceda Law.15 Moreover, even if we
apply the Maceda Law to the present case, petitioners’ offer of payment to Dela Cruz was made a 22
year and a half after the stipulated date. This is beyond the sixty-day grace period under Section 4
of the Maceda Law.16 Petitioners still cannot use the second sentence of Section 4 of the Maceda
Law against Dela Cruz for Dela Cruz’s alleged failure to give an effective notice of cancellation or
demand for rescission because Dela Cruz merely sent the notice to the address supplied by
petitioners in the Contract to Sell.
It is undeniable that petitioners failed to pay the balance of the purchase price on the stipulated date
of the Contract to Sell. Thus, Dela Cruz is within her rights to sell the subject lands to Bartolome.
Neither Dela Cruz nor Bartolome can be said to be in bad faith.
WHEREFORE, we DENY the petition. We AFFIRM in toto the Court of Appeals’ Decision
promulgated on 25 January 2006 as well as the Resolution promulgated on 16 March 2006 in CA-
G.R. CV No. 63651.
Costs against petitioners.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 147695 September 13, 2007
MANUEL C. PAGTALUNAN, petitioner,
vs.
RUFINA DELA CRUZ VDA. DE MANZANO, respondent.
DECISION
AZCUNA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court of the Court of Appeals’
(CA) Decision promulgated on October 30, 2000 and its Resolution dated March 23, 2001 denying
petitioner’s motion for reconsideration. The Decision of the CA affirmed the Decision of the Regional
Trial Court (RTC) of Malolos, Bulacan, dated June 25, 1999 dismissing the case of unlawful detainer
for lack of merit.
The facts are as follows:
On July 19, 1974, Patricio Pagtalunan (Patricio), petitioner’s stepfather and predecessor-in-interest,
entered into a Contract to Sell with respondent, wife of Patricio’s former mechanic, Teodoro Manzano,
whereby the former agreed to sell, and the latter to buy, a house and lot which formed half of a
parcel of land, covered by Transfer Certificate of Title (TCT) No. T-10029 (now TCT No. RT59929
[T-254773]), with an area of 236 square meters. The consideration of P17,800 was agreed to be
paid in the following manner: P1,500 as downpayment upon execution of the Contract to Sell, and
the balance to be paid in equal monthly installments of P150 on or before the last day of each month
until fully paid.
It was also stipulated in the contract that respondent could immediately occupy the house and lot;
that in case of default in the payment of any of the installments for 90 days after its due date, the
contract would be automatically rescinded without need of judicial declaration, and that all payments
made and all improvements done on the premises by respondent would be considered as rentals for
the use and occupation of the property or payment for damages suffered, and respondent was
obliged to peacefully vacate the premises and deliver the possession thereof to the vendor.
Petitioner claimed that respondent paid only P12,950. She allegedly stopped paying after December
1979 without any justification or explanation. Moreover, in a "Kasunduan"1 dated November 18,
1979, respondent borrowed P3,000 from Patricio payable in one year either in one lump sum
payment or by installments, failing which the balance of the loan would be added to the principal
subject of the monthly amortizations on the land.
Lastly, petitioner asserted that when respondent ceased paying her installments, her status of buyer
was automatically transformed to that of a lessee. Therefore, she continued to possess the property
by mere tolerance of Patricio and, subsequently, of petitioner.
On the other hand, respondent alleged that she paid her monthly installments religiously, until
sometime in 1980 when Patricio changed his mind and offered to refund all her payments provided
she would surrender the house. She refused. Patricio then started harassing her and began
demolishing the house portion by portion. Respondent admitted that she failed to pay some
installments after December 1979, but that she resumed paying in 1980 until her balance dwindled
to P5,650. She claimed that despite several months of delay in payment, Patricio never sued for
ejectment and even accepted her late payments.
Respondent also averred that on September 14, 1981, she and Patricio signed an agreement (Exh.
2) whereby he consented to the suspension of respondent’s monthly payments until December 1981.
However, even before the lapse of said period, Patricio resumed demolishing respondent’s house,
prompting her to lodge a complaint with the Barangay Captain who advised her that she could
continue suspending payment even beyond December 31, 1981 until Patricio returned all the
materials he took from her house. This Patricio failed to do until his death.
Respondent did not deny that she still owed Patricio P5,650, but claimed that she did not resume
paying her monthly installment because of the unlawful acts committed by Patricio, as well as the
filing of the ejectment case against her. She denied having any knowledge of the Kasunduan of
November 18, 1979.
Patricio and his wife died on September 17, 1992 and on October 17, 1994, respectively. Petitioner
became their sole successor-in-interest pursuant to a waiver by the other heirs. On March 5, 1997,
respondent received a letter from petitioner’s counsel dated February 24, 1997 demanding that she
vacate the premises within five days on the ground that her possession had become unlawful.
Respondent ignored the demand. The Punong Barangay failed to settle the dispute amicably.
On April 8, 1997, petitioner filed a Complaint for unlawful detainer against respondent with the
Municipal Trial Court (MTC) of Guiguinto, Bulacan praying that, after hearing, judgment be rendered
ordering respondent to immediately vacate the subject property and surrender it to petitioner;
forfeiting the amount of P12,950 in favor of petitioner as rentals; ordering respondent to pay
petitioner the amount of P3,000 under the Kasunduan and the amount of P500 per month from
January 1980 until she vacates the property, and to pay petitioner attorney’s fees and the costs.
On December 22, 1998, the MTC rendered a decision in favor of petitioner. It stated that although
the Contract to Sell provides for a rescission of the agreement upon failure of the vendee to pay any 23
installment, what the contract actually allows is properly termed a resolution under Art. 1191 of the
Civil Code.
The MTC held that respondent’s failure to pay not a few installments caused the resolution or
termination of the Contract to Sell. The last payment made by respondent was on January 9, 1980
(Exh. 71). Thereafter, respondent’s right of possession ipso facto ceased to be a legal right, and
became possession by mere tolerance of Patricio and his successors-in-interest. Said tolerance
ceased upon demand on respondent to vacate the property.
The dispositive portion of the MTC Decision reads:
Wherefore, all the foregoing considered, judgment is hereby rendered, ordering the
defendant:
a. to vacate the property covered by Transfer Certificate of Title No. T-10029 of
the Register of Deeds of Bulacan (now TCT No. RT-59929 of the Register of Deeds
of Bulacan), and to surrender possession thereof to the plaintiff;
b. to pay the plaintiff the amount of P113,500 representing rentals from January
1980 to the present;
c. to pay the plaintiff such amount of rentals, at P500/month, that may become
due after the date of judgment, until she finally vacates the subject property;
d. to pay to the plaintiff the amount of P25,000 as attorney’s fees.
SO ORDERED.2
On appeal, the RTC of Malolos, Bulacan, in a Decision dated June 25, 1999, reversed the decision of
the MTC and dismissed the case for lack of merit. According to the RTC, the agreement could not be
automatically rescinded since there was delivery to the buyer. A judicial determination of rescission
must be secured by petitioner as a condition precedent to convert the possession de facto of
respondent from lawful to unlawful.
The dispositive portion of the RTC Decision states:
WHEREFORE, judgment is hereby rendered reversing the decision of the Municipal Trial
Court of Guiguinto, Bulacan and the ejectment case instead be dismissed for lack of merit.3
The motion for reconsideration and motion for execution filed by petitioner were denied by the RTC
for lack of merit in an Order dated August 10, 1999.
Thereafter, petitioner filed a petition for review with the CA.
In a Decision promulgated on October 30, 2000, the CA denied the petition and affirmed the Decision
of the RTC. The dispositive portion of the Decision reads:
WHEREFORE, the petition for review on certiorari is Denied. The assailed Decision of the
Regional Trial Court of Malolos, Bulacan dated 25 June 1999 and its Order dated 10 August
1999 are hereby AFFIRMED.
SO ORDERED. 4 Petitioner argues that assuming Patricio accepted respondent’s delayed installments in 1981, such
The CA found that the parties, as well as the MTC and RTC failed to advert to and to apply Republic
Act (R.A.) No. 6552, more commonly referred to as the Maceda Law, which is a special law enacted
in 1972 to protect buyers of real estate on installment payments against onerous and oppressive
conditions.
The CA held that the Contract to Sell was not validly cancelled or rescinded under Sec. 3 (b) of R.A.
No. 6552, and recognized respondent’s right to continue occupying unmolested the property subject
of the contract to sell.
The CA denied petitioner’s motion for reconsideration in a Resolution dated March 23, 2001.
Hence, this petition for review on certiorari.
Petitioner contends that:
A. Respondent Dela Cruz must bear the consequences of her deliberate withholding of, and
refusal to pay, the monthly payment. The Court of Appeals erred in allowing Dela Cruz who
acted in bad faith from benefiting under the Maceda Law.
B. The Court of Appeals erred in resolving the issue on the applicability of the Maceda Law,
which issue was not raised in the proceedings a quo.
C. Assuming arguendo that the RTC was correct in ruling that the MTC has no jurisdiction
over a rescission case, the Court of Appeals erred in not remanding the case to the RTC for
trial.5
Petitioner submits that the Maceda Law supports and recognizes the right of vendors of real estate
to cancel the sale outside of court, without need for a judicial declaration of rescission, citing Luzon
Brokerage Co., Inc., v. Maritime Building Co., Inc.6
Petitioner contends that respondent also had more than the grace periods provided under the Maceda
Law within which to pay. Under Sec. 37 of the said law, a buyer who has paid at least two years of
installments has a grace period of one month for every year of installment paid. Based on the amount
of P12,950 which respondent had already paid, she is entitled to a grace period of six months within
which to pay her unpaid installments after December, 1979. Respondent was given more than six
months from January 1980 within which to settle her unpaid installments, but she failed to do so.
Petitioner’s demand to vacate was sent to respondent in February 1997.
There is nothing in the Maceda Law, petitioner asserts, which gives the buyer a right to pay
arrearages after the grace periods have lapsed, in the event of an invalid demand for rescission. The
Maceda Law only provides that actual cancellation shall take place after 30 days from receipt of the
notice of cancellation or demand for rescission and upon full payment of the cash surrender value to
the buyer.
Petitioner contends that his demand letter dated February 24, 1997 should be considered the notice
of cancellation since the demand letter informed respondent that she had "long ceased to have any
right to possess the premises in question due to [her] failure to pay without justifiable cause." In
support of his contention, he cited Layug v. Intermediate Appellate Court8 which held that "the
additional formality of a demand on [the seller’s] part for rescission by notarial act would appear, in
the premises, to be merely circuitous and consequently superfluous." He stated that in Layug, the
seller already made a written demand upon the buyer.
In addition, petitioner asserts that whatever cash surrender value respondent is entitled to have
been applied and must be applied to rentals for her use of the house and lot after December, 1979
or after she stopped payment of her installments.
act cannot prevent the cancellation of the Contract to Sell. Installments after 1981 were still unpaid
and the applicable grace periods under the Maceda Law on the unpaid installments have long lapsed.
Respondent cannot be allowed to hide behind the Maceda Law. She acted with bad faith and must
bear the consequences of her deliberate withholding of and refusal to make the monthly payments.
Petitioner also contends that the applicability of the Maceda Law was never raised in the proceedings
below; hence, it should not have been applied by the CA in resolving the case.
The Court is not persuaded. 24
The CA correctly ruled that R.A No. 6552, which governs sales of real estate on installment, is
applicable in the resolution of this case.
This case originated as an action for unlawful detainer. Respondent is alleged to be illegally
withholding possession of the subject property after the termination of the Contract to Sell between
Patricio and respondent. It is, therefore, incumbent upon petitioner to prove that the Contract to Sell
had been cancelled in accordance with R.A. No. 6552.
The pertinent provision of R.A. No. 6552 reads:
Sec. 3. In all transactions or contracts involving the sale or financing of real estate on
installment payments, including residential condominium apartments but excluding
industrial lots, commercial buildings and sales to tenants under Republic Act Numbered
Thirty-eight hundred forty-four as amended by Republic Act Numbered Sixty-three hundred
eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled
to the following rights in case he defaults in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments due within the total grace
period earned by him, which is hereby fixed at the rate of one month grace period for every
one year of installment payments made: Provided, That this right shall be exercised by the
buyer only once in every five years of the life of the contract and its extensions, if any.
(b) If the contract is cancelled, the seller shall refund to the buyer the cash
surrender value of the payments on the property equivalent to fifty percent of the
total payments made and, after five years of installments, an additional five percent every
year but not to exceed ninety percent of the total payments made: Provided, That the
actual cancellation of the contract shall take place after thirty days from receipt
 by the buyer of the notice of cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of the cash surrender value to
the buyer.9
R.A. No. 6552, otherwise known as the "Realty Installment Buyer Protection Act," recognizes in
conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller
to cancel the contract upon non-payment of an installment by the buyer, which is simply an event
that prevents the obligation of the vendor to convey title from acquiring binding force. 10 The Court
agrees with petitioner that the cancellation of the Contract to Sell may be done outside the court
particularly when the buyer agrees to such cancellation.
However, the cancellation of the contract by the seller must be in accordance with Sec. 3 (b) of R.A.
No. 6552, which requires a notarial act of rescission and the refund to the buyer of the full payment
of the cash surrender value of the payments on the property. Actual cancellation of the contract
takes place after 30 days from receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act and upon full payment of the cash surrender value to the
buyer.
Based on the records of the case, the Contract to Sell was not validly cancelled or rescinded under
Sec. 3 (b) of R.A. No. 6552.
First, Patricio, the vendor in the Contract to Sell, died on September 17, 1992 without canceling the
Contract to Sell.
Second, petitioner also failed to cancel the Contract to Sell in accordance with law.
Petitioner contends that he has complied with the requirements of cancellation under Sec. 3 (b) of
R.A. No. 6552. He asserts that his demand letter dated February 24, 1997 should be considered as
the notice of cancellation or demand for rescission by notarial act and that the cash surrender value
of the payments on the property has been applied to rentals for the use of the house and lot after
respondent stopped payment after January 1980.
The Court, however, finds that the letter11 dated February 24, 1997, which was written by petitioner’s
counsel, merely made formal demand upon respondent to vacate the premises in question within
five days from receipt thereof since she had "long ceased to have any right to possess the premises
x x x due to [her] failure to pay without justifiable cause the installment payments x x x."
Clearly, the demand letter is not the same as the notice of cancellation or demand for rescission by
a notarial actrequired by R.A No. 6552. Petitioner cannot rely on Layug v. Intermediate Appellate
Court12 to support his contention that the demand letter was sufficient compliance. Layug held that
"the additional formality of a demand on [the seller’s] part for rescission by notarial act would appear,
in the premises, to be merely circuitous and consequently superfluous" since the seller therein filed
an action for annulment of contract, which is a kindred concept of rescission by notarial
act.13 Evidently, the case of unlawful detainer filed by petitioner does not exempt him from complying
with the said requirement.
In addition, Sec. 3 (b) of R.A. No. 6552 requires refund of the cash surrender value of the payments
on the property to the buyer before cancellation of the contract. The provision does not provide a
different requirement for contracts to sell which allow possession of the property by the buyer upon
execution of the contract like the instant case. Hence, petitioner cannot insist on compliance with
the requirement by assuming that the cash surrender value payable to the buyer had been applied
to rentals of the property after respondent failed to pay the installments due.
There being no valid cancellation of the Contract to Sell, the CA correctly recognized respondent’s
right to continue occupying the property subject of the Contract to Sell and affirmed the dismissal of
the unlawful detainer case by the RTC.
The Court notes that this case has been pending for more than ten years. Both parties prayed for
other reliefs that are just and equitable under the premises. Hence, the rights of the parties over the
subject property shall be resolved to finally dispose of that issue in this case.
Considering that the Contract to Sell was not cancelled by the vendor, Patricio, during his lifetime or
by petitioner in accordance with R.A. No. 6552 when petitioner filed this case of unlawful detainer
after 22 years of continuous possession of the property by respondent who has paid the substantial
amount of P12,300 out of the purchase price of P17,800, the Court agrees with the CA that it is only
right and just to allow respondent to pay her arrears and settle the balance of the purchase price.
For respondent’s delay in the payment of the installments, the Court, in its discretion, and applying
Article 220914 of the Civil Code, may award interest at the rate of 6% per annum 15 on the unpaid
balance considering that there is no stipulation in the Contract to Sell for such interest. For purposes
of computing the legal interest, the reckoning period should be the filing of the complaint for unlawful
detainer on April 8, 1997.
Based on respondent’s evidence16 of payments made, the MTC found that respondent paid a total
of P12,300 out of the purchase price of P17,800. Hence, respondent still has a balance of P5,500,
plus legal interest at the rate of 6% per annum on the unpaid balance starting April 8, 1997.
The third issue is disregarded since petitioner assails an inexistent ruling of the RTC on the lack of
jurisdiction of the MTC over a rescission case when the instant case he filed is for unlawful detainer.
WHEREFORE, the Decision of the Court of Appeals dated October 30, 2000 sustaining the dismissal
of the unlawful detainer case by the RTC is AFFIRMED with the following MODIFICATIONS: 25
1. Respondent Rufina Dela Cruz Vda. de Manzano shall pay petitioner Manuel C. Pagtalunan
the balance of the purchase price in the amount of Five Thousand Five Hundred Pesos
(P5,500) plus interest at 6% per annum from April 8, 1997 up to the finality of this
judgment, and thereafter, at the rate of 12% per annum;
2. Upon payment, petitioner Manuel C. Pagtalunan shall execute a Deed of Absolute Sale of
the subject property and deliver the certificate of title in favor of respondent Rufina Dela
Cruz Vda. de Manzano; and
3. In case of failure to pay within 60 days from finality of this Decision, respondent Rufina
Dela Cruz Vda. de Manzano shall immediately vacate the premises without need of further
demand, and the downpayment and installment payments of P12,300 paid by her shall
constitute rental for the subject property.
No costs.
SO ORDERED.
 G.R. No. 112733 October 24, 1997
PEOPLE'S INDUSTRIAL AND COMMERCIAL CORPORATION, petitioner,
vs.
COURT OF APPEALS and MAR-ICK INVESTMENT CORPORATION, respondents.
ROMERO, J.:
This petition for review on certiorari of the Decision1 of the Court of Appeals arose from the complaint
for accion publiciana de posesion over several subdivision lots that was premised on the automatic
cancellation of the contracts to sell those lots.
Private respondent Mar-ick Investment Corporation is the exclusive and registered owner of Mar-ick
Subdivision in Barrio Buli, Cainta, Rizal. On May 29, 1961, private respondent entered into six (6)
agreements with petitioner People's Industrial and Commercial Corporation whereby it agreed to sell
to petitioner six (6) subdivision lots.2Except for Lot No. 8 that has an area of 253 square meters, all
the lots measure 240 square meters each. Five of the agreements, involving Lots Nos. 3, 4, 5, 6 and
7, similarly stipulate that the petitioner agreed to pay private respondent for each lot, the amount of
P7,333.20 with a down payment of P480.00. The balance of P6,853.20 shall be payable in 120 equal
monthly installments of P57.11 every 30th of the month, for a period of ten years. With respect to
Lot No. 8, the parties agreed to the purchase price of P7,730.00 with a down payment of P506.00
and equal monthly installments of P60.20.
All the agreements have the following provisions:
9. Should the PURCHASER fail to make the payment of any of the monthly installments as
agreed herein, within One Hundred Twenty (120) days from its due date, this contract shall,
by the mere fact of nonpayment, expire by itself and become null and void without necessity
of notice to the PURCHASER or of any judicial declaration to the effect, and any and all
sums of money paid under this contract shall be considered and become rentals on the
property, and in this event, the PURCHASER should he/she be in possession of the property
shall become a mere intruder or unlawful detainer of the same and may be ejected
therefrom by the means provided by law for trespassers or unlawful detainers. Immediately
after the expiration of the 120 days provided for in this clause, the OWNER shall be at liberty
to dispose of and sell said parcel of land to any other person in the same manner as if this
contract had never been executed or entered into.
The breach by the PURCHASER of any of the conditions considered herein shall have the
same effect as non-payment of the installments of the purchase price.
In any of the above cases the PURCHASER authorizes the OWNER or her representatives
to enter into the property to take possession of the same and take whatever action is
necessary or advisable to protect its rights and interests in the property, and nothing that
may be done or made by the PURCHASER shall be considered as revoking this authority or
a denial thereof.3
After the lapse of ten years, however, petitioner still had not fully paid for the six lots; it had paid
only the down payment and eight (8) installments, even after private respondent had given petitioner
a grace period of four months to pay the arrears.4 As of May 1, 1980, the total amount due to private
respondent under the contract was P214,418.00.5
In his letter of March 30, 1980 to Mr. Tomas Siatianum (Siatianun) who signed the agreements for
petitioner, private respondent's counsel protested petitioner's encroachment upon a portion of its
subdivision particularly Lots Nos. 2, 3, 4, 5, 6, 7 and 8. A portion of the letter reads:
Examinations conducted on the records of said lots revealed that you once contracted to
purchase said lots but your contracts were cancelled for non-payment of the stipulated
installments.
Desirous of maintaining good and neighborly relations with you, we caused to send you this
formal demand for you to remove your said wall within fifteen (15) days from your receipt
hereof, otherwise, much to our regret, we shall be constrained to seek redress before the
Courts and at the same time charge you with reasonable rentals for the use of said lots at
the rate of One (P1.00) Peso per square meter per month until you shall have finally
removed said wall.6
Private respondent reiterated its protest against the encroachment in a letter dated February 16,
1981.7 It added that petitioner had failed to abide by its promise to remove the encroachment, or to
purchase the lots involved "at the current price or pay the rentals on the basis of the total area
occupied, all within a short period of time." It also demanded the removal of the illegal constructions
on the property that had prejudiced the subdivision and its neighbors.
After a series of negotiations between the parties, they agreed to enter into a new contract to
sell8 involving seven (7) lots, namely, Lots Nos. 2, 3, 4, 5, 6, 7 and 8, with a total area of 1,693
square meters. The contract stipulates that the previous contracts involving the same lots (actually
minus Lot No. 2) "have been cancelled due to the failure of the PURCHASER to pay the stipulated
installments." It states further that the new contract was entered into "to avoid litigation, considering
that the PURCHASER has already made use of the premises since 1981 to the present without paying
the stipulated installments." The parties agreed that the contract price would be P423,250.00 with a
down payment of P42,325.00 payable upon the signing of the contract and the balance of
P380,925.00 payable in forty-eight (48) equal monthly amortization payments of P7,935.94.
26
The new contract bears the date of October 11, 1983 but neither of the parties signed it. Thereafter,
Tomas Siatianum issued the following checks in the total amount of P37,642.72 to private
respondent: (a) dated March 4, 1984 for P10,000.00; (b) dated March 31, 1984 for P10,000.00; (c)
dated April 30, 1984 for P10,000.00; (d) dated May 31, 1984 for P7,079.00, and (e) dated May 31,
1984 for P563.72.9
Private respondent received but did not encash those checks. Instead, on July 12, 1984 it filed in the
Regional Trial Court of Antipolo, Rizal, a complaint for accion publiciana de posesion against
petitioner and Tomas Siatianum, as president and majority stockholder of petitioner.10 It prayed that
petitioner be ordered to remove the wall on the premises and to surrender possession of Lots Nos.
2 to 8 of Block 11 of the Mar-ick Subdivision, and that petitioner and Tomas Siatianum be ordered
to pay: (a) P259,074.00 as reasonable rentals for the use of the lots from 1961, "plus P1,680.00 per
month from July 1, 1984 up to and until the premises shall have been vacated and the wall
demolished"; (b) P10,000.00 as attorney's fees; (c) moral and exemplary damages, and (d) costs of
suit. In the alternative, the complaint prayed that should the agreements be deemed not
automatically cancelled, the same agreements should be declared null and void.
In due course, the lower court11 rendered a decision finding that the original agreements of the
parties were validly cancelled in accordance with provision No. 9 of each agreement. The parties did
not enter into a new contract in accordance with Art. 1403 (2) of the Civil Code as the parties did
not sign the draft contract. Receipt by private respondent of the five checks could not amount to
perfection of the contract because private respondent never encashed and benefited from those
checks. Furthermore, there was no meeting of the minds between the parties because Art. 475 of
the Civil Code should be read with the Statute of Frauds that requires the embodiment of the contract
in a note or memorandum.
The lower court opined that the checks represented the deposit under the new contract because
petitioner failed to prove that those were monthly installments that private respondent refused to
accept. What petitioner proved instead was the fact that it was not able to pay the rest of the
installments because of a strike, fire and storm that affected its operations. Be that as it may, what
was clearly proven was that both parties negotiated a new contract after the termination of the first.
Thus, the fact that the parties tried to negotiate a new contract indicated that they considered the
first contract as "already cancelled."
With respect to petitioner's allegation on a "free right-of-way" constituted on Lot No. 2, the lower
court found that the agreement thereon was oral and not in writing. As such, it was not in accordance
with Art. 749 of the Civil Code requiring that, to be valid, a donation must be in a public document.
Consequently, because of the principle against unjust enrichment, petitioner must pay rentals for the
occupancy of the property. The lower court disposed of the case as follows:
IN VIEW OF ALL THE FOREGOING, defendant corporation is hereby directed to return
subject Lots Nos. 2, 3, 4, 5, 6, 7 and 8 to plaintiff corporation, and to pay to the latter the
following amounts:
1. reasonable rental of P1.00 per square meter per
month from May 29, 1961, for Lots Nos. 3, 4, 5, 6, 7
and 8, and from July 12, 1984, for Lot No. 2, up to the
date they will vacate said lots. The amount of
P4,735.12 (Exhibit "R") already paid by defendant
corporation to plaintiff corporation for the six (6) lots
under the original contracts shall be deducted from the
said rental;
2. attorney's fees in the amount of P10,000.00; and
3. costs of the suit.
SO ORDERED.
Petitioner elevated the case to the Court of Appeals. However, on October 16, 1992, the Court of
Appeals affirmed in toto the lower court's decision. Petitioner's motion for reconsideration having
been denied, it instituted the instant petition for review on certiorari raising the following issues for
resolution:
(1) whether or not the lower court had jurisdiction over the subject matter
of the case in view of the provisions of Republic Act No. 6552 and
Presidential Decree No. 1344;
(2) whether or not there was a perfected and enforceable contract of sale
(sic) on October 11, 1983 which modified the earlier contracts to sell
which had not been validly rescinded;
(3) whether or not there was a valid grant of right of way involving Lot
No. 2 in favor of petitioner; and
(4) whether or not there was a justification for the grant of rentals and
the award of attorney's fees in favor of private respondent.12
The issue of jurisdiction has been precluded by the principle of estoppel. It is settled that lack of
jurisdiction may be assailed at any stage of the proceedings. However, a party's participation therein
estops such party from raising the issue.13 Petitioner undoubtedly has actively participated in the
proceedings from its inception to date. In its answer to the complaint, petitioner did not assail the
lower court's jurisdiction; instead, it prayed for "affirmative relief. 14 Even after the lower court had
decided against it, petitioner continued to affirm the lower court's jurisdiction by elevating the
decision to the appellate court,15 hoping to obtain a favorable decision but the Court of Appeals
affirmed the court a quo's ruling. Then and only then did petitioner raise the issue of jurisdiction —
in its motion for reconsideration of the appellate court's decision. Such a practice, according to Tijam
v. Sibonghanoy,16 cannot be countenanced for reasons of public policy.
Granting, however, that the issue was raised seasonably at the first opportunity, still, petitioner has
incorrectly considered as legal bases for its position on the issue of jurisdiction the provisions of P.D.
Nos. 957 and 1344 and Republic Act No. 6552. P.D. No. 957, the "Subdivision and Condominium
Buyers' Protective Decree" which took effect upon its approval on July 12, 1976, vests upon the
National Housing Authority (NHA) "exclusive jurisdiction to regulate the real estate trade and
business" in accordance with the provisions of the same decree. 17 P.D. No. 1344, issued on April 2,
1978, empowered the National Housing Authority to issue a writ of execution in the enforcement of
its decisions under P.D. No. 957.
These decrees, however, were not yet in existence when private respondent invoked provision No.
9 of the agreements or contracts to sell and cancelled these in October 1971. 18 Article 4 of the Civil
Code provides that laws shall have no retroactive effect unless the contrary is provided. Thus, it is
necessary that an express provision for its retroactive application must be made in the law. 19 There
being no such provision in both P.D. Nos. 957 and 1344, these decrees cannot be applied to a
situation that occurred years before their promulgation. Moreover, granting that said decrees indeed
provide for a retroactive application, still, these may not be applied in this case.
The contracts to sell of 1961 were cancelled in virtue of provision No. 9 thereof to which the parties
voluntarily bound themselves. In Manila Bay Club Corp. v. Court of Appeals,20 this Court interpreted
as requiring mandatory compliance by the parties, a provision in a lease contract that failure or
neglect to perform or comply with any of the covenants, conditions, agreements or restrictions 27
stipulated shall result in the automatic termination and cancellation of the lease. The Court added:
. . . . Certainly, there is nothing wrong if the parties to the lease contract agreed on certain
mandatory provisions concerning their respective rights and obligations, such as the
procurement of insurance and the rescission clause. For it is well to recall that contracts are
respected as the law between the contracting parties, and they may establish such
stipulations, clauses, terms and conditions as they may want to include. As long as such
agreements are not contrary to law, morals, good customs, public policy or public order
they shall have the force of law between them.
Consequently, when petitioner failed to abide by its obligation to pay the installments in accordance
with the contracts to sell, provision No. 9 automatically took effect. That private respondent failed to
observe Section 4 of Republic Act No. 6552, the "Realty Installment Buyer Protection Act," is of no
moment. That section provides that "(I)f the buyer fails to pay the installments due at the expiration
of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of
the notice of cancellation or the demand for rescission of the contract by a notarial act. Private
respondent's cancellation of the agreements without a duly notarized demand for rescission did not
mean that it violated said provision of law. Republic Act No. 6552 was approved on August 26, 1972,
long after provision No. 9 of the contracts to sell had become automatically operational. As with P.D.
Nos. 957 and 1344, Republic Act No. 6552 does not expressly provide for its retroactive application
and, therefore, it could not have encompassed the cancellation of the contracts to sell in this case.
At this juncture, it is apropos to stress that the 1961 agreements are contracts to sell and not
contracts of sale. The distinction between these contracts is graphically depicted in Adelfa Properties,
Inc. v. Court of
Appeals,21 as follows:
. . . . The distinction between the two is important for in a contract of sale, the title passes
to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by
agreement the ownership is reserved in the vendor and is not to pass until the full payment
of the price. In a contract of sale, the vendor has lost and cannot recover ownership until
and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is
retained by the vendor until the full payment of the price, such payment being a positive
suspensive condition and failure of which is not a breach but an event that prevents the
obligation of the vendor to convey title from becoming effective. Thus, a deed of sale is
considered absolute in nature where there is neither a stipulation in the deed that title to
the property sold is reserved in the seller until the full payment of the price, nor one giving
the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay
within a fixed period.
That the agreements of 1961 are contracts to sell is clear from the following provisions thereof:
3. Title to said parcel of land shall remain in the name of the OWNER until complete payment
by the PURCHASER of all obligations herein stipulated, at which time the OWNER agrees to
execute a final deed of sale in favor of the PURCHASER and cause the issuance of a
certificate of title in the name of the latter, free from liens and encumbrances except those
provided in the Land Registration Act, those imposed by the authorities, and those contained
in Clauses Nos. Five (5) and Six (6) of this agreement.
xxx xxx xxx
4. The PURCHASER shall be deemed for all legal purposes to take possession of the parcel
of land upon payment of the down or first payment; provided, however, that his/her
possession under this section shall be only that of a tenant or lessee and subject to
ejectment proceedings during all the period of this agreement.
5. The parcel of land subject of this agreement shall be used by the PURCHASER exclusively
for legal purposes, and he shall not be entitled to take or remove soil, stones, or gravel
from it or any other lots belonging to the OWNER.
Hence, being contracts to sell, Article 1592 of the Civil Code which requires rescission either by
judicial action or notarial act is not applicable.22
Neither may petitioner claim ignorance of the cancellation of the contracts. Aside from his letters of
March 30, 1980 and February 16, 1981, private respondent's counsel, Atty. Manuel Villamayor, had
sent petitioner other formal protests and demands.23 These letters adequately satisfied the notice
requirement stipulated in provision No. 9 of the contracts to sell. If petitioner had not agreed to the
automatic and extrajudicial cancellation of the contracts, it could have gone to court to impugn the
same but it did not. Instead, it sought to enter into a new contract to sell, thereby confirming its
veracity and validity of the extrajudicial rescission.24 Had not private respondent filed the accion
publiciana de posesion, petitioner would have remained silent about the whole situation. It is now
estopped from questioning the validity of the cancellation of the contracts. An unopposed rescission
of a contract has legal effects.25
Petitioner's reliance on the portion of the Court of Appeals' Decision stating that private respondent
had not made known to petitioner its supposed rescission of the contract,26 is misplaced. Moreover,
it quoted only the portion that appears favorable to its case. To be sure, the Court of Appeals quoted
provision No. 9 which requires that "actual cancellation shall take place thirty days from receipt by
the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act
and upon full payment of the cash surrender value," and added that "R.A. 6552 even more
underscored the indispensability of such notice to the defaulting buyer." However, the same appellate
court continued:
The absence of the aforesaid notice in the case at bar in the forms respectively deemed
efficacious before and after the passage of R.A. 6552 does not, however, necessarily
impress merit in the appellant's position. Extrajudicial rescission, after all, has legal effect
where the other party does not oppose it (Zulueta vs. Mariano, 111 SCRA 206; Nera vs.
Vacante, 3 SCRA 505; Magdalena Estate vs. Myrick, 71 Phil. 344). Where it is objected to,
a judicial determination of the issue is still necessary. In other words, resolution of reciprocal
contracts may be made extrajudicially unless successfully impugned in Court. If the debtor
impugns the declaration, it shall be subject to judicial determination (Jison vs. Court of
Appeals, 164 SCRA 339, citing Palay Inc. vs. Clave, supra; Univ. of the Philippines vs.
Angeles, supra). In its July 5, 1984 complaint, the appellee had, in fact, significantly prayed
for the cancellation of the said sales agreement in the alternative (p. 4, orig.
rec.).27 (Emphasis supplied.)
Moreover, private respondent's act of cancelling the contracts to sell was not done arbitrarily. The
record shows that private respondent dealt with petitioner with admirable patience, probably in view
of the strike, the fire in 1968 that burned petitioner's factory, and the typhoon in 1970.28 If exercised
its contractual authority to cancel the agreements only after petitioner had reneged in its obligation
after paying only eight (8) installments. When the contracts matured, it still gave petitioner a grace
period of four (4) months within which to comply with its obligations. It considered the contracts
cancelled only as of October 1971 or several years after petitioner's last installment payment 29 and
definitely more than ten years after the agreements were entered into. 28
Because the contracts to sell had long been cancelled when private respondent filed the accion
publiciana de posesion on July 12, 1984, it was the proper Regional Trial Court that had jurisdiction
over the case. By then, there was no more installment buyer and seller relationship to speak of. It
had been recuded to a mere case of an owner claiming possession of its property that had long been
illegally withheld from it by another.
Petitioner alleges that there was a "new perfected and enforceable contract of sale" between the
parties in October 1983 for two reasons. First, it paid private respondent the down payment or
"deposit of Contract"30 through the five checks. Second, the receipt signed by private respondent's
representative satisfies the requirement of a "note or memorandum" under Article 1403 (2) of the
Civil Code because it states the object of the contract (six lots of Mar-Ick Subdivision measuring
1,453 square meters), the price (P250.00 per square meter with a down payment of 10% or
P37,542.72), and the receipt itself opens with a statement referring to the "purchase" of the six lots
of Mar-Ick Subdivision.31
The contract of October 1983 which private respondent offered in evidence as Exhibit S, is entitled
"CONTRACT TO SELL." While the title of a contract is not controlling, its stipulations confirm the
nature of that contract. Thus, it provides:
5. Title to said parcels of land shall remain in the name of the OWNER until complete
payment by the PURCHASER of all obligations herein stipulated, at which time, the OWNER
agrees to execute a final deed of sale in favor of the PURCHASER and cause the issuance
of certificates of title in the name of the latter, free from all liens and encumbrances except
those provided in the Land Registration Act, those imposed by the authorities, and those
contained in the stipulations that follow.
Under the law, there is a binding contract between the parties whose minds have met on a certain
matter notwithstanding that they did not affix their signatures to its written form.
In the case at bar, it was private respondent's company lawyer and sole witness, Atty. Manuel
Villamayor, who volunteered that after the cancellation of the 1961 agreements, the parties should
negotiate and enter into "a new agreement based on the current price" or at P400.00 per square
meter. However, there was a hitch in the negotiations because after he had drafted the contract and
sent it to petitioner, the latter "deposited a check for downpayment" but its representative refused
to sign the prepared contract.32 Private respondent even offered the contract to sell as its Exhibit
S.33 In the absence of proof to the contrary, this draft contract may be deemed to embody the
agreement of the parties. Moreover, when Tomas Siatianun, petitioner's president, testified, private
respondent cross-examined him as regards the October 1983 contract.34 Private respondent did not
and has not denied the existence of that contract.
Under these facts, therefore, the parties may ideally be considered as having perfected the contract
of October 1983. Again in Adelfa Properties, Inc. v. Court of Appeals, the Court said that
. . . a contract, like a contract to sell, involves a meeting of the minds between two persons
whereby one binds himself, with respect to the other, to give something or to render some
service. Contracts, in general, are perfected by mere consent, which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the acceptance absolute.35
Moreover, private respondent's offer to sell and petitioner's acceptance thereof are manifest in the
documentary evidence presented by the parties. Thus, private respondent presented the five (5)
checks36 that, through Atty. Villamayor, it admitted as the down payment under the October 1983
contract. Private respondent's intentional non-encashment of the check cannot serve to belie the fact
of its tender as down payment. For its part, petitioner presented Exhibit 10, a receipt dated February
28, 1984, showing that private respondent's authorized representative received the total amount of
P37,642.72 represented by said five checks as "deposit of Contract ( sic)." As this Court also held in
the Adelfa Properties case, acceptance may be evidenced by some acts or conduct communicated to
the offeror, either in a formal or an informal manner, that clearly manifest the intention or
determination to accept the offer to buy or
sell.37
Justice and equity, however, will not be served by a positive ruling on the perfection and performance
of the contract to sell. There are facts on record proving that, after all, the parties had not arrived
at a definite agreement. By Atty. Villamayor's admission, the checks were not encashed because
Tomas Siatianun did not sign the draft contract that he had prepared.38 On his part, Tomas Siatianun
explained that he did not sign the contract because it covered seven (7) lots while their agreement
was only for six (6) lots. According to him, private respondent had conceded that Lot No. 2 was
meant for petitioner's right of way39 and, therefore, it could not have been part of the properties it
wanted to buy. It is on record, moreover, that the only agreement that the parties arrived at in a
conference at the Silahis Hotel was the price indicated in the draft contract.40
The number of lots to be sold is a material component of the contract to sell. Without an agreement
on the matter, the parties may not in any way be considered as having arrived at a contract under
the law. The parties' failure to agree on a fundamental provision of the contract was aggravated by
petitioner's failure to deposit the installments agreed upon. Neither did it attempt to make a
consignation of the installments. This Court's disquisition on the matter in the Adelfa Properties case
is relevant. Thus:
The mere sending of a letter by the vendee expressing the intention to pay, without the
accompanying payment, is not considered a valid tender of payment. Besides, a mere
tender of payment is not sufficient to compel private respondents to deliver the property
and execute the deed of absolute sale. It is consignation which is essential in order to
extinguish petitioner's obligation to pay the balance of the purchase price. The rule is
different in case of an option contract or in legal redemption or in a sale with right to
repurchase, wherein consignation is not necessary because these cases involve an exercise
of a right or privilege (to buy, redeem or repurchase) rather than the discharge of an
obligation, hence tender of payment would be sufficient to preserve the right or privilege.
This is because the provisions on consignation are not applicable when there is no obligation
to pay. A contract to sell, as in the case before us, involves the performance of an obligation,
not merely the exercise of a privilege or a right. Consequently, performance or payment
may be effected not by tender of payment alone but by both tender and
consignation.41 (Emphasis supplied.)
As earlier noted, petitioner did not lift a finger towards the performance of the contract other than
the tender of down payment. There is no record that it even bothered to tender payment of the
installments or to amend the contract to reflect the true intention of the parties as regards the
number of lots to be sold. Indeed, by petitioner's inaction, private respondent may not be judicially
enjoined to validate a contract that the former appeared to have taken for granted. As in the earlier
agreements, petitioner ignored opportunities to resuscitate a contract to sell that was rendered
moribund and inoperative by its inaction.
In view of the foregoing, there is no need to discuss the issue of whether or not there was a valid
grant of right of way in favor of petitioners. Suffice it to say that the documentary evidence offered
by petitioner on the matter manifests that that right of way on an unidentified property was granted 29
in April 1961 by private respondent's board of directors to W. Ick & Sons, Inc. and Julian
Martinez.42 On May 12, 1961, Fritz Ick, the president of W. Ick & Sons, Inc., in turn indorsed the
unidentified property to petitioner.43
What needs stressing is that the installments paid by the petitioner on the land should be deemed
rentals in accordance with provision No. 9, as well as by law. Article 1486 of the Civil Code provides
that a stipulation that the installments or rents paid shall not be returned to the vendee or lessee
shall be valid insofar as the same may not be unconscionable under the circumstances. 44 The down
payment and the eight (8) installments paid by petitioner on the six lots under the 1961 agreements
amounted to P5,672.00. The lots, including Lot No. 2, adjoins petitioner's Vetsin and oil factories
constructed on a 20,000-square-meter land that petitioner likewise bought from private respondent.
Obviously, petitioner made use of the lots not only during the construction of the factories but also
during its operations as an oil factory. Petitioner enclosed the area with a fence and made
constructions thereon. It is, therefore, not unconscionable to allow respondent rentals on the lots as
correctly decreed by the lower court.
As to attorney's fees, Article 2208 of the Civil Code allows the award of such fees when its claimant
is compelled to litigate with third persons or to incur expenses to protect its just and valid claim. In
view of petitioner's rejection of private respondent's demands for rentals45 and its unjustified refusal
to settle private respondent's claims,46 the award of attorney's fees of P10,000.00 is more than just
and reasonable.47
WHEREFORE, the instant petition for review on certiorari is hereby denied and the questioned
Decision of the Court of Appeals is AFFIRMED. This Decision is immediately executory. Costs against
petitioner.
 FIRST DIVISION
G.R. No. 119255 April 9, 2003
TOMAS K. CHUA, petitioner,
vs.
COURT OF APPEALS and ENCARNACION VALDES-CHOY, respondents.
CARPIO, J.:
The Case
This is a petition for review on certiorari seeking to reverse the decision1 of the Court of Appeals in
an action for specific performance2 filed in the Regional Trial Court3 by petitioner Tomas K. Chua
("Chua") against respondent Encarnacion Valdes-Choy ("Valdes-Choy"). Chua sought to compel
Valdes-Choy to consummate the sale of her paraphernal house and lot in Makati City. The Court of
Appeals reversed the decision4 rendered by the trial court in favor of Chua.
The Facts
Valdes-Choy advertised for sale her paraphernal house and lot ("Property") with an area of 718
square meters located at No. 40 Tampingco Street corner Hidalgo Street, San Lorenzo Village, Makati
City. The Property is covered by Transfer Certificate of Title No. 162955 ("TCT") issued by the
Register of Deeds of Makati City in the name of Valdes-Choy. Chua responded to the advertisement.
After several meetings, Chua and Valdes-Choy agreed on a purchase price of P10,800,000.00 payable
in cash.
On 30 June 1989, Valdes-Choy received from Chua a check for P100,000.00. The receipt ("Receipt")
evidencing the transaction, signed by Valdes-Choy as seller, and Chua as buyer, reads:
30 June 1989
RECEIPT
RECEIVED from MR. TOMAS K. CHUA PBCom Check No. 206011 in the amount of ONE
HUNDRED THOUSAND PESOS ONLY (P100,000.00) as EARNEST MONEY for the sale of the
property located at 40 Tampingco cor. Hidalgo, San Lorenzo Village, Makati, Metro Manila
(Area : 718 sq. meters).
The balance of TEN MILLION SEVEN HUNDRED THOUSAND (P10,700,000.00) is payable
on or before 155July 1989. Capital Gains Tax for the account of the seller. Failure to pay
balance on or before 15 July 1989 forfeits the earnest money. This provided that all papers
are in proper order.6
CONFORME:
ENCARNACION VALDES
Seller
TOMAS K. CHUA
Buyer
x x x.7
In the morning of 13 July 1989, Chua secured from Philippine Bank of Commerce ("PBCom") a
manager's check for P480,000.00. Strangely, after securing the manager's check, Chua immediately
gave PBCom a verbal stop payment order claiming that this manager's check for P480,000.00 "was
lost and/or misplaced."8 On the same day, after receipt of Chua's verbal order, PBCom Assistant
Vice–President Julie C. Pe notified in writing9 the PBCom Operations Group of Chua's stop payment
order.
In the afternoon of 13 July 1989, Chua and Valdes-Choy met with their respective counsels to execute
the necessary documents and arrange the payments.10 Valdes-Choy as vendor and Chua as
vendee signed two Deeds of Absolute Sale ("Deeds of Sale"). The first Deed of Sale covered the
house and lot for the purchase price of P8,000,000.00.11 The second Deed of Sale covered the
furnishings, fixtures and movable properties contained in the house for the purchase price of
P2,800,000.00.12 The parties also computed the capital gains tax to amount to P485,000.00.
On 14 July 1989, the parties met again at the office of Valdes-Choy's counsel. Chua handed to Valdes-
Choy the PBCom manager's check for P485,000.00 so Valdes-Choy could pay the capital gains tax
as she did not have sufficient funds to pay the tax. Valdes-Choy issued a receipt showing that Chua
had a remaining balance of P10,215,000.00 after deducting the advances made by Chua. This receipt
reads:
July 14, 1989
Received from MR. TOMAS K. CHUA PBCom. Check No. 325851 in the amount of FOUR
HUNDRED EIGHTY FIVE THOUSAND PESOS ONLY (P485,000.00) as Partial Payment for the
sale of the property located at 40 Tampingco Cor. Hidalgo St., San Lorenzo Village, Makati,
Metro Manila (Area 718 sq. meters), covered by TCT No. 162955 of the Registry of Deeds
of Makati, Metro Manila.
The total purchase price of the above-mentioned property is TEN MILLION EIGHT
HUNDRED THOUSAND PESOS only, broken down as follows: 30
SELLING PRICE P10,800,000.00
EARNEST MONEY P100,000.00
PARTIAL PAYMENT 485,000.00
585,000.00
BALANCE DUE TO
ENCARNACION VALDEZ-CHOY P10,215,000.00
PLUS P80,000.00 for documentary stamps paid in
advance by seller 80,000.00
P10,295,000.00
x x x.13
On the same day, 14 July 1989, Valdes-Choy, accompanied by Chua, deposited the P485,000.00
manager's check to her account with Traders Royal Bank. She then purchased a Traders Royal Bank
manager's check for P480,000.00 payable to the Commissioner of Internal Revenue for the capital
gains tax. Valdes-Choy and Chua returned to the office of Valdes-Choy's counsel and handed the
Traders Royal Bank check to the counsel who undertook to pay the capital gains tax. It was then
also that Chua showed to Valdes-Choy a PBCom manager's check for P10,215,000.00 representing
the balance of the purchase price. Chua, however, did not give this PBCom manager's check to
Valdes-Choy because the TCT was still registered in the name of Valdes-Choy. Chua required that
the Property be registered first in his name before he would turn over the check to Valdes-Choy. This
angered Valdes-Choy who tore up the Deeds of Sale, claiming that what Chua required was not part
of their agreement.14
On the same day, 14 July 1989, Chua confirmed his stop payment order by submitting to PBCom an
affidavit of loss15 of the PBCom Manager's Check for P480,000.00. PBCom Assistant Vice-President
Pe, however, testified that the manager's check was nevertheless honored because Chua
subsequently verbally advised the bank that he was lifting the stop-payment order due to his "special
arrangement" with the bank.16
On 15 July 1989, the deadline for the payment of the balance of the purchase price, Valdes-Choy
suggested to her counsel that to break the impasse Chua should deposit in escrow the
P10,215,000.00 balance.17 Upon such deposit, Valdes-Choy was willing to cause the issuance of a
new TCT in the name of Chua even without receiving the balance of the purchase price. Valdes-Choy
believed this was the only way she could protect herself if the certificate of title is transferred in the
name of the buyer before she is fully paid. Valdes-Choy's counsel promised to relay her suggestion
to Chua and his counsel, but nothing came out of it.
On 17 July 1989, Chua filed a complaint for specific performance against Valdes-Choy which the trial
court dismissed on 22 November 1989. On 29 November 1989, Chua re-filed his complaint for specific
performance with damages. After trial in due course, the trial court rendered judgment in favor of
Chua, the dispositive portion of which reads:
Applying the provisions of Article 1191 of the new Civil Code, since this is an action for
specific performance where the plaintiff, as vendee, wants to pursue the sale, and in order
that the fears of the defendant may be allayed and still have the sale materialize, judgment
is hereby rendered:
I. 1. Ordering the defendant to deliver to the Court not later than five (5) days from finality
of this decision:
a. the owner's duplicate copy of TCT No. 162955 registered in her name;
b. the covering tax declaration and the latest tax receipt evidencing payment of
real estate taxes;
c. the two deeds of sale prepared by Atty. Mark Bocobo on July 13, 1989, duly
executed by defendant in favor of the plaintiff, whether notarized or not; and
2. Within five (5) days from compliance by the defendant of the above, ordering the plaintiff
to deliver to the Branch Clerk of Court of this Court the sum of P10,295,000.00 representing
the balance of the consideration (with the sum of P80,000.00 for stamps already included);
3. Ordering the Branch Clerk of this Court or her duly authorized representative:
a. to make representations with the BIR for the payment of capital gains tax for
the sale of the house and lot (not to include the fixtures) and to pay the same
from the funds deposited with her;
b. to present the deed of sale executed in favor of the plaintiff, together with the
owner's duplicate copy of TCT No. 162955, real estate tax receipt and proof of
payment of capital gains tax, to the Makati Register of Deeds;
c. to pay the required registration fees and stamps (if not yet advanced by the
defendant) and if needed update the real estate taxes all to be taken from the
funds deposited with her; and
d. surrender to the plaintiff the new Torrens title over the property;
4. Should the defendant fail or refuse to surrender the two deeds of sale over the property
and the fixtures that were prepared by Atty. Mark Bocobo and executed by the parties, the
Branch Clerk of Court of this Court is hereby authorized and empowered to prepare, sign
and execute the said deeds of sale for and in behalf of the defendant;
5. Ordering the defendant to pay to the plaintiff;
a. the sum of P100,000.00 representing moral and compensatory damages for the
plaintiff; and
b. the sum of P50,000.00 as reimbursement for plaintiff's attorney's fees and cost
of litigation.
6. Authorizing the Branch Clerk of Court of this Court to release to the plaintiff, to be taken
from the funds said plaintiff has deposited with the Court, the amounts covered at
paragraph 5 above;
7. Ordering the release of the P10,295,000.00 to the defendant after deducting therefrom
the following amounts:
a. the capital gains tax paid to the BIR;
b. the expenses incurred in the registration of the sale, updating of real estate
taxes, and transfer of title; and
31
c. the amounts paid under this judgment to the plaintiff.
8. Ordering the defendant to surrender to the plaintiff or his representatives the premises
with the furnishings intact within seventy-two (72) hours from receipt of the proceeds of
the sale;
9. No interest is imposed on the payment to be made by the plaintiff because he had always
been ready to pay the balance and the premises had been used or occupied by the
defendant for the duration of this case.
II. In the event that specific performance cannot be done for reasons or causes not
attributable to the plaintiff, judgment is hereby rendered ordering the defendant:
1. To refund to the plaintiff the earnest money in the sum of P100,000.00, with interest at
the legal rate from June 30, 1989 until fully paid;
2. To refund to the plaintiff the sum of P485,000.00 with interest at the legal rate from July
14, 1989 until fully paid;
3. To pay to the plaintiff the sum of P700,000.00 in the concept of moral damages and the
additional sum of P300,000.00 in the concept of exemplary damages; and
4. To pay to the plaintiff the sum of P100,000.00 as reimbursement of attorney's fees and
cost of litigation.
SO ORDERED.18
Valdes-Choy appealed to the Court of Appeals which reversed the decision of the trial court. The
Court of Appeals handed down a new judgment, disposing as follows:
 WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE, and another
one is rendered:
(1) Dismissing Civil Case No. 89-5772;
(2) Declaring the amount of P100,000.00, representing earnest money as forfeited
in favor of defendant-appellant;
(3) Ordering defendant-appellant to return/refund the amount of P485,000.00 to
plaintiff-appellee without interest;
(4) Dismissing defendant-appellant's compulsory counter-claim; and
(5) Ordering the plaintiff-appellee to pay the costs.19
Hence, the instant petition.
The Trial Court's Ruling
The trial court found that the transaction reached an impasse when Valdes-Choy wanted to be first
paid the full consideration before a new TCT covering the Property is issued in the name of Chua.
On the other hand, Chua did not want to pay the consideration in full unless a new TCT is first issued
in his name. The trial court faulted Valdes-Choy for this impasse.
The trial court held that the parties entered into a contract to sell on 30 June 1989, as evidenced by
the Receipt for the P100,000.00 earnest money. The trial court pointed out that the contract to sell
was subject to the following conditions: (1) the balance of P10,700,000.00 was payable not later
than 15 July 1989; (2) Valdes-Choy may stay in the Property until 13 August 1989; and (3) all papers
must be "in proper order" before full payment is made.
The trial court held that Chua complied with the terms of the contract to sell. Chua showed that he
was prepared to pay Valdes-Choy the consideration in full on 13 July 1989, two days before the
deadline of 15 July 1989. Chua even added P80,000.00 for the documentary stamp tax. He purchased
from PBCom two manager's checks both payable to Valdes-Choy. The first check for P485,000.00
was to pay the capital gains tax. The second check for P10,215,000.00 was to pay the balance of
the purchase price. The trial court was convinced that Chua demonstrated his capacity and readiness
to pay the balance on 13 July 1989 with the production of the PBCom manager's check for
P10,215,000.00.
On the other hand, the trial court found that Valdes-Choy did not perform her correlative obligation
under the contract to sell to put all the papers in order. The trial court noted that as of 14 July 1989,
the capital gains tax had not been paid because Valdes-Choy's counsel who was suppose to pay the
tax did not do so. The trial court declared that Valdes-Choy was in a position to deliver only the
owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest
realty tax receipt. The trial court concluded that these documents were all useless without the Bureau
of Internal Revenue receipt evidencing full payment of the capital gains tax which is a pre-requisite
to the issuance of a new certificate of title in Chua's name.
The trial court held that Chua's non-payment of the balance of P10,215,000.00 on the agreed date
was due to Valdes-Choy's fault.
The Court of Appeals' Ruling
In reversing the trial court, the Court of Appeals ruled that Chua's stance to pay the full consideration
only after the Property is registered in his name was not the agreement of the parties. The Court of
Appeals noted that there is a whale of difference between the phrases "all papers are in proper
order" as written on the Receipt, and "transfer of title" as demanded by Chua.
Contrary to the findings of the trial court, the Court of Appeals found that all the papers were in
order and that Chua had no valid reason not to pay on the agreed date. Valdes-Choy was in a position
to deliver the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and
the latest realty tax receipt. The Property was also free from all liens and encumbrances.
The Court of Appeals declared that the trial court erred in considering Chua's showing to Valdes-
Choy of the PBCom manager's check for P10,215,000.00 as compliance with Chua's obligation to pay
on or before 15 July 1989. The Court of Appeals pointed out that Chua did not want to give up the
check unless "the property was already in his name."20 Although Chua demonstrated his capacity to
pay, this could not be equated with actual payment which he refused to do.
The Court of Appeals did not consider the non-payment of the capital gains tax as failure by Valdes-
Choy to put the papers "in proper order." The Court of Appeals explained that the payment of the
capital gains tax has no bearing on the validity of the Deeds of Sale. It is only after the deeds are
signed and notarized can the final computation and payment of the capital gains tax be made.
The Issues
In his Memorandum, Chua raises the following issues:
1. WHETHER THERE IS A PERFECTED CONTRACT OF SALE OF IMMOVABLE PROPERTY;
2. WHETHER VALDES-CHOY MAY RESCIND THE CONTRACT IN CONTROVERSY WITHOUT
OBSERVING THE PROVISIONS OF ARTICLE 1592 OF THE NEW CIVIL CODE;
3. WHETHER THE WITHHOLDING OF PAYMENT OF THE BALANCE OF THE PURCHASE
PRICE ON THE PART OF CHUA (AS VENDEE) WAS JUSTIFIED BY THE CIRCUMSTANCES
OBTAINING AND MAY NOT BE RAISED AS GROUND FOR THE AUTOMATIC RESCISSION OF
THE CONTRACT OF SALE;
32
4. WHETHER THERE IS LEGAL AND FACTUAL BASIS FOR THE COURT OF APPEALS TO
DECLARE THE "EARNEST MONEY" IN THE AMOUNT OF P100,000.00 AS FORFEITED IN
FAVOR OF VALDES-CHOY;
5. WHETHER THE TRIAL COURT'S JUDGMENT IS IN ACCORD WITH LAW, REASON AND
EQUITY DESERVING OF BEING REINSTATED AND AFFIRMED.21
The issues for our resolution are: (a) whether the transaction between Chua and Valdes-Choy is a
perfected contract of sale or a mere contract to sell, and (b) whether Chua can compel Valdes-Choy
to cause the issuance of a new TCT in Chua's name even before payment of the full purchase price.
The Court's Ruling
The petition is bereft of merit.
There is no dispute that Valdes-Choy is the absolute owner of the Property which is registered in her
name under TCT No.162955, free from all liens and encumbrances. She was ready, able and willing
to deliver to Chua the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax
declarations, and the latest realty tax receipt. There is also no dispute that on 13 July 1989, Valdes-
Choy received PBCom Check No. 206011 for P100,000.00 as earnest money from Chua. Likewise,
there is no controversy that the Receipt for the P100,000.00 earnest money embodied the terms of
the binding contract between Valdes-Choy and Chua.
Further, there is no controversy that as embodied in the Receipt, Valdes-Choy and Chua agreed on
the following terms: (1) the balance of P10,215,000.00 is payable on or before 15 July 1989; (2) the
capital gains tax is for the account of Valdes-Choy; and (3) if Chua fails to pay the balance of
P10,215,000.00 on or before 15 July 1989, Valdes-Choy has the right to forfeit the earnest money,
provided that "all papers are in proper order." On 13 July 1989, Chua gave Valdes-Choy the PBCom
manager's check for P485,000.00 to pay the capital gains tax.
Both the trial and appellate courts found that the balance of P10,215,000.00 was not actually paid to
Valdes-Choy on the agreed date. On 13 July 1989, Chua did show to Valdes-Choy the PBCom
manager's check for P10,215,000.00, with Valdes-Choy as payee. However, Chua refused to give
this check to Valdes-Choy until a new TCT covering the Property is registered in Chua's name. Or,
as the trial court put it, until there is proof of payment of the capital gains tax which is a pre-requisite
to the issuance of a new certificate of title.
First and Second Issues: Contract of Sale or Contract to Sell?
Chua has consistently characterized his agreement with Valdez-Choy, as evidenced by the Receipt,
as a contract to sell and not a contract of sale. This has been Chua's persistent contention in his
pleadings before the trial and appellate courts.
Chua now pleads for the first time that there is a perfected contract of sale rather than a contract to
sell. He contends that there was no reservation in the contract of sale that Valdes-Choy shall retain
title to the Property until after the sale. There was no agreement for an automatic rescission of the
contract in case of Chua's default. He argues for the first time that his payment of earnest money
and its acceptance by Valdes-Choy precludes the latter from rejecting the binding effect of the
contract of sale. Thus, Chua claims that Valdes-Choy may not validly rescind the contract of sale
without following Article 159222 of the Civil Code which requires demand, either judicially or by
notarial act, before rescission may take place.
Chua's new theory is not well taken in light of well-settled jurisprudence. An issue not raised in the
court below cannot be raised for the first time on appeal, as this is offensive to the basic rules of fair
play, justice and due process.23 In addition, when a party deliberately adopts a certain theory, and
the case is tried and decided on that theory in the court below, the party will not be permitted to
change his theory on appeal. To permit him to change his theory will be unfair to the adverse party. 24
Nevertheless, in order to put to rest all doubts on the matter, we hold that the agreement between
Chua and Valdes-Choy, as evidenced by the Receipt, is a contract to sell and not a contract of sale.
The distinction between a contract of sale and contract to sell is well-settled:
In a contract of sale, the title to the property passes to the vendee upon the delivery of the
thing sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is
not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a
contract of sale, the vendor loses ownership over the property and cannot recover it until
and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is
retained by the vendor until full payment of the price. In the latter contract, payment of the
price is a positive suspensive condition, failure of which is not a breach but an event that
prevents the obligation of the vendor to convey title from becoming effective.25
A perusal of the Receipt shows that the true agreement between the parties was a contract to sell.
Ownership over the Property was retained by Valdes-Choy and was not to pass to Chua until full
payment of the purchase price.
First, the Receipt provides that the earnest money shall be forfeited in case the buyer fails to pay
the balance of the purchase price on or before 15 July 1989. In such event, Valdes-Choy can sell the
Property to other interested parties. There is in effect a right reserved in favor of Valdes-Choy not to
push through with the sale upon Chua's failure to remit the balance of the purchase price before the
deadline. This is in the nature of a stipulation reserving ownership in the seller until full payment of
the purchase price. This is also similar to giving the seller the right to rescind unilaterally the contract
the moment the buyer fails to pay within a fixed period.26
Second, the agreement between Chua and Valdes-Choy was embodied in a receipt rather than in a
deed of sale, ownership not having passed between them. The signing of the Deeds of Sale came
later when Valdes-Choy was under the impression that Chua was about to pay the balance of the
purchase price. The absence of a formal deed of conveyance is a strong indication that the parties
did not intend immediate transfer of ownership, but only a transfer after full payment of the purchase
price.27
Third, Valdes-Choy retained possession of the certificate of title and all other documents relative to
the sale. When Chua refused to pay Valdes-Choy the balance of the purchase price, Valdes-Choy
also refused to turn-over to Chua these documents.28 These are additional proof that the agreement
did not transfer to Chua, either by actual or constructive delivery, ownership of the Property.29
It is true that Article 1482 of the Civil Code provides that "[W]henever earnest money is given in a
contract of sale, it shall be considered as part of the price and proof of the perfection of the contract."
However, this article speaks of earnest money given in a contract of sale. In this case, the earnest
money was given in a contract to sell. The Receipt evidencing the contract to sell stipulates that the
earnest money is a forfeitable deposit, to be forfeited if the sale is not consummated should Chua
fail to pay the balance of the purchase price. The earnest money forms part of the consideration only
if the sale is consummated upon full payment of the purchase price. If there is a contract of sale,
Valdes-Choy should have the right to compel Chua to pay the balance of the purchase price. Chua,
however, has the right to walk away from the transaction, with no obligation to pay the balance,
although he will forfeit the earnest money. Clearly, there is no contract of sale. The earnest money
was given in a contract to sell, and thus Article 1482, which speaks of a contract of sale, is not
33
applicable.
Since the agreement between Valdes-Choy and Chua is a mere contract to sell, the full payment of
the purchase price partakes of a suspensive condition. The non-fulfillment of the condition prevents
the obligation to sell from arising and ownership is retained by the seller without further remedies
by the buyer.30 Article 1592 of the Civil Code permits the buyer to pay, even after the expiration of
the period, as long as no demand for rescission of the contract has been made upon him either
judicially or by notarial act. However, Article 1592 does not apply to a contract to sell where the
seller reserves the ownership until full payment of the price. 31
Third and Fourth Issues: Withholding of Payment of the
Balance of the Purchase Price and Forfeiture of the Earnest Money
Chua insists that he was ready to pay the balance of the purchase price but withheld payment
because Valdes-Choy did not fulfill her contractual obligation to put all the papers in "proper order."
Specifically, Chua claims that Valdes-Choy failed to show that the capital gains tax had been paid
after he had advanced the money for its payment. For the same reason, he contends that Valdes-
Choy may not forfeit the earnest money even if he did not pay on time.
There is a variance of interpretation on the phrase "all papers are in proper order" as written in the
Receipt. There is no dispute though, that as long as the papers are "in proper order," Valdes-Choy
has the right to forfeit the earnest money if Chua fails to pay the balance before the deadline.
The trial court interpreted the phrase to include payment of the capital gains tax, with the Bureau of
Internal Revenue receipt as proof of payment. The Court of Appeals held otherwise. We quote
verbatim the ruling of the Court of Appeals on this matter:
 The trial court made much fuss in connection with the payment of the capital gains tax, of
which Section 33 of the National Internal Revenue Code of 1977, is the governing provision
insofar as its computation is concerned. The trial court failed to consider Section 34-(a) of
the said Code, the last sentence of which provides, that "[t]he amount realized from the
sale or other disposition of property shall be the sum of money received plus the fair market
value of the property (other than money) received;" and that the computation of the capital
gains tax can only be finally assessed by the Commission on Internal Revenue upon the
presentation of the Deeds of Absolute Sale themselves, without which any premature
computation of the capital gains tax becomes of no moment. At any rate, the computation
and payment of the capital gains tax has no bearing insofar as the validity and effectiveness
of the deeds of sale in question are concerned, because it is only after the contracts of sale
are finally executed in due form and have been duly notarized that the final computation of
the capital gains tax can follow as a matter of course. Indeed, exhibit D, the PBC Check No.
325851, dated July 13, 1989, in the amount of P485,000.00, which is considered as part of
the consideration of the sale, was deposited in the name of appellant, from which she in
turn, purchased the corresponding check in the amount representing the sum to be paid
for capital gains tax and drawn in the name of the Commissioner of Internal Revenue, which
then allayed any fear or doubt that that amount would not be paid to the Government after
all.32
We see no reason to disturb the ruling of the Court of Appeals.
In a contract to sell, the obligation of the seller to sell becomes demandable only upon the happening
of the suspensive condition. In this case, the suspensive condition is the full payment of the purchase
price by Chua. Such full payment gives rise to Chua's right to demand the execution of the contract
of sale.
It is only upon the existence of the contract of sale that the seller becomes obligated to transfer the
ownership of the thing sold to the buyer. Article 1458 of the Civil Code defines a contract of sale as
follows:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer
the ownership of and to deliver a determinate thing, and the other to pay therefor a price
certain in money or its equivalent.
x x x. (Emphasis supplied)
Prior to the existence of the contract of sale, the seller is not obligated to transfer ownership to the
buyer, even if there is a contract to sell between them. It is also upon the existence of the contract
of sale that the buyer is obligated to pay the purchase price to the seller. Since the transfer of
ownership is in exchange for the purchase price, these obligations must be simultaneously fulfilled
at the time of the execution of the contract of sale, in the absence of a contrary stipulation.
In a contract of sale, the obligations of the seller are specified in Article 1495 of the Civil Code, as
follows:
Art. 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant
the thing which is the object of the sale. (Emphasis supplied)
The obligation of the seller is to transfer to the buyer ownership of the thing sold. In the sale of real
property, the seller is not obligated to transfer in the name of the buyer a new certificate of title, but
rather to transfer ownership of the real property. There is a difference between transfer of the
certificate of title in the name of the buyer, and transfer of ownership to the buyer. The buyer may
become the owner of the real property even if the certificate of title is still registered in the name of
the seller. As between the seller and buyer, ownership is transferred not by the issuance of a new
certificate of title in the name of the buyer but by the execution of the instrument of sale in a public
document.
In a contract of sale, ownership is transferred upon delivery of the thing sold. As the noted civil law
commentator Arturo M. Tolentino explains it, -
Delivery is not only a necessary condition for the enjoyment of the thing, but is a mode of
acquiring dominion and determines the transmission of ownership, the birth of the real
right. The delivery, therefore, made in any of the forms provided in articles 1497 to 1505
signifies that the transmission of ownership from vendor to vendee has taken place . The
delivery of the thing constitutes an indispensable requisite for the purpose of acquiring
ownership. Our law does not admit the doctrine of transfer of property by mere consent;
the ownership, the property right, is derived only from delivery of the thing. x x
x.33 (Emphasis supplied)
In a contract of sale of real property, delivery is effected when the instrument of sale is executed in
a public document. When the deed of absolute sale is signed by the parties and notarized, then
delivery of the real property is deemed made by the seller to the buyer. Article 1498 of the Civil Code
provides that –
Art. 1498. When the sale is made through a public instrument, the execution thereof shall
be equivalent to the delivery of the thing which is the object of the contract, if from the
deed the contrary does not appear or cannot clearly be inferred.
x x x.
Similarly, in a contract to sell real property, once the seller is ready, able and willing to sign the deed
of absolute sale before a notary public, the seller is in a position to transfer ownership of the real 34
property to the buyer. At this point, the seller complies with his undertaking to sell the real property
in accordance with the contract to sell, and to assume all the obligations of a vendor under a contract
of sale pursuant to the relevant articles of the Civil Code. In a contract to sell, the seller is not
obligated to transfer ownership to the buyer. Neither is the seller obligated to cause the issuance of
a new certificate of title in the name of the buyer. However, the seller must put all his papers in
proper order to the point that he is in a position to transfer ownership of the real property to the
buyer upon the signing of the contract of sale.
In the instant case, Valdes-Choy was in a position to comply with all her obligations as a seller under
the contract to sell. First, she already signed the Deeds of Sale in the office of her counsel in the
presence of the buyer. Second, she was prepared to turn-over the owner's duplicate of the TCT to
the buyer, along with the tax declarations and latest realty tax receipt. Clearly, at this point Valdes-
Choy was ready, able and willing to transfer ownership of the Property to the buyer as required by
the contract to sell, and by Articles 1458 and 1495 of the Civil Code to consummate the contract of
sale.
Chua, however, refused to give to Valdes-Choy the PBCom manager's check for the balance of the
purchase price. Chua imposed the condition that a new TCT should first be issued in his name, a
condition that is found neither in the law nor in the contract to sell as evidenced by the Receipt.
Thus, at this point Chua was not ready, able and willing to pay the full purchase price which is his
obligation under the contract to sell. Chua was also not in a position to assume the principal obligation
of a vendee in a contract of sale, which is also to pay the full purchase price at the agreed time.
Article 1582 of the Civil Code provides that –
 Art. 1582. The vendee is bound to accept delivery and to pay the price of the thing sold at
the time and place stipulated in the contract.
x x x. (Emphasis supplied)
In this case, the contract to sell stipulated that Chua should pay the balance of the purchase price
"on or before 15 July 1989." The signed Deeds of Sale also stipulated that the buyer shall pay the
balance of the purchase price upon signing of the deeds. Thus, the Deeds of Sale, both signed by
Chua, state as follows:
Deed of Absolute Sale covering the lot:
xxx
For and in consideration of the sum of EIGHT MILLION PESOS (P8,000,000.00), Philippine
Currency, receipt of which in full is hereby acknowledged by the VENDOR from the VENDEE,
the VENDOR sells, transfers and conveys unto the VENDEE, his heirs, successors and
assigns, the said parcel of land, together with the improvements existing thereon, free from
all liens and encumbrances.34 (Emphasis supplied)
Deed of Absolute Sale covering the furnishings:
xxx
For and in consideration of the sum of TWO MILLION EIGHT HUNDRED THOUSAND PESOS
(P2,800,000.00), Philippine Currency, receipt of which in full is hereby acknowledged by the
VENDOR from the VENDEE, the VENDOR sells, transfers and conveys unto the VENDEE, his
heirs, successors and assigns, the said furnitures, fixtures and other movable properties
thereon, free from all liens and encumbrances.35 (Emphasis supplied)
However, on the agreed date, Chua refused to pay the balance of the purchase price as required by
the contract to sell, the signed Deeds of Sale, and Article 1582 of the Civil Code. Chua was therefore
in default and has only himself to blame for the rescission by Valdes-Choy of the contract to sell.
Even if measured under existing usage or custom, Valdes-Choy had all her papers "in proper order."
Article 1376 of the Civil Code provides that:
Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of
the ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily
established.
Customarily, in the absence of a contrary agreement, the submission by an individual seller to the
buyer of the following papers would complete a sale of real estate: (1) owner's duplicate copy of the
Torrens title;36 (2) signed deed of absolute sale; (3) tax declaration; and (3) latest realty tax receipt.
The buyer can retain the amount for the capital gains tax and pay it upon authority of the seller, or
the seller can pay the tax, depending on the agreement of the parties.
The buyer has more interest in having the capital gains tax paid immediately since this is a pre-
requisite to the issuance of a new Torrens title in his name. Nevertheless, as far as the government
is concerned, the capital gains tax remains a liability of the seller since it is a tax on the seller's gain
from the sale of the real estate. Payment of the capital gains tax, however, is not a pre-requisite to
the transfer of ownership to the buyer. The transfer of ownership takes effect upon the signing and
notarization of the deed of absolute sale.
The recording of the sale with the proper Registry of Deeds 37 and the transfer of the certificate of
title in the name of the buyer are necessary only to bind third parties to the transfer of
ownership.38 As between the seller and the buyer, the transfer of ownership takes effect upon the
execution of a public instrument conveying the real estate.39Registration of the sale with the Registry
of Deeds, or the issuance of a new certificate of title, does not confer ownership on the buyer. Such
registration or issuance of a new certificate of title is not one of the modes of acquiring ownership. 40
In this case, Valdes-Choy was ready, able and willing to submit to Chua all the papers that customarily
would complete the sale, and to pay as well the capital gains tax. On the other hand, Chua's condition
that a new TCT be first issued in his name before he pays the balance of P10,215,000.00,
representing 94.58% of the purchase price, is not customary in a sale of real estate. Such a condition,
not specified in the contract to sell as evidenced by the Receipt, cannot be considered part of the
"omissions of stipulations which are ordinarily established" by usage or custom.41 What is increasingly
becoming customary is to deposit in escrow the balance of the purchase price pending the issuance
of a new certificate of title in the name of the buyer. Valdes-Choy suggested this solution but
unfortunately, it drew no response from Chua.
Chua had no reason to fear being swindled. Valdes-Choy was prepared to turn-over to him the
owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest
realty tax receipt. There was no hindrance to paying the capital gains tax as Chua himself had
advanced the money to pay the same and Valdes-Choy had procured a manager's check payable to
the Bureau of Internal Revenue covering the amount. It was only a matter of time before the capital
gains tax would be paid. Chua acted precipitately in filing the action for specific performance a mere
two days after the deadline of 15 July 1989 when there was an impasse. While this case was
dismissed on 22 November 1989, he did not waste any time in re-filing the same on 29 November
1989.
Accordingly, since Chua refused to pay the consideration in full on the agreed date, which is a
suspensive condition, Chua cannot compel Valdes-Choy to consummate the sale of the Property.
Article 1181 of the Civil Code provides that -
35
ART. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment
or loss of those already acquired shall depend upon the happening of the event which
constitutes the condition.
Chua acquired no right to compel Valdes-Choy to transfer ownership of the Property to him because
the suspensive condition - the full payment of the purchase price - did not happen. There is no
correlative obligation on the part of Valdes-Choy to transfer ownership of the Property to Chua. There
is also no obligation on the part of Valdes-Choy to cause the issuance of a new TCT in the name of
Chua since unless expressly stipulated, this is not one of the obligations of a vendor.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 37652 dated 23 February 1995
is AFFIRMED in toto.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-31189 March 31, 1987
MUNICIPALITY OF VICTORIAS, petitioner,
vs.
THE COURT OF APPEALS, NORMA LEUENBERGER and FRANCISCO SOLIVA, respondents.
PARAS, J.:
This is a Petition for Review on certiorari of the decision * of respondent Court of Appeals
promulgated on September 29, 1969 in CA-G.R. No. 35036-R (Rollo, p. 11) setting aside the
decision ** of the Court of First Intance of Negros Occidental, Branch I, dated September 24, 1964
which dismissed the complaint for recovery of possession in Civil Case No. 181-S and declared the
cemetery site on Lot No. 76 in Victorias as property of the municipality of Victorias (Record on Appeal,
p. 9).
The dispositive portion of the questioned decision reads as follows:
IN VIEW OF THE FOREGOING, the judgment of the lower court is hereby set aside
and another is hereby rendered:
(1) Ordering the defendant municipality and/or thru its appropriate officials to
return and deliver the possession of the portion of Lot 76 used as cemetery or
burial site of the plaintiff-appellant.
(2) Ordering defendant municipality to pay the plaintiff-appellant the sum of
P400.00 a year from 1963 until the possession of said land is actually delivered.
Lot No. 76 containing an area of 208,157 sq. meters forms a part of Cadastral Lot No. 140 (Rollo, p.
11), a 27.2460 ha. sugar land located in Bo. Madaniog, Victorias, Negros Occidental, in the name of
the deceased Gonzalo Ditching under Tax Declaration No. 3429 of Negros Occidental for the year
1941 (Exh. "3," Folder of Exhibits, p. 22). He was survived by his widow Simeona Jingeo Vda. de
Ditching and a daughter, Isabel, who died in 1928 (TSN, July 1, 1964, p. 7) leaving one off-spring,
respondent Norma Leuenberger, who was then only six months old (TSN, July 1, 1964, p. 34).
Respondent Norma Leuenberger, married to Francisco Soliva, inherited the whole of Lot No. 140
from her grandmother, Simeona J. Vda. de Ditching (not from her predeceased mother Isabel
Ditching). In 1952, she donated a portion of Lot No. 140, about 3 ha., to the municipality for the
ground of a certain high school and had 4 ha. converted into a subdivision. (TSN, July 1, 1964, p.
24).
In 1963, she had the remaining 21 ha. or 208.157 sq. m. relocated by a surveyor upon request of
lessee Ramon Jover who complained of being prohibited by municipal officials from cultivating the
land. It was then that she discovered that the parcel of land, more or less 4 ha. or 33,747 sq.m.
used by Petitioner Municipality of Victorias, as a cemetery from 1934, is within her property which is
now Identified as Lot 76 and covered by TCT No. 34546 (TSN, July 1, 1964, pp. 7-9; Exh. "4," Folder
of Exhibits, p. 23 and Exh. "A," Folder of Exhibits, p. 1).
On May 20, 1963, Respondent wrote the Mayor of Victorias regarding her discovery, demanding
payment of past rentals and requesting delivery of the area allegedly illegally occupied by Petitioner
(Exh. "G, Folder of Exhibits, p. 15). When the Mayor replied that Petitioner bought the land she asked
to be shown the papers concerning the sale but was referred by the Mayor to the municipal treasurer
who refused to show the same (TSN, July 1, 1964, pp. 32-33).
On January 11, 1964, Respondents filed a complaint in the Court of First Instance of Negros
Occidental, Branch 1, for recovery of possession of the parcel of land occupied by the municipal
cemetery (Record on Appeal, p. 1). In its answer, petitioner Municipality, by way of special defense,
alleged ownership of the lot, subject of the complaint, having bought it from Simeona Jingco Vda.
de Ditching sometime in 1934 (Record on Appeal, p. 7). The lower court decided in favor of the
Municipality. On appeal Respondent appellate Court set aside the decision of the lower court (Record
on AppeaL p. 9); hence, this petition for review on certiorari.
This petition was filed with the Court on November 6, 1969 (Rollo, p. 2), the Record on Appeal on
December 19, 1969 (Rollo, p. 80). On January 5, 1970, the Court gave due course to the petition
(Rollo, p. 84).
The Brief for the Petitioner was filed on April 1, 1970 (Rollo, p. 88), the Brief for Respondents was
filed on May 18, 1970 (Rollo, p. 92).
On July 8, 1970, the Court resolved to consider the case submitted for decision without Petitioner's
Reply Brief, Petitioner having failed to file the brief within the period which expired on June 10, 1970
(Rollo. p. 99).
On motion of counsel for the Respondents (Rollo, p. 104), the Court resolved on June 30, 1972 to
allow respondent Francisco Soliva to continue the appeal in behalf of the estate of respondent Norma
Leuenberger who died on January 25, 1972, Respondent Francisco Soliva having been appointed
special administrator in Special Proceedings No. 84-V of the Court of First Instance of Negros
Occidental (Rollo, p. 110).
In their brief, petitioner raised the following errors of respondent Court of Appeals: (Brief for the 36
Petitioner, p. 1-3);
I.
The Honorable Court of Appeals erred in holding that respondents Norma
Leuenberger and Francisco Soliva are the lawful owners of the land in litigation as
they are estopped from questioning the possession and ownership of herein
petitioner which dates back to more than 30 years.
II.
The Honorable Court of Appeals also erred in ordering the petition petitioner to
deliver the possession of the land in question to the respondents Nomia
Leuenberger and Francisco Soliva, by holding that non-annotation on the Torrens
Certificate of Title could not affect the said land when the possession by the
petitioner of the said land for over 30 years and using it as a public cemetery for
that length of time are sufficient proof of purchase and transfer of title and non-
annotation of the Certificate of Title did not render the sale ineffectual
III.
The Honorable Court of Appeals further erred in ordering the petitioner
Municipality of Victories to pay the respondents the sum of P400.00 a year from
1963 until possession is actually delivered because under the law, an owner of a
piece of land has no obligation to pay rentals as it owns and possesses the same.
There is merit in the petition.
It is undisputed that petitioner failed to present before the Court a Deed of Sale to prove its purchase
of the land in question which is included in the Transfer Certificate of Title No. T-34546 in the name
of private respondent Norma Leuenberger.
The pivotal issue in this case is whether or not the secondary evidence presented by the petitioner
municipality is sufficient to substantiate its claim that it acquired the disputed land by means of a
Deed of Sale.
Under the Best Evidence Rule when the original writing is lost or otherwise unavailable, the law in
point provides:
Sec. 4. Secondary evidence when original is lost or destroyed. — When the original
writing has been lost or destroyed, or cannot be produced in court, upon proof of
its execution and loss or destruction or unavailability, its contents may be proved
by a copy, or by a recital of its contents in some authentic document, or by the
recollection of witnesses. (Rule 130, Rules of Court).
In lieu of a Deed of Sale, petitioner presented a certificate issued by the Archives Division of the
Bureau of Records Management in Manila, of a page of the 1934 Notarial Register of Vicente D.
Aragon with the following entries:
Nature of Instrument — Compra venta 2 porciones Terrenos: Lotes Nos. 140-A y
140-B, Victorias, Neg. Occidental pago por esso despues aprobacion Jusgado la
Instance, Neg. Occidental causa civil 5116 Vendedora: — Simeona Jingco Vda. de
Ditching . . . administradora Abint. G. Ditching
Comprador: — Municipio Victorias, Neg. Occidental . . . . por su Pres.Mpal Vicente
B. Arnaes
Valor: — P750.00 ...
Vease copia correspondiente.
Names of-persons Executing/ Acknowledging:
Simeona Vda. de Ditching
Adm. Abint actuacion especial No. 5116
Jusgado la Instance Neg. Occidental
Remarks.
En Victorias, Neg. Occidental
Los annexes A. y B. estan unidos
solamente en el original de la
escritura.
Respondent Court of Appeals was of the view (Rollo, p. 16) that a mere entry in the notarial register
of a notary public of an alleged sale cannot prove that a particular piece of land was sold by one
person to another, one of the important requirements being the indication of the area and the
technical description of the land being sold. In the present case, since no deed of sale could be
produced, there is no way of telling what particular portion of the property was sold to defendant
municipality and how big was the sale of the land conveyed to the defendant municipality.
It will be observed that the entries in the notarial register clearly show: (a) the nature of the
instrument. — a deed of sale; (b) the subject of the sale — two parcels of land, Lot Nos. 140-A and
140-B; (c) the parties of the contract — the vendor Simeona J. Vda. de Ditching in her capacity as
Administrator in Civil Case No. 5116 of the Court of First Instance of Negros Occidental and the
vendee, Vicente B. Ananosa, Municipal Mayor of Victorias; (d) the consideration P750.00; (e) the
names of the witnesses Esteban Jalandoni and Gregoria Elizado; and the date of the sale on July 9,
1934.
It is beyond question that the foregoing certificate is an authentic document clearly corroborated
and supported by: (a) the testimony of the municipal councilor of Victorias, Ricardo Suarez, (Original
TSN Hearing of September 14, 1964, pp. 1222) who negotiated the sale; (b) the testimony of Emilio
Cuesta, (Original TSN Hearing of September 14, 1964, pp. 2238) the municipal treasurer of said
municipality, since 1932 up to the date of trial on September 14, 1964, who personally paid the
37
amount of P750.00 to Felipe Leuenberger as consideration of the Contract of Sale; (c) Certificate of
Settlement (Original Exhibits, p. 20) "as evidence of said payment;" (d) Tax Declaration No. 429
(Ibid., p. 22) which was cancelled and was substituted by Tax Declaration No. 3600 covering the
portion of the property unsold (Decision, CFI, Neg. Occidental Orig. Record on Appeal, p. 6) and (e)
Tax Declaration No. 3601 (Ibid, p. 23) in the name of the Municipal Government of Victorias covering
the portion occupied as cemetery.

Vendedora Tax Declaration No. 3601 shows on its face the boundaries as follows:

Vicente B. Arnaes North — NE — Lot No. 140-C of the Subdivision

Pres. Municipal. Victorias South — SW — Lot No. 140-C of the Subdivision

Comprador West — NW — Lots Nos. 140-C & 140-B of the Subdivision.

Witnesses to the Signatures: The area is 33,747 sq.m.

Esteban Jalandoni At the back Exh. 4-A, the sale of a portion of the lot to the Municipality of Victorias was clearly
explained as follows:
Gregorio Elizalde
Note: The whole Lot No. 140, belongs to Norma Leuenberger as evidenced by a
Date: Month Transfer of Cert. of Title No. 18672. Portion of this Lot, (30,000 sq.m. was sold to
9 Julio 1934 Municipality of Victories for Cemetery Site as evidenced by a Deed of Sale executed
Fees: P2.00 by Simeona Jingco Vda. de Ditching in favor of the aforesaid Municipality and
ratified by Notary Public Mr. Vicente Aragon under Doc. No. 132; Page No. 2; Book
Cedulas:
No. 10, Series of 1934.
Exenta por susexo
At the lowest portion under Memoranda it was explained that —
F1027880 Enero 26/34 Victories, Neg. Occidental
 The area under this declaration includes 3,746 sq. meters donated by Mrs.
Simeona Jingco Vda. de Ditching and used as road leading to the cemetery. " (EXIL
4; Original Exhibits, p. 23).
The above-mentioned testimonies and documentary evidence sufficiently Identify the land sold by
the predecessors-in-interest of private respondent. To insist on the technical description of the land
in dispute would be to sacrifice substance to form which would undoubtedly result in manifest
injustice to the petitioner.
Moreover, it is expressly provided by law that the thing sold shall be understood as delivered, when
it is placed in the control and possession of the vendee. (Civil Code Art. 1497). Where there is no
express provision that title shall not pass until payment of the price, and the thing gold has been
delivered, title passes from the moment the thing sold is placed in the possession and control of the
buyer. (Kuenzle & Streiff vs. Watson & Co., 13 PhiL 26 [1909]). Delivery produces its natural effects
in law, the principal and most important of which being the conveyance of ownership, without
prejudice to the right of the vendor to payment of the price. (Ocejo, Perez & Co. vs. International
Banking Corp., 37 PhiL 631 [1918]).
Similarly, when the sale is made through a public instrument, the execution thereof shall be
equivalent to the delivery of the thing which is the object of the contract, if from the deed, the
contrary does not appear or cannot be clearly inferred. (Civil Code Art. 1498). The execution of the
public instrument operates as a formal or symbolic delivery of the property sold and authorizes the
buyer to use the document as proof of ownership. (Florendo v. Foz, 20 PhiL 388 [1911]).
In the case at bar it is undisputed that petitioner had been in open, public, adverse and continuous
possession of the land for a period of more than thirty years. In fact, according to the municipal
treasurer there are over 1000 graves in the cemetery. (Decision, Court of Appeals, Rollo, pp. 11-22).
As correctly observed by Justice Magno S. Gatmaitan in his dissenting opinion (Rollo, pp. 23-28) in
the decision of this case by the Court of Appeals, the evidence establishes without debate that the
property was originally registered in 1916. Plaintiff was born only in 1928 and cannot possibly be the
registered owner of the original lot 140 at the time. Indeed, according to her own evidence, (Exhibit
A; Original Record pp. 13) she became the registered owner only in 1963. Likewise, it is undisputed
that in the intestate estate of Gonzalo Ditching, the grandfather of private respondent Norma
Leunberger, it was her grandmother, Simeona, the surviving spouse of Gonzalo who was named
judicial administratrix. According to Norma's own testimony, Isabel her mother, died in 1928 (TSN
Aug. 12, 1964, p. 34) while Simeona the grandmother died in 1942. ( Ibid.) Therefore, as of 1934
when a document of sale was executed by Simeona in favor of the municipality of Victories as
indubitably shown in the notarial register (Exhibit 5.A) in question, Simeona was still the
administratrix of the properties left by her husband, Gonzalo and of their conjugal partnership.
Consequently, she is the only person who could legally dispose of by sale this particular four- hectare
portion of Lot 140. And so it is, that in 1934, Simeona Ditching in her capacity as judicial
administratrix made and executed the document described in the Report as Lots 140-A and 140-B,
showing clearly that they are portions of the original big Lot 140. As this conveyance was executed
by the judicial administratrix, unquestionably the party authorized to dispose of the same, the
presumption must be that she did so upon proper authority of the Court of First Instance.
As to the description of the property sold, the fact that a notarial report shows that they are portions
of Lot 140 and the property in question occupied by the public cemetery is admittedly a portion of
said lot in the absence of evidence that there were other portions of Lot 140 ceded unto the petitioner
municipality, the inevitable conclusion is that the sale executed in the Notarial Register refers to the
disputed lot.
Unfortunately, the purchaser Municipality of Victorias failed to register said Deed of Sale; hence,
when Simeona Jingco Vda. de Ditching died, her grand-daughter, respondent Norma Leuenberger
claimed to have inherited the land in dispute and succeeded in registering said land under the Torrens
system. Said land is now covered by Transfer Certificate of Title No. T-34036 (Exhibit A, supra) issued
by the Register of Deeds of -Negros Occidental on March 11, 1963 in the name of Norma
Leuenberger, married to Francisco Soliva, containing an area of 208,157 square meters. As registered
owner, she is unquestionably entitled to the protection afforded to a holder of a Torrens Title.
Admittedly, it is well-settled that under the Torrens System "Every person receiving a certificate of
title in pursuance of a decree of registration, . . . shall hold the same free of all encumbrance except
those noted on said certificate ... " (Sec. 39, Act 496; now Sec. 43, PD 1529).
In the instant case, however, respondent Norma Leuenberger admitted that she inherited the land
covered by Transfer Certificate of Title No. T-34036 from her grandmother, who had already sold
the land to the petitioner in 1934; hence, she merely stepped into the shoes of her grandmother and
she cannot claim a better right than her predecessor-in-interest. When she applied for registration
of the disputed land, she had no legal right to do so as she had no ownership of the land since land
registration is not a mode of acquiring ownership but only of confirming ownership of the land.
(Grande, et al. vs. Court of Appeals, et al., 115 Phil. 521.)"The Torrens System was not established
as a means for the acquisition of title to private land, ..." It is intended merely to confirm and register
the title which one may already have on the land. Where the applicant possesses no title or ownership
over the parcel of land, he cannot acquire one under the Torrens system of Registration. (Torela, et
al., vs. Torela, et al., L-27843, October 11, 1979).
While an inherently defective Torrens title may not ordinarily be cancelled even after proof of its
defect, the law nevertheless safeguards the rightful party's interest in the titled land from fraud and
improper use of technicalities by snowing such party, in appropriate cases, to judicially seek 38
reconveyance to him of whatever he has been deprived of as long as the land has not been
transferred or conveyed to a purchaser in good faith. (Pedro Pascua, et al., vs. Mariano Gopuyoc et
al., L-23197, May 31, 1977.)
The Civil Code provides:
Art. 1456. If the property is acquired through mistake or fraud, the person
obtaining it is, by force of law, considered a trustee of an implied trust for the
benefit of the person from whom the property comes.
Thus, it has been held that where the land is decreed in the name of a person through fraud or
mistake, such person is by operation of law considered a trustee of an implied trust for the benefit
of the persons from whom the property comes. The beneficiary shag have the right t• enforce the
trust, notwithstanding the irrevocability of the Torrens title and the trustee and his successors-in-
interest are bound to execute the deed of reconveyance. (Pacheco vs. Arro, 85 Phil. 505; Escobar
vs. Locsin, 74 Phil. 86).
As the land in dispute is held by private respondents in trust for the Municipality of Victorias, it is
logical to conclude that the latter can neither be deprived of its possession nor be made to pay
rentals thereof. Private respondent is in equity bound to reconvey the subject land to the cestui que
trust the Municipality of Victorias. The Torrens system was never calculated to foment betrayal in
the performance of a trust. (Escobar vs. Locsin, 74 Phil. 86).
For a more expeditious disposition of the case at bar, Rule 39 of the Rules of Court provides:
SEC. 10. Judgment for Specific acts; vesting title. — ... If real or personal property
is within the Philippines, the court in lieu of directing a conveyance thereof may
 enter judgment divesting the title of any party and vesting it in others and such
judgment shall have the force and effect of a conveyance executed in due form of
law.
Finally, the conclusions and findings of fact by the trial court are entitled to great weight on appeal
and should not be disturbed unless for strong and cogent reasons because the trial court is in a
better position to examine real evidence, as well as to observe the demeanor of the witnesses while
testifying in the case. (Chase v. Buencamino, Sr., 136 SCRA 365 [1985]).
PREMISES CONSIDERED, the judgment of the respondent appellate court is hereby SET ASIDE and
the decision of the Court of First Instance of Negros Occidental, Branch I-Silay City in Civil Case No.
181-S declaring the cemetery site (Exh. E-2) on Lot No. 76 in Victories as the property of the
municipality of Victorias, is hereby REINSTATED. Additionally, We hereby order (a) the petitioner to
have the disputed land segregated by a licensed surveyor from the rest of Lot No. 76 described in
Transfer Certificate of Title No. T-34036 and to have the corresponding subdivision plan, duly
approved by the Land Registration Commission, submitted to the court of origin for approval; (b) the
private respondents Norma Leuenberger and Francisco Soliva to be divested of their title to the
disputed land under Rule 39, Sec. 10, Rules of Court; and (c) the Register of Deeds of Negros
Occidental to cancel Transfer Certificate of Title No. 34036 and issue, in lieu thereof, one title in the
name of the Municipality of Victories for the disputed land and another title in the names of the
private respondents Norma Leuenberger and Francisco Soliva for the rest of Lot No. 76. Without
costs.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., Padilla, Bidin, and Cortes, JJ., concur.
39
 Republic of the Philippines On January 8, 1990, petitioners filed a Petition to Remove Cloud on or Quiet Title to Real Property
SUPREME COURT asserting ownership of the disputed property.
Manila On May 11, 1993, the RTC rendered judgment in favor of petitioners upholding the latter’s superior
FIRST DIVISION right over the disputed property in view of the registration of the Affidavit of Adverse Claim prior to
the Certificate of Sale annotated in favor of respondents. Dispositively the decision reads:
SPS. JESUS CHING AND LEE POE TIN, G.R. No. 156076
WHEREFORE, premises, the above-entitled petition is granted for being preponderantly meritorious.
Petitioners, Present: Judgment is hereby rendered ordering:
- versus - PUNO, C.J., Chairperson, 1) The Register of Deeds of Las Piñas, Metro Manila to cancel all the annotations of encumbrances
SPS. ADOLFO & ARSENIA ENRILE, CORONA, in favor of defendants [respondents] in Transfer Certificate of Title No. 83618 issued by the Register
Respondents. CARPIO MORALES*, of Deeds of Pasay City, Metro Manila, District IV;
AZCUNA, and 2) Defendants [respondents] to pay plaintiffs [petitioners] in the sum of P 10,000.00 as
compensatory damages by way of litigation expenses;
LEONARDO-DE CASTRO, JJ.
3) To pay to plaintiffs [petitioners] the sum of P 10,000.00 as attorney’s fees; and,
Promulgated:
4) To pay the cost of the proceedings.
September 17, 2008
SO ORDERED.
x------------------------------------------------------------------------------------------x
In time, respondents appealed to the CA, principally arguing that the RTC committed reversible
DECISION error in ruling that petitioners had a better right over the disputed property. Respondents theorized
LEONARDO-DE CASTRO, J.: that the prior conveyance of the disputed property made by La Fuente to petitioners being a
Assailed in the instant petition for review on certiorari are the Decision1 of the Court of Appeals (CA) voluntary dealing with a registered land, mere registration of their adverse claim was insufficient.
dated August 29, 2002 in CA-G R. CV No. 42985 and the Resolution2 dated November 21, 2002 To respondents, in order to have petitioners’ interest protected, they should have registered the
denying petitioners’ motion for reconsideration. Deed of Absolute Sale with the Register of Deeds pursuant to Section 51 of PD 1529 and not merely
register an adverse claim under Section 70 of the same law. Citing the second paragraph of Section 40
The assailed CA decision reversed the decision of the Regional Trial Court (RTC) of Makati City, 70 which provides that an adverse claim shall be effective for a period of thirty days from the date
Branch 135, in Civil Case No. 90-064, an action for quieting of title thereat commenced by petitioner of registration, respondents insisted that the annotated Adverse Claim of petitioners had already
spouses Jesus Ching and Lee Poe Tin against respondent spouses Adolfo and Arsenia Enrile. expired, hence, it offered no protection when respondents acquired the disputed property through
The antecedent facts follow. execution sale.
On September 5, 1985, petitioners purchased from a certain Raymunda La Fuente a 370-square On August 29, 2002, the CA rendered the herein challenged decision reversing that of the RTC.
meter lot located at Barrio Tungtong, Las Piñas and covered by TCT No. 83618. La Fuente delivered Even as the CA viewed the prior sale of the disputed lot in favor of petitioners as perfected and
to petitioners a duly notarized Deed of Absolute Sale3 with the Owner’s Duplicate Certificate of Title consummated, it nonetheless upheld respondents’ preferential right over the disputed property.
and thereafter, petitioners took physical possession of the subject property. Finding merit in respondents’ arguments, the CA ruled:
For reasons known only to petitioners, the conveyance was not registered in the Register of Deeds This Court, also believes that there is truth in defendants-appellants’ assertion that while the sale
as prescribed by Section 51 of PD 15294 . Instead, on November 20, 1986, petitioners executed an is perfected and consummated, plaintiffs-appellees failed to diligently protect their interests by
Affidavit of Adverse Claim which was recorded and annotated at the back of TCT No. 83618 reflected failing to register the conveyance or transaction in the office of Register of Deeds. An owner of a
in the Memorandum of Encumbrances under Entry No. 86-62262.5 registered land is vested by law with rights and obligations and thus exercises all attributes of
In the meantime, petitioners peacefully and continuously possessed the subject property. ownership. These attributes include among others the right to dispose the real property itself. The
owner of the land may convey, mortgage, lease or otherwise deal with the same in accordance with
On August 19, 1988 ─ three years after they purchased the disputed property, petitioners received
existing laws. He may use such forms of deeds, mortgages, leases or other voluntary instrument as
a Notice of Levy on Attachment and Writ of Execution issued by the Regional Trial Court (RTC) of
are sufficient in law. However, as clearly provided by Section 51 of Presidential Decree 1529, no
Pasig in favor of respondents, in Civil Case No. 54617 entitled Sps. Adolfo Enrile and Arsenia Enrile
deed, mortgage, lease or other voluntary instrument, except a will purporting to convey or affect
v. Raymunda La Fuente.
registered land shall take effect as a conveyance or bind the land, until the same has been registered
The Notice of Levy on Attachment was recorded at the dorsal portion of TCT No. 83618 under Entry in the office of the Register of Deeds. It shall operate only as a contract between the parties and
No. 3433-2 while the Writ of Execution was inscribed under Entry No. 3434-2. Also inscribed in the as evidence of authority to the Register of Deeds to effect registration. The act of registration shall
TCT is the Certificate of Sale dated January 26, 1989 covering the disputed property in favor of be the operative act to convey or affect the land insofar as third persons are concerned, and in all
respondents. cases under this Decree, the registration shall be made in the Office of the Register of Deeds of the
province or city where the land lies. Unless and until the subject transaction has been filed or
registered in the office of the Register of Deeds, the transaction shall only be binding on the parties
to the contract but not on the third person. The instrument is not thereby rendered void by failure
to register. Section 51 of PD 1529 states:
Section 51. Conveyance and other dealings by registered owner – An owner of registered land may
convey, mortgage, lease, charge or otherwise deal with the same in accordance with existing laws.
He may use such forms of deeds, mortgages, leases or other voluntary instruments as are sufficient
in law. But no deed, mortgage, lease or other voluntary instrument, except a will purporting to
convey or affect registered land shall take effect as a conveyance or bind the land, but shall operate
only as a contract between the parties and as evidence of authority to the Register of Deeds to
make registration.
The act of registration shall be the operative act to convey or affect the land insofar as third persons
are concerned, and in all cases under this Decree, the registration shall be made in the office of the
Register of Deeds for the province or city where the land lies.
Laying the blame on petitioners, the CA added:
The law provides protection to third person, who believing in good faith and relying on the sweet
representations of some evil minded persons, may be unjustifiably inveigled to enter into a contract
or transaction not knowing that the subject real property has been encumbered or sold. It is the
duty of the buyer or vendee to register the transaction before the Register of Deeds of the province
or city where the property lies. The registration is intended to inform any minded individual that the
property has been subjected to a prior transaction and that entering into any further contract
involving the same property shall be at his own risk. In the event that any third person was bona
fide tricked to enter into any transaction involving the same property because the transferee or
vendee failed to register the same as required by law, the latter’s interests should be subordinated
to that of the third party. Axiomatic is the rule in this jurisdiction that when loss or damage was
caused to two individuals who both acted in good faith but one is negligent, the loss or damage
shall fall upon the one who acted negligently.
Citing a myriad of jurisprudence6 , the CA declared that respondents, as attaching creditors who
registered the order of attachment and the sale of the property to them as the highest bidders,
acquired a valid title to the disputed property as against petitioners who had previously bought the
same property from the registered owner but failed to register their deed of sale.
The CA further declared respondents as purchasers in good faith. On the premise that petitioners’
filing of the Affidavit of Adverse Claim was procedurally flawed and that the annotated adverse
claim had already prescribed on December 20, 1986 after the lapse of 30 days from its registration
which was November 20, 1986, the CA ruled that it cannot be considered sufficient notice to third
person like the respondents who were not aware of the sale of the disputed lot to petitioners prior
to the levy on attachment.
As stated at the threshold hereof, the CA, in its decision7 of August 29, 2002, reversed and set aside
that of the RTC, thus:
WHEREFORE, in view of the foregoing, the Decision dated May 11, 1993 of the Regional Trial Court,
National Capital Judicial Region, Branch 135, Makati City in Civil Case No. 90-064 is hereby
REVERSED.
The Register of Deeds of Las Piñas, Metro Manila is hereby mandated not to cancel any annotations
of encumbrances in favor of defendants-appellants in Transfer Certificate of Title No. 83618 issued
by the Register of Deeds of Pasay City, Metro Manila, Dist. IV.
Who among the parties has a preferential right over the disputed property.
SO ORDERED.
Their motion for reconsideration having been denied by the CA in its challenged Resolution of
November 21, 2002, petitioners are now before this Court, faulting the CA as follows:
WITH DUE RESPECT, THE COURT A QUO GRAVELY ERRED AND ABUSED ITS DISCRETION WHEN
IT RENDERED SUBJECT DECISION AND RESOLUTION IN A WAY PROBABLY NOT IN ACCORD WITH
LAW OR RULES WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT; Specifically, the
Court a quo erred;
a. When it held that the levy on attachment LATER annotated shall prevail over the Adverse Claim
EARLIER annotated at the back of the title by the mere lapse of 30 days and even without any
petition in court for its cancellation;
b. When it did not dismiss the appeal considering that the question raised were questions of law
and NO question of fact.8
The petition is impressed with merit.
At the outset, the Court finds that the CA committed reversible error when it ruled that the
annotated adverse claim had already prescribed by the mere lapse of 30 days from its registration.
The issue is no longer of first impression. In the 1996 case of Sajonas v. Court of Appeals, 9 we
explained that a notice of adverse claim remains valid even after the lapse of the 30-day period
provided by Section 70 of PD 1529. Section 70 provides:
Whoever claims any part or interest in registered land adverse to the registered owner, arising
subsequent to the date of the original registration, may, if no other provision is made in this Decree
for registering the same, make a statement in writing, setting forth fully his alleged right or interest,
and how or under whom acquired, a reference to the number of the certificate of title of the 41
registered owner, and a description of the land in which the right or interest is claimed.
The statement shall be signed and sworn to, and shall state the adverse claimant's residence, and
a place at which all notices may be served upon him. This statement shall be entitled to registration
as an adverse claim on the certificate of title. The adverse claim shall be effective for a period of
thirty days from the date of registration. After the lapse of said period, the annotation of adverse
claim may be cancelled upon filing of a verified petition therefor by the party in interest. Provided,
however that after cancellation, no second adverse claim based on the same ground shall be
registered by the same claimant.
In the same case, we held that for as long as there is yet no petition for its cancellation, the notice
of adverse claim remains subsisting: Thus:
At first blush, the provision in question would seem to restrict the effectivity of the adverse claim
to thirty days. But the above provision cannot and should not be treated separately, but should be
read in relation to the sentence following, which reads:
After the lapse of said period, the annotation of the adverse claim may be cancelled upon filing of
a verified petition therefor by the party in interest.
If the rationale of the law was for the adverse claim to ipso facto lose force and effect after the
lapse of thirty days, then it would not have been necessary to include the foregoing caveat to clarify
and complete the rule. For then, no adverse claim need be cancelled. If it has been automatically
terminated by mere lapse of time, the law would not have required the party in interest to do a
useless act.10
In a petition for cancellation of adverse claim, a hearing must first be conducted. The hearing will
afford the parties an opportunity to prove the propriety or impropriety of the adverse claim. 11
Now, as we see it, the recourse will either rise or fall on the decisive question of whether or not
respondents were purchasers in good faith when they acquired the disputed lot despite the
annotated adverse claim on their title.
We rule and so hold that they were not.
The Court has invariably ruled that in case of conflict between a vendee and an attaching creditor,
an attaching creditor who registers the order of attachment and the sale of the property to him as
the highest bidder acquires a valid title to the property as against a vendee who had previously
bought the same property from the same owner but who failed to register his deed of sale. This is
because registration is the operative act that binds or affects the land insofar as third persons are
concerned. It is upon registration that there is notice to the whole world. But where a party has
knowledge of a prior existing interest, as here, which is unregistered at the time he acquired a right
to the same land, his knowledge of that prior unregistered interest has the effect of registration as
to him.12 Knowledge of an unregistered sale is equivalent to registration.13
The general rule is that a person dealing with registered land is not required to go behind the
register to determine the condition of the property. In that case, such person is charged with notice
of the burden on the property which is noted on the face of the register or certificate of title.14
Article 1544 of the Civil Code governs in cases of double sale. It provides:
Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first
in the possession; and, in the absence thereof, to the person who presents the oldest title, provided
there is good faith.
An "innocent purchaser for value" or any equivalent phrase shall be deemed to include, under the
Torrens System, the innocent lessee, mortgagee, and other encumbrancer for value.15
In Bautista v. Court of Appeals,16 we held that where the thing sold twice is an immovable, the one
who acquires it and first registers it in the Registry of Property, in good faith, shall be the owner.
Who then can be considered a purchaser in good faith?
In the early case of Leung Yee v. F.L. Strong Machinery Co. and Williamson, 17 the Court explained
good faith in this wise:
One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim
that he has acquired title thereto in good faith as against the true owner of the land or of an interest
therein; and the same rule must be applied to one who has knowledge of facts which should have
put him upon such inquiry and investigation as might be necessary to acquaint him with the defects
in the title of his vendor.18
Good faith, or the want of it, is capable of being ascertained only from the acts of one claiming its
presence, for it is a condition of the mind which can only be judged by actual or fancied token or
signs.19
It is beyond dispute that the property in question had already been sold by La Fuente to petitioners
on September 5, 1985. Petitioners immediately took possession thereof. When the Notice of Levy
on Attachment was recorded at the dorsal portion of TCT No. 83618 and when the Writ of Execution
and Certificate of Sale were inscribed under Entry No. 3434-2 in favor of respondents, on January
26, 1989, petitioners have been, since September 5, 1985, in actual, physical, continuous and
uninterrupted possession.
The law does not require a person dealing with the owner of registered land to go beyond the
certificate of title as he may rely on the notices of the encumbrances on the property annotated on
the certificate of title or absence of any annotation. Here, petitioners’ adverse claim is annotated at
the back of the title coupled with the fact that they are in possession of the disputed property. To
us, these circumstances should have put respondents on guard and required them to ascertain the
property being offered to them has already been sold to another to prevent injury to prior innocent
buyers. A person who deliberately ignores a significant fact which would create suspicion in an
otherwise reasonable man is not an innocent purchaser for value. It is a well-settled rule that a
purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and
then claim that he acted in good faith under the belief that there was no defect in the title of the
vendor.20
As aptly observed by the RTC, regardless of the non-registration of the Deed of Absolute Sale to
petitioners, nor the 30-day effectivity of the adverse claim under Section 70 of PD 1529, respondents
were constructively notified of petitioners’ prior purchase of the disputed property. We quote with
approval the RTC’s observation on this matter, thus:
xxx In derogation to defendants claim that they have a better right over the questioned property
superior over that of the plaintiffs, the Court has only to carefully examine the face of TCT No.
83618 and its dorsal part on Memorandum of Encumbrances for entries and inscriptions in their
chronological order of dates of annotation of documents in the Office of the Register of Deeds. On
the title itself it is readily perceived and palpable that Entry No. 86-62262/T-83618 in reference to
the Adverse Claim executed by plaintiff Jesus Ching was registered way ahead on November 20,
1986 compared to Entries Nos. 3433-2, 3434-2 and 736-3, respectively the Notice of Levy, Writ of
Execution and Certificate of Sale in favor of spouses defendants Enrile which were duly registered
on August 19, 1988 (for the first two documents) and on March 21, 1989 (for the last document). 42
Perforce, before the registrations of the three documents purporting to be the rights and interests
of defendants in the property in question, the defendants more particularly and the whole world in
general were given constructive notice that Raymunda La Fuente, the judgment debtor in Civil Case
No. 54617 of the Regional Trial Court of Pasig, has no more interest and rights to the property
subject of litigation. Defendants should have at the first instance been duly warned and notified
that the property involved in litigation subject to attachment and levy, execution and sale from
actual registration of the defendants’ documents referred herein. The annotation of inscription to
Entry No. 86-622/T-83618 is obviously and indeed very clear indicating that the plaintiffs’ registered
adverse claim in reference to the sale of the same property sought by defendants to be levied on
attachment, final execution and sale came ahead.21
Hence, the particular circumstances of this case constrain us to rule that respondents were not
purchasers in good faith and, as such, could not acquire good title to the property as against the
former transferee.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals promulgated on August
29, 2002, in CA-G R. CV No. 42985, and the Resolution dated November 21, 2002 are hereby
REVERSED and SET ASIDE. In lieu thereof, the decision of the Regional Trial Court, of Makati City
Branch 135, dated May 11, 1993, in Civil Case No. 90-064 is REVIVED and AFFIRMED in toto.
No costs.
SO ORDERED.