[G.R. No. 124791.

February 10, 1999] with all the improvements thereon, covered by Transfer Certificates of
JOSE RAMON CARCELLER, petitioner, vs. COURT OF APPEALS Title Nos. 89152 and 89153 of the Registry of Deeds of Cebu City, in
and STATE INVESTMENT HOUSES, INC., respondents. accordance with the lease contract executed on January 10, 1984 between
DECISION the plaintiff and the defendant, but the purchase price may be by one shot
QUISUMBING, J.: payment of P1,800,000.00; and the defendant to pay attorneys fee
Before us is a petition for review of the Decision[1] dated September of P20,000.00.
21, 1995 of the Court of Appeals[2]in CA - G. R. CV No. 37520, as well No damages awarded.[13]
as its Resolution[3] dated April 25, 1996, denying both parties motion for Not satisfied with the judgment, SIHI elevated the case to the Court
partial reconsideration or clarification. The assailed decision affirmed of Appeals by way of a petition for review.
with modification the judgment[4] of the Regional Trial Court of Cebu On September 21, 1995, respondent court rendered its decision,
City, Branch 5, in Civil Case No. CEB 4700, and disposed of the affirming the trial courts judgment, but modified the basis for assessing
controversy as follows: the purchase price. While respondent court affirmed appellees option to
However, We do not find it just that the appellee, in exercising his option buy the property, it added that, the purchase price must be based on the
to buy, should pay appellant SIHI only P1,800,000.00. In fairness to prevailing market price of real property in Bulacao, Cebu City. [14]
appellant SIHI, the purchase price must be based on the prevailing market Baffled by the modification made by respondent court, both parties
price of real property in Bulacao, Cebu City. (Emphasis supplied) filed a motion for reconsideration and/or clarification, with petitioner, on
The factual background of this case is quite simple. one hand, praying that the prevailing market price be the value of the
Private respondent State Investment Houses, Inc. (SIHI) is the property in February 1986, the time when the sale would have been
registered owner of two (2) parcels of land with a total area of 9,774 square consummated. SIHI, on the other hand, prayed that the market price of the
meters, including all the improvements thereon, located at Bulacao, Cebu property be based on the prevailing price index at least 10 years later, that
City, covered by Transfer Certificate of Titles Nos. T-89152 and T-89153 is, 1996.
of the Registry of Deeds of Cebu City. Respondent court conducted further hearings to clarify the matter,
On January 10, 1985, petitioner and SIHI entered into a lease but no agreement was reached by the parties. Thus, on April 25, 1996,
contract with option to purchase[5] over said two parcels of land, at a respondent court promulgated the assailed resolution, which denied both
monthly rental of Ten Thousand (P10,000.00) pesos for a period of parties motions, and directed the trial court to conduct further hearings to
eighteen (18) months, beginning on August 1, 1984 until January 30, ascertain the prevailing market value of real properties in Bulacao, Cebu
1986. The pertinent portion of the lease contract subject of the dispute City and fix the value of the property subject of the controversy. 14a
reads in part: Hence, the instant petition for review.
4. As part of the consideration of this agreement, the LESSOR hereby The fundamental issue to be resolved is, should petitioner be allowed
grants unto the LESSEE the exclusive right, option and privilege to to exercise the option to purchase the leased property, despite the alleged
purchase, within the lease period, the leased premises thereon for the delay in giving the required notice to private respondent?
aggregate amount of P1,800,000.00 payable as follows: An option is a preparatory contract in which one party grants to the
a. Upon the signing of the Deed of Sale, the LESSEE shall immediately other, for a fixed period and under specified conditions, the power to
pay P360,000.00. decide, whether or not to enter into a principal contract. It binds the party
b. The balance of P1,440,000.00 shall be paid in equal installments who has given the option, not to enter into the principal contract with any
of P41,425.87 over sixty (60) consecutive months computed with interest other person during the period designated, and, within that period, to enter
at 24% per annum on the diminishing balance; Provided, that the LESSEE into such contract with the one to whom the option was granted, if the
shall have the right to accelerate payments at anytime in which event the latter should decide to use the option.[15] It is a separate agreement distinct
stipulated interest for the remaining installments shall no longer be from the contract which the parties may enter into upon the consummation
imposed. of the option.[16]
x . . The option shall be exercised by a written notice to the LESSOR at Considering the circumstances in this case, we find no reason to
anytime within the option period and the document of sale over the afore- disturb the findings of respondent court, that petitioners letter to SIHI,
described properties has to be consummated within the month dated January 15, 1986, was fair notice to the latter of the formers intent
immediately following the month when the LESSEE exercised his option to exercise the option, despite the request for the extension of the lease
under this contract.[6] contract. As stated in said letter to SIHI, petitioner was requesting for an
On January 7, 1986, or approximately three (3) weeks before the extension (of the contract) for six months to allow us to generate sufficient
expiration of the lease contract, SIHI notified petitioner of the impending funds in order to exercise our option to buy the subject property. [17] The
termination of the lease agreement, and of the short period of time left analysis by the Court of Appeals of the evidence on record and the process
within which he could still validly exercise the option. It likewise by which it arrived at its findings on the basis thereof, impel this Courts
requested petitioner to advise them of his decision on the option, on or assent to said findings. They are consistent with the parties primary intent,
before January 20, 1986.[7] as hereafter discussed, when they executed the lease contract. As
In a letter dated January 15, 1986, which was received by SIHI on respondent court ruled:
January 29, 1986, petitioner requested for a six-month extension of the We hold that the appellee [herein petitioner] acted with honesty and good
lease contract, alleging that he needs ample time to raise sufficient funds faith. Verily, We are in accord with the trial court that he should be
in order to exercise the option. To support his request, petitioner averred allowed to exercise his option to purchase the lease property. In fact, SIHI
that he had already made a substantial investment on the property, and had will not be prejudiced. A contrary ruling, however, will definitely cause
been punctual in paying his monthly rentals. [8] damage to the appellee, it appearing that he has introduced considerable
On February 14, 1986, SIHI notified petitioner that his request was improvements on the property and has borrowed huge loan from the
disapproved. Nevertheless, it offered to lease the same property to Technology Resources Center.17a
petitioner at the rate of Thirty Thousand (P30,000.00) pesos a month, for The contracting parties primary intent in entering into said lease
a period of one (1) year. It further informed the petitioner of its decision contract with option to purchase confirms, in our view, the correctness of
to offer for sale said leased property to the general public. [9] respondent courts ruling. Analysis and construction, however, should not
On February 18, 1986, petitioner notified SIHI of his decision to be limited to the words used in the contract, as they may not accurately
exercise the option to purchase the property and at the same time he made reflect the parties true intent. The reasonableness of the result obtained,
arrangements for the payment of the downpayment thereon in the amount after said analysis, ought likewise to be carefully considered.
of Three Hundred Sixty Thousand (P360,000.00) pesos.[10] It is well-settled in both law and jurisprudence, that contracts are the
On February 20, 1986, SIHI sent another letter to petitioner, law between the contracting parties and should be fulfilled, if their terms
reiterating its previous stand on the latters offer, stressing that the period are clear and leave no room for doubt as to the intention of the contracting
within which the option should have been exercised had already parties.[18] Further, it is well-settled that in construing a written agreement,
lapsed. SIHI asked petitioner to vacate the property within ten (10) days the reason behind and the circumstances surrounding its execution are of
from notice, and to pay rental and penalty due. [11] paramount importance. Sound construction requires one to be placed
mentally in the situation occupied by the parties concerned at the time the
Hence, on February 28, 1986, a complaint for specific performance writing was executed. Thereby, the intention of the contracting parties
and damages[12] was filed by petitioner against SIHI before the Regional could be made to prevail, because their agreement has the force of law
Trial Court of Cebu City, to compel the latter to honor its commitment and between them.[19]
execute the corresponding deed of sale. Moreover, to ascertain the intent of the parties in a contractual
After trial, the court a quo promulgated its decision dated April 1, relationship, it is imperative that the various stipulations provided for in
1991, the dispositive portion of which reads: the contract be construed together, consistent with the parties
In the light of the foregoing considerations, the Court hereby renders contemporaneous and subsequent acts as regards the execution of the
judgment in Civil Case No. CEB 4700, ordering the defendant to execute contract.[20] And once the intention of the parties has been ascertained, that
a deed of sale in favor of the plaintiff, covering the parcels of land together
element is deemed as an integral part of the contract as though it has been needed the property for his business and that he could afford to pay such
originally expressed in unequivocal terms. higher amount after having secured an P8 Million loan from the TRC. If
As sufficiently established during the trial, SIHI, prior to its the courts were to allow SIHI to take advantage of the situation, the result
negotiation with petitioner, was already beset with financial would have been an injustice to petitioner, because SIHI would be unjustly
problems. SIHI was experiencing difficulty in meeting the claims of its enriched at his expense. Courts of law, being also courts of equity, may
creditors. Thus, in order to reprogram the companys financial investment not countenance such grossly unfair results without doing violence to its
plan and facilitate its rehabilitation and viability, SIHI, being a quasi- solemn obligation to administer fair and equal justice for all.
banking financial institution, had been placed under the supervision and
control of the Central Bank (CB). It was in dire need of liquidating its WHEREFORE, the appealed decision of respondent court, insofar
assets, so to speak, in order to stay afloat financially. as it affirms the judgment of the trial court in granting petitioner the
Thus, SIHI was compelled to dispose some of its assets, among opportunity to exercise the option to purchase the subject property, is
which is the subject leased property, to generate sufficient funds to hereby AFFIRMED. However the purchase price should be based on the
augment its badly-depleted financial resources. This then brought about fair market value of real property in Bulacao, Cebu City, as of February
the execution of the lease contract with option to purchase between SIHI 1986, when the contract would have been consummated. Further,
and the petitioner. petitioner is hereby ordered to pay private respondent SIHI legal interest
The lease contract provided that to exercise the option, petitioner had on the said purchase price beginning February 1986 up to the time it is
to send a letter to SIHI, manifesting his intent to exercise said option actually paid, as well as the taxes due on said property, considering that
within the lease period ending January 30, 1986.However, what petitioner petitioner have enjoyed the beneficial use of said property. The case is
did was to request on January 15, 1986, for a six-month extension of the hereby remanded to Regional Trial Court of Cebu, Branch 5, for further
lease contract, for the alleged purpose of raising funds intended to proceedings to determine promptly the fair market value of said real
purchase the property subject of the option. It was only after the request property as of February 1986, in Bulacao, Cebu City.
was denied on February 14, 1986, that petitioner notified SIHI of his desire Costs against private respondent.
to exercise the option formally. This was by letter dated February 18, SO ORDERED.
1986. In private respondents view, there was already a delay of 18 days, G.R. No. L-25494 June 14, 1972
fatal to petitioners cause. But respondent court found the delay neither NICOLAS SANCHEZ, plaintiff-appellee,
substantial nor fundamental and did not amount to a breach that would vs.
defeat the intention of the parties when they executed the lease contract SEVERINA RIGOS, defendant-appellant.
with option to purchase.20a Santiago F. Bautista for plaintiff-appellee.
In allowing petitioner to exercise the option, however, both lower Jesus G. Villamar for defendant-appellant.
courts are in accord in their decision, rationalizing that a contrary ruling
would definitely cause damage to the petitioner, as he had the whole place CONCEPCION, C.J.:p
renovated to make the same suitable and conducive for the business he Appeal from a decision of the Court of First Instance of Nueva Ecija to
established there. Moreover, judging from the subsequent acts of the the Court of Appeals, which certified the case to Us, upon the ground that
parties, it is undeniable that SIHI really intended to dispose of said leased it involves a question purely of law.
property, which petitioner indubitably intended to buy. The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and
SIHIs agreement to enter first into a lease contract with option to defendant Severina Rigos executed an instrument entitled "Option to
purchase with herein petitioner, is a clear proof of its intent to promptly Purchase," whereby Mrs. Rigos "agreed, promised and committed ... to
dispose said property although the full financial returns may materialize sell" to Sanchez the sum of P1,510.00, a parcel of land situated in the
only in a years time. Furthermore, its letter dated January 7, 1986, barrios of Abar and Sibot, municipality of San Jose, province of Nueva
reminding the petitioner of the short period of time left within which to Ecija, and more particularly described in Transfer Certificate of Title No.
consummate their agreement, clearly showed its desire to sell that NT-12528 of said province, within two (2) years from said date with the
property. Also, SIHIs letter dated February 14, 1986 supported the understanding that said option shall be deemed "terminated and elapsed,"
conclusion that it was bent on disposing said property. For this letter made if "Sanchez shall fail to exercise his right to buy the property" within the
mention of the fact that, said property is now for sale to the general public. 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.
Petitioners determination to purchase said property is equally Rigos, on March 12, 1963, the former deposited said amount with the
indubitable. He introduced permanent improvements on the leased Court of First Instance of Nueva Ecija and commenced against the latter
property, demonstrating his intent to acquire dominion in a years time. To the present action, for specific performance and damages.
increase his chances of acquiring the property, he secured an P8 Million After the filing of defendant's answer — admitting some allegations of the
loan from the Technology Resources Center (TRC), thereby augmenting complaint, denying other allegations thereof, and alleging, as special
his capital. He averred that he applied for a loan since he planned to pay defense, that the contract between the parties "is a unilateral promise to
the purchase price in one single payment, instead of paying in installment, sell, and the same being unsupported by any valuable consideration, by
which would entail the payment of additional interest at the rate of 24% force of the New Civil Code, is null and void" — on February 11, 1964,
per annum, compared to 7% per annum interest for the TRC loan. His both parties, assisted by their respective counsel, jointly moved for a
letter earlier requesting extension was premised, in fact, on his need for judgment on the pleadings. Accordingly, on February 28, 1964, the lower
time to secure the needed financing through a TRC loan. court rendered judgment for Sanchez, ordering Mrs. Rigos to accept the
sum judicially consigned by him and to execute, in his favor, the requisite
In contractual relations, the law allows the parties reasonable leeway deed of conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00,
on the terms of their agreement, which is the law between them. [21] Note as attorney's fees, and other costs. Hence, this appeal by Mrs. Rigos.
that by contract SIHI had given petitioner 4 periods: (a) the option to This case admittedly hinges on the proper application of Article 1479 of
purchase the property for P1,800,000.00 within the lease period, that is, our Civil Code, which provides:
until January 30, 1986; (b) the option to be exercised within the option ART. 1479. A promise to buy and sell a determinate thing for a
period by written notice at anytime; (c) the document of sale...to be price certain is reciprocally demandable.
consummated within the month immediately following the month when An accepted unilateral promise to buy or to sell a determinate
petitioner exercises the option; and (d) the payment in equal installments thing for a price certain is binding upon the promissor if the
of the purchase price over a period of 60 months. In our view, petitioners promise is supported by a consideration distinct from the price.
letter of January 15, 1986 and his formal exercise of the option on In his complaint, plaintiff alleges that, by virtue of the option under
February 18, 1986 were within a reasonable time-frame consistent with consideration, "defendant agreed and committed to sell" and "the plaintiff
periods given and the known intent of the parties to the agreement dated agreed and committed to buy" the land described in the option, copy of
January 10, 1985. A contrary view would be harsh and inequituous indeed. which was annexed to said pleading as Annex A thereof and is quoted on
In Tuason, Jr., etc. vs. De Asis,[22] this Court opined that in a contract the margin.1 Hence, plaintiff maintains that the promise contained in the
of lease, if the lessor makes an offer to the lessee to purchase the property contract is "reciprocally demandable," pursuant to the first paragraph of
on or before the termination of the lease, and the lessee fails to accept or said Article 1479. Although defendant had really "agreed, promised and
make the purchase on time, the lessee losses the right to buy the property committed" herself to sell the land to the plaintiff, it is not true that the
later on the terms and conditions set in the offer. Thus, on one hand, latter had, in turn, "agreed and committed himself " to buy said property.
petitioner herein could not insist on buying the said property based on the Said Annex A does not bear out plaintiff's allegation to this effect. What
price agreed upon in the lease agreement, even if his option to purchase it is more, since Annex A has been made "an integral part" of his complaint,
is recognized. On the other hand, SIHI could not take advantage of the the provisions of said instrument form part "and parcel"2 of said pleading.
situation to increase the selling price of said property by nearly 90% of the The option did not impose upon plaintiff the obligation to
original price. Such leap in the price quoted would show an opportunistic purchase defendant's property. Annex A is not a "contract to buy and
intent to exploit the situation as SIHI knew for a fact that petitioner badly 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 It is true that under article 1324 of the new Civil Code, the
them to said instrument. Under the provisions thereof, the defendant general rule regarding offer and acceptance is that, when the
"agreed, promised and committed" herself to sell the land therein offerer gives to the offeree a certain period to accept, "the offer
described to the plaintiff for P1,510.00, but there is nothing in the contract may be withdrawn at any time before acceptance" except when
to indicate that her aforementioned agreement, promise and undertaking the option is founded upon consideration, but this general rule
is supported by a consideration "distinct from the price" stipulated for must be interpreted as modified by the provision of article 1479
the sale of the land. above referred to, which applies to "a promise to buy and
Relying upon Article 1354 of our Civil Code, the lower sell" specifically. As already stated, this rule requires that a
court presumed the existence of said consideration, and this would seem promise to sell to be valid must be supported by a consideration
to be the main factor that influenced its decision in plaintiff's favor. It distinct from the price.
should be noted, however, that: We are not oblivious of the existence of American authorities
(1) Article 1354 applies to contracts in general, whereas the second which hold that an offer, once accepted, cannot be withdrawn,
paragraph of Article 1479 refers to "sales" in particular, and, more regardless of whether it is supported or not by a consideration
specifically, to "an accepted unilateral promise to buy or to sell." In other (12 Am. Jur. 528). These authorities, we note, uphold
words, Article 1479 is controlling in the case at bar. the general rule applicable to offer and acceptance as contained
(2) In order that said unilateral promise may be "binding upon the in our new Civil Code. But we are prevented from applying them
promisor, Article 1479 requires the concurrence of a condition, namely, in view of the specific provision embodied in article 1479. While
that the promise be "supported by a consideration distinct from the price." under the "offer of option" in question appellant has assumed a
Accordingly, the promisee can not compel the promisor to comply with clear obligation to sell its barge to appellee and the option has
the promise, unless the former establishes the existence of said distinct been exercised in accordance with its terms, and there appears to
consideration. In other words, the promisee has the burden of be no valid or justifiable reason for appellant to withdraw its
proving such consideration. Plaintiff herein has not even alleged the offer, this Court cannot adopt a different attitude because the
existence thereof in his complaint. law on the matter is clear. Our imperative duty is to apply it
(3) Upon the other hand, defendant explicitly averred in her answer, and unless modified by Congress.
pleaded as a special defense, the absence of said consideration for her However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua
promise to sell and, by joining in the petition for a judgment on the Hian Tek,8 decided later that Southwestern Sugar & Molasses Co. v.
pleadings, plaintiff has impliedly admitted the truth of said averment in Atlantic Gulf & Pacific Co.,9 saw no distinction between Articles 1324 and
defendant's answer. Indeed as early as March 14, 1908, it had been held, 1479 of the Civil Code and applied the former where a unilateral promise
in Bauermann v. Casas,3 that: to sell similar to the one sued upon here was involved, treating such
One who prays for judgment on the pleadings without offering promise as an option which, although not binding as a contract in itself for
proof as to the truth of his own allegations, and without giving lack of a separate consideration, nevertheless generated a bilateral contract
the opposing party an opportunity to introduce evidence, must of purchase and sale upon acceptance. Speaking through Associate Justice,
be understood to admit the truth of all the material and relevant later Chief Justice, Cesar Bengzon, this Court said:
allegations of the opposing party, and to rest his motion for Furthermore, an option is unilateral: a promise to sell at the price
judgment on those allegations taken together with such of his fixed whenever the offeree should decide to exercise his option
own as are admitted in the pleadings. (La Yebana Company vs. within the specified time. After accepting the promise and before
Sevilla, 9 Phil. 210). (Emphasis supplied.) he exercises his option, the holder of the option is not bound to
This view was reiterated in Evangelista v. De la Rosa4 and Mercy's buy. He is free either to buy or not to buy later. In this case,
Incorporated v. Herminia Verde.5 however, upon accepting herein petitioner's offer a bilateral
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf promise to sell and to buy ensued, and the respondent ipso
& Pacific Co.,6 from which We quote: facto assumed the obligation of a purchaser. He did not just get
The main contention of appellant is that the option granted to the right subsequently to buy or not to buy. It was not a mere
appellee to sell to it barge No. 10 for the sum of P30,000 under option then; it was a bilateral contract of sale.
the terms stated above has no legal effect because it is not Lastly, even supposing that Exh. A granted an option
supported by any consideration and in support thereof it invokes which is not binding for lack of consideration, the
article 1479 of the new Civil Code. The article provides: authorities hold that:
"ART. 1479. A promise to buy and sell a "If the option is given without a consideration, it is a
determinate thing for a price certain is mere offer of a contract of sale, which is not binding
reciprocally demandable. until accepted. If, however, acceptance is made before
An accepted unilateral promise to buy or sell a withdrawal, it constitutes a binding contract of sale,
a determinate thing for a price certain is even though the option was not supported by a
binding upon the promisor if the promise is sufficient consideration. ... . (77 Corpus Juris
supported by a consideration distinct from the Secundum, p. 652. See also 27 Ruling Case Law 339
price." and cases cited.)
On the other hand, Appellee contends that, even granting that the "It can be taken for granted, as contended by the
"offer of option" is not supported by any consideration, that defendant, that the option contract was not valid for
option became binding on appellant when the appellee gave lack of consideration. But it was, at least, an offer to
notice to it of its acceptance, and that having accepted it within sell, which was accepted by letter, and of the
the period of option, the offer can no longer be withdrawn and in acceptance the offerer had knowledge before said offer
any event such withdrawal is ineffective. In support this was withdrawn. The concurrence of both acts — the
contention, appellee invokes article 1324 of the Civil Code offer and the acceptance — could at all events have
which provides: generated a contract, if none there was before (arts.
"ART. 1324. When the offerer has allowed 1254 and 1262 of the Civil Code)." (Zayco vs. Serra,
the offeree a certain period to accept, the offer 44 Phil. 331.)
may be withdrawn any time before In other words, since there may be no valid contract without a cause or
acceptance by communicating such consideration, the promisor is not bound by his promise and may,
withdrawal, except when the option is accordingly, withdraw it. Pending notice of its withdrawal, his accepted
founded upon consideration as something promise partakes, however, of the nature of an offer to sell which, if
paid or promised." accepted, results in a perfected contract of sale.
There is no question that under article 1479 of the new Civil This view has the advantage of avoiding a conflict between Articles 1324
Code "an option to sell," or "a promise to buy or to sell," as used — on the general principles on contracts — and 1479 — on sales — of the
in said article, to be valid must be "supported by a consideration Civil Code, in line with the cardinal rule of statutory construction that, in
distinct from the price." This is clearly inferred from the context construing different provisions of one and the same law or code, such
of said article that a unilateral promise to buy or to sell, even if interpretation should be favored as will reconcile or harmonize said
accepted, is only binding if supported by consideration. In other provisions and avoid a conflict between the same. Indeed, the presumption
words, "an accepted unilateral promise can only have a binding is that, in the process of drafting the Code, its author has maintained a
effect if supported by a consideration which means that the consistent philosophy or position. Moreover, the decision in Southwestern
option can still be withdrawn, even if accepted, if the same is not Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art.
supported by any consideration. It is not disputed that the option 1324 is modified by Art. 1479 of the Civil Code, in effect, considers the
is without consideration. It can therefore be withdrawn latter as an exception to the former, and exceptions are not favored, unless
notwithstanding the acceptance of it by appellee. 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 entire Claro M. Recto property. Mr. Pascal told Mr. Yang that a
paragraph of Art. 1479 and Art. 1324, to an option or promise supported certain Jose Araneta was offering to buy the whole property for
by or founded upon a consideration, strongly suggests that the two (2) US Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the
provisions intended to enforce or implement the same principle. latter was willing to buy the property for Six to Seven Million
Upon mature deliberation, the Court is of the considered opinion that it Pesos.
should, as it hereby reiterates the doctrine laid down in the Atkins, Kroll Mr. Yang replied that he would let Mr. Pascal know of his
& Co. case, and that, insofar as inconsistent therewith, the view adhered decision. On August 23, 1974, Mayfair replied through a letter
to in the Southwestern Sugar & Molasses Co. case should be deemed stating as follows:
abandoned or modified. It appears that on August 19, 1974 your Mr. Henry
WHEREFORE, the decision appealed from is hereby affirmed, with costs Pascal informed our client's Mr. Henry Yang through
against defendant-appellant Severina Rigos. It is so ordered. the telephone that your company desires to sell your
G.R. No. 106063 November 21, 1996 above-mentioned C.M. Recto Avenue property.
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & Under your company's two lease contracts with our
BAUERMANN, INC., petitioners, client, it is uniformly provided:
vs. 8. That if the LESSOR should desire to sell the leased
MAYFAIR THEATER, INC., respondent. premises the LESSEE shall be given 30-days exclusive
option to purchase the same. In the event, however, that
HERMOSISIMA, JR., J.: the leased premises is sold to someone other than the
Before us is a petition for review of the decision1 of the Court of LESSEE, the LESSOR is bound and obligated, as it is
Appeals2 involving questions in the resolution of which the (sic) herebinds (sic) and obligates itself, to stipulate in
respondent appellate court analyzed and interpreted particular the Deed of Sale thereof that the purchaser shall
provisions of our laws on contracts and sales. In its assailed recognize this lease and be bound by all the terms and
decision, the respondent court reversed the trial court3 which, in conditions hereof (sic).
dismissing the complaint for specific performance with damages Carmelo did not reply to this letter.
and annulment of contract,4 found the option clause in the lease On September 18, 1974, Mayfair sent another letter to Carmelo
contracts entered into by private respondent Mayfair Theater, purporting to express interest in acquiring not only the leased
Inc. (hereafter, Mayfair) and petitioner Carmelo & Bauermann, premises but "the entire building and other improvements if the
Inc. (hereafter, Carmelo) to be impossible of performance and price is reasonable. However, both Carmelo and Equatorial
unsupported by a consideration and the subsequent sale of the questioned the authenticity of the second letter.
subject property to petitioner Equatorial Realty Development, Four years later, on July 30, 1978, Carmelo sold its entire C.M.
Inc. (hereafter, Equatorial) to have been made without any Recto Avenue land and building, which included the leased
breach of or prejudice to, the said lease contracts. 5 premises housing the "Maxim" and "Miramar" theatres, to
We reproduce below the facts as narrated by the respondent Equatorial by virtue of a Deed of Absolute Sale, for the total sum
court, which narration, we note, is almost verbatim the basis of of P11,300,000.00.
the statement of facts as rendered by the petitioners in their In September 1978, Mayfair instituted the action a quo for
pleadings: specific performance and annulment of the sale of the leased
Carmelo owned a parcel of land, together with two 2-storey premises to Equatorial. In its Answer, Carmelo alleged as special
buildings constructed thereon located at Claro M Recto Avenue, and affirmative defense (a) that it had informed Mayfair of its
Manila, and covered by TCT No. 18529 issued in its name by desire to sell the entire C.M. Recto Avenue property and offered
the Register of Deeds of Manila. the same to Mayfair, but the latter answered that it was interested
On June 1, 1967 Carmelo entered into a contract of lease with only in buying the areas under lease, which was impossible since
Mayfair for the latter's lease of a portion of Carmelo's property the property was not a condominium; and (b) that the option to
particularly described, to wit: purchase invoked by Mayfair is null and void for lack of
A PORTION OF THE SECOND FLOOR of the two- consideration. Equatorial, in its Answer, pleaded as special and
storey building, situated at C.M. Recto Avenue, affirmative defense that the option is void for lack of
Manila, with a floor area of 1,610 square meters. consideration (sic) and is unenforceable by reason of its
THE SECOND FLOOR AND MEZZANINE of the impossibility of performance because the leased premises could
two-storey building, situated at C.M. Recto Avenue, not be sold separately from the other portions of the land and
Manila, with a floor area of 150 square meters. building. It counterclaimed for cancellation of the contracts of
for use by Mayfair as a motion picture theater and for a term of lease, and for increase of rentals in view of alleged supervening
twenty (20) years. Mayfair thereafter constructed on the leased extraordinary devaluation of the currency. Equatorial likewise
property a movie house known as "Maxim Theatre." cross-claimed against co-defendant Carmelo for indemnification
Two years later, on March 31, 1969, Mayfair entered into a in respect of Mayfair's claims.
second contract of lease with Carmelo for the lease of another During the pre-trial conference held on January 23, 1979, the
portion of Carmelo's property, to wit: parties stipulated on the following:
A PORTION OF THE SECOND FLOOR of the two- 1. That there was a deed of sale of the contested
storey building, situated at C.M. Recto Avenue, premises by the defendant Carmelo . . . in favor of
Manila, with a floor area of 1,064 square meters. defendant Equatorial . . .;
THE TWO (2) STORE SPACES AT THE GROUND 2. That in both contracts of lease there appear (sic) the
FLOOR and MEZZANINE of the two-storey building stipulation granting the plaintiff exclusive option to
situated at C.M. Recto Avenue, Manila, with a floor purchase the leased premises should the lessor desire
area of 300 square meters and bearing street numbers to sell the same (admitted subject to the contention that
1871 and 1875, the stipulation is null and void);
for similar use as a movie theater and for a similar term 3. That the two buildings erected on this land are not of
of twenty (20) years. Mayfair put up another movie the condominium plan;
house known as "Miramar Theatre" on this leased 4. That the amounts stipulated and mentioned in
property. paragraphs 3 (a) and (b) of the contracts of lease
Both contracts of lease provides (sic) identically worded constitute the consideration for the plaintiff's
paragraph 8, which reads: occupancy of the leased premises, subject of the same
That if the LESSOR should desire to sell the leased contracts of lease, Exhibits A and B;
premises, the LESSEE shall be given 30-days xxx xxx xxx
exclusive option to purchase the same. 6. That there was no consideration specified in the
In the event, however, that the leased premises is sold option to buy embodied in the contract;
to someone other than the LESSEE, the LESSOR is 7. That Carmelo & Bauermann owned the land and the
bound and obligated, as it hereby binds and obligates two buildings erected thereon;
itself, to stipulate in the Deed of Sale hereof that the 8. That the leased premises constitute only the portions
purchaser shall recognize this lease and be bound by all actually occupied by the theaters; and
the terms and conditions thereof. 9. That what was sold by Carmelo & Bauermann to
Sometime in August 1974, Mr. Henry Pascal of Carmelo defendant Equatorial Realty is the land and the two
informed Mr. Henry Yang, President of Mayfair, through a buildings erected thereon.
telephone conversation that Carmelo was desirous of selling the xxx xxx xxx
After assessing the evidence, the court a quo rendered the of Sanchez vs. Rigor, 45 SCRA 368, 372-373, the
appealed decision, the decretal portion of which reads as follows: Court said:
WHEREFORE, judgment is hereby rendered: (1) Article 1354 applies to contracts in
(1) Dismissing the complaint with costs against the general, whereas the second paragraph of
plaintiff; Article 1479 refers to sales in particular, and,
(2) Ordering plaintiff to pay defendant Carmelo & more specifically, to an accepted unilateral
Bauermann P40,000.00 by way of attorney's fees on its promise to buy or to sell. In other words,
counterclaim; Article 1479 is controlling in the case at bar.
(3) Ordering plaintiff to pay defendant Equatorial (2) In order that said unilateral promise may be binding
Realty P35,000.00 per month as reasonable upon the promissor, Article 1479 requires the
compensation for the use of areas not covered by the concurrence of a condition, namely, that the promise
contract (sic) of lease from July 31, 1979 until plaintiff be supported by a consideration distinct from the price.
vacates said area (sic) plus legal interest from July 31, Accordingly, the promisee cannot compel the
1978; P70,000 00 per month as reasonable promissor to comply with the promise, unless the
compensation for the use of the premises covered by former establishes the existence of said distinct
the contracts (sic) of lease dated (June 1, 1967 from consideration. In other words, the promisee has the
June 1, 1987 until plaintiff vacates the premises plus burden of proving such consideration. Plaintiff herein
legal interest from June 1, 1987; P55,000.00 per month has not even alleged the existence thereof in his
as reasonable compensation for the use of the premises complaint. 7
covered by the contract of lease dated March 31, 1969 It follows that plaintiff cannot compel defendant
from March 30, 1989 until plaintiff vacates the Carmelo & Bauermann to sell the C.M. Recto property
premises plus legal interest from March 30, 1989; and to the former.
P40,000.00 as attorney's fees; Mayfair taking exception to the decision of the trial court, the
(4) Dismissing defendant Equatorial's crossclaim battleground shifted to the respondent Court of Appeals.
against defendant Carmelo & Bauermann. Respondent appellate court reversed the court a quo and
The contracts of lease dated June 1, 1967 and March rendered judgment:
31, 1969 are declared expired and all persons claiming 1. Reversing and setting aside the appealed Decision;
rights under these contracts are directed to vacate the 2. Directing the plaintiff-appellant Mayfair Theater
premises.6 Inc. to pay and return to Equatorial the amount of
The trial court adjudged the identically worded paragraph 8 P11,300,000.00 within fifteen (15) days from notice of
found in both aforecited lease contracts to be an option clause this Decision, and ordering Equatorial Realty
which however cannot be deemed to be binding on Carmelo Development, Inc. to accept such payment;
because of lack of distinct consideration therefor. 3. Upon payment of the sum of P11,300,000, directing
The court a quo ratiocinated: Equatorial Realty Development, Inc. to execute the
Significantly, during the pre-trial, it was admitted by deeds and documents necessary for the issuance and
the parties that the option in the contract of lease is not transfer of ownership to Mayfair of the lot registered
supported by a separate consideration. Without a under TCT Nos. 17350, 118612, 60936, and 52571;
consideration, the option is therefore not binding on and
defendant Carmelo & Bauermann to sell the C.M. 4. Should plaintiff-appellant Mayfair Theater, Inc. be
Recto property to the former. The option invoked by unable to pay the amount as adjudged, declaring the
the plaintiff appears in the contracts of lease . . . in Deed of Absolute Sale between the defendants-
effect there is no option, on the ground that there is no appellants Carmelo & Bauermann, Inc. and Equatorial
consideration. Article 1352 of the Civil Code, Realty Development, Inc. as valid and binding upon all
provides: the parties.8
Contracts without cause or with unlawful Rereading the law on the matter of sales and option contracts,
cause, produce no effect whatever. The cause respondent Court of Appeals differentiated between Article 1324
is unlawful if it is contrary to law, morals, and Article 1479 of the Civil Code, analyzed their application to
good custom, public order or public policy. the facts of this case, and concluded that since paragraph 8 of the
Contracts therefore without consideration produce no two lease contracts does not state a fixed price for the purchase
effect whatsoever. Article 1324 provides: of the leased premises, which is an essential element for a
When the offeror has allowed the offeree a contract of sale to be perfected, what paragraph 8 is, must be a
certain period to accept, the offer may be right of first refusal and not an option contract. It explicated:
withdrawn at any time before acceptance by Firstly, the court a quo misapplied the provisions of
communicating such withdrawal, except Articles 1324 and 1479, second paragraph, of the Civil
when the option is founded upon Code.
consideration, as something paid or Article 1324 speaks of an "offer" made by an offeror
promised. which the offeree may or may not accept within a
in relation with Article 1479 of the same Code: certain period. Under this article, the offer may be
A promise to buy and sell a determine thing withdrawn by the offeror before the expiration of the
for a price certain is reciprocally demandable. period and while the offeree has not yet accepted the
An accepted unilateral promise to buy or to offer. However, the offer cannot be withdrawn by the
sell a determine thing for a price certain is offeror within the period if a consideration has been
binding upon the promissor if the promise is promised or given by the offeree in exchange for the
supported by a consideration distinct from the privilege of being given that period within which to
price. accept the offer. The consideration is distinct from the
The plaintiff cannot compel defendant Carmelo to price which is part of the offer. The contract that arises
comply with the promise unless the former establishes is known as option. In the case of Beaumont vs. Prieto,
the existence of a distinct consideration. In other 41 Phil. 670, the Supreme court, citing Bouvier,
words, the promisee has the burden of proving the defined an option as follows: "A contract by virtue of
consideration. The consideration cannot be presumed which A, in consideration of the payment of a certain
as in Article 1354: sum to B, acquires the privilege of buying from or
Although the cause is not stated in the selling to B, certain securities or properties within a
contract, it is presumed that it exists and is limited time at a specified price," (pp. 686-7).
lawful unless the debtor proves the contrary. Article 1479, second paragraph, on the other hand,
where consideration is legally presumed to exists. contemplates of an "accepted unilateral promise to buy
Article 1354 applies to contracts in general, whereas or to sell a determinate thing for a price within (which)
when it comes to an option it is governed particularly is binding upon the promisee if the promise is
and more specifically by Article 1479 whereby the supported by a consideration distinct from the price."
promisee has the burden of proving the existence of That "unilateral promise to buy or to sell a determinate
consideration distinct from the price. Thus, in the case thing for a price certain" is called an offer. An "offer",
in laws, is a proposal to enter into a contract
(Rosenstock vs. Burke, 46 Phil. 217). To constitute a We rule, therefore, that the foregoing interpretation best renders
legal offer, the proposal must be certain as to the object, effectual the intention of the parties.9
the price and other essential terms of the contract (Art. Besides the ruling that paragraph 8 vests in Mayfair the right of
1319, Civil Code). first refusal as to which the requirement of distinct consideration
Based on the foregoing discussion, it is evident that the indispensable in an option contract, has no application,
provision granting Mayfair "30-days exclusive option respondent appellate court also addressed the claim of Carmelo
to purchase" the leased premises is NOT AN OPTION and Equatorial that assuming arguendo that the option is valid
in the context of Arts. 1324 and 1479, second and effective, it is impossible of performance because it covered
paragraph, of the Civil Code. Although the provision is only the leased premises and not the entire Claro M. Recto
certain as to the object (the sale of the leased premises) property, while Carmelo's offer to sell pertained to the entire
the price for which the object is to be sold is not stated property in question. The Court of Appeals ruled as to this issue
in the provision Otherwise stated, the questioned in this wise:
stipulation is not by itself, an "option" or the "offer to We are not persuaded by the contentions of the
sell" because the clause does not specify the price for defendants-appellees. It is to be noted that the Deed of
the subject property. Absolute Sale between Carmelo and Equatorial
Although the provision giving Mayfair "30-days covering the whole Claro M. Recto property, made
exclusive option to purchase" cannot be legally reference to four titles: TCT Nos. 17350, 118612,
categorized as an option, it is, nevertheless, a valid and 60936 and 52571. Based on the information submitted
binding stipulation. What the trial court failed to by Mayfair in its appellant's Brief (pp. 5 and 46) which
appreciate was the intention of the parties behind the has not been controverted by the appellees, and which
questioned proviso. We, therefore, take judicial notice of the two theaters
xxx xxx xxx stand on the parcels of land covered by TCT No. 17350
The provision in question is not of the pro-forma type with an area of 622.10 sq. m and TCT No. 118612 with
customarily found in a contract of lease. Even an area of 2,100.10 sq. m. The existence of four
appellees have recognized that the stipulation was separate parcels of land covering the whole Recto
incorporated in the two Contracts of Lease at the property demonstrates the legal and physical
initiative and behest of Mayfair. Evidently, the possibility that each parcel of land, together with the
stipulation was intended to benefit and protect Mayfair buildings and improvements thereof, could have been
in its rights as lessee in case Carmelo should decide, sold independently of the other parcels.
during the term of the lease, to sell the leased property. At the time both parties executed the contracts, they
This intention of the parties is achieved in two ways in were aware of the physical and structural conditions of
accordance with the stipulation. The first is by giving the buildings on which the theaters were to be
Mayfair "30-days exclusive option to purchase" the constructed in relation to the remainder of the whole
leased property. The second is, in case Mayfair would Recto property. The peculiar language of the
opt not to purchase the leased property, "that the stipulation would tend to limit Mayfair's right under
purchaser (the new owner of the leased property) shall paragraph 8 of the Contract of Lease to the acquisition
recognize the lease and be bound by all the terms and of the leased areas only. Indeed, what is being
conditions thereof." contemplated by the questioned stipulation is a
In other words, paragraph 8 of the two Contracts of departure from the customary situation wherein the
lease, particularly the stipulation giving Mayfair "30- buildings and improvements are included in and form
days exclusive option to purchase the (leased part of the sale of the subjacent land. Although this
premises)," was meant to provide Mayfair the situation is not common, especially considering the
opportunity to purchase and acquire the leased property non-condominium nature of the buildings, the sale
in the event that Carmelo should decide to dispose of would be valid and capable of being performed. A sale
the property. In order to realize this intention, the limited to the leased premises only, if hypothetically
implicit obligation of Carmelo once it had decided to assumed, would have brought into operation the
sell the leased property, was not only to notify Mayfair provisions of co-ownership under which Mayfair
of such decision to sell the property, but, more would have become the exclusive owner of the leased
importantly, to make an offer to sell the leased premises and at the same time a co-owner with
premises to Mayfair, giving the latter a fair and Carmelo of the subjacent land in proportion to
reasonable opportunity to accept or reject the offer, Mayfair's interest over the premises sold to it.10
before offering to sell or selling the leased property to Carmelo and Equatorial now comes before us questioning the
third parties. The right vested in Mayfair is analogous correctness and legal basis for the decision of respondent Court
to the right of first refusal, which means that Carmelo of Appeals on the basis of the following assigned errors:
should have offered the sale of the leased premises to I
Mayfair before offering it to other parties, or, if THE COURT OF APPEALS GRAVELY ERRED IN
Carmelo should receive any offer from third parties to CONCLUDING THAT THE OPTION CLAUSE IN
purchase the leased premises, then Carmelo must first THE CONTRACTS OF LEASE IS ACTUALLY A
give Mayfair the opportunity to match that offer. RIGHT OF FIRST REFUSAL PROVISO. IN DOING
In fact, Mr. Pascal understood the provision as giving SO THE COURT OF APPEALS DISREGARDED
Mayfair a right of first refusal when he made the THE CONTRACTS OF LEASE WHICH CLEARLY
telephone call to Mr. Yang in 1974. Mr. Pascal thus AND UNEQUIVOCALLY PROVIDE FOR AN
testified: OPTION, AND THE ADMISSION OF THE
Q Can you tell this Honorable Court how you PARTIES OF SUCH OPTION IN THEIR
made the offer to Mr. Henry Yang by STIPULATION OF FACTS.
telephone? II
A I have an offer from another party to buy WHETHER AN OPTION OR RIGHT OF FIRST
the property and having the offer we decided REFUSAL, THE COURT OF APPEALS ERRED IN
to make an offer to Henry Yang on a first- DIRECTING EQUATORIAL TO EXECUTE A
refusal basis. (TSN November 8, 1983, p. DEED OF SALE EIGHTEEN (18) YEARS AFTER
12.). MAYFAIR FAILED TO EXERCISE ITS OPTION
and on cross-examination: (OR, EVEN ITS RIGHT OF FIRST REFUSAL
Q When you called Mr. Yang on August 1974 ASSUMING IT WAS ONE) WHEN THE
can you remember exactly what you have told CONTRACTS LIMITED THE EXERCISE OF SUCH
him in connection with that matter, Mr. OPTION TO 30 DAYS FROM NOTICE.
Pascal? III
A More or less, I told him that I received an THE COURT OF APPEALS GRIEVOUSLY ERRED
offer from another party to buy the property WHEN IT DIRECTED IMPLEMENTATION OF ITS
and I was offering him first choice of the DECISION EVEN BEFORE ITS FINALITY, AND
enter property. (TSN, November 29, 1983, p. WHEN IT GRANTED MAYFAIR A RELIEF THAT
18).
 WAS NOT EVEN PRAYED FOR IN THE period and for the price mentioned . . . There was,
COMPLAINT. therefore, a meeting of minds on the part of the one and
IV the other, with regard to the stipulations made in the
THE COURT OF APPEALS VIOLATED ITS OWN said document. But it is not shown that there was any
INTERNAL RULES IN THE ASSIGNMENT OF cause or consideration for that agreement, and this
APPEALED CASES WHEN IT ALLOWED THE omission is a bar which precludes our holding that the
SAME DIVISION XII, PARTICULARLY JUSTICE stipulations contained in Exhibit E is a contract of
MANUEL HERRERA, TO RESOLVE ALL THE option, for, . . . there can be no contract without the
MOTIONS IN THE "COMPLETION PROCESS" requisite, among others, of the cause for the obligation
AND TO STILL RESOLVE THE MERITS OF THE to be established.
CASE IN THE "DECISION STAGE".11 In his Law Dictionary, edition of 1897, Bouvier defines
We shall first dispose of the fourth assigned error respecting an option as a contract, in the following language:
alleged irregularities in the raffle of this case in the Court of A contract by virtue of which A, in
Appeals. Suffice it to say that in our Resolution, 12 dated consideration of the payment of a certain
December 9, 1992, we already took note of this matter and set sum to B, acquires the privilege of buying
out the proper applicable procedure to be the following: from, or selling to B, certain securities or
On September 20, 1992, counsel for petitioner properties within a limited time at a specified
Equatorial Realty Development, Inc. wrote a letter- price. (Story vs. Salamon, 71 N.Y., 420.)
complaint to this Court alleging certain irregularities From vol. 6, page 5001, of the work "Words and
and infractions committed by certain lawyers, and Phrases," citing the case of Ide vs. Leiser (24 Pac., 695;
Justices of the Court of Appeals and of this Court in 10 Mont., 5; 24 Am. St. Rep., 17) the following
connection with case CA-G.R. CV No. 32918 (now quotation has been taken:
G.R. No. 106063). This partakes of the nature of an An agreement in writing to give a person the
administrative complaint for misconduct against option to purchase lands within a given
members of the judiciary. While the letter-complaint time at a named price is neither a sale nor an
arose as an incident in case CA-G.R. CV No. 32918 agreement to sell. It is simply a contract by
(now G.R. No. 106063), the disposition thereof should which the owner of property agrees with
be separate and independent from Case G.R. No. another person that he shall have the right to
106063. However, for purposes of receiving the buy his property at a fixed price within a
requisite pleadings necessary in disposing of the certain time. He does not sell his land; he
administrative complaint, this Division shall continue does not then agree to sell it; but he does sell
to have control of the case. Upon completion thereof, something; that is, the right or privilege to
the same shall be referred to the Court En Banc for buy at the election or option of the other
proper disposition.13 party. The second party gets in praesenti, not
This court having ruled the procedural irregularities raised in the lands, nor an agreement that he shall have
fourth assigned error of Carmelo and Equatorial, to be an lands, but he does get something of value;
independent and separate subject for an administrative complaint that is, the right to call for and receive lands
based on misconduct by the lawyers and justices implicated if he elects. The owner parts with his right to
therein, it is the correct, prudent and consistent course of action sell his lands, except to the second party, for
not to pre-empt the administrative proceedings to be undertaken a limited period. The second party receives
respecting the said irregularities. Certainly, a discussion this right, or, rather, from his point of view,
thereupon by us in this case would entail a finding on the merits he receives the right to elect to buy.
as to the real nature of the questioned procedures and the true But the two definitions above cited refer to the contract
intentions and motives of the players therein. of option, or, what amounts to the same thing, to the
In essence, our task is two-fold: (1) to define the true nature, case where there was cause or consideration for the
scope and efficacy of paragraph 8 stipulated in the two contracts obligation, the subject of the agreement made by the
of lease between Carmelo and Mayfair in the face of conflicting parties; while in the case at bar there was no such cause
findings by the trial court and the Court of Appeals; and (2) to or consideration. 16 (Emphasis ours.)
determine the rights and obligations of Carmelo and Mayfair, as The rule so early established in this jurisdiction is that the deed
well as Equatorial, in the aftermath of the sale by Carmelo of the of option or the option clause in a contract, in order to be valid
entire Claro M. Recto property to Equatorial. and enforceable, must, among other things, indicate the definite
Both contracts of lease in question provide the identically price at which the person granting the option, is willing to sell.
worded paragraph 8, which reads: Notably, in one case we held that the lessee loses his right to buy the leased
That if the LESSOR should desire to sell the leased property for a named price per square meter upon failure to make the
premises, the LESSEE shall be given 30-days purchase within the time specified;17 in one other case we freed the
exclusive option to purchase the same. landowner from her promise to sell her land if the prospective buyer could
In the event, however, that the leased premises is sold raise P4,500.00 in three weeks because such option was not supported by
to someone other than the LESSEE, the LESSOR is a distinct consideration;18 in the same vein in yet one other case, we also
bound and obligated, as it hereby binds and obligates invalidated an instrument entitled, "Option to Purchase" a parcel of land
itself, to stipulate in the Deed of Sale thereof that the for the sum of P1,510.00 because of lack of consideration; 19 and as an
purchaser shall recognize this lease and be bound by all exception to the doctrine enumerated in the two preceding cases, in
the terms and conditions thereof.14 another case, we ruled that the option to buy the leased premises for
We agree with the respondent Court of Appeals that the P12,000.00 as stipulated in the lease contract, is not without consideration
aforecited contractual stipulation provides for a right of first for in reciprocal contracts, like lease, the obligation or promise of each
refusal in favor of Mayfair. It is not an option clause or an option party is the consideration for that of the other. 20 In all these cases, the
contract. It is a contract of a right of first refusal. selling price of the object thereof is always predetermined and specified
As early as 1916, in the case of Beaumont in the option clause in the contract or in the separate deed of option. We
vs. Prieto,15 unequivocal was our characterization of an option elucidated, thus, in the very recent case of Ang Yu Asuncion vs. Court of
contract as one necessarily involving the choice granted to Appeals21 that:
another for a distinct and separate consideration as to whether or . . . In sales, particularly, to which the topic for discussion about
not to purchase a determinate thing at a predetermined fixed the case at bench belongs, the contract is perfected when a
price. person, called the seller, obligates himself, for a price certain, to
It is unquestionable that, by means of the document deliver and to transfer ownership of a thing or right to another,
Exhibit E, to wit, the letter of December 4, 1911, called the buyer, over which the latter agrees. Article 1458 of the
quoted at the beginning of this decision, the defendant Civil Code provides:
Valdes granted to the plaintiff Borck the right to Art. 1458. By the contract of sale one of the contracting
purchase the Nagtajan Hacienda belonging to Benito parties obligates himself to transfer the ownership of
Legarda, during the period of three months and for its and to deliver a determinate thing, and the other to pay
assessed valuation, a grant which necessarily implied therefor a price certain in money or its equivalent.
the offer or obligation on the part of the defendant A contract of sale may be absolute or conditional.
Valdes to sell to Borck the said hacienda during the
When the sale is not absolute but conditional, such as in a There is nothing in the identical Paragraphs "8" of the June 1,
"Contract to Sell" where invariably the ownership of the thing 1967 and March 31, 1969 contracts which would bring them into
sold in retained until the fulfillment of a positive suspensive the ambit of the usual offer or option requiring an independent
condition (normally, the full payment of the purchase price), the consideration.
breach of the condition will prevent the obligation to convey title An option is a contract granting a privilege to buy or sell within
from acquiring an obligatory force. . . . an agreed time and at a determined price. It is a separate and
An unconditional mutual promise to buy and sell, as long as the distinct contract from that which the parties may enter into upon
object is made determinate and the price is fixed, can be the consummation of the option. It must be supported by
obligatory on the parties, and compliance therewith may consideration.22 In the instant case, the right of first refusal is an
accordingly be exacted. integral part of the contracts of lease. The consideration is built
An accepted unilateral promise which specifies the thing to be into the reciprocal obligations of the parties.
sold and the price to be paid, when coupled with a valuable To rule that a contractual stipulation such as that found in
consideration distinct and separate from the price, is what may paragraph 8 of the contracts is governed by Article 1324 on
properly be termed a perfected contract of option. This contract withdrawal of the offer or Article 1479 on promise to buy and
is legally binding, and in sales, it conforms with the second sell would render in effectual or "inutile" the provisions on right
paragraph of Article 1479 of the Civil Code, viz: of first refusal so commonly inserted in leases of real estate
Art. 1479. . . . nowadays. The Court of Appeals is correct in stating that
An accepted unilateral promise to buy or to sell a Paragraph 8 was incorporated into the contracts of lease for the
determinate thing for a price certain is binding upon the benefit of Mayfair which wanted to be assured that it shall be
promisor if the promise is supported by a consideration given the first crack or the first option to buy the property at the
distinct from the price. (1451a). price which Carmelo is willing to accept. It is not also correct to
Observe, however, that the option is not the contract of sale say that there is no consideration in an agreement of right of first
itself. The optionee has the right, but not the obligation, to buy. refusal. The stipulation is part and parcel of the entire contract of
Once the option is exercised timely, i.e., the offer is accepted lease. The consideration for the lease includes the consideration
before a breach of the option, a bilateral promise to sell and to for the right of first refusal. Thus, Mayfair is in effect stating that
buy ensues and both parties are then reciprocally bound to it consents to lease the premises and to pay the price agreed upon
comply with their respective undertakings. provided the lessor also consents that, should it sell the leased
Let us elucidate a little. A negotiation is formally initiated by an property, then, Mayfair shall be given the right to match the
offer. An imperfect promise (policitacion) is merely an offer. offered purchase price and to buy the property at that price. As
Public advertisements or solicitations and the like are ordinarily stated in Vda. De Quirino vs. Palarca,23 in reciprocal contract,
construed as mere invitations to make offers or only as the obligation or promise of each party is the consideration for
proposals. These relations, until a contract is perfected, are not that of the other.
considered binding commitments. Thus, at any time prior to the The respondent Court of Appeals was correct in ascertaining the
perfection of the contract, either negotiating party may stop the true nature of the aforecited paragraph 8 to be that of a
negotiation. The offer, at this stage, may be withdrawn; the contractual grant of the right of first refusal to Mayfair.
withdrawal is effective immediately after its manifestation, such We shall now determine the consequential rights, obligations
as by its mailing and not necessarily when the offeree learns of and liabilities of Carmelo, Mayfair and Equatorial.
the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period The different facts and circumstances in this case call for an
is given to the offeree within which to accept the offer, the amplification of the precedent in Ang Yu Asuncion vs. Court of
following rules generally govern: Appeals.24
(1) If the period is not itself founded upon or supported by a First and foremost is that the petitioners acted in bad faith to
consideration, the offeror is still free and has the right to render Paragraph 8 "inutile".
withdraw the offer before its acceptance, or if an acceptance has What Carmelo and Mayfair agreed to, by executing the two lease
been made, before the offeror's coming to know of such fact, by contracts, was that Mayfair will have the right of first refusal in
communicating that withdrawal to the offeree (see Art. 1324, the event Carmelo sells the leased premises. It is undisputed that
Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, Carmelo did recognize this right of Mayfair, for it informed the
holding that this rule is applicable to a unilateral promise to sell latter of its intention to sell the said property in 1974. There was
under Art. 1479, modifying the previous decision in South an exchange of letters evidencing the offer and counter-offers
Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, made by both parties. Carmelo, however, did not pursue the
Civil Code; Rural Bank of Parañaque, Inc. vs. Remolado, 135 exercise to its logical end. While it initially recognized Mayfair's
SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to right of first refusal, Carmelo violated such right when without
withdraw, however, must not be exercised whimsically or affording its negotiations with Mayfair the full process to ripen
arbitrarily; otherwise, it could give rise to a damage claim under to at least an interface of a definite offer and a possible
Article 19 of the Civil Code which ordains that "every person corresponding acceptance within the "30-day exclusive option"
must, in the exercise of his rights and in the performance of his time granted Mayfair, Carmelo abandoned negotiations, kept a
duties, act with justice, give everyone his due, and observe low profile for some time, and then sold, without prior notice to
honesty and good faith." Mayfair, the entire Claro M Recto property to Equatorial.
(2) If the period has a separate consideration, a contract of Since Equatorial is a buyer in bad faith, this finding renders the
"option" deemed perfected, and it would be a breach of that sale to it of the property in question rescissible. We agree with
contract to withdraw the offer during the agreed period. The respondent Appellate Court that the records bear out the fact that
option, however, is an independent contract by itself; and it is to Equatorial was aware of the lease contracts because its lawyers
be distinguished from the projected main agreement (subject had, prior to the sale, studied the said contracts. As such,
matter of the option) which is obviously yet to be concluded. If, Equatorial cannot tenably claim to be a purchaser in good faith,
in fact, the optioner-offeror withdraws the offer before its and, therefore, rescission lies.
acceptance (exercise of the option) by the optionee-offeree, the . . . Contract of Sale was not voidable but rescissible.
latter may not sue for specific performance on the proposed Under Article 1380 to 1381(3) of the Civil Code, a
contract ("object" of the option) since it has failed to reach its contract otherwise valid may nonetheless be
own stage of perfection. The optioner-offeror, however, renders subsequently rescinded by reason of injury to third
himself liable for damages for breach of the opinion. . . persons, like creditors. The status of creditors could be
In the light of the foregoing disquisition and in view of the validly accorded the Bonnevies for they had substantial
wording of the questioned provision in the two lease contracts interests that were prejudiced by the sale of the subject
involved in the instant case, we so hold that no option to purchase property to the petitioner without recognizing their
in contemplation of the second paragraph of Article 1479 of the right of first priority under the Contract of Lease.
Civil Code, has been granted to Mayfair under the said lease According to Tolentino, rescission is a remedy granted
contracts. by law to the contracting parties and even to third
Respondent Court of Appeals correctly ruled that the said persons, to secure reparation for damages caused to
paragraph 8 grants the right of first refusal to Mayfair and is not them by a contract, even if this should be valid, by
an option contract. It also correctly reasoned that as such, the means of the restoration of things to their condition at
requirement of a separate consideration for the option, has no the moment prior to the celebration of said contract. It
applicability in the instant case. is a relief allowed for the protection of one of the
contracting parties and even third persons from all
 injury and damage the contract may cause, or to protect disagrees to a certain extent with the concluding part of the
some incompatible and preferent right created by the dissenting opinion of Justice Vitug. The doctrine enunciated
contract. Rescission implies a contract which, even if in Ang Yu Asuncion vs.Court of Appeals should be modified, if
initially valid, produces a lesion or pecuniary damage not amplified under the peculiar facts of this case.
to someone that justifies its invalidation for reasons of As also earlier emphasized, the contract of sale between
equity. Equatorial and Carmelo is characterized by bad faith, since it was
It is true that the acquisition by a third person of the knowingly entered into in violation of the rights of and to the
property subject of the contract is an obstacle to the prejudice of Mayfair. In fact, as correctly observed by the Court
action for its rescission where it is shown that such of Appeals, Equatorial admitted that its lawyers had studied the
third person is in lawful possession of the subject of the contract of lease prior to the sale. Equatorial's knowledge of the
contract and that he did not act in bad faith. However, stipulations therein should have cautioned it to look further into
this rule is not applicable in the case before us because the agreement to determine if it involved stipulations that would
the petitioner is not considered a third party in relation prejudice its own interests.
to the Contract of Sale nor may its possession of the Since Mayfair has a right of first refusal, it can exercise the right
subject property be regarded as acquired lawfully and only if the fraudulent sale is first set aside or rescinded. All of
in good faith. these matters are now before us and so there should be no
Indeed, Guzman, Bocaling and Co. was the vendee in piecemeal determination of this case and leave festering sores to
the Contract of Sale. Moreover, the petitioner cannot deteriorate into endless litigation. The facts of the case and
be deemed a purchaser in good faith for the record considerations of justice and equity require that we order
shows that it categorically admitted it was aware of the rescission here and now. Rescission is a relief allowed for the
lease in favor of the Bonnevies, who were actually protection of one of the contracting parties and even third
occupying the subject property at the time it was sold persons from all injury and damage the contract may cause or to
to it. Although the Contract of Lease was not annotated protect some incompatible and preferred right by the
on the transfer certificate of title in the name of the late contract.26 The sale of the subject real property by Carmelo to
Jose Reynoso and Africa Reynoso, the petitioner Equatorial should now be rescinded considering that Mayfair,
cannot deny actual knowledge of such lease which was which had substantial interest over the subject property, was
equivalent to and indeed more binding than presumed prejudiced by the sale of the subject property to Equatorial
notice by registration. without Carmelo conferring to Mayfair every opportunity to
A purchaser in good faith and for value is one who buys negotiate within the 30-day stipulated period.27
the property of another without notice that some other This Court has always been against multiplicity of suits where
person has a right to or interest in such property and all remedies according to the facts and the law can be included.
pays a full and fair price for the same at the time of Since Carmelo sold the property for P11,300,000.00 to
such purchase or before he has notice of the claim or Equatorial, the price at which Mayfair could have purchased the
interest of some other person in the property. Good property is, therefore, fixed. It can neither be more nor less.
faith connotes an honest intention to abstain from There is no dispute over it. The damages which Mayfair suffered
taking unconscientious advantage of another. Tested are in terms of actual injury and lost opportunities. The fairest
by these principles, the petitioner cannot tenably claim solution would be to allow Mayfair to exercise its right of first
to be a buyer in good faith as it had notice of the lease refusal at the price which it was entitled to accept or reject which
of the property by the Bonnevies and such knowledge is P11,300,000.00. This is clear from the records.
should have cautioned it to look deeper into the To follow an alternative solution that Carmelo and Mayfair may
agreement to determine if it involved stipulations that resume negotiations for the sale to the latter of the disputed
would prejudice its own interests. property would be unjust and unkind to Mayfair because it is
The petitioner insists that it was not aware of the right once more compelled to litigate to enforce its right. It is not
of first priority granted by the Contract of Lease. proper to give it an empty or vacuous victory in this case. From
Assuming this to be true, we nevertheless agree with the viewpoint of Carmelo, it is like asking a fish if it would
the observation of the respondent court that: accept the choice of being thrown back into the river. Why
If Guzman-Bocaling failed to inquire about the terms should Carmelo be rewarded for and allowed to profit from, its
of the Lease Contract, which includes Par. 20 on wrongdoing? Prices of real estate have skyrocketed. After
priority right given to the Bonnevies, it had only itself having sold the property for P11,300,000.00, why should it be
to blame. Having known that the property it was buying given another chance to sell it at an increased price?
was under lease, it behooved it as a prudent person to Under the Ang Yu Asuncion vs. Court of Appeals decision, the
have required Reynoso or the broker to show to it the Court stated that there was nothing to execute because a contract
Contract of Lease in which Par. 20 is contained.25 over the right of first refusal belongs to a class of preparatory
Petitioners assert the alleged impossibility of performance juridical relations governed not by the law on contracts but by
because the entire property is indivisible property. It was the codal provisions on human relations. This may apply here if
petitioner Carmelo which fixed the limits of the property it was the contract is limited to the buying and selling of the real
leasing out. Common sense and fairness dictate that instead of property. However, the obligation of Carmelo to first offer the
nullifying the agreement on that basis, the stipulation should be property to Mayfair is embodied in a contract. It is Paragraph 8
given effect by including the indivisible appurtenances in the on the right of first refusal which created the obligation. It should
sale of the dominant portion under the right of first refusal. A be enforced according to the law on contracts instead of the
valid and legal contract where the ascendant or the more panoramic and indefinite rule on human relations. The latter
important of the two parties is the landowner should be given remedy encourages multiplicity of suits. There is something to
effect, if possible, instead of being nullified on a selfish pretext execute and that is for Carmelo to comply with its obligation to
posited by the owner. Following the arguments of petitioners and the property under the right of the first refusal according to the
the participation of the owner in the attempt to strip Mayfair of terms at which they should have been offered then to Mayfair, at
its rights, the right of first refusal should include not only the the price when that offer should have been made. Also, Mayfair
property specified in the contracts of lease but also the has to accept the offer. This juridical relation is not amorphous
appurtenant portions sold to Equatorial which are claimed by nor is it merely preparatory. Paragraphs 8 of the two leases can
petitioners to be indivisible. Carmelo acted in bad faith when it be executed according to their terms.
sold the entire property to Equatorial without informing Mayfair, On the question of interest payments on the principal amount of
a clear violation of Mayfair's rights. While there was a series of P11,300,000.00, it must be borne in mind that both Carmelo and
exchanges of letters evidencing the offer and counter-offers Equatorial acted in bad faith. Carmelo knowingly and
between the parties, Carmelo abandoned the negotiations deliberately broke a contract entered into with Mayfair. It sold
without giving Mayfair full opportunity to negotiate within the the property to Equatorial with purpose and intend to withhold
30-day period. any notice or knowledge of the sale coming to the attention of
Accordingly, even as it recognizes the right of first refusal, this Mayfair. All the circumstances point to a calculated and
Court should also order that Mayfair be authorized to exercise contrived plan of non-compliance with the agreement of first
its right of first refusal under the contract to include the entirety refusal.
of the indivisible property. The boundaries of the property sold On the part of Equatorial, it cannot be a buyer in good faith
should be the boundaries of the offer under the right of first because it bought the property with notice and full knowledge
refusal. As to the remedy to enforce Mayfair's right, the Court that Mayfair had a right to or interest in the property superior to
 its own. Carmelo and Equatorial took unconscientious advantage of P24,000.00, which amount combines the price paid for the
of Mayfair. first sale and the price paid by defendants to Benito Derrama, Jr.
Neither may Carmelo and Equatorial avail of considerations Defendants moved for, but were denied reconsideration.
based on equity which might warrant the grant of interests. The Excepting thereto, defendants-appealed, . . . (Rollo, pp. 44-45)
vendor received as payment from the vendee what, at the time, The petition was given due course in a resolution dated February 12, 1990.
was a full and fair price for the property. It has used the The petitioners insist that they can not be compelled to resell Lot No. 1860
P11,300,000.00 all these years earning income or interest from of the Himamaylan Cadastre. They contend that the nature of the sale over
the amount. Equatorial, on the other hand, has received rents and the said lot between them and the private respondents was that of an
otherwise profited from the use of the property turned over to it absolute deed of sale and that the right thereafter granted by them to the
by Carmelo. In fact, during all the years that this controversy was private respondents (Right to Repurchase, Exhibit "E") can only be either
being litigated, Mayfair paid rentals regularly to the buyer who an option to buy or a mere promise on their part to resell the property.
had an inferior right to purchase the property. Mayfair is under They opine that since the "RIGHT TO REPURCHASE" was not
no obligation to pay any interests arising from this judgment to supported by any consideration distinct from the purchase price it is not
either Carmelo or Equatorial. valid and binding on the petitioners pursuant to Article 1479 of the Civil
WHEREFORE, the petition for review of the decision of the Code.
Court of Appeals, dated June 23, 1992, in CA-G.R. CV No. The document denominated as "RIGHT TO REPURCHASE" (Exhibit E)
32918, is HEREBY DENIED. The Deed of Absolute Sale provides:
between petitioners Equatorial Realty Development, Inc. and RIGHT TO REPURCHASE
Carmelo & Bauermann, Inc. is hereby deemed rescinded; KNOW ALL MEN BY THESE PRESENTS:
petitioner Carmelo & Bauermann is ordered to return to I, CIPRIANO VASQUEZ, . . ., do hereby grant the spouses
petitioner Equatorial Realty Development the purchase price. Martin Vallejera and Apolonia Olea, their heirs and assigns, the
The latter is directed to execute the deeds and documents right to repurchase said Lot No. 1860 for the sum of TWELVE
necessary to return ownership to Carmelo and Bauermann of the THOUSAND PESOS (P12,000.00), Philippine Currency, within
disputed lots. Carmelo & Bauermann is ordered to allow Mayfair the period TEN (10) YEARS from the agricultural year 1969-
Theater, Inc. to buy the aforesaid lots for P11,300,000.00. 1970 when my contract of lease over the property shall expire
SO ORDERED. and until the agricultural year 1979-1980.
G.R. No. 83759 July 12, 1991 IN WITNESS WHEREOF, I have hereunto signed my name at
SPOUSES CIPRIANO VASQUEZ and VALERIANA Binalbagan, Negros Occidental, this 21st day of September,
GAYANELO, petitioners, 1964.
vs. SGD. CIPRIANO VASQUEZ
HONORABLE COURT OF APPEALS and SPOUSES MARTIN SGD. VALERIANA G. VASQUEZ SGD. FRANCISCO SANICAS
VALLEJERA and APOLONIA OLEA,respondents. (Rollo, p. 47)
Dionisio C. Isidto for petitioners. The Court of Appeals, applying the principles laid down in the case of
Raymundo Lozada, Jr. for private respondents. Sanchez v. Rigos, 45 SCRA 368 [1972] decided in favor of the private
GUTIERREZ, JR., J.: respondents.
This petition seeks to reverse the decision of the Court of Appeals which In the Sanchez case, plaintiff-appellee Nicolas Sanchez and defendant-
affirmed the earlier decision of the Regional Trial Court, 6th Judicial appellant Severino Rigos executed a document entitled "Option to
Region, Branch 56, Himamaylan, Negros Occidental in Civil Case No. Purchase," whereby Mrs. Rigos "agreed, promised and committed . . . to
839 (for specific performance and damages) ordering the petitioners sell" to Sanchez for the sum of P1,510.00, a registered parcel of land
(defendants in the civil case) to resell Lot No. 1860 of the Cadastral Survey within 2 years from execution of the document with the condition that said
of Himamaylan, Negros Occidental to the respondents (plaintiffs in the option shall be deemed "terminated and lapsed," if "Sanchez shall fail to
civil case) upon payment by the latter of the amount of P24,000.00 as well exercise his right to buy the property" within the stipulated period. In the
as the appellate court's resolution denying a motion for reconsideration. In same document, Sanchez" . . . hereby agree and conform with all the
addition, the appellate court ordered the petitioners to pay the amount of conditions set forth in the option to purchase executed in my favor, that I
P5,000.00 as necessary and useful expenses in accordance with Article bind myself with all the terms and conditions." (Emphasis supplied) The
1616 of the Civil Code. notarized document was signed both by Sanchez and Rigos.
The facts of the case are not in dispute. They are summarized by the After several tenders of payment of the agreed sum of P1,510.00 made by
appellate court as follows: Sanchez within the stipulated period were rejected by Rigos, the former
On January 15, 1975, the plaintiffs-spouses (respondents herein) deposited said amount with the Court of First Instance of Nueva Ecija and
filed this action against the defendants-spouses (petitioners filed an action for specific performance and damages against Rigos.
herein) seeking to redeem Lot No. 1860 of the Himamaylan The lower court rendered judgment in favor of Sanchez and ordered Rigos
Cadastre which was previously sold by plaintiffs to defendants to accept the sum judicially consigned and to execute in Sanchez' favor
on September 21, 1964. the requisite deed of conveyance. Rigos appealed the case to the Court of
The said lot was registered in the name of plaintiffs. On October Appeals which certified to this Court on the ground that it involves a pure
1959, the same was leased by plaintiffs to the defendants up to question of law.
crop year 1966-67, which was extended to crop year 1968-69. This Court after deliberating on two conflicting principles laid down in the
After the execution of the lease, defendants took possession of cases of Southwestern Sugar and Molasses Co. v. Atlantic Gulf and Pacific
the lot, up to now and devoted the same to the cultivation of Co., (97 Phil. 249 [1955]) and Atkins, Kroll & Co., Inc. v. Cua Hian Tek,
sugar. 102 Phil. 948 [1958]) arrived at the conclusion that Article 1479 of the
On September 21, 1964, the plaintiffs sold the lot to the Civil Code which provides: ––
defendants under a Deed of Sale for the amount of P9,000.00. Art. 1479. A promise to buy and sell a determinate thing for a
The Deed of Sale was duly ratified and notarized. On the same price certain is reciprocally demandable.
day and along with the execution of the Deed of Sale, a separate An accepted unilateral promise to buy or to sell a determinate
instrument, denominated as Right to Repurchase (Exh. E), was thing for a price certain is binding upon the promissory if the
executed by the parties granting plaintiffs the right to repurchase promise is supported by a consideration distinct from the price.
the lot for P12,000.00, said Exh. E likewise duly ratified and and Article 1324 thereof which provides:
notarized. By virtue of the sale, defendants secured TCT No. T- Art. 1324. When the offerer has allowed the offerer a certain
58898 in their name. On January 2, 1969, plaintiffs sold the same period to accept, the offer may be withdrawn at any time before
lot to Benito Derrama, Jr., after securing the defendants' title, for acceptance by communicating such withdrawal, except when the
the sum of P12,000.00. Upon the protestations of defendant, option is founded upon a consideration, as something paid or
assisted by counsel, the said second sale was cancelled after the promised.
payment of P12,000.00 by the defendants to Derrama. should be reconciled and harmonized to avoid a conflict between the two
Defendants resisted this action for redemption on the premise provisions. In effect, the Court abandoned the ruling in the Southwestern
that Exh. E is just an option to buy since it is not embodied in the Sugar and Molasses Co. case and reiterated the ruling in the Atkins, Kroll
same document of sale but in a separate document, and since and Co. case, to wit:
such option is not supported by a consideration distinct from the However, this Court itself, in the case of Atkins, Kroll and Co.,
price, said deed for right to repurchase is not binding upon them. Inc. v. Cua Hian Tek, (102 Phil. 948, 951-952) decided later than
After trial, the court below rendered judgment against the Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific
defendants, ordering them to resell lot No. 1860 of the Co., (supra) saw no distinction between Articles 1324 and 1479
Himamaylan Cadastre to the plaintiffs for the repurchase price 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 opted to repurchase the land only on 16 February 1962,
as a contract in itself for lack of separate consideration, approximately two years beyond the stipulated period, that is not
nevertheless generated a bilateral contract of purchase and sale later than May, 1960.
upon acceptance. Speaking through Associate Justice, later If Olimpia could not locate Aurelio, as she contends, and based
Chief Justice, Cesar Bengzon, this Court said: on her allegation that the contract between her was one of sale
Furthermore, an option is unilateral: a promise to sell with right to repurchase, neither, however, did she tender the
at the price fixed whenever the offeree should decide redemption price to private respondent Isauro, but merely wrote
to exercise his option within the specified time. After him letters expressing her readiness to repurchase the property.
accepting the promise and before he exercises his It is clear that the mere sending of letters by the vendor
option, the holder of the option is not bound to buy. He expressing his desire to repurchase the property without
is free either to buy or not to buy later. In this case accompanying tender of the redemption price fell short of the
however, upon accepting herein petitioner's offer a requirements of law. (Lee v. Court of Appeals, 68 SCRA 197
bilateral promise to sell and to buy ensued, and the [1972])
respondent ipso facto assumed the obligation of a Neither did petitioner make a judicial consignation of the
purchaser. He did not just get the right subsequently to repurchase price within the agreed period.
buy or not to buy. It was not a mere option then; it was In a contract of sale with a right of repurchase, the redemptioner
bilateral contract of sale. who may offer to make the repurchase on the option date of
Lastly, even supposing that Exh. A granted an option redemption should deposit the full amount in court . . . (Rumbaoa
which is not binding for lack of consideration, the v. Arzaga, 84 Phil. 812 [1949])
authorities hold that To effectively exercise the right to repurchase the vendor a retro
If the option is given without a consideration, it is a must make an actual and simultaneous tender of payment or
mere offer of a contract of sale, which is not binding consignation. (Catangcatang v. Legayada, 84 SCRA 51 [1978])
until accepted. If, however, acceptance is made before The private respondents' ineffectual acceptance of the option to buy
a withdrawal, it constitutes a binding contract of sale, validated the petitioner's refusal to sell the parcel which can be considered
even though the option was not supported by a as a withdrawal of the option to buy.
sufficient consideration . . . (77 Corpus Juris Secundum We agree with the petitioners that the case of Vda. de Zulueta
p. 652. See also 27 Ruling Case Law 339 and cases v. Octaviano, (supra) is in point.
cited.) Stripped of non-essentials the facts of the Zulueta case are as follows: On
This Court affirmed the lower court's decision although the promise to sell November 25, 1952 (Emphasis supplied) Olimpia Fernandez Vda. de
was not supported by a consideration distinct from the price. It was Zulueta, the registered owner of a 5.5 hectare riceland sold the lot to
obvious that Sanchez, the promisee, accepted the option to buy before private respondent Aurelio B. Octaviano for P8,600.00 subject to certain
Rigos, the promisor, withdrew the same. Under such circumstances, the terms and conditions. The contract was an absolute and definite sale. On
option to purchase was converted into a bilateral contract of sale which the same day, November 25, 1952, (Emphasis supplied) the vendee,
bound both parties. Aurelio signed another document giving the vendor Zulueta the "option to
In the instant case and contrary to the appellate court's finding, it is clear repurchase" the property at anytime after May 1958 but not later than May
that the right to repurchase was not supported by a consideration distinct 1960. When however, Zulueta tried to exercise her "option to buy" the
from the price. The rule is that the promisee has the burden of proving property, Aurelio resisted the same prompting Zulueta to commence suit
such consideration. Unfortunately, the private respondents, promisees in for recovery of ownership and possession of the property with the then
the right to repurchase failed to prove such consideration. They did not Court of First Instance of Iloilo.
even allege the existence thereof in their complaint. (See Sanchez v. The trial court ruled in favor of Zulueta. Upon appeal, however, the Court
Rigos supra) of Appeals reversed the trial court's decision.
Therefore, in order that the Sanchez case can be applied, the evidence must We affirmed the appellate court's decision and ruled:
show that the private respondents accepted the right to repurchase. The nature of the transaction between Olimpia and Aurelio, from
The record, however, does not show that the private respondents accepted the context of Exhibit "E" is not a sale with right to repurchase.
the "Right to Repurchase" the land in question. We disagree with the Conventional redemption takes place "when the vendor reserves
appellate court's finding that the private respondents accepted the "right to the right to repurchase the thing sold, with the obligation to
repurchase" under the following circumstances: . . as evidenced by the comply with the provisions of Article 1616 and other stipulations
annotation and registration of the same on the back of the transfer of which may have been agreed upon. (Article 1601, Civil Code).
certificate of title in the name of appellants. As vividly appearing therein, In this case, there was no reservation made by the vendor,
it was signed by appellant himself and witnessed by his wife so that for all Olimpia, in the document Exhibit "E" the "option to repurchase"
intents and purposes the Vasquez spouses are estopped from disregarding was contained in a subsequent document and was made by the
its obvious purpose and intention." vendee, Aurelio. Thus, it was more of an option to buy or a mere
The annotation and registration of the right to repurchase at the back of promise on the part of the vendee, Aurelio, to resell the property
the certificate of title of the petitioners can not be considered to the vendor, Olimpia. (10 Manresa, p. 311 cited in Padilla's
as acceptance of the right to repurchase. Annotation at the back of the Civil Code Annotated, Vol. V, 1974 ed., p. 467) As held in
certificate of title of registered land is for the purpose Villarica v. Court of Appeals (26 SCRA 189 [1968]):
of binding purchasers of such registered land. Thus, we ruled in the case The right of repurchase is not a right granted the
of Bel Air Village Association, Inc. v. Dionisio (174 SCRA 589 vendor by the vendee in a subsequent instrument, but
[1989]), citing Tanchoco v. Aquino (154 SCRA 1 [1987]), is a right reserved by the vendor in the same
and Constantino v. Espiritu (45 SCRA 557 [1972]) that purchasers of a instrument of sale as one of the stipulations of the
registered land are bound by the annotations found at the back of the contract. Once the instrument of absolute sale is
certificate of title covering the subject parcel of land. In effect, the executed, the vendor can no longer reserve the right to
annotation of the right to repurchase found at the back of the certificate of repurchase, and any right thereafter granted the vendor
title over the subject parcel of land of the private respondents only served by the vendee in a separate instrument cannot be a right
as notice of the existence of such unilateral promise of the petitioners to of repurchase but some other right like the option to
resell the same to the private respondents. This, however, can not be buy in the instant case. . . (Emphasis supplied)
equated with acceptance of such right to repurchase by the private The appellate court rejected the application of the Zulueta case by stating:
respondent. . . . [A]s found by the trial court from which we quote with
Neither can the signature of the petitioners in the document called "right approval below, the said cases involve the lapse of several days
to repurchase" signify acceptance of the right to repurchase. The for the execution of separate instruments after the execution of
respondents did not sign the offer. Acceptance should be made by the the deed of sale, while the instant case involves the execution of
promisee, in this case, the private respondents and not the promisors, the an instrument, separate as it is, but executed on the same day,
petitioners herein. It would be absurd to require the promisor of an option and notarized by the same notary public, to wit:
to buy to accept his own offer instead of the promisee to whom the option A close examination of Exh. "E" reveals that although it is a
to buy is given. separate document in itself, it is far different from the document
Furthermore, the actions of the private respondents –– (a) filing a which was pronounced as an option by the Supreme Court in the
complaint to compel re-sale and their demands for resale prior to filing of Villarica case. The option in the Villarica case was executed
the complaint cannot be considered acceptance. As stated in Vda. de several days after the execution of the deed of sale. In the present
Zulueta v. Octaviano (121 SCRA 314 [1983]): case, Exh. "E" was executed and ratified by the same notary
And even granting, arguendo that the sale was a pacto de public and the Deed of Sale of Lot No. 1860 by the plaintiffs to
retro sale, the evidence shows that Olimpia, through her lawyer,
 the defendants were notarized by the same notary public and 6A. That the term of this Contract will commence in June 1960
entered in the same page of the same notarial register . . . and will terminate in June 1965;
The latter case (Vda. de Zulueta v. Octaviano, supra), likewise 7. That the LESSEE will be given full control and
involved the execution of the separate document after an responsibilities over all the properties of the school and over all
intervention of several days and the question of laches was the supervisions and administrations of the school;
decided therein, which is not present in the instant case. That 8. That the LESSEE agrees to help the LESSOR to collect the
distinction is therefore crucial and We are of the opinion that the back accounts of students incurred before the execution of this
appellee's right to repurchase has been adequately provided for contract.
and reserved in conformity with Article 1601 of the Civil Code, Instead of paying the lessor in the manner set forth in paragraph 2 of said
which states: contract, Nietes had, as of August 4, 1961, made payments as follows:
Conventional redemption shall take place when the vendor October 6,1960 ....................................... P18,957.00
reserves the right to repurchase the thing sold, with the (Exh. D)
obligation to comply with the provision of Article 1616 and other November 23, 1960 ................................. 300.00 (Exh.
stipulations which may have been agreed upon. (Rollo, pp. 46- E)
47) December 21, 1960 ................................. 200.00 (Exh.
Obviously, the appellate court's findings are not reflected in the cited F)
decision.1âwphi1 As in the instant case, the option to repurchase involved January 14, 1961 ..................................... 500.00 (Exh.
in the Zulueta case was executed in a separate document but on the same G)
date that the deed of definite sale was executed. February 16, 1961 ................................... 3,000.00
While it is true that this Court in the Zulueta case found Zulueta guilty of (Exh. H)
laches, this, however, was not the primary reason why this Court March 12, 1961 ....................................... 1,000.00
disallowed the redemption of the property by Zulueta. It is clear from the (Exh. I)
decision that the ruling in the Zulueta case was based mainly on the finding March 13, 1961 ....................................... 700.00 (Exh.
that the transaction between Zulueta and Octaviano was not a sale with J)
right to repurchase and that the "option to repurchase was but an option to August 4, 1961 ........................................ 100.00 (Exh.
buy or a mere promise on the part of Octaviano to resell the property to K) _________
Zulueta. TOTAL ..................................... P24,757.00
In the instant case, since the transaction between the petitioners and Moreover, Nietes maintains that, on September 4, 1961, and December
private respondents was not a sale with right to repurchase, the private 13, 1962, he paid Garcia the additional sums of P3,000 and P2,200,
respondents cannot avail of Article 1601 of the Civil Code which provides respectively, for which Garcia issued receipts Exhibit B and C, reading:
for conventional redemption. Received the amount of (P3,000.00) Three Thousand
WHEREFORE, the petition is GRANTED. The questioned decision and Pesos from Mrs. Nietes as per advance pay for the
resolution of the Court of Appeals are hereby REVERSED and SET school, the contract of lease being paid.
ASIDE. The complaint in Civil Case No. 839 of the then Court of First (Sgd.) PABLO GARCIA (Exh. B)
Instance of Negros Occidental 12th Judicial District Branch 6 is To Whom it May Concern:
DISMISSED. No costs. SO ORDERED. This is to certify that I received the sum of Two
G.R. No. L-32873 August 18, 1972 Thousand Two Hundred Pesos, Philippine Currency,
AQUILINO NIETES, petitioner, from Mrs. Catherine R. Nietes as the partial payment
vs. on the purchase of the property as specified on the
HON. COURT OF APPEALS & DR. PABLO C. original contract of "Contract of Lease with the First
GARCIA, respondents. Option to Buy" originally contracted and duly signed.
Conrado V. del Rosario for petitioner. (Sgd.) DR. PABLO GARCIA (Exh. C)
Romeo D. Magat for private respondent. On or about July 31, 1964, Dr. Garcia's counsel wrote to Nietes the letter
Exhibit 1 (also Exhibit V) stating:
CONCEPCION, C.J.:p The Director
Petitioner Aquilino Nietes seeks a review on certiorari of a decision of the Philippine Institute of Electronics
Court of Appeals. Angeles, Pampanga
It appears that, on October 19, 1959, said petitioner and respondent Dr. Sir:
Pablo C. Garcia entered into a "Contract of Lease with Option to Buy," I regret to inform you that our client, Dr. Pablo Garcia, desires
pursuant to the terms and conditions set forth in the deed Exhibits A and to rescind your contract, dated 19 October 1959 because of the
A-1, (also, marked as Exhibit 2) namely: following:
That the LESSOR is an owner of the ANGELES 1. That you had not maintained the building, subject of the lease
EDUCATIONAL INSTITUTE situated at Angeles, Pampanga, contract in good condition.
a school which is duly recognized by the Government; 2. That you had not been using the original name of the school
That the lessor agrees to lease the above stated school to the — Angeles Institute, thereby extinguishing its existence in the
LESSEE under the following terms and conditions: eyes of the public and injuring its prestige.
1. That the term will be for a period of five (5) years; 3. That through your fault, no inventory has been made of all
2. That the price of the rent is FIVE THOUSAND PESOS properties of the school.
(P5,000) per year payable in the following manners: 4. That up to this time, you had not collected or much less helped
a. That the amount of FIVE THOUSAND FIVE in the collection of back accounts of former students.
HUNDRED PESOS (P5,500) will be paid upon the This is to remind you that the foregoing obligations had been
execution of this Contract of Lease; one, if not, the principal moving factors which had induced the
b. That the amount of FOUR THOUSAND FIVE lessor in agreeing with the terms embodied in your contract of
HUNDRED PESOS (P4,500) is payable on or before lease, without which fulfillment, said contract could not have
the 30th day of October, 1959; come into existence. It is not simply one of those reminders that
c. That the remaining balance of FIFTEEN we make mention, that our client under the circumstances, is not
THOUSAND PESOS (P15,000) will be paid on or only entitled to a rescission of the contract. He is likewise
before March 30, 1960; entitled to damages — actual, compensatory and exemplary.
3. That all improvements made during the lease by the LESSEE In view of the serious nature of the breach which warrant and
will be owned by the LESSOR after the expiration of the term of sanction drastic legal remedies against you, we earnestly request
this Contract of Lease; you to please see the undersigned at the above-named address
4. That the LESSOR agrees to give the LESSEE an option to buy two days from receipt hereof. Otherwise, if we shall not hear
the land and the school building, for a price of ONE HUNDRED from you, the foregoing will serve notice on your part to vacate
THOUSAND PESOS (P100,000) within the period of the the premises within five (5) days to be counted from date of
Contract of Lease; notice.
5. That should the LESSEE buy the lot, land and the school Very truly yours,
building within the stipulated period, the unused payment for the (Sgd.) VICTOR T. LLAMAS, JR.
Contract of Lease will be considered as part payment for the sale to which counsel for Nietes replied in the following language:
of the land and school; Atty. Victor T. Llamas, Jr.
6. That an inventory of all properties in the school will be made Victor Llamas Law Office
on March 31, 1960;
 Corner Rivera-Zamora Streets between the parties, "the full purchase price must be paid before the option
Dagupan City counsel be exercised," because "there was no need nor sense providing
Dear Sir: that "the unused payment for the Contract Lease will be considered as part
Your letter dated July 31, 1964 addressed to my client, the payment for the sale the land and school'" inasmuch as "otherwise there is
Director of the Philippine Institute of Electronics, Angeles City, substantial amount from which such unused rental could be deducted";
has been referred to me and in reply, please, be informed that my that the statement in the letter, Exhibit L, of Nietes, dated August 7, 1964,
client has not violated any provision of the CONTRACT OF to the effect that he "will exercise his OPTION to buy the land and
LEASE WITH OPTION TO BUY, executed by him as LESSEE building," indication that he did not consider the receipts, Exhibits B and
and Dr. Pablo Garcia as LESSOR. For this reason, there is no for P3,000 and P2,200, respectively, "as an effective exercise of his option
basis for rescission of the contract nor of the demands contained to buy"; that the checks for P84,860.50 deposited by Nietes with the Agro-
in your letter. Industrial Development Bank, did not constitute a proper tender of
In this connection, I am also serving this formal notice upon your payment, which, at any rate, was "made beyond the stipulated 5-year
client Dr. Pablo Garcia, thru you, that my client Mr. AQUILINO period"; that such deposit "was not seriously made, because on August 12,
T. NIETES will exercise his OPTION to buy the land and 1965, the same was withdrawn from the Bank and ostensibly remains in
building subject matter of the lease and that my said client is the lessee's hand"; and that "the fact that such deposit was made by the
ready to pay the balance of the purchase price in accordance with lessee shows that he himself believed that he should have paid the entire
the contract. Please, inform Dr. Pablo Garcia to make available amount of the purchase price before he could avail of the option to buy,
the land title and execute the corresponding Deed of Sale otherwise, the deposit was a senseless gesture ... ."
pursuant to this notice, and that if he fails to do so within fifteen Dr. Garcia, in turn, maintained in his answer "that the sums paid" to him
(15) days from the receipt of this letter, we shall take the "were part of the price of the contract of lease between the parties which
corresponding action to enforce the agreement. were paid late and not within the periods and/or schedules fixed by the
Truly yours, contract (Annex A.)." What is more, on the witness stand, Garcia claimed
(Sgd.) CONRADO V. DEL ROSARIO that he did "not know" whether the signatures on Exhibits B and C — the
Counsel for Mr. Aquilino T. Nietes receipt for P3,000 and P2,200, respectively — were his, and even said that
Angeles City he was "doubtful" about it.
On July 26, 1965, Nietes deposited with the branch office of the Agro- This testimony is manifestly incredible, for a man of his intelligence — a
Industrial Bank in Angeles City checks amounting to P84,860.50, as Doctor of Medicine and the owner of an educational institution — could
balance of the purchase price of the property, but he withdrew said sum of not possibly "not know" or entertain doubts as to whether or not the
P84,860.50 on August 12, 1965, after the checks had been cleared. On aforementioned signatures are his and the payments therein acknowledged
August 2, 1965, he commenced the present action, in the Court of First had been received by him. His dubious veracity becomes even more
Instance of Pampanga, for specific performance of Dr. Garcia's alleged apparent when we consider the allegations in paragraph (4) of his answer
obligation to execute in his (Nietes') favor a deed of absolute sale of the — referring to paragraphs 5 and 6 of the complaint alleging, inter alia, the
leased property, free from any lien or encumbrance whatsoever, he having aforementioned partial payments of P3,000 and P2,200, on account of the
meanwhile mortgaged it to the People's Bank and Trust Company, and to stipulated sale price — to the effect that said sums " paid to the herein
compel him (Garcia) to accept whatever balance of the purchase price is defendant were part of the price of the contract of lease." In other words,
due him, as well as to recover from him the aggregate sum of P90,000 by payment of said sums of P3,000 and P2,200 is admitted in said answer.
way of damages, apart from attorney's fees and the costs. Besides, the rentals for the whole period of the lease aggregated P25,000
Dr. Garcia filed an answer admitting some allegations of the complaint only, whereas said sums of P3,000 and P2,200, when added to the
and denying other allegations thereof, as well as setting up a counterclaim payments previously made by Nietes, give a grand total of P29,957.00, or
for damages in the sum of P150,000. P4,957 in excess of the agreed rentals for the entire period of five years.
After due trial, said court rendered its decision, the dispositive part of Thus, Dr. Garcia was less than truthful when he tried to cast doubt upon
which reads: the fact of payment of said sums of P3,000 and P2,200, as well as when
WHEREFORE, in view of the preponderance of evidence in he claimed that the same were part of the rentals collectible by him.
favor of the plaintiff and against the defendant, judgment is We, likewise, find ourselves unable to share the view taken by the Court
hereby rendered ordering the latter to execute the Deed of of Appeals. Neither the tenor of the contract Exhibits A and A-1 (also
Absolute Sale of property originally leased together with the Exhibit 2) nor the behaviour of Dr. Garcia — as reflected in the receipts
school building and other improvements thereon which are Exhibits B and C — justifies such view. The contract does not say that
covered by the contract, Annex "A", upon payment of the former Nietes had to pay the stipulated price of P100,000 before exercising his
of the balance (whatever be the amount) of the stipulated option to buy the property in question. Accordingly, said option is
purchase price; to free the said property from any mortgage or governed by the general principles on obligations, pursuants to which:
encumbrance and deliver the title thereto to the plaintiff free In reciprocal obligations, neither party incurs in delay if the other
from any lien or encumbrance, and should said defendant fail to does not comply or is not ready to comply in a proper manner
do so, the proceeds from the purchase price be applied to the with what is incumbent upon him. From the moment one of the
payment of the encumbrance so that the title may be conveyed parties fulfills his obligation, delay by the other begins.1
to the plaintiff; to pay the plaintiff the sum of P1,000.00 as In the case of an option to buy, the creditor may validly and effectively
attorney's fees, and the cost of this suit. exercise his right by merely advising the debtor of the former's decision to
Both parties appealed to the Court of Appeals, Dr. Garcia insofar as the buy and expressing his readiness to pay the stipulated price, provided that
trial court had neither dismissed the complaint nor upheld his counterclaim the same is available and actually delivered to the debtor upon execution
and failed to order Nietes to vacate the property in question, and Nietes and delivery by him of the corresponding deed of sale. Unless and until
insofar as the trial court had granted him no more than nominal damages the debtor shall have done this the creditor is not and cannot be in default
in the sum of P1,000, as attorney's fees. in the discharge of his obligation to pay. 2 In other words, notice of the
After appropriate proceedings, a special division of Court of Appeals creditor's decision to exercise his option to buy need not be coupled with
rendered its decision, on October 18, 1969, affirming, in effect, that of the actual payment of the price, so long as this is delivered to the owner of the
trial court, except as regards said attorney's fees, which were eliminated. property upon performance of his part of the agreement. Nietes need not
The dispositive part of said decision of the Court of Appeals reads: have deposited, therefore, with the Agro-Industrial Bank checks
WHEREFORE, with the modification that the attorney's fees awarded by amounting altogether to P84,860.50 on July 26, 1965, and the withdrawal
the trial court in favor of the plaintiff is eliminated, the appealed judgment thereof soon after does not and cannot affect his cause of action in the
is hereby affirmed in all other respects, and the defendant is ordered to present case. In making such deposit, he may have had the intent to show
execute the corresponding deed of sale for the school building and lot in his ability to pay the balance of the sum due to Dr. Garcia as the sale price
question in favor of the plaintiff upon the latter's full payment of the of his property. In short, said deposit and its subsequent withdrawal cannot
balance of the purchase price. The costs of this proceedings shall be taxed affect the result of the present case.
against the defendant-appellant. Nietes was entitled to exercise his option to buy "within the period of the
On motion for reconsideration of defendant Garcia, said special division Contract of Lease," which — pursuant to paragraph 6-A of said contract
set aside its aforementioned decision and rendered another one, — commenced "in June 1960" and was to "terminate in June 1965." As
promulgated on March 10, 1970 reversing the appealed decision of the early as September 4, 1961, or well "within the period of the Contract of
court of first instance, and dismissing the complaint of Nietes, with costs Lease," Nietes had paid Dr. Garcia the following sums:
again him. Hence, the present petition of Nietes for review certiorari of October 6, 1960 ............................ P18,957.00 (Exh. D)
the second decision of the Court of Appeals, dated March 10, 1970, to November 23, 1960 ....................... 300.00 (Exh E)
which petition We gave due course. December 21, 1960 ....................... 200.00 (Exh. F)
Said decision of the Court of Appeals, reversing that of the Court of First January 14, 1961 ........................... 500.00 (Exh. G)
Instance, is mainly predicated upon the theory that, under the contract February 16, 1961 ......................... 3,000.00 (Exh. H)
 March 12, 1961 ............................. 1,000.00 (Exh. I) be paid by Nietes to Dr. Garcia, upon execution by the latter of the
March 13, 1961 ............................. 700.00 (Exh. J) corresponding deed of absolute sale of the property in question, free from
August 4, 1961 ............................... 100.00 (Exh. K) any lien or encumbrance whatsoever, in favor of Nietes, and the delivery
September 4, 1961 ......................... 3,000.00 (Exh. B) to him of said deed of sale, as well as of the owner's duplicate of the
________ certificate of title to said property; and that Dr. Garcia should indemnify
TOTAL ............................... P27,757.00 Nietes in the sum of P2,500 as and for attorney's fees.
It is true that Nietes was bound, under the contract, to pay P5,500 on Thus modified, the decision of the Court of First Instance of Pampanga is
October 19, 1959, P4,500 on or before October 30, 1959, and P15,000 on hereby affirmed in all other respects, and that of the Court of Appeals
or before March 30, 1960, or the total sum of P25,000, from October 19, reversed, with costs against respondent herein, Dr. Pablo C. Garcia. It is
1959 to March 30, 1960, whereas his first payment was not made until so ordered.
October 10, 1960, when he delivered the sum of P18,957 to Dr. Garcia, G.R. No. 109125 December 2, 1994
and the latter had by August 4, 1961, received from the former the ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
aggregate sum of P24,757. This is, however, P243.00 only less than the vs.
P25,000 due as of March 30, 1960, so that Nietes may be considered as THE HON. COURT OF APPEALS and BUEN REALTY
having complied substantially with the terms agreed upon. Indeed, Dr. DEVELOPMENT CORPORATION, respondents.
Garcia seems to have either agreed thereto or not considered that Nietes Antonio M. Albano for petitioners.
had thereby violated the contract, because the letter of the former, dated Umali, Soriano & Associates for private respondent.
July 31, 1964, demanding rescission of the contract, did not mention said
acts or omissions of Nietes among his alleged violations thereof VITUG, J.:
enumerated in said communication. In fact, when, on September 4, 1961, Assailed, in this petition for review, is the decision of the Court of
Mrs. Nietes turned over the sum of P3,000 to Dr. Garcia, he issued the Appeals, dated 04 December 1991, in CA-G.R. SP No. 26345 setting aside
receipt Exhibit B, stating that said payment had been made "as and declaring without force and effect the orders of execution of the trial
per advance pay for the school, the Contract of Lease being paid" — in court, dated 30 August 1991 and 27 September 1991, in Civil Case No.
other words, in accordance or conformity with said contract. Besides, 87-41058.
when, on December 13, 1962, Mrs. Nietes delivered the additional sum of The antecedents are recited in good detail by the appellate court thusly:
P2,200, Dr. Garcia issued a receipt accepting said amount "as the partial On July 29, 1987 a Second Amended Complaint for Specific
payment on the purchase price of the property as specified on the original Performance was filed by Ang Yu Asuncion and Keh Tiong, et
contract," thus further indicating that the payment, in his al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan
opinion, conformed with said contract, and that, accordingly, the same before the Regional Trial Court, Branch 31, Manila in Civil Case
was in full force and effect. No. 87-41058, alleging, among others, that plaintiffs are tenants
In any event, it is undisputed that, as of September 4, 1961, Dr. Garcia had or lessees of residential and commercial spaces owned by
received the total sum of P27,757, or P2,757 in excess of the P25,000 defendants described as Nos. 630-638 Ongpin Street, Binondo,
representing the rentals for the entire period of the lease, and over Manila; that they have occupied said spaces since 1935 and have
P21,200 in excess of the rentals for the unexpired portion of the lease, been religiously paying the rental and complying with all the
from September 4, 1961 to June 1965. This circumstance indicates clearly conditions of the lease contract; that on several occasions before
that Nietes had, on September 4, 1961, chosen to exercise and did exercise October 9, 1986, defendants informed plaintiffs that they are
then his option to buy. What is more, this is borne out by the receipt issued offering to sell the premises and are giving them priority to
by Dr. Garcia for the payment of P2,200, on December 13, 1962, to which acquire the same; that during the negotiations, Bobby Cu
he referred therein as a "partial payment on the purchase of the property Unjieng offered a price of P6-million while plaintiffs made a
as specified on the original contract of 'Contract of Lease with the First counter offer of P5-million; that plaintiffs thereafter asked the
Option to Buy' ... ." defendants to put their offer in writing to which request
Further confirmation is furnished by the letter of Nietes, Exhibit L, of defendants acceded; that in reply to defendant's letter, plaintiffs
August 1964 — also, within the period of the lease — stating that he "will wrote them on October 24, 1986 asking that they specify the
exercise his OPTION to buy the land and building subject matter of the terms and conditions of the offer to sell; that when plaintiffs did
lease." It is not correct to construe this expression — as did the appealed not receive any reply, they sent another letter dated January 28,
decision — as implying that the option had not been or was not yet being 1987 with the same request; that since defendants failed to
exercised, or as a mere announcement of the intent to avail of it at specify the terms and conditions of the offer to sell and because
some future time. This interpretation takes said expression out of the of information received that defendants were about to sell the
context of Exhibit L, which positively states, also, that Nietes "is ready to property, plaintiffs were compelled to file the complaint to
pay the balance of the purchase price in accordance with the contract," and compel defendants to sell the property to them.
requests counsel for Dr. Garcia to inform or advise him "to make available Defendants filed their answer denying the material allegations of
the land title and execute the corresponding Deed of Sale pursuant to this the complaint and interposing a special defense of lack of cause
notice, and that if he fails to do so within fifteen (15) days ... we shall take of action.
the corresponding action to enforce the agreement." Such demand and said After the issues were joined, defendants filed a motion for
readiness to pay the balance of the purchase price leave no room for doubt summary judgment which was granted by the lower court. The
that, as stated in Exhibit L, the same is "a formal notice" that Nietes had trial court found that defendants' offer to sell was never accepted
exercised his option, and expected Dr. Garcia to comply, within fifteen by the plaintiffs for the reason that the parties did not agree upon
(15) days, with his part of the bargain. Surely, there would have been no the terms and conditions of the proposed sale, hence, there was
point for said demand and readiness to pay, if Nietes had not yet exercised no contract of sale at all. Nonetheless, the lower court ruled that
his option to buy. should the defendants subsequently offer their property for sale
The provision in paragraph 5 of the Contract, to the effect that "should the at a price of P11-million or below, plaintiffs will have the right
LESSEE" choose to make use of his option to buy "the unused payment of first refusal. Thus the dispositive portion of the decision
for the Contract of Lease will be considered as payment for the sale of the states:
land and school, "simply means that the rental paid for the unused portion WHEREFORE, judgment is hereby rendered in favor
of the lease shall be applied to and deducted from the sale price of of the defendants and against the plaintiffs summarily
P100,000 to be paid by Nietes at the proper time — in other dismissing the complaint subject to the aforementioned
words, simultaneously with the delivery to him of the corresponding deed condition that if the defendants subsequently decide to
of sale, duly executed by Dr. Garcia. offer their property for sale for a purchase price of
It is, consequently, Our considered opinion that Nietes had validly and Eleven Million Pesos or lower, then the plaintiffs has
effectively exercised his option to buy the property of Dr. Garcia, at least, the option to purchase the property or of first refusal,
on December 13, 1962, when he acknowledged receipt from Mrs. Nietes otherwise, defendants need not offer the property to the
of the sum of P2,200 then delivered by her "in partial payment on the plaintiffs if the purchase price is higher than Eleven
purchase of the property" described in the "Contract of Lease with Option Million Pesos.
to Buy"; that from the aggregate sum of P29,957.00 paid to him up to that SO ORDERED.
time, the sum of P12,708.33 should be deducted as rental for the period Aggrieved by the decision, plaintiffs appealed to this Court in
from June 1960 to December 13, 1962, or roughly thirty (30) months and CA-G.R. CV No. 21123. In a decision promulgated on
a half, thereby leaving a balance of P17,248.67, consisting of P12,291.67, September 21, 1990 (penned by Justice Segundino G. Chua and
representing the rentals for the unused period of the lease, plus P4,957.00 concurred in by Justices Vicente V. Mendoza and Fernando A.
paid in excess of said rental and advanced solely on account of the Santiago), this Court affirmed with modification the lower
purchase price; that deducting said sum of P17,248.67 from the agreed court's judgment, holding:
price of P100,000.00, there results a balance of P82,751.33 which should
 In resume, there was no meeting of the minds between consequence, there was an Entry of Judgment by the
the parties concerning the sale of the property. Absent Supreme Court as of June 6, 1991, stating that the
such requirement, the claim for specific performance aforesaid modified decision had already become final
will not lie. Appellants' demand for actual, moral and and executory.
exemplary damages will likewise fail as there exists no It is the observation of the Court that this property in
justifiable ground for its award. Summary judgment for dispute was the subject of the Notice of Lis
defendants was properly granted. Courts may render Pendens and that the modified decision of this Court
summary judgment when there is no genuine issue as promulgated by the Court of Appeals which had
to any material fact and the moving party is entitled to become final to the effect that should the defendants
a judgment as a matter of law (Garcia vs. Court of decide to offer the property for sale for a price of P11
Appeals, 176 SCRA 815). All requisites obtaining, the Million or lower, and considering the mercurial and
decision of the court a quo is legally justifiable. uncertain forces in our market economy today, the
WHEREFORE, finding the appeal unmeritorious, the same right of first refusal to herein plaintiffs/appellants
judgment appealed from is hereby AFFIRMED, but in the event that the subject property is sold for a price
subject to the following modification: The court a in excess of Eleven Million pesos or more.
quo in the aforestated decision gave the plaintiffs- WHEREFORE, defendants are hereby ordered to
appellants the right of first refusal only if the property execute the necessary Deed of Sale of the property in
is sold for a purchase price of Eleven Million pesos or litigation in favor of plaintiffs Ang Yu Asuncion, Keh
lower; however, considering the mercurial and Tiong and Arthur Go for the consideration of P15
uncertain forces in our market economy today. We find Million pesos in recognition of plaintiffs' right of first
no reason not to grant the same right of first refusal to refusal and that a new Transfer Certificate of Title be
herein appellants in the event that the subject property issued in favor of the buyer.
is sold for a price in excess of Eleven Million pesos. All previous transactions involving the same property
No pronouncement as to costs. notwithstanding the issuance of another title to Buen
SO ORDERED. Realty Corporation, is hereby set aside as having been
The decision of this Court was brought to the Supreme Court by executed in bad faith.
petition for review on certiorari. The Supreme Court denied the SO ORDERED.
appeal on May 6, 1991 "for insufficiency in form and On September 22, 1991 respondent Judge issued another order,
substances" (Annex H, Petition). the dispositive portion of which reads:
On November 15, 1990, while CA-G.R. CV No. 21123 was WHEREFORE, let there be Writ of Execution issue in
pending consideration by this Court, the Cu Unjieng spouses the above-entitled case directing the Deputy Sheriff
executed a Deed of Sale (Annex D, Petition) transferring the Ramon Enriquez of this Court to implement said Writ
property in question to herein petitioner Buen Realty and of Execution ordering the defendants among others to
Development Corporation, subject to the following terms and comply with the aforesaid Order of this Court within a
conditions: period of one (1) week from receipt of this Order and
1. That for and in consideration of the sum of FIFTEEN for defendants to execute the necessary Deed of Sale of
MILLION PESOS (P15,000,000.00), receipt of which the property in litigation in favor of the plaintiffs Ang
in full is hereby acknowledged, the VENDORS hereby Yu Asuncion, Keh Tiong and Arthur Go for the
sells, transfers and conveys for and in favor of the consideration of P15,000,000.00 and ordering the
VENDEE, his heirs, executors, administrators or Register of Deeds of the City of Manila, to cancel and
assigns, the above-described property with all the set aside the title already issued in favor of Buen Realty
improvements found therein including all the rights Corporation which was previously executed between
and interest in the said property free from all liens and the latter and defendants and to register the new title in
encumbrances of whatever nature, except the pending favor of the aforesaid plaintiffs Ang Yu Asuncion, Keh
ejectment proceeding; Tiong and Arthur Go.
2. That the VENDEE shall pay the Documentary SO ORDERED.
Stamp Tax, registration fees for the transfer of title in On the same day, September 27, 1991 the corresponding writ of
his favor and other expenses incidental to the sale of execution (Annex C, Petition) was issued.1
above-described property including capital gains tax On 04 December 1991, the appellate court, on appeal to it by private
and accrued real estate taxes. respondent, set aside and declared without force and effect the above
As a consequence of the sale, TCT No. 105254/T-881 in the questioned orders of the court a quo.
name of the Cu Unjieng spouses was cancelled and, in lieu In this petition for review on certiorari, petitioners contend that Buen
thereof, TCT No. 195816 was issued in the name of petitioner Realty can be held bound by the writ of execution by virtue of the notice
on December 3, 1990. of lis pendens, carried over on TCT No. 195816 issued in the name of
On July 1, 1991, petitioner as the new owner of the subject Buen Realty, at the time of the latter's purchase of the property on 15
property wrote a letter to the lessees demanding that the latter November 1991 from the Cu Unjiengs.
vacate the premises. We affirm the decision of the appellate court.
On July 16, 1991, the lessees wrote a reply to petitioner stating A not too recent development in real estate transactions is the adoption of
that petitioner brought the property subject to the notice of lis such arrangements as the right of first refusal, a purchase option and a
pendens regarding Civil Case No. 87-41058 annotated on TCT contract to sell. For ready reference, we might point out some fundamental
No. 105254/T-881 in the name of the Cu Unjiengs. precepts that may find some relevance to this discussion.
The lessees filed a Motion for Execution dated August 27, 1991 An obligation is a juridical necessity to give, to do or not to do (Art. 1156,
of the Decision in Civil Case No. 87-41058 as modified by the Civil Code). The obligation is constituted upon the concurrence of the
Court of Appeals in CA-G.R. CV No. 21123. essential elements thereof, viz: (a) The vinculum juris or juridical
On August 30, 1991, respondent Judge issued an order (Annex tie which is the efficient cause established by the various sources of
A, Petition) quoted as follows: obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b)
Presented before the Court is a Motion for Execution the object which is the prestation or conduct; required to be observed (to
filed by plaintiff represented by Atty. Antonio Albano. give, to do or not to do); and (c) the subject-persons who, viewed from the
Both defendants Bobby Cu Unjieng and Rose Cu demandability of the obligation, are the active (obligee) and the passive
Unjieng represented by Atty. Vicente Sison and Atty. (obligor) subjects.
Anacleto Magno respectively were duly notified in Among the sources of an obligation is a contract (Art. 1157, Civil Code),
today's consideration of the motion as evidenced by the which is a meeting of minds between two persons whereby one binds
rubber stamp and signatures upon the copy of the himself, with respect to the other, to give something or to render some
Motion for Execution. service (Art. 1305, Civil Code). A contract undergoes various stages that
The gist of the motion is that the Decision of the Court include its negotiation or preparation, its perfection and, finally, its
dated September 21, 1990 as modified by the Court of consummation. Negotiation covers the period from the time the
Appeals in its decision in CA G.R. CV-21123, and prospective contracting parties indicate interest in the contract to the time
elevated to the Supreme Court upon the petition for the contract is concluded (perfected). The perfection of the contract takes
review and that the same was denied by the highest place upon the concurrence of the essential elements thereof. A contract
tribunal in its resolution dated May 6, 1991 in G.R. No. which is consensual as to perfection is so established upon a mere meeting
L-97276, had now become final and executory. As a of minds, i.e., the concurrence of offer and acceptance, on the object and
on the cause thereof. A contract which requires, in addition to the above, (2) If the period has a separate consideration, a contract of "option" is
the delivery of the object of the agreement, as in a pledge or commodatum, deemed perfected, and it would be a breach of that contract to withdraw
is commonly referred to as a real contract. In a solemn contract, the offer during the agreed period. The option, however, is an independent
compliance with certain formalities prescribed by law, such as in a contract by itself, and it is to be distinguished from the projected main
donation of real property, is essential in order to make the act valid, the agreement (subject matter of the option) which is obviously yet to be
prescribed form being thereby an essential element thereof. The stage concluded. If, in fact, the optioner-offeror withdraws the offer before its
of consummation begins when the parties perform their respective acceptance (exercise of the option) by the optionee-offeree, the latter may
undertakings under the contract culminating in the extinguishment not sue for specific performance on the proposed contract ("object" of the
thereof. option) since it has failed to reach its own stage of perfection. The
Until the contract is perfected, it cannot, as an independent source of optioner-offeror, however, renders himself liable for damages for breach
obligation, serve as a binding juridical relation. In sales, particularly, to of the option. In these cases, care should be taken of the real nature of
which the topic for discussion about the case at bench belongs, the contract the consideration given, for if, in fact, it has been intended to be part of
is perfected when a person, called the seller, obligates himself, for a price the consideration for the main contract with a right of withdrawal on the
certain, to deliver and to transfer ownership of a thing or right to another, part of the optionee, the main contract could be deemed perfected; a
called the buyer, over which the latter agrees. Article 1458 of the Civil similar instance would be an "earnest money" in a contract of sale that can
Code provides: evidence its perfection (Art. 1482, Civil Code).
Art. 1458. By the contract of sale one of the contracting In the law on sales, the so-called "right of first refusal" is an innovative
parties obligates himself to transfer the ownership of juridical relation. Needless to point out, it cannot be deemed a perfected
and to deliver a determinate thing, and the other to pay contract of sale under Article 1458 of the Civil Code. Neither can the right
therefor a price certain in money or its equivalent. of first refusal, understood in its normal concept, per se be brought within
A contract of sale may be absolute or conditional. the purview of an option under the second paragraph of Article 1479,
When the sale is not absolute but conditional, such as in a "Contract to aforequoted, or possibly of an offer under Article 13199 of the same Code.
Sell" where invariably the ownership of the thing sold is retained until the An option or an offer would require, among other things,10 a clear certainty
fulfillment of a positive suspensive condition (normally, the full payment on both the object and the cause or consideration of the envisioned
of the purchase price), the breach of the condition will prevent the contract. In a right of first refusal, while the object might be made
obligation to convey title from acquiring an obligatory force. 2 In Dignos determinate, the exercise of the right, however, would be dependent not
vs. Court of Appeals (158 SCRA 375), we have said that, although only on the grantor's eventual intention to enter into a binding juridical
denominated a "Deed of Conditional Sale," a sale is still absolute where relation with another but also on terms, including the price, that obviously
the contract is devoid of any proviso that title is reserved or the right to are yet to be later firmed up. Prior thereto, it can at best be so described as
unilaterally rescind is stipulated, e.g., until or unless the price is paid. merely belonging to a class of preparatory juridical relations governed not
Ownership will then be transferred to the buyer upon actual or constructive by contracts (since the essential elements to establish the vinculum
delivery (e.g., by the execution of a public document) of the property sold. juris would still be indefinite and inconclusive) but by, among other laws
Where the condition is imposed upon the perfection of the contract itself, of general application, the pertinent scattered provisions of the Civil Code
the failure of the condition would prevent such perfection. 3 If the condition on human conduct.
is imposed on the obligation of a party which is not fulfilled, the other Even on the premise that such right of first refusal has been decreed under
party may either waive the condition or refuse to proceed with the sale a final judgment, like here, its breach cannot justify correspondingly an
(Art. 1545, Civil Code).4 issuance of a writ of execution under a judgment that merely recognizes
An unconditional mutual promise to buy and sell, as long as the object is its existence, nor would it sanction an action for specific performance
made determinate and the price is fixed, can be obligatory on the parties, without thereby negating the indispensable element of consensuality in the
and compliance therewith may accordingly be exacted.5 perfection of contracts.11 It is not to say, however, that the right of first
An accepted unilateral promise which specifies the thing to be sold and refusal would be inconsequential for, such as already intimated above, an
the price to be paid, when coupled with a valuable consideration unjustified disregard thereof, given, for instance, the circumstances
distinct and separate from the price, is what may properly be termed a expressed in Article 1912 of the Civil Code, can warrant a recovery for
perfected contract of option. This contract is legally binding, and in sales, damages.
it conforms with the second paragraph of Article 1479 of the Civil Code, The final judgment in Civil Case No. 87-41058, it must be stressed, has
viz: merely accorded a "right of first refusal" in favor of petitioners. The
Art. 1479. . . . consequence of such a declaration entails no more than what has
An accepted unilateral promise to buy or to sell a heretofore been said. In fine, if, as it is here so conveyed to us, petitioners
determinate thing for a price certain is binding upon the are aggrieved by the failure of private respondents to honor the right of
promissor if the promise is supported by a first refusal, the remedy is not a writ of execution on the judgment, since
consideration distinct from the price. (1451a)6 there is none to execute, but an action for damages in a proper forum for
Observe, however, that the option is not the contract of sale itself.7 The the purpose.
optionee has the right, but not the obligation, to buy. Once the option is Furthermore, whether private respondent Buen Realty Development
exercised timely, i.e., the offer is accepted before a breach of the option, a Corporation, the alleged purchaser of the property, has acted in good faith
bilateral promise to sell and to buy ensues and both parties are then or bad faith and whether or not it should, in any case, be considered bound
reciprocally bound to comply with their respective undertakings. 8 to respect the registration of the lis pendens in Civil Case No. 87-41058
Let us elucidate a little. A negotiation is formally initiated by an offer. An are matters that must be independently addressed in appropriate
imperfect promise (policitacion) is merely an offer. Public advertisements proceedings. Buen Realty, not having been impleaded in Civil Case No.
or solicitations and the like are ordinarily construed as mere invitations to 87-41058, cannot be held subject to the writ of execution issued by
make offers or only as proposals. These relations, until a contract is respondent Judge, let alone ousted from the ownership and possession of
perfected, are not considered binding commitments. Thus, at any time the property, without first being duly afforded its day in court.
prior to the perfection of the contract, either negotiating party may stop We are also unable to agree with petitioners that the Court of Appeals has
the negotiation. The offer, at this stage, may be withdrawn; the withdrawal erred in holding that the writ of execution varies the terms of the judgment
is effective immediately after its manifestation, such as by its mailing and in Civil Case No. 87-41058, later affirmed in CA-G.R. CV-21123. The
not necessarily when the offeree learns of the withdrawal (Laudico vs. Court of Appeals, in this regard, has observed:
Arias, 43 Phil. 270). Where a period is given to the offeree within which Finally, the questioned writ of execution is in variance with the
to accept the offer, the following rules generally govern: decision of the trial court as modified by this Court. As already
(1) If the period is not itself founded upon or supported by a consideration, stated, there was nothing in said decision 13 that decreed the
the offeror is still free and has the right to withdraw the offer before its execution of a deed of sale between the Cu Unjiengs and
acceptance, or, if an acceptance has been made, before the offeror's respondent lessees, or the fixing of the price of the sale, or the
coming to know of such fact, by communicating that withdrawal to the cancellation of title in the name of petitioner (Limpin vs. IAC,
offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC,
102 Phil. 948, holding that this rule is applicable to a unilateral promise to 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs.
sell under Art. 1479, modifying the previous decision in South Western CA, 122 SCRA 885).
Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural It is likewise quite obvious to us that the decision in Civil Case No. 87-
Bank of Parañaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 41058 could not have decreed at the time the execution of any deed of sale
45 SCRA 368). The right to withdraw, however, must not be exercised between the Cu Unjiengs and petitioners.
whimsically or arbitrarily; otherwise, it could give rise to a damage claim WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting
under Article 19 of the Civil Code which ordains that "every person must, aside the questioned Orders, dated 30 August 1991 and 27 September
in the exercise of his rights and in the performance of his duties, act with 1991, of the court a quo. Costs against petitioners.
justice, give everyone his due, and observe honesty and good faith." SO ORDERED.
G.R. No. 111538 February 26, 1997 defendant Raymundo, the said letter was personally handed by
PARAÑAQUE KINGS ENTERPRISES, the attorney-in-fact of defendant Santos, Xerox copy of the letter
INCORPORATED, petitioner, is hereto attached as Annex "N".
vs. 9. Upon learning of this fact plaintiff's representative wrote a
COURT OF APPEALS, CATALINA L. SANTOS, represented by her letter to defendant Santos, requesting her to rectify the error and
attorney-in-fact, LUZ B. PROTACIO, and DAVID A. consequently realizing the error, she had it reconveyed to her for
RAYMUNDO, respondents. the same consideration of FIVE MILLION (P5,000,000.00)
PESOS. Xerox copies of the letter and the deed of reconveyance
PANGANIBAN, J.: are hereto attached as Annexes "O" and "P".
Do allegations in a complaint showing violation of a contractual right of 10. Subsequently the property was offered for sale to plaintiff by
"first option or priority to buy the properties subject of the lease" constitute the defendant for the sum of FIFTEEN MILLION
a valid cause of action? Is the grantee of such right entitled to be offered (P15,000,000.00) PESOS. Plaintiff was given ten (10) days to
the same terms and conditions as those given to a third party who make good of the offer, but therefore (sic) the said period expired
eventually bought such properties? In short, is such right of first refusal another letter came from the counsel of defendant Santos,
enforceable by an action for specific performance? containing the same tenor of (sic) the former letter. Xerox copies
These questions are answered in the affirmative by this Court in resolving of the letters are hereto attached as Annexes "Q" and "R".
this petition for review under Rule 45 of the Rules of Court challenging 11. On May 8, 1989, before the period given in the letter offering
the Decision 1 of the Court of Appeals 2 promulgated on March 29, 1993, the properties for sale expired, plaintiff's counsel wrote counsel
in CA-G.R. CV No. 34987 entitled "Parañaque Kings Enterprises, Inc. vs. of defendant Santos offering to buy the properties for FIVE
Catalina L. Santos, et al.," which affirmed the order 3of September 2, MILLION (P5,000,000.00) PESOS. Xerox copy of the letter is
1991, of the Regional Trial Court of Makati, Branch 57, 4 dismissing Civil hereto attached as Annex "S".
Case No. 91-786 for lack of a valid cause of action. 12. On May 15, 1989, before they replied to the offer to
Facts of the Case purchase, another deed of sale was executed by defendant Santos
On March 19, 1991, herein petitioner filed before the Regional Trial Court (in favor of) defendant Raymundo for a consideration of NINE
of Makati a complaint, 5 which is reproduced in full below: MILLION (P9,000,000.00) PESOS. Xerox copy of the second
Plaintiff, by counsel, respectfully states that: deed of sale is hereto attached as Annex "T".
1. Plaintiff is a private corporation organized and existing under 13. Defendant Santos violated again paragraph 9 of the contract
and by virtue of the laws of the Philippines, with principal place of lease by executing a second deed of sale to defendant
of business of (sic) Dr. A. Santos Avenue, Parañaque, Metro Raymundo.
Manila, while defendant Catalina L. Santos, is of legal age, 14. It was only on May 17, 1989, that defendant Santos replied
widow, with residence and postal address at 444 Plato Street, Ct., to the letter of the plaintiff's offer to buy or two days after she
Stockton, California, USA, represented in this action by her sold her properties. In her reply she stated among others that the
attorney-in-fact, Luz B. Protacio, with residence and postal period has lapsed and the plaintiff is not a privy (sic) to the
address at No, 12, San Antonio Street, Magallanes Village, contract. Xerox copy of the letter is hereto attached as Annex
Makati, Metro Manila, by virtue of a general power of attorney. "U".
Defendant David A. Raymundo, is of legal age, single, with 15. On June 28, 1989, counsel for plaintiff informed
residence and postal address at 1918 Kamias Street, Damariñas counsel of defendant Santos of the fact that plaintiff is
Village, Makati, Metro Manila, where they (sic) may be served the assignee of all rights and interest of the former
with summons and other court processes. Xerox copy of the lessor. Xerox copy of the letter is hereto attached as
general power of attorney is hereto attached as Annex "A". Annex "V".
2. Defendant Catalina L. Santos is the owner of eight (8) parcels 16. On July 6, 1989, counsel for defendant Santos informed the
of land located at (sic) Parañaque, Metro Manila with transfer plaintiff that the new owner is defendant Raymundo. Xerox copy
certificate of title nos. S-19637, S-19638 and S-19643 to S- of the letter is hereto attached as Annex "W".
19648. Xerox copies of the said title (sic) are hereto attached as 17. From the preceding facts it is clear that the sale was simulated
Annexes "B" to "I", respectively. and that there was a collusion between the defendants in the sales
3. On November 28, 1977, a certain Frederick Chua leased the of the leased properties, on the ground that when plaintiff wrote
above-described property from defendant Catalina L. Santos, the a letter to defendant Santos to rectify the error, she immediately
said lease was registered in the Register of Deeds. Xerox copy have (sic) the property reconveyed it (sic) to her in a matter of
of the lease is hereto attached as Annex "J". twelve (12) days.
4. On February 12, 1979, Frederick Chua assigned all his rights 18. Defendants have the same counsel who represented both of
and interest and participation in the leased property to Lee Ching them in their exchange of communication with plaintiff's
Bing, by virtue of a deed of assignment and with the conformity counsel, a fact that led to the conclusion that a collusion exist
of defendant Santos, the said assignment was also registered. (sic) between the defendants.
Xerox copy of the deed of assignment is hereto attached as 19. When the property was still registered in the name of
Annex "K". defendant Santos, her collector of the rental of the leased
5. On August 6, 1979, Lee Ching Bing also assigned all his rights properties was her brother-in-law David Santos and when it was
and interest in the leased property to Parañaque Kings transferred to defendant Raymundo the collector was still David
Enterprises, Incorporated by virtue of a deed of assignment and Santos up to the month of June, 1990. Xerox copies of cash
with the conformity of defendant Santos, the same was duly vouchers are hereto attached as Annexes "X" to "HH",
registered, Xerox copy of the deed of assignment is hereto respectively.
attached as Annex "L". 20. The purpose of this unholy alliance between defendants
6. Paragraph 9 of the assigned leased (sic) contract provides Santos and Raymundo is to mislead the plaintiff and make it
among others that: appear that the price of the leased property is much higher than
"9. That in case the properties subject of the lease its actual value of FIVE MILLION (P5,000,000.00) PESOS, so
agreement are sold or encumbered, Lessors shall that plaintiff would purchase the properties at a higher price.
impose as a condition that the buyer or mortgagee 21. Plaintiff has made considerable investments in the said
thereof shall recognize and be bound by all the terms leased property by erecting a two (2) storey, six (6) doors
and conditions of this lease agreement and shall respect commercial building amounting to THREE MILLION
this Contract of Lease as if they are the LESSORS (P3,000,000.00) PESOS. This considerable improvement was
thereof and in case of sale, LESSEE shall have the first made on the belief that eventually the said premises shall be sold
option or priority to buy the properties subject of the to the plaintiff.
lease;" 22. As a consequence of this unlawful act of the defendants,
7. On September 21, 1988, defendant Santos sold the eight plaintiff will incurr (sic) total loss of THREE MILLION
parcels of land subject of the lease to defendant David (P3,000,000.00) PESOS as the actual cost of the building and as
Raymundo for a consideration of FIVE MILLION such defendants should be charged of the same amount for actual
(P5,000,000.00) PESOS. The said sale was in contravention of damages.
the contract of lease, for the first option or priority to buy was 23. As a consequence of the collusion, evil design and illegal acts
not offered by defendant Santos to the plaintiff. Xerox copy of of the defendants, plaintiff in the process suffered mental
the deed of sale is hereto attached as Annex "M". anguish, sleepless nights, bismirched (sic) reputation which
8. On March 5, 1989, defendant Santos wrote a letter to the entitles plaintiff to moral damages in the amount of FIVE
plaintiff informing the same of the sale of the properties to MILLION (P5,000,000.00) PESOS.
 24. The defendants acted in a wanton, fraudulent, reckless, captain of San Isidro, Parañaque, Metro Manila; to direct the dismissal of
oppressive or malevolent manner and as a deterrent to the said ejectment complaint or of any similar action that may have been filed;
commission of similar acts, they should be made to answer for and to require respondent Raymundo to explain why he should not be held
exemplary damages, the amount left to the discretion of the in contempt of court for forum-shopping. The ejectment suit initiated by
Court. respondent Raymundo against petitioner arose from the expiration of the
25. Plaintiff demanded from the defendants to rectify their lease contract covering the property subject of this case. The ejectment
unlawful acts that they committed, but defendants refused and suit was decided in favor of Raymundo, and the entry of final judgment in
failed to comply with plaintiffs just and valid and (sic) demands. respect thereof renders the said motion moot and academic.
Xerox copies of the demand letters are hereto attached as Issue
Annexes "KK" to "LL", respectively. The principal legal issue presented before us for resolution is whether the
26. Despite repeated demands, defendants failed and refused aforequoted complaint alleging breach of the contractual right of "first
without justifiable cause to satisfy plaintiff's claim, and was option or priority to buy" states a valid cause of action.
constrained to engaged (sic) the services of undersigned counsel Petitioner contends that the trial court as well as the appellate tribunal
to institute this action at a contract fee of P200,000.00, as and for erred in dismissing the complaint because it in fact had not just one but at
attorney's fees, exclusive of cost and expenses of litigation. least three (3) valid causes of action, to wit: (1) breach of contract, (2) its
PRAYER right of first refusal founded in law, and (3) damages.
WHEREFORE, it is respectfully prayed, that judgment be Respondents Santos and Raymundo, in their separate comments, aver that
rendered in favor of the plaintiff and against defendants and the petition should be denied for not raising a question of law as the issue
ordering that: involved is purely factual — whether respondent Santos complied with
a. The Deed of Sale between defendants dated May 15, paragraph 9 of the lease agreement — and for not having complied with
1989, be annulled and the leased properties be sold to Section 2, Rule 45 of the Rules of Court, requiring the filing of twelve (12)
the plaintiff in the amount of P5,000,000.00; copies of the petitioner's brief. Both maintain that the complaint filed by
b. Dependants (sic) pay plaintiff the sum of petitioner before the Regional Trial Court of Makati stated no valid cause
P3,000,000.00 as actual damages; of action and that petitioner failed to substantiate its claim that the lower
c. Defendants pay the sum of P5,000,000.00 as moral courts decided the same "in a way not in accord with law and applicable
damages; decisions of the Supreme Court"; or that the Court of Appeals has
d. Defendants pay exemplary damages left to the "sanctioned departure by a trial court from the accepted and usual course
discretion of the Court; of judicial proceedings" so as to merit the exercise by this Court of the
e. Defendants pay the sum of not less than P200,000.00 power of review under Rule 45 of the Rules of Court. Furthermore, they
as attorney's fees. reiterate estoppel and laches as grounds for dismissal, claiming that
Plaintiff further prays for other just and equitable petitioner's payment of rentals of the leased property to respondent
reliefs plus cost of suit. Raymundo from June 15, 1989, to June 30, 1990, was an acknowledgment
Instead of filing their respective answers, respondents filed motions to of the latter's status as new owner-lessor of said property, by virtue of
dismiss anchored on the grounds of lack of cause of action, estoppel and which petitioner is deemed to have waived or abandoned its first option to
laches. purchase.
On September 2, 1991, the trial court issued the order dismissing the Private respondents likewise contend that the deed of assignment of the
complaint for lack of a valid cause of action. It ratiocinated thus: lease agreement did not include the assignment of the option to purchase.
Upon the very face of the plaintiff's Complaint itself, it therefore Respondent Raymundo further avers that he was not privy to the contract
indubitably appears that the defendant Santos had verily of lease, being neither the lessor nor lessee adverted to therein, hence he
complied with paragraph 9 of the Lease Agreement by twice could not be held liable for violation thereof.
offering the properties for sale to the plaintiff for ~1 5 M. The The Court's Ruling
said offers, however, were plainly rejected by the plaintiff which Preliminary Issue: Failure to File
scorned the said offer as "RIDICULOUS". There was therefore Sufficient Copies of Brief
a definite refusal on the part of the plaintiff to accept the offer of We first dispose of the procedural issue raised by respondents, particularly
defendant Santos. For in acquiring the said properties back to her petitioner's failure to file twelve (12) copies of its brief. We have ruled that
name, and in so making the offers to sell both by herself when non-compliance with the Rules was not intended for delay or did not
(attorney-in-fact) and through her counsel, defendant Santos was result in prejudice to the adverse party, dismissal of appeal on mere
indeed conscientiously complying with her obligation under technicalities — in cases where appeal is a matter of right — may be
paragraph 9 of the Lease Agreement. . . . . stayed, in the exercise of the court's equity jurisdiction. 10 It does not
xxx xxx xxx appear that respondents were unduly prejudiced by petitioner's
This is indeed one instance where a Complaint, after barely nonfeasance. Neither has it been shown that such failure was intentional.
commencing to create a cause of action, neutralized itself by its Main Issue: Validity of Cause of Action
subsequent averments which erased or extinguished its earlier We do not agree with respondents' contention that the issue involved
allegations of an impending wrong. Consequently, absent any is purely factual. The principal legal question, as stated earlier, is whether
actionable wrong in the very face of the Complaint itself, the the complaint filed by herein petitioner in the lower court states a valid
plaintiffs subsequent protestations of collusion is bereft or cause of action. Since such question assumes the facts alleged in the
devoid of any meaning or purpose. . . . . complaint as true, it follows that the determination thereof is one of law,
The inescapable result of the foregoing considerations point to and not of facts. There is a question of law in a given case when the doubt
no other conclusion than that the Complaint actually does not or difference arises as to what the law is on a certain state of facts, and
contain any valid cause of action and should therefore be as it is there is a question of fact when the doubt or difference arises as to the truth
hereby ordered DISMISSED. The Court finds no further need to or the falsehood of alleged facts. 11
consider the other grounds of estoppel and laches inasmuch as At the outset, petitioner concedes that when the ground for a motion to
this resolution is sufficient to dispose the matter. 6 dismiss is lack of cause of action, such ground must appear on the face of
Petitioners appealed to the Court of Appeals which affirmed in toto the the complaint; that to determine the sufficiency of a cause of action, only
ruling of the trial court, and further reasoned that: the facts alleged in the complaint and no others should be considered; and
. . . . Appellant's protestations that the P15 million price quoted that the test of sufficiency of the facts alleged in a petition or complaint to
by appellee Santos was reduced to P9 million when she later constitute a cause of action is whether, admitting the facts alleged, the
resold the leased properties to Raymundo has no valid legal court could render a valid judgment upon the same in accordance with the
moorings because appellant, as a prospective buyer, cannot prayer of the petition or complaint.
dictate its own price and forcibly ram it against appellee Santos, A cause of action exists if the following elements are present: (1) a right
as owner, to buy off her leased properties considering the total in favor of the plaintiff by whatever means and under whatever law it
absence of any stipulation or agreement as to the price or as to arises or is created; (2) an obligation on the part of the named defendant
how the price should be computed under paragraph 9 of the lease to respect or not to violate such right, and (3) an act or omission on the
contract, . . . . 7 part of such defendant violative of the right of plaintiff or constituting a
Petitioner moved for reconsideration but was denied in an order dated breach of the obligation of defendant to the plaintiff for which the latter
August 20, 1993. 8 may maintain an action for recovery of damages. 12
Hence this petition. Subsequently, petitioner filed an "Urgent Motion for In determining whether allegations of a complaint are sufficient to support
the Issuance of Restraining Order and/or Writ of Preliminary Injunction a cause of action, it must be borne in mind that the complaint does not
and to Hold Respondent David A. Raymundo in Contempt of have to establish or allege facts proving the existence of a cause of action
Court." 9 The motion sought to enjoin respondent Raymundo and his at the outset; this will have to be done at the trial on the merits of the case.
counsel from pursuing the ejectment complaint filed before the barangay To sustain a motion to dismiss for lack of cause of action, the complaint
must show that the claim for relief does not exist, rather than that a claim priorly informing Mayfair. The Court held that both Carmelo and
has been defectively stated, or is ambiguous, indefinite or uncertain. 13 Equatorial acted in bad faith: Carmelo for knowingly violating the right of
Equally important, a defendant moving to dismiss a complaint on the first option of Mayfair, and Equatorial for purchasing the property despite
ground of lack of cause of action is regarded as having hypothetically being aware of the contract stipulation. In addition to rescission of the
admitted all the averments thereof. 14 contract of sale, the Court ordered Carmelo to allow Mayfair to buy the
A careful examination of the complaint reveals that it sufficiently alleges subject property at the same price of P11,300,000.00.
an actionable contractual breach on the part of private respondents. Under No cause of action
paragraph 9 of the contract of lease between respondent Santos and under P.D. 1517
petitioner, the latter was granted the "first option or priority" to purchase Petitioner also invokes Presidential Decree No. 1517, or the Urban Land
the leased properties in case Santos decided to sell. If Santos never decided Reform Law, as another source of its right of first refusal. It claims to be
to sell at all, there can never be a breach, much less an enforcement of such covered under said law, being the "rightful occupant of the land and its
"right." But on September 21, 1988, Santos sold said properties to structures" since it is the lawful lessee thereof by reason of contract. Under
Respondent Raymundo without first offering these to petitioner. Santos the lease contract, petitioner would have occupied the property for
indeed realized her error, since she repurchased the properties after fourteen (14) years at the end of the contractual period.
petitioner complained. Thereafter, she offered to sell the properties to Without probing into whether petitioner is rightfully a beneficiary under
petitioner for P15 million, which petitioner, however, rejected because of said law, suffice it to say that this Court has previously ruled that under
the "ridiculous" price. But Santos again appeared to have violated the same Section 6 18 of P.D. 1517, "the terms and conditions of the sale in the
provision of the lease contract when she finally resold the properties to exercise of the lessee's right of first refusal to purchase shall be determined
respondent Raymundo for only P9 million without first offering them to by the Urban Zone Expropriation and Land Management Committee.
petitioner at such price. Whether there was actual breach which entitled Hence, . . . . certain prerequisites must be complied with by anyone who
petitioner to damages and/or other just or equitable relief, is a question wishes to avail himself of the benefits of the decree." 19There being no
which can better be resolved after trial on the merits where each party can allegation in its complaint that the prerequisites were complied with, it is
present evidence to prove their respective allegations and defenses. 15 clear that the complaint did fail to state a cause of action on this ground.
The trial and appellate courts based their decision to sustain respondents' Deed of Assignment included
motion to dismiss on the allegations of Parañaque Kings Enterprises that the option to purchase
Santos had actually offered the subject properties for sale to it prior to the Neither do we find merit in the contention of respondent Santos that the
final sale in favor of Raymundo, but that the offer was rejected. According assignment of the lease contract to petitioner did not include the option to
to said courts, with such offer, Santos had verily complied with her purchase. The provisions of the deeds of assignment with regard to matters
obligation to grant the right of first refusal to petitioner. assigned were very clear. Under the first assignment between Frederick
We hold, however, that in order to have full compliance with the Chua as assignor and Lee Ching Bing as assignee, it was expressly stated
contractual right granting petitioner the first option to purchase, the sale that:
of the properties for the amount of P9 million, the price for which they . . . . the ASSIGNOR hereby CEDES, TRANSFERS and
were finally sold to respondent Raymundo, should have likewise been first ASSIGNS to herein ASSIGNEE, all his rights, interest and
offered to petitioner. participation over said premises afore-described, . . .
The Court has made an extensive and lengthy discourse on the concept of, . 20 (emphasis supplied)
and obligations under, a right of first refusal in the case of Guzman, And under the subsequent assignment executed between Lee Ching Bing
Bocaling & Co. vs. Bonnevie. 16 In that case, under a contract of lease, the as assignor and the petitioner, represented by its Vice President Vicenta
lessees (Raul and Christopher Bonnevie) were given a "right of first Lo Chiong, as assignee, it was likewise expressly stipulated that;
priority" to purchase the leased property in case the lessor (Reynoso) . . . . the ASSIGNOR hereby sells, transfers and assigns all his
decided to sell. The selling price quoted to the Bonnevies was 600,000.00 rights, interest and participation over said leased premises, . . .
to be fully paid in cash, less a mortgage lien of P100,000.00. On the other . 21 (emphasis supplied)
hand, the selling price offered by Reynoso to and accepted by Guzman One of such rights included in the contract of lease and, therefore, in the
was only P400,000.00 of which P137,500.00 was to be paid in cash while assignments of rights was the lessee's right of first option or priority to buy
the balance was to be paid only when the property was cleared of the properties subject of the lease, as provided in paragraph 9 of the
occupants. We held that even if the Bonnevies could not buy it at the price assigned lease contract. The deed of assignment need not be very specific
quoted (P600,000.00), nonetheless, Reynoso could not sell it to another as to which rights and obligations were passed on to the assignee. It is
for a lower price and under more favorable terms and conditions without understood in the general provision aforequoted that all specific rights
first offering said favorable terms and price to the Bonnevies as well. Only and obligationscontained in the contract of lease are those referred to as
if the Bonnevies failed to exercise their right of first priority could being assigned. Needless to state, respondent Santos gave her unqualified
Reynoso thereafter lawfully sell the subject property to others, and only conformity to both assignments of rights.
under the same terms and conditions previously offered to the Bonnevies. Respondent Raymundo privy
Of course, under their contract, they specifically stipulated that the to the Contract of Lease
Bonnevies could exercise the right of first priority, "all things and With respect to the contention of respondent Raymundo that he is not
conditions being equal." This Court interpreted this proviso to mean that privy to the lease contract, not being the lessor nor the lessee referred to
there should be identity of terms and conditions to be offered to the therein, he could thus not have violated its provisions, but he is
Bonnevies and all other prospective buyers, with the Bonnevies to enjoy nevertheless a proper party. Clearly, he stepped into the shoes of the
the right of first priority. We hold that the same rule applies even without owner-lessor of the land as, by virtue of his purchase, he assumed all the
the same proviso if the right of first refusal (or the first option to buy) is obligations of the lessor under the lease contract. Moreover, he received
not to be rendered illusory. benefits in the form of rental payments. Furthermore, the complaint, as
From the foregoing, the basis of the right of first refusal* must be well as the petition, prayed for the annulment of the sale of the properties
the current offer to sell of the seller or offer to purchase of any prospective to him. Both pleadings also alleged collusion between him and respondent
buyer. Only after the optionee fails to exercise its right of first priority Santos which defeated the exercise by petitioner of its right of first refusal.
under the same terms and within the period contemplated, could the owner In order then to accord complete relief to petitioner, respondent Raymundo
validly offer to sell the property to a third person, again, under the same was a necessary, if not indispensable, party to the case. 22 A favorable
terms as offered to the optionee. judgment for the petitioner will necessarily affect the rights of respondent
This principle was reiterated in the very recent case of Equatorial Realty Raymundo as the buyer of the property over which petitioner would like
vs. Mayfair Theater, Inc. 17 which was decided en banc. This Court to assert its right of first option to buy.
upheld the right of first refusal of the lessee Mayfair, and rescinded the Having come to the conclusion that the complaint states a valid cause of
sale of the property by the lessor Carmelo to Equatorial Realty action for breach of the right of first refusal and that the trial court should
"considering that Mayfair, which had substantial interest over the subject thus not have dismissed the complaint, we find no more need to pass upon
property, was prejudiced by its sale to Equatorial without Carmelo the question of whether the complaint states a cause of action for damages
conferring to Mayfair every opportunity to negotiate within the 30-day or whether the complaint is barred by estoppel or laches. As these matters
stipulated period" (emphasis supplied). require presentation and/or determination of facts, they can be best
In that case, two contracts of lease between Carmelo and Mayfair provided resolved after trial on the merits.
"that if the LESSOR should desire to sell the leased premises, the LESSEE While the lower courts erred in dismissing the complaint, private
shall be given 30 days exclusive option to purchase the same." Carmelo respondents, however, cannot be denied their day in court. While, in the
initially offered to sell the leased property to Mayfair for six to seven resolution of a motion to dismiss, the truth of the facts alleged in the
million pesos. Mayfair indicated interest in purchasing the property complaint are theoretically admitted, such admission is merely
though it invoked the 30-day period. Nothing was heard thereafter from hypothetical and only for the purpose of resolving the motion. In case of
Carmelo. Four years later, the latter sold its entire Recto Avenue property, denial, the movant is not to be deprived of the right to submit its own case
including the leased premises, to Equatorial for P11,300,000.00 without and to submit evidence to rebut the allegations in the complaint. Neither
will the grant of the motion by a trial court and the ultimate reversal thereof execute a contract to sell in private respondent's favor in accordance with
by an appellate court have the effect of stifling such right. 23 So too, the paragraph 7 of the compromise agreement.7
trial court should be given the opportunity to evaluate the evidence, apply On July 8, 1992, petitioners filed a motion for execution of judgement
the law and decree the proper remedy. Hence, we remand the instant case alleging that after a lapse of five (5) months from February 6, 1992, private
to the trial court to allow private respondents to have their day in court. respondent have failed to settle their obligations with petitioners. 8
WHEREFORE, the petition is GRANTED. The assailed decisions of the In its order dated August 6, 1992, respondent judge denied the motion for
trial court and Court of Appeals are hereby REVERSED and SET ASIDE. execution and directed petitioners to execute the required contract to sell
The case is REMANDED to the Regional Trial Court of Makati for further in favor of private respondent. Respondent judge opined that the
proceedings. proximate cause of private respondent's failure to comply with the
SO ORDERED. compromise agreement was the refusal of petitioners to execute a contract
G.R. No. 106837 August 4, 1993 to sell as required under the agreement. Respondent judge added that
HENRY MACION and ANGELES MACION, petitioners, petitioners should have executed the contract to sell because anyway they
vs. would not be prejudiced since there was no transfer of ownership involved
HON. JAPAL M. GUIANI, in his capacity as Presiding Judge of the in a contract to sell.9
Regional Trial Court Branch 14, Cotabato City and DELA VIDA Hence this instant petition for certiorari, with prayer for a temporary
INSTITUTE represented by MS. JOSEPHINE restraining order enjoining respondent judge from enforcing its August 6,
LANZADERAS, respondents. 1992 order.
Leonardo J. Rendon for petitioners. On October 7, 1992, petitioners filed an Omnibus Urgent Motion praying
Mama Dalandag for private respondent Dela Vida Institute. that private respondent be ordered to consign with the court below
P135,000.00 representing rentals from May 1991 to January 1992. In our
ROMERO, J.: resolution dated November 18, 1992, we granted said prayer. On March
The subject of this litigation revolves around two (2) parcels of adjoining 9, 1992, private respondent consigned with the Office of the Clerk of
lots owned by petitioners which are the proposed extension sites of De La Court the sum of P135,000.00. On March 29, 1993, petitioners filed with
Vida Institute, an educational institution located in Cotabato City. the lower court a motion to withdraw the consigned amount and on April
On April 26, 1991, the petitioners and private respondent entered into a 5, 1993, the trial court released the consigned amount to petitioners. 10
contract to sell under which terms, private respondent, as president of De The issue in the case at bar is whether or not respondent judge committed
la Vida Institute, assured petitioners that they would buy the said grave abuse of discretion in ordering petitioner to execute a contract to sell
properties on or before July 31, 1991 in the amount of P1,750,000.00. In in favor of private respondent.
the meantime, petitioners surrendered the physical possession of the two We dismiss the petition.
lots to private respondent who promptly built an edifice worth The resolution of this case hinges on whether the compromise agreement
P800,000.00.1 gives private respondent-buyer the right to demand from petitioner-sellers
But on July 31, 1991, the sale did not materialize. Consequently, the execution of a contract to sell in favor of the former.
petitioners filed a complaint for unlawful detainer against private Apparently, paragraph 7 of the compromise agreement does not give such
respondent (MTCC Civil Case No. 2739). In retaliation, private right to private respondent-buyer. To wit:
respondent filed a complaint for reformation of the contract to sell 7. that if within the period of five (5) months from and after
executed on April 26, 1991 (Civil Case 592).2 Afterwards, the parties met February 6, 1992, the plaintiff succeeds in obtaining funds for
to settle their differences. the purpose of settling their obligations with defendants in the
On February 6, 1992, the parties entered into a compromise agreement total sum of P2,060,000.00 the latter shall oblige themselves to
which stipulated among others that petitioners would give private execute, sign and deliver to the former the corresponding Deed
respondent five (5) months to raise the amount of P2,060,000.00; 3 that in of Sale for the two (2) lots which is the subject of this case and
the event of failure to raise the said amount within the designated period, turn-over to said plaintiff the owner's duplicate copy of TCT
private respondent would vacate the premises immediately. The Nos. T-22004 and T-22005 of the Registry of Deeds for the City
compromise agreement, inter alia, provided: of Cotabato. (Italics provided).
6. that upon the execution of this agreement, the defendant will From the aforecited paragraph, it is clear that the seller is obliged to
furnish the plaintiff with xerox copy of the land title for each lot execute a Deed of Sale and not a Contract to Sell upon payment of the full
which the latter may use for the purpose of providing price of P2.06 million. Thereafter, the sellers would turn over to the
information in securing a loan from any financing or banking buyers, respondents herein, the owner's duplicate copy of Transfer
institution of their choice. Certificate of Title Nos. T-22004 and T-22005.
7. that if within the period of five (5) months from and after However, in the interpretation of the compromise agreement, we must
February 6, 1992, the plaintiff succeeds in obtaining funds for delve in the contemporaneous and subsequent acts of the parties to fathom
the purpose of settling their obligations with defendants in the the real intention of the parties. 11 A review of the facts reveal that even
total sum of P2,060,000.00 the latter shall oblige themselves to prior to the signing of the compromise agreement and the filing of Civil
execute, sign and deliver to the former the corresponding Deed Case No. 592 before the trial court, the parties had already entered into a
of Sale for the two (2) lots which is the subject of this case and contract to sell. Thereafter, when the transaction failed to materialize, the
turn-over to said plaintiff the owner's duplicate copy of TCT parties filed suits against each other; petitioners, their unlawful detainer
Nos. T-22004 and T-22005 of the Registry of Deeds for the City case, and private respondent a complaint for reformation of contract,
of Cotabato. alleging that petitioners in fact had caused the preparation of the contract
In affirmation of the compromise agreement, the Board of Trustees of De to sell dated April 26, 1991 with the understanding that the land would be
La Vida College passed thereafter a resolution expressing full support to used as a collateral in obtaining a loan with DBP.
the said agreement entered into between the parties.4 Said contract to sell was superseded by the compromise agreement entered
On March 10, 1992, private respondent wrote petitioners that "the into on February 6, 1992 containing the abovequoted paragraph. It must
compromise agreement we have had in the presence of Judge Guiani is not be recalled that private respondent was given five (5) months from
the same as per attached xerox copy you gave us." In that letter, which February 6, 1992, i. e., on or before July 6, 1992 to secure the purchase
essentially was a counter proposal, private respondent said that the price price of the two (2) lots. We note that within the time frame agreed upon
of P2,060,000.00 was higher than they were willing to pay in the amount by the parties, private respondents wrote three (3) letters dated may 19, 20
of P2,000,000.00 only.5 Other matters taken up in the letter were: De la and 26 requesting petitioners to execute a contract to sell in its favor.
Vida Institute would admit students and hold classes until July 6, 1992 but Under these factual circumstances, we opine that the compromise
in case they (private respondent) fail to deliver the said amount, they agreement must be interpreted as bestowing upon private respondent-
would voluntarily vacate the premises and that "in the event that the bank buyer the power to demand a contract to sell from petitioner-sellers.
and other lending institutions give its nod and approval to our loan and Where the seller promised to execute a deed of absolute sale upon
require the submission of other documents, you will give to us the Deed completing payment of the price, it is a contract to sell. 12 In the case at
of Sale and Owner's copies of the Titles of the two (2) to t expedite release bar, the sale is still in the executory stage since the passing of title is
of the amount concerned."6 subject to a suspensive condition, namely, that if private respondent is able
On March 25, 1992, the trial court approved the compromise agreement to secure the needed funds to be used in the purchased of the two (2) lots
dated February 6, 1992. owned by petitioners. A mere executory sale, one where the sellers merely
Two (2) months after, private respondents, alleging that they had promise to transfer the property at some future date, or where some
negotiated a loan from the Bank of the Philippine Islands, wrote letters conditions have to be fulfilled before the contract is converted from an
dated May 19, 20 and 26 requesting petitioners to execute with them a executory to an executed one, does not pass ownership over the real estate
contract to sell in their favor. On May 28, 1992, private respondent filed being sold. 13
with the trial court an urgent motion for an order directing petitioners to In our jurisdiction, it has been that an accepted bilateral promise to buy
and sell is in a sense similar to, but not exactly the same, as a perfected
contract of sale because there is already a meeting of minds upon the thing for the purpose of brokering the sale of petitioners’ properties to
which is the object of the contract and upon the price. 14 But a contract of respondent corporation.
sale is consummated only upon the delivery and payment. It cannot be Pursuant to the said meeting, a Contract to Sell5 was drafted by the
denied that the compromise agreement, having been signed by both Executive Assistant of Sotero Lee, Inocencia Almo. On 1 April 1989,
parties, is tantamount to a bilateral promise to buy and sell a certain thing petitioners Ernesto and Enriqueta signed the aforesaid Contract to Sell. A
for a price certain. Hence, this gives the contracting parties rights in check in the amount of ₱100,000.00, payable to Ernesto, was given as
personam, such that each has the right to demand from the other the option money. Sometime thereafter, Rizalino, Leonora, Bibiano, Jr., and
fulfillment of their respective undertakings. 15 Demandability may be Librado also signed the said Contract to Sell. However, two of the
exercised at any time after the execution of the Deed. 16 brothers, Adolfo and Jesus, did not sign the document.
The order of respondent judge directing petitioners to issue a contract to On 5 April 1989, a duplicate copy of the instrument was returned to
sell does not place petitioners in any danger of losing their property respondent corporation. On 21 April 1989, respondent brought the same
without consideration, for, to repeat, in a contract to sell there is no to a notary public for notarization.
immediate transfer of ownership. In contracts to sell, payment is a positive In a letter6 dated 1 November 1989, addressed to respondent corporation,
suspensive condition, failure of which does not constitute a breach but an petitioners informed the former of their intention to rescind the Contract
event that prevents the obligation of the vendor to convey title from to Sell and to return the amount of ₱100,000.00 given by respondent as
materializing, in accordance with Article 1184 of the Civil option money.
Code. 17 Petitioners as promisors were never obliged to convey title before Respondent did not respond to the aforesaid letter. On 30 May 1991,
the happening of the suspensive condition. In fact, nothing stood in the herein petitioners, together with Adolfo and Jesus, filed a Complaint 7 for
way of their selling the property to another after a unsuccessful demand Declaration of Nullity or for Annulment of Option Agreement or Contract
for said price upon the expiration of the time agreed upon. to Sell with Damages before the Regional Trial Court (RTC) of Bacoor,
Since the period given by the petitioners under the compromise agreement Cavite. The said case was docketed as Civil Case No. BCV-91-49.
has already lapsed, we order the trial court to fix anew a period within During trial, petitioner Rizalino died. Upon motion of petitioners, the trial
which private respondents could secure the needed funds for the purchase court issued an Order,8 dated 16 September 1992, to the effect that the
of the deceased petitioner be substituted by his surviving spouse, Josefina O.
land. 18 Moreover, considering that private respondents have only Oesmer, and his children, Rolando O. Oesmer and Fernando O. Oesmer.
consigned rentals from May 1991 to January 1992 and have since accepted However, the name of Rizalino was retained in the title of the case both in
students for the present school year, it is only proper that they be ordered the RTC and the Court of Appeals.
to deposit the monthly rentals collected thereafter with the trial court. After trial on the merits, the lower court rendered a Decision 9 dated 27
WHEREFORE, the instant petition is DISMISSED. Petitioners are hereby March 1996 in favor of the respondent, the dispositive portion of which
ordered to EXECUTE a contract to sell in favor of private respondents. reads:
On the other hand, private respondent is ordered to DEPOSIT with the WHEREFORE, premises considered, judgment is hereby rendered in
trial court current rentals pending consummation of the transaction favor of herein [respondent] Paraiso Development Corporation. The
between the parties. The trial court is ordered to FIX anew the period assailed Contract to Sell is valid and binding only to the undivided
within which private respondents may be given the opportunity to raise proportionate share of the signatory of this document and recipient of the
funds for the purchase of the two (2) adjoining lots owned by petitioners. check, [herein petitioner] co-owner Ernesto Durumpili Oesmer. The latter
SO ORDERED. is hereby ordered to execute the Contract of Absolute Sale concerning his
G.R. No. 157493 February 5, 2007 1/8 share over the subject two parcels of land in favor of herein
RIZALINO, substituted by his heirs, JOSEFINA, ROLANDO and [respondent] corporation, and to pay the latter the attorney’s fees in the
FERNANDO, ERNESTO, LEONORA, BIBIANO, JR., LIBRADO sum of Ten Thousand (₱10,000.00) Pesos plus costs of suit.
and ENRIQUETA, all surnamed OESMER, Petitioners, The counterclaim of [respondent] corporation is hereby Dismissed for lack
vs. of merit.10
PARAISO DEVELOPMENT CORPORATION, Respondent. Unsatisfied, respondent appealed the said Decision before the Court of
DECISION Appeals. On 26 April 2002, the appellate court rendered a Decision
CHICO-NAZARIO, J.: modifying the Decision of the court a quo by declaring that the Contract
Before this Court is a Petition for Review on Certiorari under Rule 45 of to Sell is valid and binding with respect to the undivided proportionate
the 1997 Revised Rules of Civil Procedure seeking to reverse and set aside shares of the six signatories of the said document, herein petitioners,
the Court of Appeals Decision1 dated 26 April 2002 in CA-G.R. CV No. namely: Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora
53130 entitled, Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, (all surnamed Oesmer). The decretal portion of the said Decision states
Enriqueta, Adolfo, and Jesus, all surnamed Oesmer vs. Paraiso that:
Development Corporation, as modified by its Resolution 2 dated 4 March WHEREFORE, premises considered, the Decision of the court a quo is
2003, declaring the Contract to Sell valid and binding with respect to the hereby MODIFIED. Judgment is hereby rendered in favor of herein
undivided proportionate shares of the six signatories of the said document, [respondent] Paraiso Development Corporation. The assailed Contract to
herein petitioners, namely: Ernesto, Enriqueta, Librado, Rizalino, Sell is valid and binding with respect to the undivided proportionate share
Bibiano, Jr., and Leonora (all surnamed Oesmer); and ordering them to of the six (6) signatories of this document, [herein petitioners], namely,
execute the Deed of Absolute Sale concerning their 6/8 share over the Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all
subject parcels of land in favor of herein respondent Paraiso Development surnamed Oesmer). The said [petitioners] are hereby ordered to execute
Corporation, and to pay the latter the attorney’s fees plus costs of the suit. the Deed of Absolute Sale concerning their 6/8 share over the subject two
The assailed Decision, as modified, likewise ordered the respondent to parcels of land and in favor of herein [respondent] corporation, and to pay
tender payment to the petitioners in the amount of ₱3,216,560.00 the latter the attorney’s fees in the sum of Ten Thousand Pesos
representing the balance of the purchase price of the subject parcels of (₱10,000.00) plus costs of suit.11
land. Aggrieved by the above-mentioned Decision, petitioners filed a Motion
The facts of the case are as follows: for Reconsideration of the same on 2 July 2002. Acting on petitioners’
Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, and Motion for Reconsideration, the Court of Appeals issued a Resolution
Enriqueta, all surnamed Oesmer, together with Adolfo Oesmer (Adolfo) dated 4 March 2003, maintaining its Decision dated 26 April 2002, with
and Jesus Oesmer (Jesus), are brothers and sisters, and the co-owners of the modification that respondent tender payment to petitioners in the
undivided shares of two parcels of agricultural and tenanted land situated amount of ₱3,216,560.00, representing the balance of the purchase price
in Barangay Ulong Tubig, Carmona, Cavite, identified as Lot 720 with an of the subject parcels of land. The dispositive portion of the said
area of 40,507 square meters (sq. m.) and Lot 834 containing an area of Resolution reads:
14,769 sq. m., or a total land area of 55,276 sq. m. Both lots are WHEREFORE, premises considered, the assailed Decision is hereby
unregistered and originally owned by their parents, Bibiano Oesmer and modified.1awphi1.net Judgment is hereby rendered in favor of herein
Encarnacion Durumpili, who declared the lots for taxation purposes under [respondent] Paraiso Development Corporation. The assailed Contract to
Tax Declaration No. 34383(cancelled by I.D. No. 6064-A) for Lot 720 and Sell is valid and binding with respect to the undivided proportionate shares
Tax Declaration No. 34374 (cancelled by I.D. No. 5629) for Lot 834. of the six (6) signatories of this document, [herein petitioners], namely,
When the spouses Oesmer died, petitioners, together with Adolfo and Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all
Jesus, acquired the lots as heirs of the former by right of succession. surnamed Oesmer). The said [petitioners] are hereby ordered to execute
Respondent Paraiso Development Corporation is known to be engaged in the Deed of Absolute Sale concerning their 6/8 share over the subject two
the real estate business. parcels of land in favor of herein [respondent] corporation, and to pay the
Sometime in March 1989, Rogelio Paular, a resident and former latter attorney’s fees in the sum of Ten Thousand Pesos (₱10,000.00) plus
Municipal Secretary of Carmona, Cavite, brought along petitioner Ernesto costs of suit. Respondent is likewise ordered to tender payment to the
to meet with a certain Sotero Lee, President of respondent Paraiso above-named [petitioners] in the amount of Three Million Two Hundred
Development Corporation, at Otani Hotel in Manila. The said meeting was
Sixteen Thousand Five Hundred Sixty Pesos (₱3,216,560.00) representing a contract, the acceptance must not qualify the terms of the offer.
the balance of the purchase price of the subject two parcels of land. 12 However, the acceptance may be express or implied. For a contract to
Hence, this Petition for Review on Certiorari. arise, the acceptance must be made known to the offeror. Accordingly, the
Petitioners come before this Court arguing that the Court of Appeals erred: acceptance can be withdrawn or revoked before it is made known to the
I. On a question of law in not holding that, the supposed Contract offeror.13
to Sell (Exhibit D) is not binding upon petitioner Ernesto In the case at bar, the Contract to Sell was perfected when the petitioners
Oesmer’s co-owners (herein petitioners Enriqueta, Librado, consented to the sale to the respondent of their shares in the subject parcels
Rizalino, Bibiano, Jr., and Leonora). of land by affixing their signatures on the said contract. Such signatures
II. On a question of law in not holding that, the supposed show their acceptance of what has been stipulated in the Contract to Sell
Contract to Sell (Exhibit D) is void altogether considering that and such acceptance was made known to respondent corporation when the
respondent itself did not sign it as to indicate its consent to be duplicate copy of the Contract to Sell was returned to the latter bearing
bound by its terms. Moreover, Exhibit D is really a unilateral petitioners’ signatures.
promise to sell without consideration distinct from the price, and As to petitioner Enriqueta’s claim that she merely signed as a witness to
hence, void. the said contract, the contract itself does not say so. There was no single
Petitioners assert that the signatures of five of them namely: Enriqueta, indication in the said contract that she signed the same merely as a witness.
Librado, Rizalino, Bibiano, Jr., and Leonora, on the margins of the The fact that her signature appears on the right-hand margin of the
supposed Contract to Sell did not confer authority on petitioner Ernesto as Contract to Sell is insignificant. The contract indisputably referred to the
agent to sell their respective shares in the questioned properties, and hence, "Heirs of Bibiano and Encarnacion Oesmer," and since there is no showing
for lack of written authority from the above-named petitioners to sell their that Enriqueta signed the document in some other capacity, it can be safely
respective shares in the subject parcels of land, the supposed Contract to assumed that she did so as one of the parties to the sale.
Sell is void as to them. Neither do their signatures signify their consent to Emphasis should also be given to the fact that petitioners Ernesto and
directly sell their shares in the questioned properties. Assuming that the Enriqueta concurrently signed the Contract to Sell. As the Court of
signatures indicate consent, such consent was merely conditional. The Appeals mentioned in its Decision,14 the records of the case speak of the
effectivity of the alleged Contract to Sell was subject to a suspensive fact that petitioner Ernesto, together with petitioner Enriqueta, met with
condition, which is the approval of the sale by all the co-owners. the representatives of the respondent in order to finalize the terms and
Petitioners also assert that the supposed Contract to Sell (Exhibit D), conditions of the Contract to Sell. Enriqueta affixed her signature on the
contrary to the findings of the Court of Appeals, is not couched in simple said contract when the same was drafted. She even admitted that she
language. understood the undertaking that she and petitioner Ernesto made in
They further claim that the supposed Contract to Sell does not bind the connection with the contract. She likewise disclosed that pursuant to the
respondent because the latter did not sign the said contract as to indicate terms embodied in the Contract to Sell, she updated the payment of the
its consent to be bound by its terms. Furthermore, they maintain that the real property taxes and transferred the Tax Declarations of the questioned
supposed Contract to Sell is really a unilateral promise to sell and the properties in her name.15 Hence, it cannot be gainsaid that she merely
option money does not bind petitioners for lack of cause or consideration signed the Contract to Sell as a witness because she did not only actively
distinct from the purchase price. participate in the negotiation and execution of the same, but her
The Petition is bereft of merit. subsequent actions also reveal an attempt to comply with the conditions in
It is true that the signatures of the five petitioners, namely: Enriqueta, the said contract.
Librado, Rizalino, Bibiano, Jr., and Leonora, on the Contract to Sell did With respect to the other petitioners’ assertion that they did not understand
not confer authority on petitioner Ernesto as agent authorized to sell their the importance and consequences of their action because of their low
respective shares in the questioned properties because of Article 1874 of degree of education and because the contents of the aforesaid contract
the Civil Code, which expressly provides that: were not read nor explained to them, the same cannot be sustained.
Art. 1874. When a sale of a piece of land or any interest therein is through We only have to quote the pertinent portions of the Court of Appeals
an agent, the authority of the latter shall be in writing; otherwise, the sale Decision, clear and concise, to dispose of this issue. Thus,
shall be void. First, the Contract to Sell is couched in such a simple language which is
The law itself explicitly requires a written authority before an agent can undoubtedly easy to read and understand. The terms of the Contract,
sell an immovable. The conferment of such an authority should be in specifically the amount of ₱100,000.00 representing the option money
writing, in as clear and precise terms as possible. It is worth noting that paid by [respondent] corporation, the purchase price of ₱60.00 per square
petitioners’ signatures are found in the Contract to Sell. The Contract is meter or the total amount of ₱3,316,560.00 and a brief description of the
absolutely silent on the establishment of any principal-agent relationship subject properties are well-indicated thereon that any prudent and mature
between the five petitioners and their brother and co-petitioner Ernesto as man would have known the nature and extent of the transaction
to the sale of the subject parcels of land. Thus, the Contract to Sell, encapsulated in the document that he was signing.
although signed on the margin by the five petitioners, is not sufficient to Second, the following circumstances, as testified by the witnesses and as
confer authority on petitioner Ernesto to act as their agent in selling their can be gleaned from the records of the case clearly indicate the
shares in the properties in question. [petitioners’] intention to be bound by the stipulations chronicled in the
However, despite petitioner Ernesto’s lack of written authority from the said Contract to Sell.
five petitioners to sell their shares in the subject parcels of land, the As to [petitioner] Ernesto, there is no dispute as to his intention to effect
supposed Contract to Sell remains valid and binding upon the latter. the alienation of the subject property as he in fact was the one who initiated
As can be clearly gleaned from the contract itself, it is not only petitioner the negotiation process and culminated the same by affixing his signature
Ernesto who signed the said Contract to Sell; the other five petitioners also on the Contract to Sell and by taking receipt of the amount of ₱100,000.00
personally affixed their signatures thereon. Therefore, a written authority which formed part of the purchase price.
is no longer necessary in order to sell their shares in the subject parcels of xxxx
land because, by affixing their signatures on the Contract to Sell, they were As to [petitioner] Librado, the [appellate court] finds it preposterous that
not selling their shares through an agent but, rather, they were selling the he willingly affixed his signature on a document written in a language
same directly and in their own right. (English) that he purportedly does not understand. He testified that the
The Court also finds untenable the following arguments raised by document was just brought to him by an 18 year old niece named Baby
petitioners to the effect that the Contract to Sell is not binding upon them, and he was told that the document was for a check to be paid to him. He
except to Ernesto, because: (1) the signatures of five of the petitioners do readily signed the Contract to Sell without consulting his other siblings.
not signify their consent to sell their shares in the questioned properties Thereafter, he exerted no effort in communicating with his brothers and
since petitioner Enriqueta merely signed as a witness to the said Contract sisters regarding the document which he had signed, did not inquire what
to Sell, and that the other petitioners, namely: Librado, Rizalino, Leonora, the check was for and did not thereafter ask for the check which is
and Bibiano, Jr., did not understand the importance and consequences of purportedly due to him as a result of his signing the said Contract to Sell.
their action because of their low degree of education and the contents of (TSN, 28 September 1993, pp. 22-23)
the aforesaid contract were not read nor explained to them; and (2) The [appellate court] notes that Librado is a 43 year old family man (TSN,
assuming that the signatures indicate consent, such consent was merely 28 September 1993, p. 19). As such, he is expected to act with that
conditional, thus, the effectivity of the alleged Contract to Sell was subject ordinary degree of care and prudence expected of a good father of a family.
to a suspensive condition, which is the approval by all the co-owners of His unwitting testimony is just divinely disbelieving.
the sale. The other [petitioners] (Rizalino, Leonora and Bibiano Jr.) are likewise
It is well-settled that contracts are perfected by mere consent, upon the bound by the said Contract to Sell. The theory adopted by the [petitioners]
acceptance by the offeree of the offer made by the offeror. From that that because of their low degree of education, they did not understand the
moment, the parties are bound not only to the fulfillment of what has been contents of the said Contract to Sell is devoid of merit. The [appellate
expressly stipulated but also to all the consequences which, according to court] also notes that Adolfo (one of the co-heirs who did not sign) also
their nature, may be in keeping with good faith, usage and law. To produce possess the same degree of education as that of the signing co-heirs (TSN,
15 October 1991, p. 19). He, however, is employed at the Provincial its consent to be bound by its terms; and moreover, the Contract to Sell is
Treasury Office at Trece Martirez, Cavite and has even accompanied really a unilateral promise to sell without consideration distinct from the
Rogelio Paular to the Assessor’s Office to locate certain missing price, and hence, again, void. Said arguments must necessarily fail.
documents which were needed to transfer the titles of the subject The Contract to Sell is not void merely because it does not bear the
properties. (TSN, 28 January 1994, pp. 26 & 35) Similarly, the other co- signature of the respondent corporation. Respondent corporation’s consent
heirs [petitioners], like Adolfo, are far from ignorant, more so, illiterate to be bound by the terms of the contract is shown in the uncontroverted
that they can be extricated from their obligations under the Contract to Sell facts which established that there was partial performance by respondent
which they voluntarily and knowingly entered into with the [respondent] of its obligation in the said Contract to Sell when it tendered the amount
corporation. of ₱100,000.00 to form part of the purchase price, which was accepted and
The Supreme Court in the case of Cecilia Mata v. Court of Appeals (207 acknowledged expressly by petitioners. Therefore, by force of law,
SCRA 753 [1992]), citing the case of Tan Sua Sia v. Yu Baio Sontua (56 respondent is required to complete the payment to enforce the terms of the
Phil. 711), instructively ruled as follows: contract. Accordingly, despite the absence of respondent’s signature in the
"The Court does not accept the petitioner’s claim that she did not Contract to Sell, the former cannot evade its obligation to pay the balance
understand the terms and conditions of the transactions because she only of the purchase price.
reached Grade Three and was already 63 years of age when she signed the As a final point, the Contract to Sell entered into by the parties is not a
documents. She was literate, to begin with, and her age did not make her unilateral promise to sell merely because it used the word option money
senile or incompetent. x x x. when it referred to the amount of ₱100,000.00, which also form part of the
At any rate, Metrobank had no obligation to explain the documents to the purchase price.
petitioner as nowhere has it been proven that she is unable to read or that Settled is the rule that in the interpretation of contracts, the ascertainment
the contracts were written in a language not known to her. It was her of the intention of the contracting parties is to be discharged by looking to
responsibility to inform herself of the meaning and consequence of the the words they used to project that intention in their contract, all the words,
contracts she was signing and, if she found them difficult to comprehend, not just a particular word or two, and words in context, not words standing
to consult other persons, preferably lawyers, to explain them to her. After alone.19
all, the transactions involved not only a few hundred or thousand pesos In the instant case, the consideration of ₱100,000.00 paid by respondent
but, indeed, hundreds of thousands of pesos. to petitioners was referred to as "option money." However, a careful
As the Court has held: examination of the words used in the contract indicates that the money is
x x x The rule that one who signs a contract is presumed to know its not option money but earnest money. "Earnest money" and "option
contents has been applied even to contracts of illiterate persons on the money" are not the same but distinguished thus: (a) earnest money is part
ground that if such persons are unable to read, they are negligent if they of the purchase price, while option money is the money given as a distinct
fail to have the contract read to them. If a person cannot read the consideration for an option contract; (b) earnest money is given only
instrument, it is as much his duty to procure some reliable persons to read where there is already a sale, while option money applies to a sale not yet
and explain it to him, before he signs it, as it would be to read it before he perfected; and, (c) when earnest money is given, the buyer is bound to pay
signed it if he were able to do and his failure to obtain a reading and the balance, while when the would-be buyer gives option money, he is not
explanation of it is such gross negligence as will estop from avoiding it on required to buy, but may even forfeit it depending on the terms of the
the ground that he was ignorant of its contents."16 option.20
That the petitioners really had the intention to dispose of their shares in The sum of ₱100,000.00 was part of the purchase price. Although the same
the subject parcels of land, irrespective of whether or not all of the heirs was denominated as "option money," it is actually in the nature of earnest
consented to the said Contract to Sell, was unveiled by Adolfo’s testimony money or down payment when considered with the other terms of the
as follows: contract. Doubtless, the agreement is not a mere unilateral promise to sell,
ATTY. GAMO: This alleged agreement between you and your other but, indeed, it is a Contract to Sell as both the trial court and the appellate
brothers and sisters that unless everybody will agree, the properties would court declared in their Decisions.
not be sold, was that agreement in writing? WHEREFORE, premises considered, the Petition is DENIED, and the
WITNESS: No sir. Decision and Resolution of the Court of Appeals dated 26 April 2002 and
ATTY. GAMO: What you are saying is that when your brothers and sisters 4 March 2003, respectively, are AFFIRMED, thus, (a) the Contract to
except Jesus and you did not sign that agreement which had been marked Sell is DECLARED valid and binding with respect to the undivided
as [Exhibit] "D", your brothers and sisters were grossly violating your proportionate shares in the subject parcels of land of the six signatories of
agreement. the said document, herein petitioners Ernesto, Enriqueta, Librado,
WITNESS: Yes, sir, they violated what we have agreed upon. 17 Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer); (b) respondent
We also cannot sustain the allegation of the petitioners that assuming the is ORDERED to tender payment to petitioners in the amount of
signatures indicate consent, such consent was merely conditional, and that, ₱3,216,560.00 representing the balance of the purchase price for the
the effectivity of the alleged Contract to Sell was subject to the suspensive latter’s shares in the subject parcels of land; and (c) petitioners are
condition that the sale be approved by all the co-owners. The Contract to further ORDERED to execute in favor of respondent the Deed of
Sell is clear enough. It is a cardinal rule in the interpretation of contracts Absolute Sale covering their shares in the subject parcels of land after
that if the terms of a contract are clear and leave no doubt upon the receipt of the balance of the purchase price, and to pay respondent
intention of the contracting parties, the literal meaning of its stipulation attorney’s fees plus costs of the suit. Costs against petitioners.
shall control.18 The terms of the Contract to Sell made no mention of the SO ORDERED.
condition that before it can become valid and binding, a unanimous G.R. No. 71694 August 16, 1991
consent of all the heirs is necessary. Thus, when the language of the NYCO SALES CORPORATION, petitioner,
contract is explicit, as in the present case, leaving no doubt as to the vs.
intention of the parties thereto, the literal meaning of its stipulation is BA FINANCE CORPORATION, JUDGE ROSALIO A. DE LEON—
controlling. REGIONAL TRIAL COURT, BR. II, INTERMEDIATE
In addition, the petitioners, being owners of their respective undivided APPELLATE COURT, FIRST CIVIL CASES
shares in the subject properties, can dispose of their shares even without DIVISION, respondents.
the consent of all the co-heirs. Article 493 of the Civil Code expressly ABC Law Offices for petitioner.
provides: Valera, Urmeneta & Associates for private respondent.
Article 493. Each co-owner shall have the full ownership of his part and
of the fruits and benefits pertaining thereto, and he may therefore alienate,
assign or mortgage it, and even substitute another person in its enjoyment, PARAS, J.:
except when personal rights are involved. But the effect of the alienation In this petition for review on certiorari, petitioner challenges the April 22,
or the mortgage, with respect to the co-owners, shall be limited to the 1985 decision* and the July 16, 1985 resolution * of the then Intermediate
portion which may be allotted to him in the division upon the termination Appellate Court in AC-G.R. CV No. 02553 entitled "BA Finance
of the co-ownership. [Emphases supplied.] Corporation v. Nyco Sales Corporation, et al." which affirmed with
Consequently, even without the consent of the two co-heirs, Adolfo and modification the July 20, 1983 decision ** of the Regional Trial Court,
Jesus, the Contract to Sell is still valid and binding with respect to the 6/8 National Capital Region, Manila, Branch II in the same case docketed as
proportionate shares of the petitioners, as properly held by the appellate Civil Case No. 125909 ordering petitioner to pay respondent the amount
court. of P60,000.00 as principal obligation plus corresponding interest, the sum
Therefore, this Court finds no error in the findings of the Court of Appeals of P10,000.00 as and for, attomey's fees and 1/3 of the costs of suit.
that all the petitioners who were signatories in the Contract to Sell are It appears on record that petitioner Nyco Sales Corporation (hereinafter
bound thereby. referred to as Nyco) whose president and general manager is Rufino Yao,
The final arguments of petitioners state that the Contract to Sell is void is engaged in the business of selling construction materials with principal
altogether considering that respondent itself did not sign it as to indicate office in Davao City. Sometime in 1978, the brothers Santiago and Renato
Fernandez (hereinafter referred to as the Fernandezes), both acting in An assignment of credit is the process of transferring the right of the
behalf of Sanshell Corporation, approached Rufino Yao for credit assignor to the assignee, who would then be allowed to proceed against
accommodation. They requested Nyco, thru Yao, to grant Sanshell the debtor. It may be done either gratuitously or generously, in which case,
discounting privileges which Nyco had with BA Finance Corporation the assignment has an effect similar to that of a sale.
(hereinafter referred to as BA Finance). Yao apparently acquiesced, hence According to Article 1628 of the Civil Code, the assignor-vendor warrants
on or about November 15, 1978, the Fernandezes went to Yao for the both the credit itself (its existence and legality) and the person of the
purpose of discounting Sanshell's post-dated check which was a BPI- debtor (his solvency), if so stipulated, as in the case at bar. Consequently,
Davao Branch Check No. 499648 dated February 17, 1979 for the amount if there be any breach of the above warranties, the assignor-vendor should
of P60,000.00. The said check was payable to Nyco. Following the be held answerable therefor. There is no question then that the assignor-
discounting process agreed upon, Nyco, thru Yao, endorsed the check in vendor is indeed liable for the invalidity of whatever he as signed to the
favor of BA Finance. Thereafter, BA Finance issued a check payable to assignee-vendee.
Nyco which endorsed it in favor of Sanshell. Sanshell then made use of Considering now the facts of the case at bar, it is beyond dispute that Nyco
and/or negotiated the check. Accompanying the exchange of checks was executed a deed of assignment in favor of BA Finance with Sanshell
a Deed of Assignment executed by Nyco in favor of BA Finance with the Corporation as the debtor-obligor. BA Finance is actually enforcing said
conformity of Sanshell. Nyco was represented by Rufino Yao, while deed and the check covered thereby is merely an incidental or collateral
Sanshell was represented by the Fernandez brothers. Under the said Deed, matter. This particular check merely evidenced the credit which was
the subject of the discounting was the aforecited check (Rollo, pp- 26-28). actually assigned to BA Finance. Thus, the designation is immaterial as it
At the back thereof and of every deed of assignment was the Continuing could be any other check. Both the lower and the appellate courts
Suretyship Agreement whereby the Fernandezes unconditionally recognized this and so it is utterly misplaced to say that Nyco is being held
guaranteed to BA Finance the full, faithful and prompt payment and liable for both the BPI and the SBTC checks. It is only what is represented
discharge of any and all indebtedness of Nyco (Ibid., pp. 36, 46). The BPI by the said checks that Nyco is being asked to pay. Indeed, nowhere in the
check, however, was dishonored by the drawee bank upon presentment for dispositive parts of the decisions of the courts can it be gleaned that BA
payment. BA Finance immediately reported the matter to the Fernandezes Finance may recover from the two checks.
who thereupon issued a substitute check dated February 19,1979 for the Nyco's pretension that it had not been notified of the fact of dishonor is
same amount in favor of BA Finance. It was a Security Bank and Trust belied not only by the formal demand letter but also by the findings of the
Company check bearing the number 183157, which was again dishonored trial court that Rufino Yao of Nyco and the Fernandez Brothers of Sanshell
when it was presented for payment. Despite repeated demands, Nyco and had frequent contacts before, during and after the dishonor (Rollo, p. 40).
the Fernandezes failed to settle the obligation with BA Finance, thus More importantly, it fails to realize that for as long as the credit remains
prompting the latter to institute an action in court (Ibid., p 28). Nyco and outstanding, it shall continue to be liable to BA Finance as its assignor.
the Fernandezes, despite having been served with summons and copies of The dishonor of an assigned check simply stresses its liability and the
the complaint, failed to file their answer and were consequently declared failure to give a notice of dishonor will not discharge it from such liability.
in default. On May 16, 1980, the lower court ruled in favor of BA Finance This is because the cause of action stems from the breach of the warranties
ordering them to pay the former jointly and severally, the sum of embodied in the Deed of Assignment, and not from the dishonoring of the
P65,536.67 plus 14% interest per annum from July 1, 1979 and attorney's check alone (See Art. 1628, Civil Code).
fees in the amount of P3, 000. 00 as well as the costs of suit (Rollo, pp. Novation is the third defense set up by petitioner Nyco.1âwphi1 It insists
51-52). Nyco, however, moved to set aside the order of default, to have its that novation took place when BA Finance accepted the SBTC check in
answer admitted and to be able to implead Sanshell. The prayer was replacement of the BPI cheek. Such is manifestly untenable.
granted through an order dated June 23, 1980, wherein the decision of the There are only two ways which indicate the presence of novation and
court was set aside only as regards Nyco. Trial ensued once more until the thereby produce the effect of extinguishing an obligation by another which
court reached a second decision which states: substitutes the same. First, novation must be explicitly stated and declared
WHEREFORE, judgment is hereby rendered in favor of the in unequivocal terms as novation is never presumed (Mondragon v.
plaintiff and against the defendant Nyco Sales Corporation by Intermediate Appellate Court, G.R. No. 71889, April 17, 1990; Caneda Jr.
ordering the latter to pay the former the following: v. Court of Appeals, G.R. No. 81322, February 5, 1990). Secondly, the old
1) P60,000.00 as principal obligation, plus interest thereon at the and the new obligations must be incompatible on every point. The test of
rate of 14% per annum from February 1, 1979 until fully paid; incompatibility is whether or not the two obligations can stand together,
2) The amount of P100,000.00 as and for attorney's fees; and each one having its independent existence If they cannot, they are
3) One-third (1/3) of the costs of this suit. incompatible and the latter obligation novates the first (Mondragon v.
With respect to defendants Santiago and Renato Fernandez, the Intermediate Appellate Court, supra; Caneda Jr. v. Court of
decision of May 16, 1980 stands. Appeals, supra). In the instant case, there was no express agreement that
The cross-claim of defendant Nyco Sales Corporation against BA Finance's acceptance of the SBTC check will discharge Nyco from
codefendants Santiago B. Fernandez and Renato B. Fernandez is liability. Neither is there incompatibility because both checks were given
hereby denied, as there is no showing that Nyco's Answer with precisely to terminate a single obligation arising from Nyco's sale of credit
cross-claim dated May 29, 1980 was ever received by said to BA Finance. As novation speaks of two distinct obligations, such is
Fernandez brothers, even as it is noted that the latter have not inapplicable to this case.
been declared in default with respect to said cross-claim, nor Finally, Nyco disowns its President's acts claiming that it never authorized
were evidence adduced in connection therewith. Rufino Yao (Nyco's President) to even apply to BA Finance for credit
As to the would-be litigant Sanshell Construction and accommodation. It supports its argument with the fact that it did not issue
Development Corporation, defendant Nyco Sales Corporation a Board resolution giving Yao such authority. However, the very evidence
did not properly implead said corporation which should have on record readily belies Nyco's contention. Its corporate By-Laws clearly
been by way of a third-party complaint instead of a mere cross- provide for the powers of its President, which include, inter alia,
claim. The same observations are noted as regard this cross- executing contracts and agreements, borrowing money, signing, indorsing
claim against Sanshell as those made with respect to the and delivering checks, all in behalf of the corporation. Furthermore, the
Fernandez brothers. appellate court correctly adopted the lower court's observation that there
SO ORDERED. was already a previous transaction of discounting of checks involving the
On appeal, the appellate court also upheld BA Finance but modified the same personalities wherein any enabling resolution from Nyco was
lower court's decision by ordering that the interest should run from dispensed with and yet BA Finance was able to collect from Nyco and
February 19, 1979 until paid and not from February 1, 1979. Nyco's Sanshell was able to discharge its own undertakings. Such effectively
subsequent motion for reconsideration was denied (Ibid., pp. 33, 62). places Nyco under estoppel in pais which arises when one, by his acts,
Hence, the present recourse. representations or admissions, or by his silence when he ought to speak
The crux of the controversy is whether or not the assignor is liable to its out, intentionally or through culpable negligence, induces another to
assignee for its dishonored checks. believe certain facts to exist and such other rightfully relies and acts on
For its defense, Nyco anchors its arguments on the following premises: a) such belief, so that he will be prejudiced if the former is permitted to deny
that the appellate court erred in affirming its liability for the BPI check the existence of such facts (Panay Electric Co., Inc. v. Court of Appeals,
despite a similar finding of liability for the SBTC check rendered by the G.R. No. 81939, June 29,1989). Nyco remained silent in the course of the
same lower court; b) that it was actually discharged of its liability over the transaction and spoke out only later to escape liability. This cannot be
SBTC check when BA Finance failed to give it a notice of dishonor; c) countenanced. Nyco is estopped from denying Rufino Yao's authority as
that there was novation when BA Finance accepted the SBTC check in far as the latter's transactions with BA Finance are concerned.
replacement of the BPI check; and d) that it cannot be held liable for its PREMISES CONSIDERED, the decision appealed from is AFFIRMED.
Presidents unauthorized acts. SO ORDERED.
The petition is devoid of merit. G.R. No. 112212 March 2, 1998
GREGORIO FULE, petitioner, at P160,000.00, the parties agreed that the balance of P40,000.00 would
vs. just be paid later in cash.
COURT OF APPEALS, NINEVETCH CRUZ and JUAN As pre-arranged, petitioner left Atty. Belarmino's residence with Dichoso
BELARMINO, respondents. and Mendoza and headed for the bank, arriving there at past 5:00 p.m. Dr.
Cruz also arrived shortly thereafter, but the cashier who kept the other key
ROMERO, J.: to the deposit box had already left the bank. Dr. Cruz and Dichoso,
This petition for review on certiorari questions the affirmance by the therefore, looked for said cashier and found him having a haircut. As soon
Court of Appeals of the decision 1 of the Regional Trial Court of San Pablo as his haircut was finished, the cashier returned to the bank and arrived
City, Branch 30, dismissing the complaint that prayed for the nullification there at 5:48 p.m., ahead of Dr. Cruz and Dichoso who arrived at 5:55 p.m.
of a contract of sale of a 10-hectare property in Tanay, Rizal in Dr. Cruz and the cashier then opened the safety deposit box, the former
consideration of the amount of P40,000.00 and a 2.5 carat emerald-cut retrieving a transparent plastic or cellophane bag with the jewelry inside
diamond (Civil Case No. SP-2455). The lower court's decision disposed and handing over the same to petitioner. The latter took the jewelry from
of the case as follows: the bag, went near the electric light at the bank's lobby, held the jewelry
WHEREFORE, premises considered, the Court hereby renders against the light and examined it for ten to fifteen minutes. After a while,
judgment dismissing the complaint for lack of merit and ordering Dr. Cruz asked, "Okay na ba iyan?" Petitioner expressed his satisfaction
plaintiff to pay: by nodding his head.
1. Defendant Dra. Ninevetch M. Cruz the sum of P300,000.00 as For services rendered, petitioner paid the agents, Dichoso and Mendoza,
and for moral damages and the sum of P100,000.00 as and for the amount of US$300.00 and some pieces of jewelry. He did not,
exemplary damages; however, give them half of the pair of earrings in question which he had
2. Defendant Atty. Juan Belarmino the sum of P250,000.00 as earlier promised.
and for moral damages and the sum of P150,000.00 as and for Later, at about 8:00 o'clock in the evening of the same day, petitioner
exemplary damages; arrived at the residence of Atty. Belarmino complaining that the jewelry
3. Defendant Dra. Cruz and Atty. Belarmino the sum of given to him was fake. He then used a tester to prove the alleged fakery.
P25,000.00 each as and for attorney's fees and litigation Meanwhile, at 8:30 p.m., Dichoso and Mendoza went to the residence of
expenses; and Dr. Cruz to borrow her car so that, with Atty. Belarmino, they could
4. The costs of suit. register the Tanay property. After Dr. Cruz had agreed to lend her car,
SO ORDERED. Dichoso called up Atty. Belarmino. The latter, however, instructed
As found by the Court of Appeals and the lower court, the antecedent facts Dichoso to proceed immediately to his residence because petitioner was
of this case are as follows: there. Believing that petitioner had finally agreed to give them half of the
Petitioner Gregorio Fule, a banker by profession and a jeweler at the same pair of earrings, Dichoso went posthaste to the residence of Atty.
time, acquired a 10-hectare property in Tanay, Rizal (hereinafter "Tanay Belarmino only to find petitioner already demonstrating with a tester that
property"), covered by Transfer Certificate of Title No. 320725 which the earrings were fake. Petitioner then accused Dichoso and Mendoza of
used to be under the name of Fr. Antonio Jacobe. The latter had mortgaged deceiving him which they, however, denied. They countered that
it earlier to the Rural Bank of Alaminos (the Bank), Laguna, Inc. to secure petitioner could not have been fooled because he had vast experience
a loan in the amount of P10,000.00, but the mortgage was later foreclosed regarding jewelry. Petitioner nonetheless took back the US$300.00 and
and the property offered for public auction upon his default. jewelry he had given them.
In July 1984, petitioner, as corporate secretary of the bank, asked Remelia Thereafter, the group decided to go to the house of a certain Macario
Dichoso and Oliva Mendoza to look for a buyer who might be interested Dimayuga, a jeweler, to have the earrings tested. Dimayuga, after taking
in the Tanay property. The two found one in the person of herein private one look at the earrings, immediately declared them counterfeit. At around
respondent Dr. Ninevetch Cruz. It so happened that at the time, petitioner 9:30 p.m., petitioner went to one Atty. Reynaldo Alcantara residing at
had shown interest in buying a pair of emerald-cut diamond earrings Lakeside Subdivision in San Pablo City, complaining about the fake
owned by Dr. Cruz which he had seen in January of the same year when jewelry. Upon being advised by the latter, petitioner reported the matter to
his mother examined and appraised them as genuine. Dr. Cruz, however, the police station where Dichoso and Mendoza likewise executed sworn
declined petitioner's offer to buy the jewelry for P100,000.00. Petitioner statements.
then made another bid to buy them for US$6,000.00 at the exchange rate On October 26, 1984, petitioner filed a complaint before the Regional
of $1.00 to P25.00. At this point, petitioner inspected said jewelry at the Trial Court of San Pablo City against private respondents praying, among
lobby of the Prudential Bank branch in San Pablo City and then made a other things, that the contract of sale over the Tanay property be declared
sketch thereof. Having sketched the jewelry for twenty to thirty minutes, null and void on the ground of fraud and deceit.
petitioner gave them back to Dr. Cruz who again refused to sell them since On October 30, 1984, the lower court issued a temporary restraining order
the exchange rate of the peso at the time appreciated to P19.00 to a dollar. directing the Register of Deeds of Rizal to refrain from acting on the
Subsequently, however, negotiations for the barter of the jewelry and the pertinent documents involved in the transaction. On November 20, 1984,
Tanay property ensued. Dr. Cruz requested herein private respondent Atty. however, the same court lifted its previous order and denied the prayer for
Juan Belarmino to check the property who, in turn, found out that no sale a writ of preliminary injunction.
or barter was feasible because the one-year period for redemption of the After trial, the lower court rendered its decision on March 7, 1989.
said property had not yet expired at the time. Confronting the issue of whether or not the genuine pair of earrings used
In an effort to cut through any legal impediment, petitioner executed on as consideration for the sale was delivered by Dr. Cruz to petitioner, the
October 19, 1984, a deed of redemption on behalf of Fr. Jacobe lower court said:
purportedly in the amount of P15,987.78, and on even date, Fr. Jacobe sold The Court finds that the answer is definitely in the affirmative.
the property to petitioner for P75,000.00. The haste with which the two Indeed, Dra. Cruz delivered (the) subject jewelries (sic) into the
deeds were executed is shown by the fact that the deed of sale was hands of plaintiff who even raised the same nearer to the lights
notarized ahead of the deed of redemption. As Dr. Cruz had already agreed of the lobby of the bank near the door. When asked by Dra. Cruz
to the proposed barter, petitioner went to Prudential Bank once again to if everything was in order, plaintiff even nodded his satisfaction
take a look at the jewelry. (Hearing of Feb. 24, 1988). At that instance, plaintiff did not
In the afternoon of October 23, 1984, petitioner met Atty. Belarmino at protest, complain or beg for additional time to examine further
the latter's residence to prepare the documents of sale. 2 Dr. Cruz herself the jewelries (sic). Being a professional banker and engaged in
was not around but Atty. Belarmino was aware that she and petitioner had the jewelry business plaintiff is conversant and competent to
previously agreed to exchange a pair of emerald-cut diamond earrings for detect a fake diamond from the real thing. Plaintiff was accorded
the Tanay property. Atty. Belarmino accordingly caused the preparation the reasonable time and opportunity to ascertain and inspect the
of a deed of absolute sale while petitioner and Dr. Cruz attended to the jewelries (sic) in accordance with Article 1584 of the Civil Code.
safekeeping of the jewelry. Plaintiff took delivery of the subject jewelries (sic) before 6:00
The following day, petitioner, together with Dichoso and Mendoza, p.m. of October 24, 1984. When he went at 8:00 p.m. that same
arrived at the residence of Atty. Belarmino to finally execute a deed of day to the residence of Atty. Belarmino already with a tester
absolute sale. Petitioner signed the deed and gave Atty. Belarmino the complaining about some fake jewelries (sic), there was already
amount of P13,700.00 for necessary expenses in the transfer of title over undue delay because of the lapse of a considerable length of time
the Tanay property. Petitioner also issued a certification to the effect that since he got hold of subject jewelries (sic). The lapse of two (2)
the actual consideration of the sale was P200,000.00 and not P80,000.00 hours more or less before plaintiff complained is considered by
as indicated in the deed of absolute sale. The disparity between the actual the Court as unreasonable delay.3
contract price and the one indicated on the deed of absolute sale was The lower court further ruled that all the elements of a valid contract under
purportedly aimed at minimizing the amount of the capital gains tax that Article 1458 of the Civil Code were present, namely: (a) consent or
petitioner would have to shoulder. Since the jewelry was appraised only meeting of the minds; (b) determinate subject matter, and (c) price certain
in money or its equivalent. The same elements, according to the lower
court, were present despite the fact that the agreement between petitioner reputations. Dra. Cruz runs her own hospital and defendant
and Dr. Cruz was principally a barter contract. The lower court explained Belarmino is a well respected legal practitioner. The length of
thus: time this case dragged on during which period their reputation
. . . . Plaintiff's ownership over the Tanay property passed unto were (sic) tarnished and their names maligned by the pendency
Dra. Cruz upon the constructive delivery thereof by virtue of the of the case, the Court is of the belief that some of the damages
Deed of Absolute Sale (Exh. D). On the other hand, the they prayed for in their answers to the complaint are reasonably
ownership of Dra. Cruz over the subject jewelries (sic) proportionate to the sufferings they underwent (Art. 2219, New
transferred to the plaintiff upon her actual personal delivery to Civil Code). Moreover, because of the falsity, malice and
him at the lobby of the Prudential Bank. It is expressly provided baseless nature of the complaint defendants were compelled to
by law that the thing sold shall be understood as delivered, when litigate. Hence, the award of attorney's fees is warranted under
it is placed in the control and possession of the vendee (Art. the circumstances (Art. 2208, New Civil Code).6
1497, Civil Code; Kuenzle & Straff vs. Watson & Co. 13 Phil. From the trial court's adverse decision, petitioner elevated the matter to
26). The ownership and/or title over the jewelries (sic) was the Court of Appeals. On October 20, 1992, the Court of Appeals,
transmitted immediately before 6:00 p.m. of October 24, 1984. however, rendered a decision 7 affirming in toto the lower court's
Plaintiff signified his approval by nodding his head. Delivery or decision. His motion for reconsideration having been denied on October
tradition, is one of the modes of acquiring ownership (Art. 712, 19, 1993, petitioner now files the instant petition alleging that:
Civil Code). I. THE TRIAL COURT ERRED IN DISMISSING
Similarly, when Exhibit D was executed, it was equivalent to the PLAINTIFF'S COMPLAINT AND IN HOLDING THAT THE
delivery of the Tanay property in favor of Dra. Cruz. The PLAINTIFF ACTUALLY RECEIVED A GENUINE PAIR OF
execution of the public instrument (Exh. D) operates as a formal EMERALD CUT DIAMOND EARRING(S) FROM
or symbolic delivery of the Tanay property and authorizes the DEFENDANT CRUZ . . . ;
buyer, Dra. Cruz to use the document as proof of ownership II. THE TRIAL COURT ERRED IN AWARDING MORAL
(Florendo v. Foz, 20 Phil. 399). More so, since Exhibit D does AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES
not contain any proviso or stipulation to the effect that title to the IN FAVOR OF DEFENDANTS AND AGAINST THE
property is reserved with the vendor until full payment of the PLAINTIFF IN THIS CASE; and
purchase price, nor is there a stipulation giving the vendor the III. THE TRIAL, COURT ERRED IN NOT DECLARING THE
right to unilaterally rescind the contract the moment the vendee DEED OF SALE OF THE TANAY PROPERTY (EXH. "D")
fails to pay within a fixed period (Taguba v. Vda. De Leon, 132 AS NULL AND VOID OR IN NOT ANNULLING THE
SCRA 722; Luzon Brokerage Co. Inc. vs. Maritime Building Co. SAME, AND IN FAILING TO GRANT REASONABLE
Inc. 86 SCRA 305; Froilan v. Pan Oriental Shipping Co. et al. 12 DAMAGES IN FAVOR OF THE PLAINTIFF.8
SCRA 276). 4 As to the first allegation, the Court observes that petitioner is essentially
Aside from concluding that the contract of barter or sale had in fact been raising a factual issue as it invites us to examine and weigh anew the facts
consummated when petitioner and Dr. Cruz parted ways at the bank, the regarding the genuineness of the earrings bartered in exchange for the
trial court likewise dwelt on the unexplained delay with which petitioner Tanay property. This, of course, we cannot do without unduly
complained about the alleged fakery. Thus: transcending the limits of our review power in petitions of this nature
. . . . Verily, plaintiff is already estopped to come back after the which are confined merely to pure questions of law. We accord, as a
lapse of considerable length of time to claim that what he got general rule, conclusiveness to a lower court's findings of fact unless it is
was fake. He is a Business Management graduate of La Salle shown, inter alia, that: (1) the conclusion is a finding grounded on
University, Class 1978-79, a professional banker as well as a speculations, surmises or conjectures; (2) the inference is manifestly
jeweler in his own right. Two hours is more than enough time to mistaken, absurd and impossible; (3) when there is a grave abuse of
make a switch of a Russian diamond with the real diamond. It discretion; (4) when the judgment is based on a misapprehension of facts;
must be remembered that in July 1984 plaintiff made a sketch of (5) when the findings of fact are conflicting; and (6) when the Court of
the subject jewelries (sic) at the Prudential Bank. Plaintiff had a Appeals, in making its findings, went beyond the issues of the case and
tester at 8:00 p.m. at the residence of Atty. Belarmino. Why then the same is contrary to the admission of both parties. 9 We find nothing,
did he not bring it out when he was examining the subject however, that warrants the application of any of these exceptions.
jewelries (sic) at about 6:00 p.m. in the bank's lobby? Obviously, Consequently, this Court upholds the appellate court's findings of fact
he had no need for it after being satisfied of the genuineness of especially because these concur with those of the trial court which, upon
the subject jewelries (sic). When Dra. Cruz and plaintiff left the a thorough scrutiny of the records, are firmly grounded on evidence
bank both of them had fully performed their respective presented at the trial. 10 To reiterate, this Court's jurisdiction is only
prestations. Once a contract is shown to have been consummated limited to reviewing errors of law in the absence of any showing that
or fully performed by the parties thereto, its existence and the findings complained of are totally devoid of support in the record
binding effect can no longer be disputed. It is irrelevant and or that they are glaringly erroneous as to constitute serious abuse of
immaterial to dispute the due execution of a contract if both of discretion. 11
them have in fact performed their obligations thereunder and Nonetheless, this Court has to closely delve into petitioner's allegation that
their respective signatures and those of their witnesses appear the lower court's decision of March 7, 1989 is a "ready-made" one because
upon the face of the document (Weldon Construction v. CA G.R. it was handed down a day after the last date of the trial of the
No. L-35721, Oct. 12, 1987).5 case. 12 Petitioner, in this regard, finds it incredible that Judge J. Ausberto
Finally, in awarding damages to the defendants, the lower court remarked: Jaramillo was able to write a 12-page single-spaced decision, type it and
The Court finds that plaintiff acted in wanton bad faith. Exhibit release it on March 7, 1989, less than a day after the last hearing on March
2-Belarmino purports to show that the Tanay property is worth 6, 1989. He stressed that Judge Jaramillo replaced Judge Salvador de
P25,000.00. However, also on that same day it was executed, the Guzman and heard only his rebuttal testimony.
property's worth was magnified at P75,000.00 (Exh. 3- This allegation is obviously no more than a desperate effort on the part of
Belarmino). How could in less than a day (Oct. 19, 1984) the petitioner to disparage the lower court's findings of fact in order to
value would (sic) triple under normal circumstances? Plaintiff, convince this Court to review the same. It is noteworthy that Atty.
with the assistance of his agents, was able to exchange the Tanay Belarmino clarified that Judge Jaramillo had issued the first order in the
property which his bank valued only at P25,000.00 in exchange case as early as March 9, 1987 or two years before the rendition of the
for a genuine pair of emerald cut diamond worth P200,000.00 decision. In fact, Atty. Belarmino terminated presentation of evidence on
belonging to Dra. Cruz. He also retrieved the US$300.00 and October 13, 1987, while Dr. Cruz finished hers on February 4, 1989, or
jewelries (sic) from his agents. But he was not satisfied in being more than a month prior to the rendition of the judgment. The March 6,
able to get subject jewelries for a song. He had to file a malicious 1989 hearing was conducted solely for the presentation of petitioner's
and unfounded case against Dra. Cruz and Atty. Belarmino who rebuttal testimony. 13 In other words, Judge Jaramillo had ample time to
are well known, respected and held in high esteem in San Pablo study the case and write the decision because the rebuttal evidence would
City where everybody practically knows everybody. Plaintiff only serve to confirm or verify the facts already presented by the parties.
came to Court with unclean hands dragging the defendants and The Court finds nothing anomalous in the said situation. No proof has been
soiling their clean and good name in the process. Both of them adduced that Judge Jaramillo was motivated by a malicious or sinister
are near the twilight of their lives after maintaining and nurturing intent in disposing of the case with dispatch. Neither is there proof that
their good reputation in the community only to be stunned with someone else wrote the decision for him. The immediate rendition of the
a court case. Since the filing of this case on October 26, 1984 up decision was no more than Judge Jaramillo's compliance with his duty as
to the present they were living under a pall of doubt. Surely, this a judge to "dispose of the court's business promptly and decide cases
affected not only their earning capacity in their practice of their within the required periods." 14 The two-year period within which Judge
respective professions, but also they suffered besmirched Jaramillo handled the case provided him with all the time to study it and
even write down its facts as soon as these were presented to court. In fact, Likewise, the facts as proven do not support the allegation that petitioner
this Court does not see anything wrong in the practice of writing a decision himself could be excused for the "mistake." On account of his work as a
days before the scheduled promulgation of judgment and leaving the banker-jeweler, it can be rightfully assumed that he was an expert on
dispositive portion for typing at a time close to the date of promulgation, matters regarding gems. He had the intellectual capacity and the business
provided that no malice or any wrongful conduct attends its acumen as a banker to take precautionary measures to avert such a
adoption. 15The practice serves the dual purposes of safeguarding the mistake, considering the value of both the jewelry and his land. The fact
confidentiality of draft decisions and rendering decisions with that he had seen the jewelry before October 24, 1984 should not have
promptness. Neither can Judge Jaramillo be made administratively precluded him from having its genuineness tested in the presence of Dr.
answerable for the immediate rendition of the decision. The acts of a judge Cruz. Had he done so, he could have avoided the present situation that he
which pertain to his judicial functions are not subject to disciplinary power himself brought about. Indeed, the finger of suspicion of switching the
unless they are committed with fraud, dishonesty, corruption or bad genuine jewelry for a fake inevitably points to him. Such a mistake caused
faith. 16Hence, in the absence of sufficient proof to the contrary, Judge by manifest negligence cannot invalidate a juridical act. 27 As the Civil
Jaramillo is presumed to have performed his job in accordance with law Code provides, "(t)here is no mistake if the party alleging it knew the
and should instead be commended for his close attention to duty. doubt, contingency or risk affecting the object of the contract."28
Having disposed of petitioner's first contention, we now come to the core Furthermore, petitioner was afforded the reasonable opportunity required
issue of this petition which is whether the Court of Appeals erred in in Article 1584 of the Civil Code within which to examine the jewelry as
upholding the validity of the contract of barter or sale under the he in fact accepted them when asked by Dr. Cruz if he was satisfied with
circumstances of this case. the same. 29 By taking the jewelry outside the bank, petitioner executed an
The Civil Code provides that contracts are perfected by mere consent. act which was more consistent with his exercise of ownership over it. This
From this moment, the parties are bound not only to the fulfillment of what gains credence when it is borne in mind that he himself had earlier
has been expressly stipulated but also to all the consequences which, delivered the Tanay property to Dr. Cruz by affixing his signature to the
according to their nature, may be in keeping with good faith, usage and contract of sale. That after two hours he later claimed that the jewelry was
law. 17 A contract of sale is perfected at the moment there is a meeting of not the one he intended in exchange for his Tanay property, could not sever
the minds upon the thing which is the object of the contract and upon the the juridical tie that now bound him and Dr. Cruz. The nature and value of
price. 18 Being consensual, a contract of sale has the force of law between the thing he had taken preclude its return after that supervening period
the contracting parties and they are expected to abide in good faith by their within which anything could have happened, not excluding the alteration
respective contractual commitments. Article 1358 of the Civil Code which of the jewelry or its being switched with an inferior kind.
requires the embodiment of certain contracts in a public instrument, is only Both the trial and appellate courts, therefore, correctly ruled that there
for convenience, 19 and registration of the instrument only adversely were no legal bases for the nullification of the contract of sale. Ownership
affects third parties. 20 Formal requirements are, therefore, for the benefit over the parcel of land and the pair of emerald-cut diamond earrings had
of third parties. Non-compliance therewith does not adversely affect the been transferred to Dr. Cruz and petitioner, respectively, upon the actual
validity of the contract nor the contractual rights and obligations of the and constructive delivery thereof. 30 Said contract of sale being absolute
parties thereunder. in nature, title passed to the vendee upon delivery of the thing sold since
It is evident from the facts of the case that there was a meeting of the minds there was no stipulation in the contract that title to the property sold has
between petitioner and Dr. Cruz. As such, they are bound by the contract been reserved in the seller until full payment of the price or that the vendor
unless there are reasons or circumstances that warrant its nullification. has the right to unilaterally resolve the contract the moment the buyer fails
Hence, the problem that should be addressed in this case is whether or not to pay within a fixed period. 31 Such stipulations are not manifest in the
under the facts duly established herein, the contract can be voided in contract of sale.
accordance with law so as to compel the parties to restore to each other While it is true that the amount of P40,000.00 forming part of the
the things that have been the subject of the contract with their fruits, and consideration was still payable to petitioner, its nonpayment by Dr. Cruz
the price with interest.21 is not a sufficient cause to invalidate the contract or bar the transfer of
Contracts that are voidable or annullable, even though there may have ownership and possession of the things exchanged considering the fact
been no damage to the contracting parties are: (1) those where one of the that their contract is silent as to when it becomes due and demandable. 32
parties is incapable of giving consent to a contract; and (2) those where Neither may such failure to pay the balance of the purchase price result in
the consent is vitiated by mistake, violence, intimidation, undue influence the payment of interest thereon. Article 1589 of the Civil Code prescribes
or fraud. 22 Accordingly, petitioner now stresses before this Court that he the payment of interest by the vendee "for the period between the delivery
entered into the contract in the belief that the pair of emerald-cut diamond of the thing and the payment of the price" in the following cases:
earrings was genuine. On the pretext that those pieces of jewelry turned (1) Should it have been so stipulated;
out to be counterfeit, however, petitioner subsequently sought the (2) Should the thing sold and delivered produce fruits or income;
nullification of said contract on the ground that it was, in fact, "tainted (3) Should he be in default, from the time of judicial or
with fraud" 23 such that his consent was vitiated. extrajudicial demand for the payment of the price.
There is fraud when, through the insidious words or machinations of one Not one of these cases obtains here. This case should, of course,
of the contracting parties, the other is induced to enter into a contract be distinguished from De la Cruz v. Legaspi, 33 where the court
which, without them, he would not have agreed to. 24 The records, held that failure to pay the consideration after the notarization of
however, are bare of any evidence manifesting that private respondents the contract as previously promised resulted in the vendee's
employed such insidious words or machinations to entice petitioner into liability for payment of interest. In the case at bar, there is no
entering the contract of barter. Neither is there any evidence showing that stipulation for the payment of interest in the contract of sale nor
Dr. Cruz induced petitioner to sell his Tanay property or that she cajoled proof that the Tanay property produced fruits or income. Neither
him to take the earrings in exchange for said property. On the contrary, did petitioner demand payment of the price as in fact he filed an
Dr. Cruz did not initially accede to petitioner's proposal to buy the said action to nullify the contract of sale.
jewelry. Rather, it appears that it was petitioner, through his agents, who All told, petitioner appears to have elevated this case to this Court for the
led Dr. Cruz to believe that the Tanay property was worth exchanging for principal reason of mitigating the amount of damages awarded to both
her jewelry as he represented that its value was P400,000.00 or more than private respondents which petitioner considers as "exorbitant." He
double that of the jewelry which was valued only at P160,000.00. If indeed contends that private respondents do not deserve at all the award of
petitioner's property was truly worth that much, it was certainly contrary damages. In fact, he pleads for the total deletion of the award as regards
to the nature of a businessman-banker like him to have parted with his real private respondent Belarmino whom he considers a mere "nominal party"
estate for half its price. In short, it was in fact petitioner who resorted to because "no specific claim for damages against him" was alleged in the
machinations to convince Dr. Cruz to exchange her jewelry for the Tanay complaint. When he filed the case, all that petitioner wanted was that Atty.
property. Belarmino should return to him the owner's duplicate copy of TCT No.
Moreover, petitioner did not clearly allege mistake as a ground for 320725, the deed of sale executed by Fr. Antonio Jacobe, the deed of
nullification of the contract of sale. Even assuming that he did, petitioner redemption and the check alloted for expenses. Petitioner alleges further
cannot successfully invoke the same. To invalidate a contract, mistake that Atty. Belarmino should not have delivered all those documents to Dr.
must "refer to the substance of the thing that is the object of the contract, Cruz because as the "lawyer for both the seller and the buyer in the sale
or to those conditions which have principally moved one or both parties contract, he should have protected the rights of both parties." Moreover,
to enter into the contract." 25 An example of mistake as to the object of the petitioner asserts that there was no firm basis for damages except for Atty.
contract is the substitution of a specific thing contemplated by the parties Belarmino's uncorroborated testimony.34
with another. 26 In his allegations in the complaint, petitioner insinuated Moral and exemplary damages may be awarded without proof of
that an inferior one or one that had only Russian diamonds was substituted pecuniary loss. In awarding such damages, the court shall take into
for the jewelry he wanted to exchange with his 10-hectare land. He, account the circumstances obtaining in the case said assess damages
however, failed to prove the fact that prior to the delivery of the jewelry according to its discretion.35 To warrant the award of damages, it must be
to him, private respondents endeavored to make such substitution. shown that the person to whom these are awarded has sustained injury. He
must likewise establish sufficient data upon which the court can properly shrewd enough to bloat the Tanay property's price only a few days after
base its estimate of the amount of damages.36 Statements of facts should he purchased it at a much lower value. Thus, it is our considered view that
establish such data rather than mere conclusions or opinions of if this slew of circumstances were connected, like pieces of fabric sewn
witnesses. 37 Thus: into a quilt, they would sufficiently demonstrate that his acts were not
. . . . For moral damages to be awarded, it is essential that the merely negligent but rather studied and deliberate.
claimant must have satisfactorily proved during the trial the We do not have here, therefore, a situation where petitioner's complaint
existence of the factual basis of the damages and its causal was simply found later to be based on an erroneous ground which, under
connection with the adverse party's acts. If the court has no proof settled jurisprudence, would not have been a reason for awarding moral
or evidence upon which the claim for moral damages could be and exemplary damages. 42 Instead, the cause of action of the instant case
based, such indemnity could not be outrightly awarded. The appears to have been contrived by petitioner himself. In other words, he
same holds true with respect to the award of exemplary damages was placed in a situation where he could not honestly evaluate whether his
where it must be shown that the party acted in a wanton, cause of action has a semblance of merit, such that it would require the
oppressive or malevolent manner. 38 expertise of the courts to put it to a test. His insistent pursuit of such case
In this regard, the lower court appeared to have awarded damages on a then coupled with circumstances showing that he himself was guilty in
ground analogous to malicious prosecution under Article 2219 (8) of the bringing about the supposed wrongdoing on which he anchored his cause
Civil Code 39 as shown by (1) petitioner's "wanton bad faith" in bloating of action would render him answerable for all damages the defendant may
the value of the Tanay property which he exchanged for "a genuine pair suffer because of it. This is precisely what took place in the petition at bar
of emerald-cut diamond worth P200,00.00;" and (2) his filing of a and we find no cogent reason to disturb the findings of the courts below
"malicious and unfounded case" against private respondents who were that respondents in this case suffered considerable damages due to
"well known, respected and held in high esteem in San Pablo City where petitioner's unwarranted action.
everybody practically knows everybody" and whose good names in the WHEREFORE, the decision of the Court of Appeals dated October 20,
"twilight of their lives" were soiled by petitioner's coming to court with 1992 is hereby AFFIRMED in toto. Dr. Cruz, however, is ordered to pay
"unclean hands," thereby affecting their earning capacity in the exercise petitioner the balance of the purchase price of P40,000.00 within ten (10)
of their respective professions and besmirching their reputation. days from the finality of this decision. Costs against petitioner.
For its part, the Court of Appeals affirmed the award of damages to private SO ORDERED.
respondents for these reasons: G.R. No. 78903 February 28, 1990
The malice with which Fule filed this case is apparent. Having SPS. SEGUNDO DALION AND EPIFANIA SABESAJE-
taken possession of the genuine jewelry of Dra. Cruz, Fule now DALION, petitioners,
wishes to return a fake jewelry to Dra. Cruz and, more than that, vs.
get back the real property, which his bank owns. Fule has THE HONORABLE COURT OF APPEALS AND RUPERTO
obtained a genuine jewelry which he could sell anytime, SABESAJE, JR., respondents.
anywhere and to anybody, without the same being traced to the Francisco A. Puray, Sr. for petitioners.
original owner for practically nothing. This is plain and simple, Gabriel N. Duazo for private respondent.
unjust enrichment.40
While, as a rule, moral damages cannot be recovered from a person who MEDIALDEA, J.:
has filed a complaint against another in good faith because it is not sound This is a petition to annul and set aside the decision of the Court of Appeals
policy to place a penalty on the right to litigate, 41 the same, however, rendered on May 26, 1987, upholding the validity of the sale of a parcel
cannot apply in the case at bar. The factual findings of the courts a quo to of land by petitioner Segundo Dalion (hereafter, "Dalion") in favor of
the effect that petitioner filed this case because he was the victim of fraud; private respondent Ruperto Sabesaje, Jr. (hereafter, "Sabesaje"), described
that he could not have been such a victim because he should have thus:
examined the jewelry in question before accepting delivery thereof, A parcel of land located at Panyawan, Sogod, Southern Leyte,
considering his exposure to the banking and jewelry businesses; and that declared in the name of Segundo Dalion, under Tax Declaration
he filed the action for the nullification of the contract of sale with unclean No. 11148, with an area of 8947 hectares, assessed at P 180.00,
hands, all deserve full faith and credit to support the conclusion that and bounded on the North, by Sergio Destriza and Titon Veloso,
petitioner was motivated more by ill will than a sincere attempt to protect East, by Feliciano Destriza, by Barbara Bonesa (sic); and West,
his rights in commencing suit against respondents. by Catalino Espina. (pp. 36-37, Rollo)
As pointed out earlier, a closer scrutiny of the chain of events immediately The decision affirms in toto the ruling of the trial court 1 issued on January
prior to and on October 24, 1984 itself would amply demonstrate that 17, 1984, the dispositive portion of which provides as follows:
petitioner was not simply negligent in failing to exercise due diligence to WHEREFORE, IN VIEW OF THE FOREGOING, the Court
assure himself that what he was taking in exchange for his property were hereby renders judgment.
genuine diamonds. He had rather placed himself in a situation from which (a) Ordering the defendants to deliver to the plaintiff the parcel
it preponderantly appears that his seeming ignorance was actually just a of land subject of this case, declared in the name of Segundo
ruse. Indeed, he had unnecessarily dragged respondents to face the travails Dalion previously under Tax Declaration No. 11148 and lately
of litigation in speculating at the possible favorable outcome of his under Tax Declaration No. 2297 (1974) and to execute the
complaint when he should have realized that his supposed predicament corresponding formal deed of conveyance in a public document
was his own making. We, therefore, see here no semblance of an honest in favor of the plaintiff of the said property subject of this case,
and sincere belief on his part that he was swindled by respondents which otherwise, should defendants for any reason fail to do so, the
would entitle him to redress in court. It must be noted that before petitioner deed shall be executed in their behalf by the Provincial Sheriff
was able to convince Dr. Cruz to exchange her jewelry for the Tanay or his Deputy;
property, petitioner took pains to thoroughly examine said jewelry, even (b) Ordering the defendants to pay plaintiff the amount of
going to the extent of sketching their appearance. Why at the precise P2,000.00 as attorney's fees and P 500.00 as litigation expenses,
moment when he was about to take physical possession thereof he failed and to pay the costs; and
to exert extra efforts to check their genuineness despite the large (c) Dismissing the counter-claim. (p. 38, Rollo)
consideration involved has never been explained at all by petitioner. His The facts of the case are as follows:
acts thus failed to accord with what an ordinary prudent man would have On May 28, 1973, Sabesaje sued to recover ownership of a parcel of land,
done in the same situation. Being an experienced banker and a based on a private document of absolute sale, dated July 1, 1965 (Exhibit
businessman himself who deliberately skirted a legal impediment in the "A"), allegedly executed by Dalion, who, however denied the fact of sale,
sale of the Tanay property and to minimize the capital gains tax for its contending that the document sued upon is fictitious, his signature thereon,
exchange, it was actually gross recklessness for him to have merely a forgery, and that subject land is conjugal property, which he and his wife
conducted a cursory examination of the jewelry when every opportunity acquired in 1960 from Saturnina Sabesaje as evidenced by the "Escritura
for doing so was not denied him. Apparently, he carried on his person a de Venta Absoluta" (Exhibit "B"). The spouses denied claims of Sabesaje
tester which he later used to prove the alleged fakery but which he did not that after executing a deed of sale over the parcel of land, they had pleaded
use at the time when it was most needed. Furthermore, it took him two with Sabesaje, their relative, to be allowed to administer the land because
more hours of unexplained delay before he complained that the jewelry he Dalion did not have any means of livelihood. They admitted, however,
received were counterfeit. Hence, we stated earlier that anything could administering since 1958, five (5) parcels of land in Sogod, Southern
have happened during all the time that petitioner was in complete Leyte, which belonged to Leonardo Sabesaje, grandfather of Sabesaje,
possession and control of the jewelry, including the possibility of who died in 1956. They never received their agreed 10% and 15%
substituting them with fake ones, against which respondents would have a commission on the sales of copra and abaca, respectively. Sabesaje's suit,
great deal of difficulty defending themselves. The truth is that petitioner they countered, was intended merely to harass, preempt and forestall
even failed to successfully prove during trial that the jewelry he received Dalion's threat to sue for these unpaid commissions.
from Dr. Cruz were not genuine. Add to that the fact that he had been
From the adverse decision of the trial court, Dalion appealed, assigning 1983 (p. 235, Ibid.) readily reveal that the questioned signatures
errors some of which, however, were disregarded by the appellate court, are the signatures of defendant Segundo Dalion.
not having been raised in the court below. While the Court of Appeals duly It may be noted that two signatures of Segundo D. Dalion appear
recognizes Our authority to review matters even if not assigned as errors on the face of the questioned document (Exh. A), one at the right
in the appeal, We are not inclined to do so since a review of the case at bar corner bottom of the document (Exh. A-2) and the other at the
reveals that the lower court has judicially decided the case on its merits. left hand margin thereof (Exh. A-3). The second signature is
As to the controversy regarding the identity of the land, We have no reason already a surplusage. A forger would not attempt to forge
to dispute the Court of Appeals' findings as follows: another signature, an unnecessary one, for fear he may commit a
To be sure, the parcel of land described in Exhibit "A" is the revealing error or an erroneous stroke. (Decision, p. 10) (pp. 42-
same property deeded out in Exhibit "B". The boundaries 43, Rollo)
delineating it from adjacent lots are identical. Both documents We see no reason for deviating from the appellate court's ruling (p. 44,
detail out the following boundaries, to wit: Rollo) as we reiterate that
On the North-property of Sergio Destriza and Titon Veloso; Appellate courts have consistently subscribed to the principle
On the East-property of Feliciano Destriza; that conclusions and findings of fact by the trial courts are
On the South-property of Barbara Boniza and entitled to great weight on appeal and should not be disturbed
On the West-Catalino Espina. unless for strong and cogent reasons, since it is undeniable that
(pp. 41-42, Rollo) the trial court is in a more advantageous position to examine real
The issues in this case may thus be limited to: a) the validity of the contract evidence, as well as to observe the demeanor of the witnesses
of sale of a parcel of land and b) the necessity of a public document for while testifying in the case (Chase v. Buencamino, Sr., G.R. No.
transfer of ownership thereto. L-20395, May 13, 1985, 136 SCRA 365; Pring v. Court of
The appellate court upheld the validity of the sale on the basis of Secs. 21 Appeals, G.R. No. L-41605, August 19, 1985, 138 SCRA 185)
and 23 of Rule 132 of the Revised Rules of Court. Assuming authenticity of his signature and the genuineness of the
SEC. 21. Private writing, its execution and authenticity, how document, Dalion nonetheless still impugns the validity of the sale on the
proved.-Before any private writing may be received in evidence, ground that the same is embodied in a private document, and did not thus
its due execution and authenticity must be proved either: convey title or right to the lot in question since "acts and contracts which
(a) By anyone who saw the writing executed; have for their object the creation, transmission, modification or extinction
(b) By evidence of the genuineness of the handwriting of the of real rights over immovable property must appear in a public instrument"
maker; or (Art. 1358, par 1, NCC).
(c) By a subscribing witness This argument is misplaced. The provision of Art. 1358 on the necessity
xxx xxx xxx of a public document is only for convenience, not for validity or
SEC. 23. Handwriting, how proved. — The handwriting of a enforceability. It is not a requirement for the validity of a contract of sale
person may be proved by any witness who believes it to be the of a parcel of land that this be embodied in a public instrument.
handwriting of such person, and has seen the person write, or has A contract of sale is a consensual contract, which means that the sale is
seen writing purporting to be his upon which the witness has perfected by mere consent. No particular form is required for its validity.
acted or been charged, and has thus acquired knowledge of the Upon perfection of the contract, the parties may reciprocally demand
handwriting of such person. Evidence respecting the handwriting performance (Art. 1475, NCC), i.e., the vendee may compel transfer of
may also be given by a comparison, made by the witness or the ownership of the object of the sale, and the vendor may require the vendee
court, with writings admitted or treated as genuine by the party to pay the thing sold (Art. 1458, NCC).
against whom the evidence is offered, or proved to be genuine to The trial court thus rightly and legally ordered Dalion to deliver to
the satisfaction of the judge. (Rule 132, Revised Rules of Court) Sabesaje the parcel of land and to execute corresponding formal deed of
And on the basis of the findings of fact of the trial court as follows: conveyance in a public document. Under Art. 1498, NCC, when the sale
Here, people who witnessed the execution of subject deed is made through a public instrument, the execution thereof is equivalent to
positively testified on the authenticity thereof. They the delivery of the thing. Delivery may either be actual (real) or
categorically stated that it had been executed and signed by the constructive. Thus delivery of a parcel of land may be done by placing the
signatories thereto. In fact, one of such witnesses, Gerardo M. vendee in control and possession of the land (real) or by embodying the
Ogsoc, declared on the witness stand that he was the one who sale in a public instrument (constructive).
prepared said deed of sale and had copied parts thereof from the As regards petitioners' contention that the proper action should have been
"Escritura De Venta Absoluta" (Exhibit B) by which one one for specific performance, We believe that the suit for recovery of
Saturnina Sabesaje sold the same parcel of land to appellant ownership is proper. As earlier stated, Art. 1475 of the Civil Code gives
Segundo Dalion. Ogsoc copied the bounderies thereof and the the parties to a perfected contract of sale the right to reciprocally demand
name of appellant Segundo Dalion's wife, erroneously written as performance, and to observe a particular form, if warranted, (Art. 1357).
"Esmenia" in Exhibit "A" and "Esmenia" in Exhibit "B". (p. 41, The trial court, aptly observed that Sabesaje's complaint sufficiently
Rollo) alleged a cause of action to compel Dalion to execute a formal deed of
xxx xxx xxx sale, and the suit for recovery of ownership, which is premised on the
Against defendant's mere denial that he signed the document, the binding effect and validity inter partes of the contract of sale, merely
positive testimonies of the instrumental Witnesses Ogsoc and seeks consummation of said contract.
Espina, aside from the testimony of the plaintiff, must prevail. ... . A sale of a real property may be in a private instrument but
Defendant has affirmatively alleged forgery, but he never that contract is valid and binding between the parties upon its
presented any witness or evidence to prove his claim of forgery. perfection. And a party may compel the other party to execute a
Each party must prove his own affirmative allegations (Section public instrument embodying their contract affecting real rights
1, Rule 131, Rules of Court). Furthermore, it is presumed that a once the contract appearing in a private instrument hag been
person is innocent of a crime or wrong (Section 5 (a),Idem), and perfected (See Art. 1357).
defense should have come forward with clear and convincing ... . (p. 12, Decision, p. 272, Records)
evidence to show that plaintiff committed forgery or caused said ACCORDINGLY, the petition is DENIED and the decision of the Court
forgery to be committed, to overcome the presumption of of Appeals upholding the ruling of the trial court is hereby AFFIRMED.
innocence. Mere denial of having signed, does not suffice to No costs.
show forgery. SO ORDERED.
In addition, a comparison of the questioned signatories or G.R. No. L-23351 March 13, 1968
specimens (Exhs. A-2 and A-3) with the admitted signatures or CIRILO PAREDES, plaintiff-appellant,
specimens (Exhs. X and Y or 3-C) convinces the court that Exhs. vs.
A-2 or Z and A-3 were written by defendant Segundo Dalion JOSE L. ESPINO, defendant-appellee.
who admitted that Exhs. X and Y or 3-C are his signatures. The Simeon Capule for plaintiff-appellant.
questioned signatures and the specimens are very similar to each Iñigo R. Peña for defendant-appellee.
other and appear to be written by one person. REYES, J.B.L., Actg. C.J.:
Further comparison of the questioned signatures and the Appeal from an order of the Court of First Instance of Palawan in
specimens with the signatures Segundo D. Dalion appeared at its Civil Case No. 453, granting a motion to dismiss the complaint.
the back of the summons (p. 9, Record); on the return card (p. Appellant Cirilo Parades had filed an action to compel defendant-
25, Ibid.); back of the Court Orders dated December 17, 1973 appellee Jose L. Espino to execute a deed of sale and to pay damages. The
and July 30, 1974 and for October 7, 1974 (p. 54 & p. 56, complaint alleged that the defendant "had entered into the sale" to plaintiff
respectively, Ibid.), and on the open court notice of April 13, of Lot No. 67 of the Puerto Princesa Cadastre at P4.00 a square meter; that
the deal had been "closed by letter and telegram" but the actual execution
of the deed of sale and payment of the price were deferred to the arrival of have ruled in Berg vs. Magdalena Estate, Inc., 92 Phil. 110, 115, that a
defendant at Puerto Princesa; that defendant upon arrival had refused to sufficient memorandum may be contained in two or more documents.
execute the deed of sale altho plaintiff was able and willing to pay the Defendant-appellee argues that the authenticity of the letters has not
price, and continued to refuse despite written demands of plaintiff; that as been established. That is not necessary for the purpose of showing prima
a result, plaintiff had lost expected profits from a resale of the property, facie that the contract is enforceable. For as ruled by us in Shaffer vs.
and caused plaintiff mental anguish and suffering, for which reason the Palma, L-24115, March 1, 1968, whether the agreement is in writing or
complaint prayed for specific performance and damages. not, is a question of evidence; and the authenticity of the writing need not
Defendant filed a motion to dismiss upon the ground that the be established until the trial is held. The plaintiff having alleged that the
complaint stated no cause of action, and that the plaintiff's claim upon contract is backed by letter and telegram, and the same being a sufficient
which the action was founded was unenforceable under the Statute of memorandum, his cause of action is thereby established, especially since
Frauds. the defendant has not denied the letters in question. At any rate, if the
Plaintiff opposed in writing the motion to dismiss and annexed to Court below entertained any doubts about the existence of the written
his opposition a copy of a letter purportedly signed by defendant (Annex memorandum, it should have called for a preliminary hearing on that
"A"), wherein it was stated (Record on Appeal, pp. 19-20) — point, and not dismissed the complaint.
106 GonzagaSt. WHEREFORE, the appealed order is hereby set aside, and the case
Tuguegarao,Cagayan remanded to the Court of origin for trial and decision. Costs against
May18,1964 defendant-appellee Jose L. Espino. So ordered.
Mr.CiriloParedes G.R. No. L-55048 May 27, 1981
Pto.Princesa,Palawan SUGA SOTTO YUVIENCO, BRITANIA SOTTO, and
MARCELINO SOTTO, petitioners,
Dear Mr. Paredes: vs.
So far I received two letters from you, one dated April 17 HON. AUXENCIO C. DACUYCUY, Judge of the CFI of Leyte,
and the other April 29, both 1964. In reply thereto, please be DELY RODRIGUEZ, FELIPE ANG CRUZ, CONSTANCIA
informed that after consulting with my wife, we both decided to NOGAR, MANUEL GO, INOCENTES DIME, WILLY JULIO,
accept your last offer of Four (P4.00) pesos per square meter of JAIME YU, OSCAR DY, DY CHIU SENG, BENITO YOUNG,
the lot which contains 1826 square meters and on cash basis. FERNANDO YU, SEBASTIAN YU, CARLOS UY, HOC CHUAN
In order that we can facilitate the transaction of the sale in and MANUEL DY, respondents.
question, we (Mrs. Espino and I), are going there (Puerto
Princess, Pal.) to be there during the last week of the month, BARREDO, J.:1äwphï1.ñët
May. I will send you a telegram, as per your request, when I will Petition for certiorari and prohibition to declare void for being in grave
reach Manila before taking the boat for Pto. Princess. As it is abuse of discretion the orders of respondent judge dated November 2,
now, there is no schedule yet of the boats plying between Manila 1978 and August 29, 1980, in Civil Case No. 5759 of the Court of First
and Pto. Princess for next week. Instance of Leyte, which denied the motion filed by petitioners to dismiss
Plaintiff also appended as Annex "A-1", a telegram apparently from the complaint of private respondents for specific performance of an
defendant advising plaintiff of his arrival by boat about the last week of alleged agreement of sale of real property, the said motion being based on
May 1964 (Annex "A-1" Record on Appeal, p. 21), as well as a previous the grounds that the respondents' complaint states no cause of action
letter of defendant (Appendix B, Record on Appeal, p. 35) referring to the and/or that the claim alleged therein is unenforceable under the Statute of
lot as the one covered by Certificate of Title No. 62. Frauds.
These allegations and documents notwithstanding, the Court below Finding initially prima facie merit in the petition, We required
dismissed the complaint on the ground that there being no written contract, respondents to answer and We issued a temporary restraining order on
under Article 1403 of the Civil Code of the Philippines — October 7, 1980 enjoining the execution of the questioned orders.
Although the contract is valid in itself, the same can not In essence, the theory of petitioners is that while it is true that they did
be enforced by virtue of the Statute of Frauds. (Record on express willingness to sell to private respondents the subject property for
Appeal, p. 37).1äwphï1.ñët P6,500,000 provided the latter made known their own decision to buy it
Plaintiff duly appealed to this Court. not later than July 31, 1978, the respondents' reply that they were
The sole issue here is whether enforcement of the contract pleaded agreeable was not absolute, so much so that when ultimately petitioners'
in the complaint is barred by the Statute of Frauds; and the Court a representative went to Cebu City with a prepared and duly signed contract
quo plainly erred in holding that it was unenforceable. for the purpose of perfecting and consummating the transaction,
The Statute of Frauds, embodied in Article 1403 of the Civil Code respondents and said representative found variance between the terms of
of the Philippines, does not require that the contract itself be in writing. payment stipulated in the prepared document and what respondents had in
The plain text of Article 1403, paragraph (2) is clear that a written note or mind, hence the bankdraft which respondents were delivering to petit
memorandum, embodying the essentials of the contract and signed by the loners' representative was returned and the document remained unsigned
party charged, or his agent, suffices to make the verbal agreement by respondents. Hence the action below for specific performance.
enforceable, taking it out of the operation of the statute. To be more specific, the parties do not dispute that on July 12, 1978,
Art. 1403. — The following contracts are unenforceable, petitioners, thru a certain Pedro C. Gamboa, sent to respondents the
unless they are ratified: following letter:
(1) . . . Mr. Yao King Ong
(2) Those that do not comply with the Statute of Frauds as set Life Bakery
forth in this number. In the following cases an agreement Tacloban City
hereafter made shall be unenforceable by action, unless the Dear Mr. Yao: 1äwphï1.ñët
same, or some note or memorandum thereof, be in writing, and This refers to the Sotto property (land and building)
subscribed by the party charged, or by his agent; evidence, situated at Tacloban City. My clients are willing to sell
therefore, of the agreement cannot be received without the them at a total price of P6,500,000.00.
writing, or a secondary evidence of its contents: While there are other parties who are interested to buy
xxx xxx xxx the property, I am giving you and the other occupants
(e) An agreement for the leasing for a longer period the preference, but such priority has to be exercised
than one year, or for the sale of real property or of an within a given number of days as I do not want to lose
interest therein.1äwphï1.ñët the opportunity if you are not interested. I am therefore
xxx xxx xxx gluing you and the rest of the occupants until July 31,
In the case at bar, the complaint in its paragraph 3 pleads that the 1978 within it which to decide whether you want to buy
deal had been closed by letter and telegram" (Record on Appeal, p. 2), and the property. If I do not hear from you by July 31, I will
the letter referred to was evidently the one copy of which was appended offer or close the deal with the other interested buyer.
as Exhibit A to plaintiff's opposition to the motion dismiss. This letter, Thank you so much for the hospitality extended to me
transcribed above in part, together with that one marked as Appendix B, during my last trip to Tacloban, and I hope to hear from
constitute an adequate memorandum of the transaction. They are signed you very soon. 1äwphï1.ñët
by the defendant-appellee; refer to the property sold as a lot in Puerto
Princesa, Palawan, covered, by TCT No. 62; give its area as 1826 square
meters and the purchase price of four (P4.00) pesos per square meter
payable in cash. We have in them therefore, all the essential terms of the
contract, and they satisfy the requirements of the Statute of Frauds. We
 purpose of closing the transactionsu referred to in
paragraphs 8 and 9 hereof, however,l to the complete
surprise of plaintiffs, the ydefendant (except def.
Tacloban City Ice Plant, Inc.) without
y giving notice to
plaintiffs, changed the mode ofo payment with respect
to the balance of P4,500,000.00 u by imposing upon
plaintiffs to pay same amount rwithin thirty (30) days
from execution of the contracts instead of the former
term of ninety (90) days as stated , in paragraph 8 hereof.
(Pp. 10-11, Record.) P
Additionally and to reenforce their position, respondents
e alleged further in
their complaint: 1äwphï1.ñët d
8. That on July 12, 1978, defendants
r (except defendant
Tacloban City Ice Plant, Inc.) ofinally sent a telegram
letter to plaintiffs- tenants, through
C same Mr. Yao King
Ong, notifying them that defendants. are willing to sell
the properties (lands and building)G at a total price of
P6,500,000.00, which herein aplaintiffs-tenants have
agreed to buy the said properties m for said price; a copy
of which letter is hereto attached b as integral part hereof
and marked as Annex 'C', andoplaintiffs accepted the
offer through a telegram dateda July 25, 1978, sent to
defendants (through defendant Pedro C. Gamboa), a
1
copy of which telegram is hereto attached as integral
(Page 9, Record.) part hereof and marked as Annex C-1 and as a
Reacting to the foregoing letter, the following telegram consequence hereof. plaintiffs except plaintiff
was sent by "Yao King Ong & tenants" to Atty. Pedro Tacloban - merchants' Realty Development
Gamboa in Cebu City: Corporation) and defendants (except defendant
Atty. Pedro Gamboa Tacloban City Ice Plant. Inc.) agreed to the following
Room 314, Maria Cristina Bldg. terms and conditions respecting the payment of said
Osmeña Boulevard, Cebu City purchase price, to wit: 1äwphï1.ñët
Reurlet dated July 12 inform Dra. Yuvienco we agree P2,000,000.00 to be paid in full on
to buy property proceed Tacloban to negotiate the date of the execution of the
details 1äwphï1.ñët contract; and the balance of
P4,500,000.00
Y shall be fully paid
within ninety
a (90) days thereafter;
9. That on July 27, 1978, defendants
o sent a telegram to
plaintiff- tenants, through the latter's
K representative Mr.
Yao King Ong, reiterating their i acceptance to the
agreement referred to in the next n preceding paragraph
hereof and notifying plaintiffs-tenants
g to prepare
payment by bank drafts; which O the latter readily
complied with; a copy of which n telegram is hereto
attached as integral part hereofg and marked as Annex
"D"; (Pp 49-50, Record.) &
It was on the basis of the foregoing facts and tallegations that herein
petitioners filed their motion to dismisse alleging as main
grounds: 1äwphï1.ñët n
I. That plaintiff, TACLOBAN MERCHANTS' a REALTY
DEVELOPMENT CORPORATION, amended n complaint, does
not state a cause of action and the claimt on which the action is
founded is likewise unenforceable under s the provisions of the
(Page 10, Record.) Statute of Frauds.
Likewise uncontroverted is the fact that under date of II. That as to the rest of the plaintiffs, their amended complaint
July 27, 1978, Atty. Gamboa wired Yao King Ong in does not state a cause of action and the claim on which the action
Tacloban City as follows: is founded is likewise unenforceable under the provisions of the
NLT Statute of Frauds. (Page 81, Record.)
YAO KING ONG With commendable knowledgeability and industry, respondent judge
LIFE BAKERY ruled negatively on the motion to dismiss, discoursing at length on the
TACLOBAN CITY personality as real party-in-interest of respondent corporation, while
PROPOSAL ACCEPTED ARRIVING TUESDAY passing lightly, however, on what to Us are the more substantial and
MORNING WITH CONTRACT PREPARE decisive issues of whether or not the complaint sufficiently states a cause
PAYMENT BANK DRAFT 1äwphï1.ñët of action and whether or not the claim alleged therein is unenforceable
under the Statute of Frauds, by holding thus: 1äwphï1.ñët
A
The second ground of the motion to dismiss T is that plaintiffs'
claim is unenforceable under the Statute T of Frauds. The
defendants argued against this motion Y and asked the court to
reject the objection for the simple reason. that the contract of sale
sued upon in this case is supported byG letters and telegrams
annexed to the complaint and other Apapers which will be
presented during the trial. This contention M of the defendants is
not well taken. The plaintiffs having alleged B that the contract is
backed up by letters and telegrams, and O the same being a
sufficient memorandum, the complaint A states a cause of action
(Page 10, Id.) and they should be given a day in court and allowed to
Now, Paragraph 10 of the complaint below of respondents substantiate their allegations (Paredes vs. Espino, 22 SCRA
alleges: 1äwphï1.ñët 1000).
10. That on August 1, 1978, defendant Pedro Gamboa To take a contract for the sale of land out of the Statute of Frauds
arrived Tacloban City bringing with him the prepared a mere note or memorandum in writing subscribed by the vendor
contract to purchase and to sell referred to in his or his agent containing the name of the parties and a summary
telegram dated July 27, 1978 (Annex 'D' hereof) for the statement of the terms of the sale either expressly or by reference
 to something else is all that is required. The statute does not respondents. Accordingly, the claim of respondents in paragraph 8 of their
require a formal contract drawn up with technical exactness for complaint below that there was an agreement of a down payment of P2 M,
the language of Par. 2 of Art. 1403 of the Philippine Civil Code with the balance of P4.5M to be paid within 90 days afterwards is rather
is' ... an agreement ... or some note or memorandum thereof,' thus improbable to imagine to have actually happened.
recognizing a difference between the contract itself and the Respondents maintain that under existing jurisprudence relative to a
written evidence which the statute requires (Berg vs. Magdalena motion to dismiss on the ground of failure of the complaint to state a cause
Estate, Inc., 92 Phil. 110; Ill Moran, Comments on the Rules of of action, the movant-defendant is deemed to admit the factual allegations
Court, 1952 ed. p. 187). See also Bautista's Monograph on the of the complaint, hence, petitioners cannot deny, for purposes of their
Statute of Frauds in 21 SCRA p. 250. (Pp. 110-111, Record) motion, that such terms of payment had indeed been agreed upon.
Our first task then is to dwell on the issue of whether or not in the light of While such is the rule, those allegations do not detract from the fact that
the foregoing circumstances, the complaint in controversy states under Article 1319 of the Civil Code above-quoted, and judged in the light
sufficiently a cause of action. This issue necessarily entails the of the telegram-reply of Yao to Atty. Gamboa's letter of July 12, 1978,
determination of whether or not the plaintiffs have alleged facts there was not an absolute acceptance, hence from that point of view,
adequately showing the existence of a perfected contract of sale between petitioners' contention that the complaint of respondents state no cause of
herein petitioners and the occupant represented by respondent Yao King action is correct.
Ong. Nonetheless, the alleged subsequent agreement about the P2 M down and
In this respect, the governing legal provision is, of course, Article 1319 of P4.5 M in 90 days may at best be deemed as a distinct cause of action.
the Civil Code which provides:1äwphï1.ñët And placed against the insistence of petitioners, as demonstrated in the
ART. 1319. Consent is manifested by the meeting of the offer two deeds of sale taken by Atty. Gamboa to Tacloban, Annexes 9 and 10
and the acceptance upon the thing and the cause which are of the answer of herein respondents, that there was no agreement about 90
constitute the contract. The offer must be certain the acceptance days, an issue of fact arose, which could warrant a trial in order for the
absolute. A qualified acceptance constitute a counter-offer. trial court to determine whether or not there was such an agreement about
Acceptance made by letter or telegram does not bind offerer the balance being payable in 90 days instead of the 30 days stipulated in
except from the time it came to his knowledge. The contract, in Annexes 9 and 10 above-referred to. Our conclusion, therefore, is that
a case, is presumed to have been entered into in the place where although there was no perfected contract of sale in the light of the letter of
the offer was made. Atty. Gamboa of July 12, 1978 and the letter-reply thereto of Yao; it being
In the instant case, We can lay aside, for the moment, petitioners' doubtful whether or not, under Article 1319 of the Civil Code, the said
contention that the letter of July 12, 1978 of Atty. Pedro C. Gamboa to letter may be deemed as an offer to sell that is "certain", and more, the Yao
respondents Yao King Ong and his companions constitute an offer that is telegram is far from being an "absolute" acceptance under said article, still
"certain", although the petitioners claim that it was a mere expression of there appears to be a cause of action alleged in Paragraphs 8 to 12 of the
willingness to sell the subject property and not a direct offer of sale to said respondents' complaint, considering it is alleged therein that subsequent to
respondents. What We consider as more important and truly decisive is the telegram of Yao, it was agreed that the petitioners would sell the
what is the correct juridical significance of the telegram of respondents property to respondents for P6.5 M, by paving P2 M down and the balance
instructing Atty. Gamboa to "proceed to Tacloban to negotiate details." in 90 days and which agreement was allegedly violated when in the deeds
We underline the word "negotiate" advisedly because to Our mind it is the prepared by Atty. Gamboa and taken to Tacloban, only 30 days were given
key word that negates and makes it legally impossible for Us to hold that to respondents.
respondents' acceptance of petitioners' offer, assuming that it was a But the foregoing conclusion is not enough to carry the day for
"certain" offer indeed, was the "absolute" one that Article 1319 above- respondents. It only brings Us to the question of whether or not the claim
quoted requires. for specific performance of respondents is enforceable under the Statute
Dictionally, the implication of "to negotiate" is practically the opposite of of Frauds. In this respect, We man, view the situation at hand from two
the Idea that an agreement has been reached. Webster's Third International angles, namely, (1) that the allegations contained in paragraphs 8 to 12 of
Dictionary, Vol. II (G. & C. Merriam Co., 1971 Philippine copyright) respondents' complaint should be taken together with the documents
gives the meaning of negotiate as "to communicate or confer with another already aforementioned and (2) that the said allegations constitute a
so as to arrive at the settlement of some matter; meet with another so as to separate and distinct cause of action. We hold that either way We view the
arrive through discussion at some kind of agreement or compromise about situation, the conclusion is inescapable e that the claim of respondents that
something; — to arrange for or bring about through conference or petitioners have unjustifiably refused to proceed with the sale to them of
discussion; work at or arrive at or settle upon by meetings and agreements the property v in question is unenforceable under the Statute of Frauds.
or compromises — ". Importantly, it must be borne in mind that Yao King It is nowhere alleged in said paragraphs 8 to 12 of the complaint that there
Ong's telegram simply says "we agree to buy property". It does not is any writing or memorandum, much less a duly signed agreement to the
necessarily connote acceptance of the price but instead suggests that the effect that the price of P6,500,000 fixed by petitioners for the real property
details were to be subject of negotiation. herein involved was agreed to be paid not in cash but in installments as
Respondents now maintain that what the telegram refers to as "details" to alleged by respondents. The only documented indication of the non-
be "negotiated" are mere "accidental elements", not the essential elements wholly-cash payment extant in the record is that stipulated in Annexes 9
of the contract. They even invite attention to the fact that they have alleged and 10 above-referred to, the deeds already signed by the petitioners and
in their complaint (Par. 6) that it was as early as "in the month of October, taken to Tacloban by Atty. Gamboa for the signatures of the respondents.
1977 (that) negotiations between plaintiffs and defendants for the purchase In other words, the 90-day term for the balance of P4.5 M insisted upon
and sale (in question) — were made, thus resulting to offers of same by respondents choices not appear in any note, writing or memorandum
defendants and counter-offer of plaintiffs". But to Our mind such alleged signed by either the petitioners or any of them, not even by Atty. Gamboa.
facts precisely indicate the failure of any meeting of the minds of the Hence, looking at the pose of respondents that there was a perfected
parties, and it is only from the letter and telegrams above-quoted that one agreement of purchase and sale between them and petitioners under which
can determine whether or not such meeting of the minds did materialize. they would pay in installments of P2 M down and P4.5 M within ninety
As We see it, what such allegations bring out in bold relief is that it was 90) days afterwards it is evident that such oral contract involving the "sale
precisely because of their past failure to arrive at an agreement that of real property" comes squarely under the Statute of Frauds (Article 1403,
petitioners had to put an end to the uncertainty by writing the letter of July No. 2(e), Civil Code.)
12, 1978. On the other hand, that respondents were all the time agreeable On the other score of considering the supposed agreement of paying
to buy the property may be conceded, but what impresses Us is that instead installments as partly supported by the letter and t telegram earlier quoted
of "absolutely" accepting the "certain" offer — if there was one — of the herein, His Honor declared with well studied ratiocination, albeit legally
petitioners, they still insisted on further negotiation of details. For anyone inaccurate, that: 1äwphï1.ñët
to read in the telegram of Yao that they accepted the price of The next issue relate to the State of Frauds. It is contended that
P6,500,000.00 would be an inference not necessarily warranted by the plaintiffs' action for specific performance to compel the
words "we agree to buy" and "proceed Tacloban to negotiate details". If defendants to execute a good and sufficient conveyance of the
indeed the details being left by them for further negotiations were merely property in question (Sotto land and building) is unenforceable
accidental or formal ones, what need was there to say in the telegram that because there is no other note memorandum or writing except
they had still "to negotiate (such) details", when, being unessential per annexes "C", "C-l" and "D", which by themselves did not give
their contention, they could have been just easily clarified and agreed upon birth to a contract to sell. The argument is not well founded. The
when Atty. Gamboa would reach Tacloban? rules of pleading limit the statement of the cause of action only
Anent the telegram of Atty. Gamboa of July 27, 1978, also quoted earlier to such operative facts as give rise to the right of action of the
above, We gather that it was in answer to the telegram of Yao. Considering plaintiff to obtain relief against the wrongdoer. The details of
that Yao was in Tacloban then while Atty. Gamboa was in Cebu, it is probative matter or particulars of evidence, statements of law,
difficult to surmise that there was any communication of any kind between inferences and arguments need not be stated. Thus, Sec. 1 of
them during the intervening period, and none such is alleged anyway by Rule 8 provides that 'every pleading shall contain in a methodical
 and logical form, a plain concise and direct statement of instant case that chances are that there are no more writings, notes or
the ultimate facts on which the party pleading relies for his claim memoranda of the installment agreement alleged by respondents. We
or defense, as the case may be, omitting the statement of mere cannot divine any reason why any such document would be withheld if
evidentiary facts.' Exhibits need not be attached. The contract of they existed, except the unpermissible desire of the respondents to force
sale sued upon in this case is supported by letters and telegrams the petitioners to undergo the ordeals, time, effort and expenses of a futile
annexed to the complaint and plaintiffs have announced that they trial.
will present additional evidences during the trial to prove their In the foregoing premises, We find no alternative than to render judgment
cause of action. The plaintiffs having alleged that the contract is in favor of petitioners in this certiorari and prohibition case. If at all, appeal
backed up by letters and telegrams, and the same being sufficient could be available if the petitioners subjected themselves to the trial ruled
memorandum, the complaint states a cause of action and they to be held by the trial court. We foresee even at this point, on the basis of
should be given their day in court and allowed to substantiate what is both extant and implicit in the records, that no different result can
their allegations (Parades vs. Espino, 22 SCRA 1000). (Pp 165- be probable. We consider it as sufficiently a grave abuse of discretion
166, Record.) warranting the special civil actions herein the failure of respondent judge
The foregoing disquisition of respondent judge misses at least two (2) to properly apply the laws on perfection of contracts in relation to the
juridical substantive aspects of the Statute of Frauds insofar as sale of real Statute of Frauds and the pertinent rules of pleading and practice, as We
property is concerned. First, His Honor assumed that the requirement of have discussed above.
perfection of such kind of contract under Article 1475 of the Civil Code ACCORDINGLY, the impugned orders of respondent judge of November
which provides that "(t)he contract of sale is perfected at the moment there 2, 1978 and August 29, 1980 are hereby set aside and private respondents'
is a meeting of the minds upon the thing which is the object of the contract amended complaint, Annex A of the petition, is hereby ordered dismissed
and upon the price", the Statute would no longer apply as long as the total and the restraining order heretofore issued by this Court on October 7,
price or consideration is mentioned in some note or memorandum and 1980 is declared permanent. Costs against respondents.
there is no need of any indication of the manner in which such total price G.R. No. 118509 September 5, 1996
is to be paid. LIMKETKAI SONS MILLING, INC., petitioner,
We cannot agree. In the reality of the economic world and the exacting vs.
demands of business interests monetary in character, payment on COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS
installments or staggered payment of the total price is entirely a different and NATIONAL BOOK STORE, respondents.
matter from cash payment, considering the unpredictable trends in the FRANCISCO, J.:
sudden fluctuation of the rate of interest. In other words, it is indisputable Motion of petitioner Limketkai Sons Milling, Inc., for
that the value of money - varies from day to day, hence the indispensability reconsideration of the Court's resolution of March 29, 1996,
of providing in any sale of the terms of payment when not expressly or which set aside the Court's December 1, 1995 decision and
impliedly intended to be in cash. affirmed in toto the Court of Appeals' decision dated August 12,
Thus, We hold that in any sale of real property on installments, the Statute 1994.
of Frauds read together with the perfection requirements of Article 1475 It is argued, albeit erroneously, that the case should be referred
of the Civil Code must be understood and applied in the sense that the idea to the Court En Banc as the doctrines laid down in Abrenica v.
of payment on installments must be in the requisite of a note or Gonda and De Garcia, 34 Phil. 739, Talosig v. Vda. de Nieba,
memorandum therein contemplated. Stated otherwise, the inessential 43 SCRA 473, and Villonco Realty Co. v. Bormaheco, Inc., et
elements" mentioned in the case of Parades vs. Espino, 22 SCRA 1000, al., 65 SCRA 352, have been modified or reversed. A more
relied upon by respondent judge must be deemed to include the circumspect analysis of these cases vis-a-vis the case at bench
requirement just discussed when it comes to installment sales. There is would inevitably lead petitioner to the conclusion that there was
nothing in the monograph re — the Statute of Frauds appearing in 21 neither reversal nor modification of the doctrines laid down in
SCRA 250 also cited by His Honor indicative of any contrary view to this the Abrenica, Talosig and Villonco cases. In fact, the
ruling of Ours, for the essence and thrust of the said monograph refers only inapplicability of the principle enunciated in Abrenica and
to the form of the note or memorandum which would comply with the Talosig to this case has already been extensively discussed in the
Statute, and no doubt, while such note or memorandum need not be in one Court's resolution, hence the same will not be addressed anew.
single document or writing and it can be in just sufficiently implicit tenor, As regard the case of Villonco, petitioner mistakenly assumes
imperatively the separate notes must, when put together', contain all the that its case has a similar factual milicu with the former. The
requisites of a perfected contract of sale. To put it the other way, under the Court finds no further need to elaborate on the issue, but will
Statute of Frauds, the contents of the note or memorandum, whether in one simply point out the significant fact that the offer of the buyer in
writing or in separate ones merely indicative for an adequate Villonco, unlike in this case, was accepted by the seller,
understanding of all the essential elements of the entire agreement, may Bormaheco, Inc.; and Villonco involves a perfected contract, a
be said to be the contract itself, except as to the form. factor crucially absent in the instant case as there was no meeting
Secondly, We are of the considered opinion that under the rules on proper of the minds between the parties.
pleading, the ruling of the trial court that, even if the allegation of the What petitioner bewails the most is the present composition of
existence of a sale of real property in a complaint is challenged as barred the Third Division which deliverated on private respondents'
from enforceability by the Statute of Frauds, the plaintiff may simply say motions for reconsideration and by a majority vote reversed the
there are documents, notes or memoranda without either quoting them in unanimous decision of December 1, 1995. More specifically,
or annexing them to the complaint, as if holding an ace in the sleeves is petitioner questions the assumption of Chief Justice Narvasa of
not correct. To go directly to the point, for Us to sanction such a procedure the chairmanship of the Third Division and arrogantly rams its
is to tolerate and even encourage undue delay in litigation, for the simple idea on how each Division should be chaired, i.e., the First
reason that to await the stage of trial for the showing or presentation of the Division should have been chaired by Chief Justice Narvasa, the
requisite documentary proof when it already exists and is asked to be Second Division by Mr. Justice Padilla, the next senior Justice,
produced by the adverse party would amount to unnecessarily postponing, and the Third Division by Mr. Justice Regalado, the third in line.
with the concomitant waste of time and the prolongation of the We need only to stress that the change in the membership of the
proceedings, something that can immediately be evidenced and thereby three divisions of the Court was inevitable by reason of Mr.
determinable with decisiveness and precision by the court without further Justice Feliciano's retirement. Such reorganization is purely an
delay. internal matter of the Court to which petitioner certainly has no
In this connection, Moran observes that unlike when the ground of business at all. In fact, the current "staggered" set-up in the
dismissal alleged is failure of the complaint to state a cause of action, a chairmanships of the Divisions is similar to that adopted in 1988.
motion to dismiss invoking the Statute of Frauds may be filed even if the In that year, the Court's Third Division was likewise chaired by
absence of compliance does not appear an the face of the complaint. Such then Chief Justice Fernan, while the First and Second Divisions
absence may be the subject of proof in the motion stage of the proceedings. were headed by the next senior Justices — Justices Narvasa and
(Moran, Comment on the Rules of Court, Vol. 1, p. 494, 1979 ed.) It Melencio-Herrera, respectively.
follows then that when such a motion is filed and all the documents Moreover, the Court invites the petitioner's attention to its Manifestation
available to movant are before the court, and they are insufficient to and Motion for Voluntary Inhibition, dated March 8, 1996 (Rollo, pp. 386-
comply with the Statute, it becomes incumbent upon the plaintiff, for the 388), where it noted, without objection, the transfer of Mr. Chief Justice
reasons of policy We have just' indicated regarding speedy administration Narvasa, Mr. Justice Davide, Jr., and Mr. Justice Francisco to the Court's
of justice, to bring out what note or memorandum still exists in his Third Division. In this Manifestation, petitioner merely moved for the
possession in order to enable the court to expeditiously determine then and inhibition of the Chief Justice on the ground that the Chief Justice
there the need for further proceedings. In other words, it would be inimical previously acted as counsel for one of the respondents, which allegation
to the public interests in speedy justice for plaintiff to play hide and seek the Chief Justice vehemently denied by saying that the information upon
at his own convenience, particularly, when, as is quite apparent as in the which the petitioner relied "it utterly without foundation in fact and is
nothing but pure speculation or wistful yearning" 1 It was only after the in relation to Art. 1403 as contained in the affidavit
rendition of the Court's March 29, 1996 resolution of the Court's March particularly questions Nos. 12, 14, 19 and 20 of the
29, 1996 resolution of the Court's March 29, 1996 resolution when affidavit of Alfonso Lim executed on February 24,
petitioner unprecedentedly objected to the composition of the Third 1989. . . (T.S.N., June 28, 1990, p. 8). 8
Division. Suffice it to say that the Court with its new membership is not Petitioner may not now feign ignorance of these pertinent
obliged to follow blindly a decision upholding a party's case when, after objections. The Court finds no cogent reason to depart from its
its re-examination, the same calls for a rectification. "Indeed", said the ruling in its March 29, 1996 resolution. To reiterate:
Court in Kilosbayan, Inc. vs. Morato, et al., 250 SCRA 130, 136, "a Corollarily, as the petitioner's exhibits failed to
change in the composition of the Court could prove the means of undoing establish the perfection of the contract of the sale, oral
an erroneous decision". And it is precisely in recognition of the fact that testimony cannot take their place without violating the
the Court is far from infallible that parties are duly accorded a remedy parol evidence rule.9 It was therefore irregular for the
under the Rules of Court to bring to the Court's attention any error in the trial court to have admitted in evidence testimony to
judgment by way of, among others, a motion for reconsideration. "More prove the existence of a contract of sale of a real
importantly than anything else", in the words of Mr. Justice Malcolm, "is property between the parties despite the persistent
that the court should be right" and to render justice where justice is due. It objection made by private respondent's counsels as
is therefore unfair, if not uncalled for, to brand the instant case as "one of early as the first scheduled hearing. While said
utmost uniqueness in the annals of our judiciary."2 counsels cross-examined the witnesses, this, to our
Counsel for the petitioner additionally insinuates that view, did not constitute a waiver of the parol evidence
the ponente employed a "double standard" in deciding the case rule. The Talosig v. Vda. de Nieba,10and Abrenica v.
and professes bewilderment at the ponente's act of purportedly Gonda and de Gracia11 cases cited by the Court in its
taking a position in the ponencia contrary to ponente's act of initial decision, which ruled to the effect that on
purportedly taking a position in the ponencia contrary objection against the admission of any evidence must
to ponente's stand in his book.3 It is quite unfortunate that to be made at the proper time, i.e., ". . . at the time
strengthen his unmeritorious posture, the counsel for the question is asked",12 and that if not so made it will be
petitioner would resort to such unfounded insinuations, conduct understood to have been waived, do not apply as these
which to the ponente's mind borders on contempt and is two cases involved facts13 different from the case at
inappropriate for one who belongs to the legal profession. Be bench. More importantly, here, the direct testimonies
that as it may, the ponente wishes to state that he has not and has of the witnesses were presented in "affidavit-form"
never "used a double standard"4 in his entire career in the where prompt objection to inadmissible evidence is
judiciary in the adjudication of cases. And contrary to petitioner's hardly possible, whereas the direct testimonies in these
misimpression, the ponente never took a "questionable position cited cases were delivered orally in open court. The
in his ponencia"5 different from "his authoritative reference and best that counsels could have done, and which they did,
textbook6 which cited the case of Abrenica v. Gonda and De under the circumstances was to preface the cross-
Gracia precisely because of the inherent factual differences of examination with objection.
this case with that of Abrenica. Had counsel for the petitioner xxx xxx xxx
been meticulous, he would not have overlooked the fact that Counsels should not be blamed and, worst, penalized
counsels for the other party never waived their right to object to for taking the pat of prudence by choosing the cross-
the admission of an inadmissible evidence. The fact is that examine the witnesses instead of keeping mum and
counsels for private respondents raised their persistent letting the inadmissible testimony in "affidavit form"
objections as early as the initial hearing and, when pass without challenge. We thus quote with approval
unceremoniously rebuffed for no apparent reason, registered the observation of public respondent Court of Appeals
their continuing objections. This is borne out by the records on this point:
which the Court in its March 29, 1996 resolution cited. Thus: As a logical consequence of the above
ATTY. VARGAS: findings, it follows that the court a quo erred
Before I proceed with the cross-examination of the in allowing the appellee to introduce parol
witness, your Honor, may we object to the particular evidence to prove the existence of a perfected
portion of the affidavit which attempt to prove the contract of sale over and above the objection
existence of a verbal contract to sell more specifically of the counsel for the defendant-appellant.
the answers contained in pag. 3. Par. 1, the whole of The records shows that the court a
the answer. quo allowed the direct testimony of the
xxx xxx xxx witnesses to be in affidavit form subject to
COURT: cross-examination by the opposing counsel.
Objection overruled. If the purpose thereof was to prevent the
ATTY. VARGAS: opposing counsel from objecting timely to
Your Honor, what has been denied by the Court was the direct testimony, the scheme failed for as
the motion for preliminary hearing of affirmative early as the first hearing of the case on
defenses. The statement made by the witness to prove February 28, 1989 during the presentation of
that there was a verbal contract to sell is inadmissible the testimony in affidavit form of Pedro
an evidence in this case because an agreement must be Revilla, Jr., plaintiff-appellee's first witness,
in writing. the presentation of such testimony was
COURT: already objected to as inadmissible.14
Go ahead, that has been already overruled. [Emphasis in the original]
ATTY. VARGAS: The other points raised by petitioner need no further discussion
So may we reiterate our objection with regard to all as they have already been considered in the resolution sought to
other portions of the affidavit which deal on the verbal be reconsidered, and no compelling reason is shown to urge this
contract. (TSN, Feb. 28, 1989, pp. 3-5: Underscoring compelling reason is shown to urge this Court to change its
supplied.)7 stand.
xxx xxx xxx ACCORDINGLY, petitioner's motion for reconsideration and
ATTY. CORNAGO: motion to refer the case to the Court En Banc are hereby
Before we proceed, we would like to make of record DENIED WITH FINALITY, without prejudice to any and all
our continuing objection in so far as questions and appropriate actions that the Court may take not only against
answers propounded to Pedro Revilla dated February counsel on record for the petitioner for his irresponsible remarks,
29, 1989, in so far as questions would illicit (sic) but also against other persons responsible for the reckless
answers which would be violative of the best evidence publicity anent this case calculated to maliciously erode the
rule in relation to Art. 1403. I refer to questions nos. 8, people's faith and confidence in the integrity of this Court.
13, 16 and 19 of the affidavit of this witness which is SO ORDERED.
considered as his direct testimony. (T.S.N., June 29, G.R. No. L-11311 May 28, 1958
1990, p. 2) MARTA C. ORTEGA, plaintiff-appellant,
ATTY. CORNAGO: vs.
May we make of record our continued objection on the DANIEL LEONARDO, defendant-appellee.
testimony which is violative of the best evidence rule
Jose Ma. Reyes for appellant. in such part performance. . . . Possession by the purchaser under a parol
Tomas A. Leonardo for appellee. contract for the purchase of real property, together with his making
BENGZON, J.: valuable and permanent improvements on the property which are referable
Well known is the general rule in the Statute of Frauds precluding exclusively to the contract, in reliance on the contract, in the honest belief
enforcement of oral contracts for the sale of land. Not so well known is that he has a right to make them, and with the knowledge and consent or
exception concerning the partially executed contracts1 — least our acquiescence of the vendor, is deemed a part performance of the contract.
jurisprudence offers few, if any, apposite illustrations. This appeal The entry into possession and the making of the improvements are held on
exemplifies such exception. amount to such an alteration in the purchaser's position as will warrant the
Alleging partial performance, plaintiff sought to compel defendant to court's entering a degree of specific performance." (49 American
comply with their oral contract of sale of a parcel of land. Upon a motion Jurisprudence p.755, 756.)
to dismiss, the Manila court of first instance ordered dismissal following Again, it is stated that "A tender or offer of payment, declined by the
the above general rule. vendor, has been said to be equivalent to actual payment, for the purposes
Hence this appeal. It should be sustained if the allegations of the complaint of determining whether or not there has been a part performance of the
— which the motion to dismiss admitted — set out an instance of partial contract. This is apparently true where the tender is by a purchaser who
performance. has made improvements. But the doctrine now generally accepted, that not
Stripped of non-essentials, the complaint averred that long before and until even the payment of the purchase price, without something more, . . . is a
her house had been completely destroyed during the liberation of the City sufficient part performance. (49 American Jurisprudence p. 772.)
of Manila, plaintiff occupied a parcel of land, designated as Lot 1, Block And the relinquishment of rights or the compromise thereof has likewise
3 etc. (hereinafter called Lot I) located at San Andres Street, Malate, been held to constitute part performance. (See same title secs. 473, 474,
Manila; that after liberation she re-occupied it; that when the 475.)
administration and disposition of the said Lot I (together with other lots in In the light of the above four paragraphs, it would appear that the
the Ana Sarmiento Estate) were assigned by the Government to the Rural complaint in this case described several circumstance indicating partial
Progress Administration2 plaintiff asserted her right thereto (as occupant) performance: relinquishment of rights4 continued possession, building of
for purposes of purchase; that defendant also asserted a similar right, improvements, tender of payment plus the surveying of the lot at plaintiff's
alleging occupancy of a portion of the land subsequent to plaintiff's; that expense and the payment of rentals.
during the investigation of such conflicting interests, defendant asked We shall not take, time to discuss whether one or the other or any two or
plaintiff to desist from pressing her claim and definitely promised that if three of them constituted sufficient performance to take the matter away
and when he succeeded in getting title to Lot I3 , he would sell to her a from the operation of the Statute of Frauds. Enough to hold that the
portion thereof with an area of 55.60 square meters (particularly combination of all of them amounted to partial performance; and we do so
described) at the rate of P25.00 per square meter, provided she paid for the line with the accepted basis of the doctrine, that it would be a fraud upon
surveying and subdivision of the Lot and provided further that after he the plaintiff if the defendant were permitted to oppose performance of his
acquired title, she could continue holding the lot as tenant by paying a part after he has allowed or induced the former to perform in reliance upon
monthly rental of P10.00 until said portion shall have been segregated and the agreement. (See 49 American Jurisprudence p. 725.)
the purchase price fully paid; that plaintiff accepted defendant's offer, and The paragraph immediately preceding will serve as our comment on the
desisted from further claiming Lot I; that defendant finally acquired title appellee's quotations from American Jurisprudence itself to the effect that
thereto; that relying upon their agreement, plaintiff caused the survey and "relinquishment" is not part performance, and that neither "surveying the
segregation of the portion which defendant had promised to sell incurring land"5nor tender of payment is sufficient. The precedents hereinabove
expenses therefor, said portion being now designated as Lot I-B in a duly transcribed oppose or explain away or qualify the appellee's citations. And
prepared and approved subdivision plan; that in remodelling her son's at the risk of being repetitious we say: granting that none of the three
house constructed on a lot adjoining Lot I she extended it over said Lot I- circumstances indicated by him, (relinquishment, survey, tender)
B; that after defendant had acquired Lot I plaintiff regularly paid him the would separately suffice, still the combination of the three with the others
monthly rental of P10.00; that in July 1954, after the plans of subdivision already mentioned, amounts to more than enough.
and segregation of the lot had been approved by the Bureau of Lands, Hence, as there was partial performance, the principle excluding parol
plaintiff tendered to defendant the purchase price which the latter refused contracts for the sale of realty, does not apply.
to accept, without cause or reason. The judgment will accordingly be reversed and the record remanded for
The court below explained in its order of dismissal: further proceedings. With costs against appellee.
It is admitted by both parties that an oral agreement to sell a piece G.R. No. 85240 July 12, 1991
of land is not enforceable. (Art. 1403, Civil Code, Section 21, HEIRS OF CECILIO (also known as BASILIO) CLAUDEL, namely,
Rule 123, Rules of Court.) Plaintiff, however, argues that the MODESTA CLAUDEL, LORETA HERRERA, JOSE CLAUDEL,
contract in question, although verbal, was partially performed BENJAMIN CLAUDEL, PACITA CLAUDEL, CARMELITA
because plaintiff desisted from claiming the portion of lot I in CLAUDEL, MARIO CLAUDEL, ROBERTO CLAUDEL,
question due to the promise of defendant to transfer said portion LEONARDO CLAUDEL, ARSENIA VILLALON, PERPETUA
to her after the issuance of title to defendant. The court thinks CLAUDEL and FELISA CLAUDEL, petitioners,
that even granting that plaintiff really desisted to claim not on vs.
oral promise to sell made by defendant, the oral promise to sell HON. COURT OF APPEALS, HEIRS OF MACARIO,
cannot be enforced. The desistance to claim is not a part of the ESPERIDIONA, RAYMUNDA and CELESTINA, all surnamed
contract of sale of the land. Only in essential part of the CLAUDEL, respondents.
executory contract will, if it has already been performed, make Ricardo L. Moldez for petitioners.
the verbal contract enforceable, payment of price being an Juan T. Aquino for private respondents
essential part of the contract of sale. SARMIENTO, J.:
If the above means that partial performance of a sale contract This petition for review on certiorari seeks the reversal of the decision
occurs only when part of the purchase price is paid, it surely constitutes a rendered by the Court of Appeals in CA-G.R. CV No. 044291 and the
defective statement of the law. American Jurisprudence in its title "Statute reinstatement of the decision of the then Court of First Instance (CFI) of
of Frauds" lists other acts of partial performance, such as possession, the Rizal, Branch CXI, in Civil Case No. M-5276-P, entitled. "Heirs of
making of improvements, rendition of services, payment of taxes, Macario Claudel, et al. v. Heirs of Cecilio Claudel, et al.," which dismissed
relinquishment of rights, etc. the complaint of the private respondents against the petitioners for
Thus, it is stated that "The continuance in possession may, in a proper case, cancellation of titles and reconveyance with damages. 2
be sufficiently referable to the parol contract of sale to constitute a part As early as December 28, 1922, Basilio also known as "Cecilio" Claudel,
performance thereof. There may be additional acts or peculiar acquired from the Bureau of Lands, Lot No. 1230 of the Muntinlupa Estate
circumstances which sufficiently refer the possession to the contract. . . . Subdivision, located in the poblacion of Muntinlupa, Rizal, with an area
Continued possession under an oral contract of sale, by one already in of 10,107 square meters; he secured Transfer Certificate of Title (TCT)
possession as a tenant, has been held a sufficient part performance, where No. 7471 issued by the Registry of Deeds for the Province of Rizal in
accompanied by other acts which characterize the continued possession 1923; he also declared the lot in his name, the latest Tax Declaration being
and refer it to the contract of purchase. Especially is this true where the No. 5795. He dutifully paid the real estate taxes thereon until his death in
circumstances of the case include the making of substantial, permanent, 1937.3 Thereafter, his widow "Basilia" and later, her son Jose, one of the
and valuable improvements." (49 American Jurisprudence — 44) herein petitioners, paid the taxes.
It is also stated that "The making of valuable permanent improvements on The same piece of land purchased by Cecilio would, however, become the
the land by the purchaser, in pursuance of the agreement and with the subject of protracted litigation thirty-nine years after his death.
knowledge of the vendor, has been said to be the strongest and the most Two branches of Cecilio's family contested the ownership over the land-
unequivocal act of part performance by which a verbal contract to sell land on one hand the children of Cecilio, namely, Modesto, Loreta, Jose,
is taken out of the statute of frauds, and is ordinarily an important element Benjamin, Pacita, Carmelita, Roberto, Mario, Leonardo, Nenita, Arsenia
Villalon, and Felisa Claudel, and their children and descendants, now the 3. The Statute of Frauds applies only to executory contracts and not to
herein petitioners (hereinafter referred to as HEIRS OF CECILIO), and on consummated sales as in the case at bar where oral evidence may be
the other, the brother and sisters of Cecilio, namely, Macario, Esperidiona, admitted as cited in Iñigo v. Estate of Magtoto7 and Diana, et al. v.
Raymunda, and Celestina and their children and descendants, now the Macalibo.8
herein private respondents (hereinafter referred to as SIBLINGS OF In addition,
CECILIO). In 1972, the HEIRS OF CECILIO partitioned this lot among . . . Given the nature of their relationship with one another it is
themselves and obtained the corresponding Transfer Certificates of Title not unusual that no document to evidence the sale was executed,
on their shares, as follows: . . ., in their blind faith in friends and relatives, in their lack of
TCT No. 395391 1,997 sq. m. –– Jose Claudel experience and foresight, and in their ignorance, men, in spite of
TCT No. 395392 1,997 sq. m. –– Modesta Claudel and children laws, will make and continue to make verbal contracts. . . .9
TCT No. 395393 1,997 sq. m. –– Armenia C. Villalon 4. The defense of prescription cannot be set up against the herein
TCT No. 395394 1,997 sq. m. –– Felisa Claudel4 petitioners despite the lapse of over forty years from the time of the alleged
Four years later, on December 7, 1976, private respondents SIBLINGS sale in 1930 up to the filing of the "Complaint for Cancellation of Titles
OF CECILIO, filed Civil Case No. 5276-P as already adverted to at the and Reconveyance . . ." in 1976.
outset, with the then Court of First Instance of Rizal, a "Complaint for According to the Court of Appeals, the action was not for the recovery of
Cancellation of Titles and Reconveyance with Damages," alleging that 46 possession of real property but for the cancellation of titles issued to the
years earlier, or sometime in 1930, their parents had purchased from the HEIRS OF CECILIO in 1973. Since the SIBLINGS OF CECILIO
late Cecilio Claudel several portions of Lot No. 1230 for the sum of commenced their complaint for cancellation of titles and reconveyance
P30.00. They admitted that the transaction was verbal. However, as proof with damages on December 7, 1976, only four years after the HEIRS OF
of the sale, the SIBLINGS OF CECILIO presented a subdivision plan of CECILIO partitioned this lot among themselves and obtained the
the said land, dated March 25, 1930, indicating the portions allegedly sold corresponding Transfer Certificates of Titles, then there is no prescription
to the SIBLINGS OF CECILIO. of action yet.
As already mentioned, the then Court of First Instance of Rizal, Branch Thus the respondent court ordered the cancellation of the Transfer
CXI, dismissed the complaint, disregarding the above sole evidence Certificates of Title Nos. 395391, 395392, 395393, and 395394 of the
(subdivision plan) presented by the SIBLINGS OF CECILIO, thus: Register of Deeds of Rizal issued in the names of the HEIRS OF CECILIO
Examining the pleadings as well as the evidence presented in this and corollarily ordered the execution of the following deeds of
case by the parties, the Court can not but notice that the present reconveyance:
complaint was filed in the name of the Heirs of Macario, To Celestina Claudel, Lot 1230-A with an area of 705 sq. m.
Espiridiona, Raymunda and Celestina, all surnamed Claudel, To Raymunda Claudel, Lot 1230-B with an area of 599 sq. m.
without naming the different heirs particularly involved, and To Esperidiona Claudel, Lot 1230-C with an area of 597 sq. m.
who wish to recover the lots from the defendants. The Court tried To Macario Claudel, Lot 1230-D, with an area of 596 sq. m.10
to find this out from the evidence presented by the plaintiffs but The respondent court also enjoined that this disposition is without
to no avail. On this point alone, the Court would not be able to prejudice to the private respondents, as heirs of their deceased parents, the
apportion the property to the real party in interest if ever they are SIBLINGS OF CECILIO, partitioning among themselves in accordance
entitled to it as the persons indicated therein is in generic term with law the respective portions sold to and herein adjudicated to their
(Section 2, Rule 3). The Court has noticed also that with the parents.
exception of plaintiff Lampitoc and (sic) the heirs of Raymunda The rest of the land, lots 1230-E and 1230-F, with an area of 598 and 6,927
Claudel are no longer residing in the property as they have (sic) square meters, respectively would go to Cecilio or his heirs, the herein
left the same in 1967. But most important of all the plaintiffs petitioners. Beyond these apportionments, the HEIRS OF CECILIO
failed to present any document evidencing the alleged sale of the would not receive anything else.
property to their predecessors in interest by the father of the The crux of the entire litigation is whether or not the Court of Appeals
defendants. Considering that the subject matter of the supposed committed a reversible error in disposing the question of the true
sale is a real property the absence of any document evidencing ownership of the lots.
the sale would preclude the admission of oral testimony (Statute And the real issues are:
of Frauds). Moreover, considering also that the alleged sale took 1. Whether or not a contract of sale of land may be proven orally:
place in 1930, the action filed by the plaintiffs herein for the 2. Whether or not the prescriptive period for filing an action for
recovery of the same more than thirty years after the cause of cancellation of titles and reconveyance with damages (the action
action has accrued has already prescribed. filed by the SIBLINGS OF CECILIO) should be counted from
WHEREFORE, the Court renders judgment dismissing the the alleged sale upon which they claim their ownership (1930)
complaint, without pronouncement as to costs. or from the date of the issuance of the titles sought to be
SO ORDERED.5 cancelled in favor of the HEIRS OF CECILIO (1976).
On appeal, the following errors6 were assigned by the SIBLINGS OF The rule of thumb is that a sale of land, once consummated, is valid
CECILIO: regardless of the form it may have been entered into. 11 For nowhere does
1. THE TRIAL COURT ERRED IN DISMISSING law or jurisprudence prescribe that the contract of sale be put in writing
PLAINTIFFS' COMPLAINT DESPITE CONCLUSIVE before such contract can validly cede or transmit rights over a certain real
EVIDENCE SHOWING THE PORTION SOLD TO EACH OF property between the parties themselves.
PLAINTIFFS' PREDECESSORS. However, in the event that a third party, as in this case, disputes the
2. THE TRIAL COURT ERRED IN HOLDING THAT ownership of the property, the person against whom that claim is brought
PLAINTIFFS FAILED TO PROVE ANY DOCUMENT can not present any proof of such sale and hence has no means to enforce
EVIDENCING THE ALLEGED SALE. the contract. Thus the Statute of Frauds was precisely devised to protect
3. THE TRIAL COURT ERRED IN NOT GIVING CREDIT TO the parties in a contract of sale of real property so that no such contract is
THE PLAN, EXHIBIT A, SHOWING THE PORTIONS SOLD enforceable unless certain requisites, for purposes of proof, are met.
TO EACH OF THE PLAINTIFFS' PREDECESSORS-IN- The provisions of the Statute of Frauds pertinent to the present
INTEREST. controversy, state:
4. THE TRIAL COURT ERRED IN NOT DECLARING Art. 1403 (Civil Code). The following contracts are
PLAINTIFFS AS OWNERS OF THE PORTION COVERED unenforceable, unless they are ratified:
BY THE PLAN, EXHIBIT A. xxx xxx xxx
5. THE TRIAL COURT ERRED IN NOT DECLARING 2) Those that do not comply with the Statute of Frauds as set
TRANSFER CERTIFICATES OF TITLE NOS. 395391, forth in this number. In the following cases, an agreement
395392, 395393 AND 395394 OF THE REGISTER OF DEEDS hereafter made shall be unenforceable by action unless the same,
OF RIZAL AS NULL AND VOID. or some note or memorandum thereof, be in writing, and
The Court of Appeals reversed the decision of the trial court on the subscribed by the party charged, or by his agent; evidence,
following grounds: therefore, of the agreement cannot be received without the
1. The failure to bring and prosecute the action in the name of the real writing, or a secondary evidence of its contents:
party in interest, namely the parties themselves, was not a fatal omission xxx xxx xxx
since the court a quo could have adjudicated the lots to the SIBLINGS OF e) An agreement for the leasing for a longer period than one year,
CECILIO, the parents of the herein respondents, leaving it to them to or for the sale of real property or of an interest therein;
adjudicate the property among themselves. xxx xxx xxx
2. The fact of residence in the disputed properties by the herein (Emphasis supplied.)
respondents had been made possible by the toleration of the deceased The purpose of the Statute of Frauds is to prevent fraud and perjury in the
Cecilio. enforcement of obligations depending for their evidence upon the
unassisted memory of witnesses by requiring certain enumerated contracts Renato Solema and Decimina Calvez, two of the respondents who derive
and transactions to be evidenced in Writing.12 their right from the SIBLINGS OF CLAUDEL, bought a portion of the lot
The provisions of the Statute of Frauds originally appeared under the old from Felisa Claudel, one of the HEIRS OF CLAUDEL.23 The Calvezes
Rules of Evidence. However when the Civil Code was re-written in 1949 should not be paying for a lot that they already owned and if they did not
(to take effect in 1950), the provisions of the Statute of Frauds were taken acknowledge Felisa as its owner.
out of the Rules of Evidence in order to be included under the title on In addition, before any of the SIBLINGS OF CECILIO could stay on any
Unenforceable Contracts in the Civil Code. The transfer was not only a of the portions of the property, they had to ask first the permission of Jose
matter of style but to show that the Statute of Frauds is also a substantive Claudel again, one of the HEIRS OF CECILIO.24 In fact the only reason
law. why any of the heirs of SIBLINGS OF CECILIO could stay on the lot was
Therefore, except under the conditions provided by the Statute of Frauds, because they were allowed to do so by the HEIRS OF CECILIO. 25
the existence of the contract of sale made by Cecilio with his siblings13 can In view of the foregoing, we find that the appellate court committed a
not be proved. reversible error in denigrating the transfer certificates of title of the
On the second issue, the belated claim of the SIBLINGS OF CECILIO petitioners to the survey or subdivision plan proffered by the private
who filed a complaint in court only in 1976 to enforce a light acquired respondents. The Court generally recognizes the profundity of conclusions
allegedly as early as 1930, is difficult to comprehend. and findings of facts reached by the trial court and hence sustains them on
The Civil Code states: appeal except for strong and cogent reasons inasmuch as the trial court is
Art. 1145. The following actions must be commenced within six in a better position to examine real evidence and observe the demeanor of
years: witnesses in a case.
(1) Upon an oral contract . . . (Emphasis supplied). No clear specific contrary evidence was cited by the respondent appellate
If the parties SIBLINGS OF CECILIO had allegedly derived their right of court to justify the reversal of the lower court's findings. Thus, in this case,
action from the oral purchase made by their parents in 1930, then the between the factual findings of the trial court and the appellate court, those
action filed in 1976 would have clearly prescribed. More than six years of the trial court must prevail over that of the latter.26
had lapsed. WHEREFORE, the petition is GRANTED We REVERSE and SET
We do not agree with the parties SIBLINGS OF CECILIO when they ASIDE the decision rendered in CA-G.R. CV No. 04429, and we hereby
reason that an implied trust in favor of the SIBLINGS OF CECILIO was REINSTATE the decision of the then Court of First Instance of Rizal
established in 1972, when the HEIRS OF CECILIO executed a contract of (Branch 28, Pasay City) in Civil Case No. M-5276-P which ruled for the
partition over the said properties. dismissal of the Complaint for Cancellation of Titles and Reconveyance
But as we had pointed out, the law recognizes the superiority of the torrens with Damages filed by the Heirs of Macario, Esperidiona Raymunda, and
title. Celestina, all surnamed CLAUDEL. Costs against the private respondents.
Above all, the torrens title in the possession of the HEIRS OF CECILIO SO ORDERED.
carries more weight as proof of ownership than the survey or subdivision REPUBLIC ACT NO. 8792 June 14, 2000
plan of a parcel of land in the name of SIBLINGS OF CECILIO. AN ACT PROVIDING FOR THE RECOGNITION AND USE OF
The Court has invariably upheld the indefeasibility of the torrens title. No ELECTRONIC COMMERCIAL AND NON-COMMERCIAL
possession by any person of any portion of the land could defeat the title TRANSACTIONS AND DOCUMENTS, PENALTIES FOR
of the registered owners thereof.14 UNLAWFUL USE THEREOF, AND FOR OTHER PURPOSES
A torrens title, once registered, cannot be defeated, even by Be it enacted by the Senate and House of Representatives of the
adverse, open and notorious possession. A registered title under Philippines in Congress assembled:
the torrens system cannot be defeated by PART I
prescription.1âwphi1 The title, once registered, is notice to the SHORT TITLE AND DECLARATION OF POLICY
world. All persons must take notice. No one can plead ignorance Section 1. Short Title - This Act shall be known as the "Electronic
of the registration.15 Commerce Act of 2000."
xxx xxx xxx Section 2. Declaration of Policy - The State recognizes the vital role of
Furthermore, a private individual may not bring an action for information and communications technology (ICT) in nation-building; the
reversion or any action which would have the effect of cancelling need to create an information-friendly environment which supports and
a free patent and the corresponding certificate of title issued on ensures the availability, diversity and affordability of ICT products and
the basis thereof, with the result that the land covered thereby services; the primary responsibility of the private sector in contributing
will again form part of the public domain, as only the Solicitor investments and services in telecommunications and information
General or the officer acting in his stead may do so.16 technology; the need to develop, with appropriate training programs and
It is true that in some instances, the Court did away with the irrevocability institutional policy changes, human resources for the information
of the torrens title, but the circumstances in the case at bar varied technology age, a labor force skilled in the use of ICT and a population
significantly from these cases. capable of operating and utilizing electronic appliances and computers; its
In Bornales v. IAC, 17 the defense of indefeasibility of a certificate of title obligation to facilitate the transfer and promotion of technology; to ensure
was disregarded when the transferee who took it had notice of the flaws in network security, connectivity and neutrality of technology for the
the transferor's title. No right passed to a transferee from a vendor who did national benefit; and the need to marshal, organize and deploy national
not have any in the first place. The transferees bought the land registered information infrastructures, comprising in both telecommunications
under the torrens system from vendors who procured title thereto by means network and strategic information services, including their
of fraud. With this knowledge, they can not invoke the indefeasibility of a interconnection to the global information networks, with the necessary and
certificate of title against the private respondent to the extent of her appropriate legal, financial, diplomatic and technical framework, systems
interest. This is because the torrens system of land registration, though and facilities.
indefeasible, should not be used as a means to perpetrate fraud against the PART II
rightful owner of real property. ELECTRONIC COMMERCE IN GENERAL
Mere registration of the sale is not good enough, good faith must concur CHAPTER I
with registration. Otherwise registration becomes an exercise in futility. 18 GENERAL PROVISIONS
In Amerol v. Bagumbaran,19 we reversed the decision of the trial court. In Section 3. Objective - This Act aims to facilitate domestic and
this case, the title was wrongfully registered in another person's name. An international dealings, transactions, arrangements agreements, contracts
implied trust was therefore created. This trustee was compelled by law to and exchanges and storage of information through the utilization of
reconvey property fraudulently acquired notwithstanding the electronic, optical and similar medium, mode, instrumentality and
irrevocability of the torrens title.20 technology to recognize the authenticity and reliability of electronic
In the present case, however, the facts belie the claim of ownership. documents related to such activities and to promote the universal use of
For several years, when the SIBLINGS OF CECILIO, namely, Macario, electronic transaction in the government and general public.
Esperidiona Raymunda, and Celestina were living on the contested Section 4. Sphere of Application - This Act shall apply to any kind of data
premises, they regularly paid a sum of money, designated as "taxes" at message and electronic document used in the context of commercial and
first, to the widow of Cecilio, and later, to his heirs.21 Why their payments non-commercial activities to include domestic and international dealings,
were never directly made to the Municipal Government of Muntinlupa transactions, arrangements, agreements contracts and exchanges and
when they were intended as payments for "taxes" is difficult to square with storage of information.
their claim of ownership. We are rather inclined to consider this fact as an Section 5. Definition of Terms - For the purposes of this Act, the following
admission of non-ownership. And when we consider also that the terms are defined, as follows:
petitioners HEIRS OF CECILIO had individually paid to the municipal (a) "Addressee" refers to a person who is intended by the
treasury the taxes corresponding to the particular portions they were originator to receive the electronic data message or electronic
occupying,22 we can readily see the superiority of the petitioners' position. document. The term does not include a person acting as an
 intermediary with respect to that electronic data message or ii. The electronic document is reliable in the light of the
electronic data document. purpose for which it was generated and in the light of
(b) "Computer" refers to any device or apparatus which, by all relevant circumstances.
electronic, electro-mechanical, or magnetic impulse, or by other (b) Paragraph (a) applies whether the requirement therein is in
means, is capable of receiving, recording, transmitting, storing, the form of an obligation or whether the law simply provides
processing, retrieving, or producing information, data, figures, consequences for the document not being presented or retained
symbols or other modes of written expression according to in its original from.
mathematical and logical rules or of performing any one or more (c) Where the law requires that a document be presented or
of these functions. retained in its original form, that requirement is met by an
(c) "Electronic Data Message" refers to information generated, electronic document if -
sent, received or stored by electronic, optical or similar means. i. There exists a reliable assurance as to the integrity of
(d) "Information and Communications System" refers to a the document from the time when it was first generated
system intended for and capable of generating, sending, in its final form; and
receiving, storing, or otherwise processing electronic data ii. That document is capable of being displayed to the
messages or electronic documents and includes the computer person to whom it is to be presented: Provided, That no
system or other similar device by or in which data is recorded or provision of this Act shall apply to vary any and all
stored and any procedures related to the recording or storage of requirements of existing laws on formalities required
electronic data message or electronic document. in the execution of documents for their validity.
(e) "Electronic Signature" refers to any distinctive mark, For evidentiary purposes, an electronic document shall be the functional
characteristic and/or sound in electronic form, representing the equivalent of a written document under existing laws.
identity of a person and attached to or logically associated with This Act does not modify any statutory rule relating to admissibility of
the electronic data message or electronic document or any electronic data massages or electronic documents, except the rules relating
methodology or procedures employed or adopted by a person to authentication and best evidence.
and executed or adopted by such person with the intention of Section 8. Legal Recognition of Electronic Signatures. - An electronic
authenticating or approving an electronic data message or signature on the electronic document shall be equivalent to the signature
electronic document. of a person on a written document if that signature is proved by showing
(f) "Electronic Document" refers to information or the that a prescribed procedure, not alterable by the parties interested in the
representation of information, data, figures, symbols or other electronic document, existed under which -
modes of written expression, described or however represented, (a) A method is used to identify the party sought to be bound and
by which a right is established or an obligation extinguished, or to indicate said party's access to the electronic document
by which a fact may be prove and affirmed, which is receive, necessary for his consent or approval through the electronic
recorded, transmitted, stored, processed, retrieved or produced signature;
electronically. (b) Said method is reliable and appropriate for the purpose for
(g) "Electronic Key" refers to a secret code which secures and which the electronic document was generated or communicated,
defends sensitive information that cross over public channels in the light of all circumstances, including any relevant
into a form decipherable only with a matching electronic key. agreement;
(h) "Intermediary" refers to a person who in behalf of another (c) It is necessary for the party sought to be bound, in or order to
person and with respect to a particular electronic document proceed further with the transaction, to have executed or
sends, receives and/or stores provides other services in respect provided the electronic signature; and
of that electronic data message or electronic document. (d) The other party is authorized and enabled to verify the
(i) "Originator" refers to a person by whom, or on whose behalf, electronic signature and to make the decision to proceed with the
the electronic document purports to have been created, generated transaction authenticated by the same.
and/or sent. The term does not include a person acting as an Section 9. Presumption Relating to Electronic Signatures - In any
intermediary with respect to that electronic document. proceedings involving an electronic signature, it shall be presumed that -
(j) "Service provider" refers to a provider of - (a) The electronic signature is the signature of the person to
i. On-line services or network access or the operator of whom it correlates; and
facilities therefor, including entities offering the (b) The electronic signature was affixed by that person with the
transmission, routing, or providing of connections for intention of signing or approving the electronic document unless
online communications, digital or otherwise, between the person relying on the electronically signed electronic
or among points specified by a user, of electronic document knows or has noticed of defects in or unreliability of
documents of the user's choosing; or the signature or reliance on the electronic signature is not
ii. The necessary technical means by which electronic reasonable under the circumstances.
documents of an originator may be stored and made Section 10. Original Documents. -
accessible to designated or undesignated third party. (1) Where the law requires information to be presented or
Such service providers shall have no authority to modify or alter the retained in its original form, that requirement is met by an
content of the electronic data message or electronic document received or electronic data message or electronic document if;
to make any entry therein on behalf of the originator, addressee or any (a) the integrity of the information from the time when
third party unless specifically authorized to do so, and who shall retain the it was first generated in its final form, as an electronic
electronic document in accordance with the specific request or as data message or electronic document is shown by
necessary for the purpose of performing the services it was engaged to evidence aliunde or otherwise; and
perform. (b) where it is required that information be resented,
CHAPTER II that the information is capable of being displayed to the
LEGAL RECOGNITION OF ELECTRONIC WRITING person to whom it is to be presented.
OR DOCUMENT AND DATA MESSAGES (2) Paragraph (1) applies whether the requirement therein is in
Section 6. Legal Recognition of Electronic Data Messages - Information the form of an obligation or whether the law simply provides
shall not be denied legal effect, validity or enforceability solely on the consequences for the information not being presented or retained
grounds that it is in the data message purporting to give rise to such legal in its original form.
effect, or that it is merely referred to in that electronic data message. (3) For the purpose of subparagraph (a) of paragraph (1):
Section 7. Legal Recognition of Electronic Documents - Electronic (a) the criteria for assessing integrity shall be whether
documents shall have the legal effect, validity or enforceability as any the information has remained complete and unaltered,
other document or legal writing, and - apart from the addition of any endorsement and any
(a) Where the law requires a document to be in writing, that change which arises in the normal course of
requirement is met by an electronic document if the said communication, storage and display ; and
electronic document maintains its integrity and reliability and (b) the standard of reliability required shall be assessed
can be authenticated so as to be usable for subsequent reference, in the light of purposed for which the information was
in that - generated and in the light of all the relevant
i. The electronic document has remained complete and circumstances.
unaltered, apart from the addition of any endorsement Section 11. Authentication of Electronic Data Messages and Electronic
and any authorized change, or any change which arises Documents. - Until the Supreme Court by appropriate rules shall have so
in the normal course of communication, storage and provided, electronic documents, electronic data messages and electronic
display; and signatures, shall be authenticated by demonstrating, substantiating and
validating a claimed identity of a user, device, or another entity is an (b) The requirement referred to in paragraph (a) is satisfied by
information or communication system, among other ways, as follows; using the services of a third party, provided that the conditions
(a) The electronic signature shall be authenticated by proof than set fourth in subparagraph s (i), (ii) and (iii) of paragraph (a) are
a letter , character, number or other symbol in electronic form met.
representing the persons named in and attached to or logically Section 14. Proof by Affidavit. - The matters referred to in Section 12, on
associated with an electronic data message, electronic document, admissibility and Section 9, on the presumption of integrity, may be
or that the appropriate methodology or security procedures, presumed to have been established by an affidavit given to the best of the
when applicable, were employed or adopted by such person, deponent's knowledge subject to the rights of parties in interest as defined
with the intention of authenticating or approving in an electronic in the following section.
data message or electronic document; Section 15. Cross - Examination.
(b) The electronic data message or electronic document shall be (1) A deponent of an affidavit referred to in Section 14 that has
authenticated by proof that an appropriate security procedure, been introduced in evidence may be cross-examined as of right
when applicable was adopted and employed for the purpose of by a party to the proceedings who is adverse in interest to the
verifying the originator of an electronic data message and/or party who has introduced the affidavit or has caused the affidavit
electronic document, or detecting error or alteration in the to be introduced.
communication, content or storage of an electronic document or (2) Any party to the proceedings has the right to cross-examine
electronic data message from a specific point, which, using a person referred to in section 11, paragraph 4, sub paragraph c.
algorithm or codes, identifying words or numbers, encryptions, CHAPTER III.
answers back or acknowledgement procedures, or similar COMMUNICATION OF ELECTRONIC DATA MESSAGES OR
security devices. ELECTRONIC DOCUMENTS
The supreme court may adopt such other authentication procedures, Section 16. Formation of Validity of Electronic Contracts.
including the use of electronic notarization systems as necessary and (1) Except as otherwise agreed by the parties, an offer, the
advisable, as well as the certificate of authentication on printed or hard acceptance of an offer and such other elements required under
copies of the electronic document or electronic data messages by existing laws for the formation of contracts may be expressed in,
electronic notaries, service providers and other duly recognized or demonstrated and proved by means of electronic data messages
appointed certification authorities. or electronic documents and no contract shall be denied validity
The person seeking to introduce an electronic data message or electronic or enforceability on the sole ground that it is in the form of an
document in any legal proceeding has the burden of proving its electronic data message or electronic document, or that any or
authenticity by evidence capable of supporting a finding that the electronic all of the elements required under existing laws for the formation
data message or electronic document is what the person claims it be. of contracts is expressed, demonstrated and proved by means of
In the absence of evidence to the contrary, the integrity of the information electronic data messages or electronic documents.
and communication system in which an electronic data message or (2) Electronic transactions made through networking among
electronic document is recorded or stored may be established in any legal banks, or linkages thereof with other entities or networks, and
proceeding - vice versa, shall be deemed consummated upon the actual
a.) By evidence that at all material times the information and dispensing of cash or the debit of one account and the
communication system or other similar device was operating in corresponding credit to another, whether such transaction is
a manner that did not affect the integrity of the electronic data initiated by the depositor or by an authorized collecting party:
message and/or electronic document, and there are no other Provided, that the obligation of one bank, entity, or person
reasonable grounds to doubt the integrity of the information and similarly situated to another arising therefrom shall be
communication system, considered absolute and shall not be subjected to the process of
b.) By showing that the electronic data message and/or electronic preference of credits.
document was recorded or stored by a party to the proceedings Section 17. Recognition by Parties of Electronic Data Message or
who is adverse in interest to the party using it; or Electronic Document. - As between the originator and the addressee of an
c.) By showing that the electronic data message and/or electronic electronic data message or electronic document, a declaration of will or
document was recorded or stored in the usual and ordinary other statement shall not be denied legal effect, validity or enforceability
course of business by a person who is not a party to the solely on the ground that it is in the form of an electronic data message.
proceedings and who did not act under the control of the party Section 18. Attribution of Electronic Data Message. -
using the record. (1) An electronic data message or electronic document is that of
Section 12. Admissibility and Evidential Weight of Electronic Data the originator if it was sent by the originator himself.
Message or Electronic Document. - In any legal proceedings, nothing in (2) As between the originator and the addressee, an electronic
the application of the rules on evidence shall deny the admissibility of an data message or electronic document is deemed to be that of the
electronic data message or electronic document in evidence - originator if it was sent:
(a) On the sole ground that it is in electronic form; or (a) by a person who had the authority to act on behalf
(b) On the ground that it is not in the standard written form, and of the originator with respect to that electronic data
the electronic data message or electronic document meeting, and message or electronic document; or
complying with the requirements under Sections 6 or 7 hereof (b) by an information system programmed by, or on
shall be the best evidence of the agreement and transaction behalf of the originator to operate automatically.
contained therein. (3) As between the originator and the addressee, an addressee is
In assessing the evidential weight of an electronic data message or entitled to regard an electronic data message or electronic
electronic document, the reliability of the manner in which it was document as being that of the originator, and to act on that
generated, stored or communicated, the reliability of the manner in which assumption, if:
its originator was identified, and other relevant factors shall be given due (a) in order to ascertain whether the electronic data
regard. message or electronic document was that of the
Section 13. Retention of Electronic Data Message or Electronic originator, the addressee properly applied a procedure
Document. - Notwithstanding any provision of law, rule or regulation to previously agreed to by the originator for that purpose;
the contrary - or
(a) The requirement in any provision of law that certain (b) the electronic data message or electronic document
documents be retained in their original form is satisfied by as received by the addressee resulted from the actions
retaining them in the form of an electronic data message or of a person whose relationship with the originator or
electronic document which - with any agent of the originator enabled that person to
(i) Remains accessible so as to be usable for subsequent gain access to a method used by the originator to
reference; identify electronic data messages as his own.
(ii) Is retained in the format in which it was generated, (4) Paragraph (3) does not apply:
sent or received, or in a format which can be (a) as of the time when the addressee has both received
demonstrated to accurately represent the electronic notice from the originator that the electronic data
data message or electronic document generated, sent or message or electronic document is not that of the
received; originator, and has reasonable time to act accordingly;
(iii) Enables the identification of its originator and or
addressee, as well as the determination of the date and (b) in a case within paragraph (3) sub-paragraph (b), at
the time it was sent or received. any time when the addressee knew or should have
known, had it exercised reasonable care of used any
 agreed procedure, that the electronic data message or message or electronic document enters the designated
electronic document was not that of the originator. information system: Provide, however, that if the originator and
(5) Where an electronic data message or electronic document is the addressee are both participants in the designated information
that of the originator or is deemed to be that of the originator, or system, receipt occurs at the time when the electronic data
the addressee is entitled to act on that assumption, then, as message or electronic document is retrieved by the addressee;
between the originator and the addressee, the addressee is b.) If the electronic data message or electronic document is sent
entitled to regard the electronic data message or electronic to an information system of the addressee that is not the
document as received as being what the originator intended to designated information system, receipt occurs at the time when
send, and to act on that assumption. The addressee is not so the electronic data message or electronic document is retrieved
entitled when it knew or should have known, had it exercised by the addressee;
treasonable care or used any agreed procedure, that the c.) If the addressee has not designated an information system,
transmission resulted in any error in the electronic data message receipt occurs when the electronic data message or electronic
or electronic document as received. document enters an information system of the addressee.
(6) The addressee is entitled to regard each electronic data These rules apply notwithstanding that the place where the information
message or electronic document received as a separate electronic system is located may be different from the place where the electronic data
data message or electronic document and to act on that message or electronic document is deemed to be received.
assumption, except to the extent that it duplicates another Section 23. Place of Dispatch and Receipt of Electronic Data Messages
electronic data message or electronic document and the or Electronic Documents. - Unless otherwise agreed between the
addressee knew or should have known, had it exercised originator and the addressee, an electronic data message or electronic
reasonable care or used any agreed procedure, that the electronic document is deemed to be dispatched at the place where the originator has
data message or electronic document was a duplicate. its place of business and received at the place where the addressee has its
Section 19. Error on Electronic Data Message or Electronic Document. - place of business. This rule shall apply even if the originator or addressee
The addressee is entitled to regard the electronic data message or had used a laptop other portable device to transmit or received his
electronic document received as that which the originator intended to send, electronic data message or electronic document. This rule shall also apply
and to act on that assumption, unless the addressee knew or should have to determine the tax situs of such transaction.
known, had the addressee exercised reasonable care or used the For the purpose hereof -
appropriate procedure - a. If the originator or addressee has more than one place of
(a) That the transmission resulted in any error therein or in the business, the place of business is that which has the closest
electronic document when the electronic data message or relationship to the underlying transaction or, where there is no
electronic document enters the designated information system, underlying transaction, the principal place of business.
or b. If the originator or the addressee does not have a place of
(b) That electronic data message or electronic document is sent business, reference is to be made to its habitual residence; or
to an information system which is not so designated by the c. The "usual place of residence" in relation to a body corporate,
addressee for the purposes. means the place where it is incorporated or otherwise legally
Section 20. Agreement on Acknowledgement of Receipt of Electronic constituted.
Data Messages or Electronic Documents. - The following rules shall Section 24. Choice of Security Methods. - Subject to applicable laws and
apply where, on or before sending an electronic data message or electronic /or rules and guidelines promulgated by the Department of Trade and
document, the originator and the addressee have agreed, or in that Industry with other appropriate government agencies, parties to any
electronic document or electronic data message, the originator has electronic transaction shall be free to determine the type of level of
requested, that receipt of the electronic document or electronic data electronic data message and electronic document security needed, and to
message be acknowledged: select and use or implement appropriate technological methods that suit
a.) Where the originator has not agreed with the addressee that their need.
the acknowledgement be given in a particular form or by a PART III
particular method, an acknowledgement may be given by or ELECTRONIC COMMERCE IN SPECIFIC AREAS
through any communication by the addressee, automated or CHAPTER I.
otherwise, or any conduct of the addressee, sufficient to indicate CARRIAGE OF GOODS
to the originator that the electronic data message or electronic Section 25. Actions Related to Contracts of Carriage of Goods. - Without
document has been received. derogating from the provisions of part two of this law, this chapter applies
b.) Where the originator has stated that the effect or significance to any action in connection with, or in pursuance of, a contract of carriage
of the electronic data message or electronic document is of goods, including but not limited to:
conditional on receipt of the acknowledgement thereof, the (a) (i) furnishing the marks, number, quantity or weight of goods;
electronic data message or electronic document is treated as (ii) stating or declaring the nature or value of goods;
though it has never been sent, until the acknowledgement is (iii) issuing a receipt for goods;
received. (iv) confirming that goods have been loaded;
c.) Where the originator has not stated that the effect or (b) (i) notifying a person of terms and conditions of the contract;
significance of the electronic data message or electronic (ii) giving instructions to a carrier;
document is conditional on receipt of the acknowledgement, and (c) (i) claiming delivery of goods;
the acknowledgement has not been received by the originator (ii) authorizing release of goods;
within the time specified or agreed or, if no time has been (iii) giving notice of loss of, or damage to goods;
specified or agreed, within the reasonable time, the originator (d) giving any other notice or statement in connection with the
may give notice to the addressee stating that no performance of the contract;
acknowledgement has been received and specifying a reasonable (e) undertaking to deliver goods to a named person or a person
time by which the acknowledgement must be received; and if the authorized to claim delivery;
acknowledgement is not received within the time specified in (f) granting, acquiring, renouncing, surrendering, transferring or
subparagraph (c), the originator may, upon notice to the negotiating rights in goods;
addressee, treat the electronic document or electronic data as (g) acquiring or transferring rights and obligations under the
though it had never been sent, or exercise any other rights it may contract.
have. Section 26. Transport Documents. - (1) Where the law requires that any
Section 21. Time of Dispatch of Electronic Data Messages or Electronic action referred to contract of carriage of goods be carried out in writing or
Documents. - Unless otherwise agreed between the originator and the by using a paper document, that requirement is met if the action is carried
addressee, the dispatch of an electronic data message or electronic out by using one or more data messages or electronic documents.
document occurs when it enters an information system outside the control (2) Paragraph (1) applies whether the requirement there in is in
of the originator or of the person who sent the electronic data message or the form of an obligation or whether the law simply provides
electronic document on behalf of the originator. consequences for failing either to carry out the action in writing
Section 22. Time of Receipt of Electronic Data Messages or Electronic or to use a paper document.
Documents. - Unless otherwise agreed between the originator and the (3) If a right is to be granted to, or an obligation is to be acquired
addressee, the time of receipt of an electronic data message or electronic by, one person and no person, and if the law requires that, in
document is as follows: order to effect this, the right or obligation must be conveyed to
a.) If the addressee has designated an information system for the that person by the transfer, or use of, a paper document, that
purpose of receiving electronic data message or electronic requirement is met if the right or obligation is conveyed by using
document, receipt occurs at the time when the electronic data
 one or more electronic data messages or electronic documents and efficient electronic online transmission, conveyance and use of
unique; electronic data messages or electronic documents amongst all government
(4) For the purposes of paragraph (3), the standard of reliability departments, agencies, bureaus, offices down to the division level and to
required shall be assessed in the light of the purpose for which the regional and provincial offices as practicable as possible, government
the right or obligation was conveyed and in the light of all the owned and controlled corporations, local government units, other public
circumstances, including any relevant agreement. instrumentalities, universities, colleges and other schools, and universal
(5) Where one or more data messages are used to effect any access to the general public.
action in subparagraphs (f) and (g) of Section 25, no paper The RPWEB network shall serve as initial platform of the government
document used to effect any such action is valid unless the use information infrastructure (GII) to facilitate the electronic online
of electronic data message or electronic document has been transmission and conveyance of government services to evolve and
terminated and replaced by the used of paper documents. A paper improve by better technologies or kinds and electronic online wide area
document issued in these circumstances shall contain a statement networks utilizing, but not limited to, fiber optic, satellite, wireless and
of such termination. The replacement of the electronic data other broadband telecommunication mediums or modes.
messages or electronic documents by paper documents shall not To facilitate the rapid development of the GII, the Department of
affect the rights or obligation of the parties involved. Transportation and Communications, National Telecommunications
(6) If a rule of laws is compulsorily applicable to a contract of Commission and the National Computer Center are hereby directed to
carriage of goods which is in, or is evidenced by, a paper aggressively promote and implement a policy environment and regulatory
document, that rule shall not be inapplicable to such a contract framework that shall lead to the substantial reduction of costs of including,
of carriage of goods which is evidenced by one or more but not limited to, lease lines, land, satellite and dial-up telephone access,
electronic data messages or electronic documents by reason of cheap broadband and wireless accessibility by government departments,
the fact that the contract is evidenced by such electronic data agencies, bureaus, offices, government owned and controlled
messages or electronic documents instead of by a paper corporations, local government units, other public instrumentalities and
document. the general public, to include the establishment of a government website
PART IV portal and a domestic internal exchange system to facilitate strategic
ELECTRONIC TRANSACTIONS IN GOVERNMENT access to government and amongst agencies thereof and the general public
Section 27. Government Use of Electronic Data Messages, Electronic and for the speedier flow of locally generated internal traffic within the
Documents and Electronic Signatures. - Notwithstanding any law to the Philippines.
contrary, within two (2) years from the date of the effectivity of this Act, The physical infrastructure of cable and wireless system for cable TV and
all departments, bureaus, offices and agencies of the government, as well broadcast excluding programming content and the management thereof
as all government-owned and -controlled corporations, that pursuant to shall be considered as within the activity of telecommunications for the
law require or accept the filling of documents, require that documents be purpose of electronic commerce and to maximize the convergence of ICT
created, or retained and/or submitted, issue permits, licenses or certificates in the installation of the GII.
of registration or approval, or provide for the method and manner of Section 29. Authority of the Department of Trade and Industry and
payment or settlement of fees and other obligations to the government, Participating Entities. - The Department of Trade and Industry (DTI) shall
shall - direct supervise the promotion and development of electronic commerce
(a) accept the creation, filing or retention of such documents in in the country with relevant government agencies, without prejudice to the
the form of electronic data messages or electronic documents; provisions of Republic Act 7653 (Charter of Bangko Sentral ng Pilipinas)
(b) issue permits, licenses, or approval in the form of electronic and Republic Act No. 337, (General Banking Act) as amended.
data messages or electronic documents; Among others, the DTI is empowered to promulgate rules and regulations,
(c) require and/or accept payments, and issue receipts as well as provide quality standards or issue certifications, as the case may
acknowledging such payments, through systems using electronic be, and perform such other functions as may be necessary for the
data messages or electronic documents; or implementation of this Act in the area of electronic commerce to include,
(d) transact the government business and/or perform but shall not limited to, the installation of an online public information and
governmental functions using electronic data messages or quality and price monitoring system for goods and services aimed in
electronic documents, and for the purpose, are authorized to protecting the interests of the consuming public availing of the advantages
adopt and promulgate, after appropriate public hearing and with of this Act.
due publication in newspapers of general circulation, the PART V
appropriate rules, regulations, or guidelines, to, among others, FINAL PROVISIONS
specify - Section 30. Extent of Liability of a Service Provider. - Except as otherwise
1) the manner and format in which such electronic data provided in this Section, no person or party shall be subject to any civil or
messages or electronic documents shall be filed, criminal liability in respect of the electronic data message or electronic
created, retained or issued; document for which the person or party acting as a service provider as
2) where and when such electronic data messages or defined in Section 5 merely provides access if such liability is founded on
electronic documents have to signed, the use of an -
electronic signature, the type of electronic signature (a) The obligations and liabilities of the parties under the
required; electronic data message or electronic document;
3) the format of an electronic data message or (b) The making, publication, dissemination or distribution of
electronic document and the manner the electronic such material or any statement made in such material, including
signature shall be affixed to the electronic data message possible infringement of any right subsisting in or in relation to
or electronic document; such material. Provided, That:
4) the control processes and procedures as appropriate i. The service provider does not have actual knowledge,
to ensure adequate integrity, security and or is not aware of the facts or circumstances from
confidentiality of electronic data messages or which it is apparent, that the making, publication,
electronic documents or records of payments; dissemination or distribution of such material is
5) other attributes required to electronic data messages unlawful or infringes any rights subsisting in or in
or electronic documents or payments; and relation to such material;
6) the full or limited use of the documents and papers ii The service provider does not knowingly receive a
for compliance with the government requirements: financial benefit directly attributable to the unlawful or
Provided, that this Act shall be itself mandate any infringing activity; and
department of the government, organ of state or iii. The service provider does not directly commit any
statutory corporation to accept or issue any document infringement or other unlawful act and does not induce
in the form of electronic data messages or electronic or cause another person or party to commit any
documents upon the adoption, promulgation and infringement or other unlawful act and/or does not
publication of the appropriate rules, regulations or benefit financially from the infringing activity or
guidelines. unlawful act or another person or party; Provider,
Section 28. RPWEB To Promote the Use of Electronic Documents or further, That nothing in this Section shall affect -
Electronic Data Messages In Government and to the General Public. - (a) Any obligation founded on contract;
Within two (2) years from the effectivity of this Act, there shall be (b) The obligation of a service provider as such under a licensing
installed an electronic online network in accordance with Administrative or other regulatory regime established under written law; or
Order 332 and House of Representatives Resolution 890, otherwise known (c) Any obligation imposed under any written law;
as RPWEB, to implement Part IV of this Act to facilitate the open, speedy
 (d) The civil liability of any party to the extent that such liability for the continued implementation shall be included in the annual General
forms the basis for injunctive relief issued by a court under any Appropriations Act.
law requiring that the service provider take or refrain from Section 37. Statutory Interpretation. - Unless otherwise expressly
actions necessary to remove, block or deny access to any provided for, the interpretation of this Act shall give due regard to its
material, or to preserve evidence of a violation of law. international origin and the need to promote uniformity in its application
Section 31. Lawful Access. - Access to an electronic file, or an electronic and the observance of good faith in international trade relations. The
signature of an electronic data message or electronic document shall only generally accepted principles of international law and convention on
be authorized and enforced in favor of the individual or entity having a electronic commerce shall likewise be considered.
legal right to the possession or the use of plaintext, electronic signature or Section 38. Variation by Agreement. - As between parties involved in
file or solely for the authorized purposes. The electronic key for identity generating, sending, receiving, storing or otherwise processing electronic
or integrity shall not be made available to any person or party without the data message or electronic document, any provision of this Act may be
consent of the individual or entity in lawful possession of that electronic varied by agreement between and among them.
key; Section 39. Reciprocity. - All benefits, privileges, advantages or statutory
Section 32. Obligation of Confidentiality. - Except for the purposes rules established under this Act, including those involving practice of
authorized under this Act, any person who obtained access to any profession, shall be enjoyed only by parties whose country origin grants
electronic key, electronic data message or electronic document, book, the same benefits and privileges or advantages to Filipino citizens.
register, correspondence, information, or other material pursuant to any Section 40. Separability Clause. - The provisions of this Act are hereby
powers conferred under this Act, shall not convey to or share the same declared separable and in the event of any such provision is declared
with any other person. unconstitutional, the other provisions, which are not affected, shall remain
Section 33. Penalties. - The following Acts, shall be penalized by fine in force and effect.
and/or imprisonment, as follows: Section 41. Repealing Clause. - All other laws, decrees, rules and
(a) Hacking or crackling with refers to unauthorized access into regulations or parts thereof which are inconsistent with the provisions of
or interference in a computer system/server or information and this Act are hereby repealed, amended or modified accordingly.
communication system; or any access in order to corrupt, alter, Section 42. Effectivity. - This Act shall take effect immediately after its
steal, or destroy using a computer or other similar information publication in the Official Gazette or in at least two (2) national
and communication devices, without the knowledge and consent newspapers of general circulation.
of the owner of the computer or information and Approved:
communications system, including the introduction of computer June 14, 2000
viruses and the like, resulting in the corruption, destruction, (Sgd.) JOSEPH E. ESTRADA
alteration, theft or loss of electronic data messages or electronic President of the Philippines
documents shall be punished by a minimum fine of One Hundred
Thousand pesos (P 100,000.00) and a maximum commensurate
to the damage incurred and a mandatory imprisonment of six (6)
months to three (3) years;
(b) Piracy or the unauthorized copying, reproduction,
dissemination, or distribution, importation, use, removal,
alteration, substitution, modification, storage, uploading,
downloading, communication, making available to the public, or
broadcasting of protected material, electronic signature or
copyrighted works including legally protected sound recordings
or phonograms or information material on protected works,
through the use of telecommunication networks, such as, but not
limited to, the internet, in a manner that infringes intellectual
property rights shall be punished by a minimum fine of one
hundred thousand pesos (P 100,000.00) and a maximum
commensurate to the damage incurred and a mandatory
imprisonment of six (6) months to three (3) years;
(c) Violations of the Consumer Act of Republic Act No. 7394
and other relevant to pertinent laws through transaction covered
by or using electronic data messages or electronic documents,
shall be penalized with the same penalties as provided in those
laws;
(d) Other violations of the provisions of this Act, shall be
penalized with a maximum penalty of one million pesos
(P 1,000,000.00) or six (6) years imprisonment.
Section 34. Implementing Rules and Regulations. - The DTI, Department
of Budget and Management and the Bangko Sentral ng Pilipinas are
hereby empowered to enforced the provisions of this Act and issue
implementing rules and regulations necessary, in coordination with the
Department of Transportation and Communications, National
Telecommunications Commission, National Computer Center, National
Information Technology Council, Commission on Audit, other concerned
agencies and the private sector, to implement this Act within sixty (60)
days after its approval.
Failure to Issue rules and regulations shall not in any manner affect the
executory nature of the provisions of this Act.
Section 35. Oversight Committee. - There shall be Congressional
Oversight Committee composed of the Committees and Trade and
Industry/Commerce, Science and Technology, Finance and
Appropriations of both the Senate and House of Representatives, which
shall meet at least every quarter of the first two years and every semester
for the third year after the approval of this Act to oversee its
implementation. The DTI, DBM, Bangko Sentral ng Pilipinas, and other
government agencies as may be determined by the Congressional
Committee shall provide a quarterly performance report of their actions
taking in the implementation of this Act for the first three (3) years.
Section 36. Appropriations. - The amount necessary to carry out the
provisions of Sections 27 and 28 of this Act shall be charged against any
available funds and/or savings under the General Appropriations Act of
2000 in the first year of effectivity of this Act. Thereafter, the funds needed