2. BOSTON BANK OF THE G. R. No.

158149
PHILIPPINES, (formerly BANK
OF COMMERCE),
Petitioner, Present:
PANGANIBAN, J., Chairperson,
YNARES-SANTIAGO,
AUSTRIA-MARTINEZ,
- versus - CALLEJO, SR., and
CHICO-NAZARIO, JJ.

PERLA P. MANALO and CARLOS

MANALO, JR.,
Promulgated:
Respondents. February 9, 2006
x--------------------------------------------------x

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari of the Decision[1] of the Court of

Appeals (CA) in CA-G.R. CV No. 47458 affirming, on appeal, the Decision[2] of
the Regional Trial Court (RTC) of Quezon City, Branch 98, in Civil Case No. Q89-3905.

The Antecedents
The Xavierville Estate, Inc. (XEI) was the owner of parcels of land in Quezon
City, known as the Xavierville Estate Subdivision, with an area of 42 hectares. XEI
caused the subdivision of the property into residential lots, which was then offered
for sale to individual lot buyers.[3]
On September 8, 1967, XEI, through its General Manager, Antonio Ramos,
as vendor, and The Overseas Bank of Manila (OBM), as vendee, executed a Deed
of Sale of Real Estate over some residential lots in the subdivision, including Lot
1, Block 2, with an area of 907.5 square meters, and Lot 2, Block 2, with an area of
832.80 square meters. The transaction was subject to the approval of the Board of
Directors of OBM, and was covered by real estate mortgages in favor of the
Philippine National Bank as security for its account amounting to P5,187,000.00,
and the Central Bank of the Philippines as security for advances amounting
toP22,185,193.74.[4] Nevertheless, XEI continued selling the residential lots in the
subdivision as agent of OBM.[5]
Sometime in 1972, then XEI president Emerito Ramos, Jr. contracted the
services of Engr. Carlos Manalo, Jr. who was in business of drilling deep water
wells and installing pumps under the business name Hurricane Commercial, Inc.
For P34,887.66, Manalo, Jr. installed a water pump at Ramos residence at the
corner of Aurora Boulevard and Katipunan Avenue, Quezon City. Manalo, Jr. then
proposed to XEI, through Ramos, to purchase a lot in the Xavierville subdivision,
and offered as part of the downpayment the P34,887.66 Ramos owed him. XEI,

through Ramos, agreed. In a letter dated February 8, 1972, Ramos requested

Manalo, Jr. to choose which lots he wanted to buy so that the price of the lots and
the terms of payment could be fixed and incorporated in the conditional
sale.[6] Manalo, Jr. met with Ramos and informed him that he and his wife Perla
had chosen Lots 1 and 2 of Block 2 with a total area of 1,740.3 square meters.
In a letter dated August 22, 1972 to Perla Manalo, Ramos confirmed the
reservation of the lots. He also pegged the price of the lots at P200.00 per square
meter, or a total of P348,060.00, with a 20% down payment of the purchase price
amounting toP69,612.00 less the P34,887.66 owing from Ramos, payable on or
before December 31, 1972; the corresponding Contract of Conditional Sale would
then be signed on or before the same date, but if the selling operations of XEI
resumed after December 31, 1972, the balance of the downpayment would fall due
then, and the spouses would sign the aforesaid contract within five (5) days from
receipt of the notice of resumption of such selling operations. It was also stated in
the letter that, in the meantime, the spouses may introduce improvements thereon
subject to the rules and regulations imposed by XEI in the subdivision. Perla
Manalo conformed to the letter agreement.[7]
The spouses Manalo took possession of the property on September 2, 1972,
constructed a house thereon, and installed a fence around the perimeter of the lots.
In the meantime, many of the lot buyers refused to pay their monthly
installments until they were assured that they would be issued Torrens titles over
the lots they had purchased.[8] The spouses Manalo were notified of the resumption

of the selling operations of XEI.[9] However, they did not pay the balance of the
downpayment on the lots because Ramos failed to prepare a contract of conditional
sale and transmit the same to Manalo for their signature. On August 14, 1973,
Perla Manalo went to the XEI office and requested that the payment of the amount
representing the balance of the downpayment be deferred, which, however, XEI
rejected.

On

August

10,

1973, XEI furnished her with a statement of their account as of July 31, 1973,
showing that they had a balance of P34,724.34 on the downpayment of the two lots
after deducting the account of Ramos, plus P3,819.68[10] interest thereon from
September 1, 1972 to July 31, 1973, and that the interests on the unpaid balance of
the purchase price of P278,448.00 from September 1, 1972 to July 31, 1973
amounted to P30,629.28.[11] The spouses were informed that they were being billed
for said unpaid interests.[12]
On January 25, 1974, the spouses Manalo received another statement of
account from XEI, inclusive of interests on the purchase price of the lots.[13] In a
letter dated April 6, 1974 to XEI, Manalo, Jr. stated they had not yet received the
notice of resumption of Leis selling operations, and that there had been no
arrangement on the payment of interests; hence, they should not be charged with
interest on the balance of the downpayment on the property. [14] Further, they
demanded that a deed of conditional sale over the two lots be transmitted to them
for their signatures. However, XEI ignored the demands. Consequently, the
spouses refused to pay the balance of the downpayment of the purchase price.[15]
Sometime in June 1976, Manalo, Jr. constructed a business sign in the
sidewalk near his house. In a letter dated June 17, 1976, XEI informed Manalo, Jr.
that business signs were not allowed along the sidewalk. It demanded that he
remove the same, on the ground, among others, that the sidewalk was not part of
the land which he had purchased on installment basis from XEI. [16]Manalo, Jr. did
not respond. XEI reiterated its demand on September 15, 1977.[17]

Subsequently, XEI turned over its selling operations to OBM, including the
receivables for lots already contracted and those yet to be sold.[18] On December 8,
1977, OBM warned Manalo, Jr., that putting up of a business sign is specifically
prohibited by their contract of conditional sale and that his failure to comply with
its demand would impel it to avail of the remedies as provided in their contract of
conditional sale.[19]
Meanwhile, on December 5, 1979, the Register of Deeds issued Transfer
Certificate of Title (TCT) No. T-265822 over Lot 1, Block 2, and TCT No. T265823 over Lot 2, Block 2, in favor of the OBM.[20] The lien in favor of the
Central Bank of thePhilippines was annotated at the dorsal portion of said title,
which was later cancelled on August 4, 1980.[21]

Subsequently, the Commercial Bank of Manila (CBM) acquired the

Xavierville Estate from OBM. CBM wrote Edilberto Ng, the president of
Xavierville Homeowners Association that, as of January 31, 1983, Manalo, Jr. was
one of the lot buyers in the subdivision.[22] CBM reiterated in its letter to Ng that,
as of January 24, 1984, Manalo was a homeowner in the subdivision.[23]
In a letter dated August 5, 1986, the CBM requested Perla Manalo to stop
any on-going construction on the property since it (CBM) was the owner of the lot
and she had no permission for such construction.[24] She agreed to have a
conference meeting with CBM officers where she informed them that her husband
had a contract with OBM, through XEI, to purchase the property. When asked to
prove her claim, she promised to send the documents to CBM. However, she failed

to do so.[25] On September 5, 1986, CBM reiterated its demand that it be furnished

with the documents promised,[26] but Perla Manalo did not respond.
On July 27, 1987, CBM filed a complaint[27] for unlawful detainer against
the spouses with the Metropolitan Trial Court of Quezon City. The case was
docketed as Civil Case No. 51618. CBM claimed that the spouses had been
unlawfully occupying the property without its consent and that despite its
demands, they refused to vacate the property. The latter alleged that they, as
vendors, and XEI, as vendee, had a contract of sale over the lots which had not yet
been rescinded.[28]
While the case was pending, the spouses Manalo wrote CBM to offer an
amicable settlement, promising to abide by the purchase price of the property
(P313,172.34), per agreement with XEI, through Ramos. However, on July 28,
1988, CBM wrote the spouses, through counsel, proposing that the price
of P1,500.00 per square meter of the property was a reasonable starting point for
negotiation

of

the

settlement.[29] The

spouses

rejected

the

counter

proposal,[30] emphasizing that they would abide by their original agreement with
XEI. CBM moved to withdraw its complaint[31] because of the issues raised.[32]
In the meantime, the CBM was renamed the Boston Bank of
the Philippines. After CBM filed its complaint against the spouses Manalo, the
latter filed a complaint for specific performance and damages against the bank
before the Regional Trial Court (RTC) of Quezon City on October 31, 1989.

The plaintiffs alleged therein that they had always been ready, able and
willing to pay the installments on the lots sold to them by the defendants remote
predecessor-in-interest, as might be or stipulated in the contract of sale, but no
contract was forthcoming; they constructed their house worth P2,000,000.00 on the
property in good faith; Manalo, Jr., informed the defendant, through its counsel, on
October 15, 1988 that he would abide by the terms and conditions of his original
agreement with the defendants predecessor-in-interest; during the hearing of the
ejectment case on October 16, 1988, they offered to pay P313,172.34 representing
the balance on the purchase price of said lots; such tender of payment was rejected,
so that the subject lots could be sold at considerably higher prices to third parties.
Plaintiffs further alleged that upon payment of the P313,172.34, they were
entitled to the execution and delivery of a Deed of Absolute Sale covering the
subject lots, sufficient in form and substance to transfer title thereto free and clear
of any and all liens and encumbrances of whatever kind and nature.[33] The
plaintiffs prayed that, after due hearing, judgment be rendered in their favor, to wit:
WHEREFORE, it is respectfully prayed that after due hearing:
(a) The defendant should be ordered to execute and deliver a
Deed of Absolute Sale over subject lots in favor of the plaintiffs after
payment of the sum of P313,172.34, sufficient in form and substance
to transfer to them titles thereto free and clear of any and all liens and
encumbrances of whatever kind or nature;
(b) The defendant should be held liable for moral and
exemplary damages in the amounts of P300,000.00 and P30,000.00,
respectively, for not promptly executing and delivering to plaintiff the
necessary Contract of Sale, notwithstanding repeated demands
therefor and for having been constrained to engage the services of

undersigned counsel for which they agreed to pay attorneys fees in the
sum of P50,000.00 to enforce their rights in the premises and
appearance fee of P500.00;
(c) And for such other and further relief as may be just and
equitable in the premises.[34]

In its Answer to the complaint, the defendant interposed the following

affirmative defenses: (a) plaintiffs had no cause of action against it because the
August 22, 1972 letter agreement between XEI and the plaintiffs was not binding
on it; and (b) it had no record of any contract to sell executed by it or its
predecessor, or of any statement of accounts from its predecessors, or records of
payments of the plaintiffs or of any documents which entitled them to the
possession of the lots.[35] The defendant, likewise, interposed counterclaims for
damages and attorneys fees and prayed for the eviction of the plaintiffs from the
property.[36]

Meanwhile, in a letter dated January 25, 1993, plaintiffs, through counsel,

proposed an amicable settlement of the case by paying P942,648.70, representing
the balance of the purchase price of the two lots based on the current market
value.[37] However, the defendant rejected the same and insisted that for the smaller
lot, they pay P4,500,000.00, the current market value of the property.[38] The
defendant insisted that it owned the property since there was no contract or
agreement between it and the plaintiffs relative thereto.
During the trial, the plaintiffs adduced in evidence the separate Contracts of
Conditional Sale executed between XEI and Alberto Soller;[39] Alfredo

Aguila,[40] and Dra. Elena Santos-Roque[41] to prove that XEI continued selling
residential lots in the subdivision as agent of OBM after the latter had acquired the
said lots.
For its part, defendant presented in evidence the letter dated August 22,
1972, where XEI proposed to sell the two lots subject to two suspensive
conditions: the payment of the balance of the downpayment of the property, and
the execution of the corresponding contract of conditional sale. Since plaintiffs
failed to pay, OBM consequently refused to execute the corresponding contract of
conditional sale and forfeited the P34,877.66 downpayment for the two lots, but
did not notify them of said forfeiture.[42] It alleged that OBM considered the lots
unsold because the titles thereto bore no annotation that they had been sold under a
contract of conditional sale, and the plaintiffs were not notified of XEIs resumption
of its selling operations.
On May 2, 1994, the RTC rendered judgment in favor of the plaintiffs and
against the defendant. The fallo of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiffs and against the defendant
(a) Ordering the latter to execute and deliver a Deed of
Absolute Sale over Lot 1 and 2, Block 2 of the Xavierville Estate
Subdivision after payment of the sum of P942,978.70 sufficient in
form and substance to transfer to them titles thereto free from any and
all liens and encumbrances of whatever kind and nature.
(b) Ordering the defendant to pay moral and exemplary
damages in the amount of P150,000.00; and

(c) To pay attorneys fees in the sum of P50,000.00 and to pay

the costs.
SO ORDERED.[43]

The trial court ruled that under the August 22, 1972 letter agreement of XEI and
the plaintiffs, the parties had a complete contract to sell over the lots, and that they
had already partially consummated the same. It declared that the failure of the
defendant to notify the plaintiffs of the resumption of its selling operations and to
execute a deed of conditional sale did not prevent the defendants obligation to
convey titles to the lots from acquiring binding effect. Consequently, the plaintiffs
had a cause of action to compel the defendant to execute a deed of sale over the
lots in their favor.
Boston Bank appealed the decision to the CA, alleging that the lower court
erred in (a) not concluding that the letter of XEI to the spouses Manalo, was at
most a mere contract to sell subject to suspensive conditions, i.e., the payment of
the balance of the downpayment on the property and the execution of a deed of
conditional sale (which were not complied with); and (b) in awarding moral and
exemplary damages to the spouses Manalo despite the absence of testimony
providing facts to justify such awards.[44]
On September 30, 2002, the CA rendered a decision affirming that of the
RTC with modification. The fallo reads:
WHEREFORE, the appealed decision is AFFIRMED with
MODIFICATIONS that (a) the figure P942,978.70 appearing [in] par.
(a) of the dispositive portion thereof is changed to P313,172.34 plus

interest thereon at the rate of 12% per annum from September 1,

1972until fully paid and (b) the award of moral and exemplary
damages and attorneys fees in favor of plaintiffs-appellees is
DELETED.
SO ORDERED.[45]

The appellate court sustained the ruling of the RTC that the appellant and the
appellees had executed a Contract to Sell over the two lots but declared that the
balance of the purchase price of the property amounting to P278,448.00 was
payable in fixed amounts, inclusive of pre-computed interests, from delivery of the
possession of the property to the appellees on a monthly basis for 120 months,
based on the deeds of conditional sale executed by XEI in favor of other lot
buyers.[46] The CA also declared that, while XEI must have resumed its selling
operations before the end of 1972 and the downpayment on the property remained
unpaid as of December 31, 1972, absent a written notice of cancellation of the
contract to sell from the bank or notarial demand therefor as required by Republic
Act No. 6552, the spouses had, at the very least, a 60-day grace period from
January 1, 1973 within which to pay the same.
Boston Bank filed a motion for the reconsideration of the decision alleging
that there was no perfected contract to sell the two lots, as there was no agreement
between XEI and the respondents on the manner of payment as well as the other
terms and conditions of the sale. It further averred that its claim for recovery of
possession of the aforesaid lots in its Memorandum datedFebruary 28, 1994 filed
before the trial court constituted a judicial demand for rescission that satisfied the

requirements of the New Civil Code. However, the appellate court denied the
motion.
Boston Bank, now petitioner, filed the instant petition for review
on certiorari assailing the CA rulings. It maintains that, as held by the CA, the
records do not reflect any schedule of payment of the 80% balance of the purchase
price, or P278,448.00. Petitioner insists that unless the parties had agreed on the
manner of payment of the principal amount, including the other terms and
conditions of the contract, there would be no existing contract of sale or contract to
sell.[47] Petitioner avers that the letter agreement to respondent spouses dated
August 22, 1972 merely confirmed their reservation for the purchase of Lot Nos. 1
and 2, consisting of 1,740.3 square meters, more or less, at the price of P200.00 per
square meter (or P348,060.00), the amount of the downpayment thereon and the
application of the P34,887.00 due from Ramos as part of such downpayment.
Petitioner asserts that there is no factual basis for the CA ruling that the
terms and conditions relating to the payment of the balance of the purchase price of
the property (as agreed upon by XEI and other lot buyers in the same subdivision)
were also applicable to the contract entered into between the petitioner and the
respondents. It insists that such a ruling is contrary to law, as it is tantamount to
compelling the parties to agree to something that was not even discussed, thus,
violating their freedom to contract. Besides, the situation of the respondents cannot
be equated with those of the other lot buyers, as, for one thing, the respondents
made a partial payment on the downpayment for the two lots even before the
execution of any contract of conditional sale.

Petitioner posits that, even on the assumption that there was a perfected
contract to sell between the parties, nevertheless, it cannot be compelled to convey
the property to the respondents because the latter failed to pay the balance of the
downpayment of the property, as well as the balance of 80% of the purchase price,
thus resulting in the extinction of its obligation to convey title to the lots to the
respondents.
Another egregious error of the CA, petitioner avers, is the application of
Republic Act No. 6552. It insists that such law applies only to a perfected
agreement or perfected contract to sell, not in this case where the downpayment on
the purchase price of the property was not completely paid, and no installment
payments were made by the buyers.
Petitioner also faults the CA for declaring that petitioner failed to serve a
notice on the respondents of cancellation or rescission of the contract to sell, or
notarial demand therefor. Petitioner insists that its August 5, 1986 letter requiring
respondents to vacate the property and its complaint for ejectment in Civil Case
No. 51618 filed in the Metropolitan Trial Court amounted to the requisite demand
for a rescission of the contract to sell. Moreover, the action of the respondents
below was barred by laches because despite demands, they failed to pay the
balance of the purchase price of the lots (let alone the downpayment) for a
considerable number of years.
For their part, respondents assert that as long as there is a meeting of the
minds of the parties to a contract of sale as to the price, the contract is valid despite

the parties failure to agree on the manner of payment. In such a situation, the
balance of the purchase price would be payable on demand, conformably to Article
1169 of the New Civil Code. They insist that the law does not require a party to
agree on the manner of payment of the purchase price as a prerequisite to a valid
contract to sell. The respondents cite the ruling of this Court in Buenaventura v.
Court of Appeals[48] to support their submission.
They argue that even if the manner and timeline for the payment of the
balance of the purchase price of the property is an essential requisite of a contract
to sell, nevertheless, as shown by their letter agreement of August 22, 1972 with
the OBM, through XEI and the other letters to them, an agreement was reached as
to the manner of payment of the balance of the purchase price. They point out that
such

letters

referred

to

the

terms

of

the

terms of the deeds of conditional sale executed by XEI in favor of the other lot
buyers in the subdivision, which contained uniform terms of 120 equal monthly
installments (excluding the downpayment, but inclusive of pre-computed
interests). The respondents assert that XEI was a real estate broker and knew that
the contracts involving residential lots in the subdivision contained uniform terms
as to the manner and timeline of the payment of the purchase price of said lots.
Respondents further posit that the terms and conditions to be incorporated in
the corresponding contract of conditional sale to be executed by the parties would
be the same as those contained in the contracts of conditional sale executed by lot
buyers in the subdivision. After all, they maintain, the contents of the
corresponding contract of conditional sale referred to in the August 22, 1972 letter
agreement envisaged those contained in the contracts of conditional sale that XEI
and other lot buyers executed. Respondents cite the ruling of this Court in Mitsui
Bussan Kaisha v. Manila E.R.R. & L. Co.[49]
The respondents aver that the issues raised by the petitioner are factual,
inappropriate in a petition for review on certiorariunder Rule 45 of the Rules of
Court. They assert that petitioner adopted a theory in litigating the case in the trial
court, but changed the same on appeal before the CA, and again in this Court. They
argue that the petitioner is estopped from adopting a new theory contrary to those it
had adopted in the trial and appellate courts. Moreover, the existence of a contract
of conditional sale was admitted in the letters of XEI and OBM. They aver that
they became owners of the lots upon delivery to them by XEI.

The issues for resolution are the following: (1) whether the factual issues
raised by the petitioner are proper; (2) whether petitioner or its predecessors-ininterest, the XEI or the OBM, as seller, and the respondents, as buyers, forged a
perfect

contract

to

sell

over

the

property;

(3)

whether

petitioner is estopped from contending that no such contract was forged by the
parties; and (4) whether respondents has a cause of action against the petitioner for
specific performance.
The rule is that before this Court, only legal issues may be raised in a
petition for review on certiorari. The reason is that this Court is not a trier of facts,
and is not to review and calibrate the evidence on record. Moreover, the findings of
facts of the trial court, as affirmed on appeal by the Court of Appeals, are
conclusive on this Court unless the case falls under any of the following
exceptions:
(1) when the conclusion is a finding grounded entirely on
speculations, surmises and conjectures; (2) when the inference made
is manifestly mistaken, absurd or impossible; (3) where there is a
grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting;
(6) when the Court of Appeals, in making its findings went beyond
the issues of the case and the same is contrary to the admissions of
both appellant and appellee; (7) when the findings are contrary to
those of the trial court; (8) when the findings of fact are conclusions
without citation of specific evidence on which they are based; (9)
when the facts set forth in the petition as well as in the petitioners
main and reply briefs are not disputed by the respondents; and (10)
when the findings of fact of the Court of Appeals are premised on the
supposed absence of evidence and contradicted by the evidence on
record.[50]

We have reviewed the records and we find that, indeed, the ruling of the
appellate court dismissing petitioners appeal is contrary to law and is not supported
by evidence. A careful examination of the factual backdrop of the case, as well as
the antecedental proceedings constrains us to hold that petitioner is not barred from

asserting that XEI or OBM, on one hand, and the respondents, on the other, failed
to forge a perfected contract to sell the subject lots.
It must be stressed that the Court may consider an issue not raised during the
trial when there is plain error.[51] Although a factual issue was not raised in the trial
court, such issue may still be considered and resolved by the Court in the interest
of substantial justice, if it finds that to do so is necessary to arrive at a just
decision,[52] or when an issue is closely related to an issue raised in the trial court
and the Court of Appeals and is necessary for a just and complete resolution of the
case.[53] When the trial court decides a case in favor of a party on certain grounds,
the Court may base its decision upon some other points, which the trial court or
appellate court ignored or erroneously decided in favor of a party.[54]
In this case, the issue of whether XEI had agreed to allow the respondents to
pay the purchase price of the property was raised by the parties. The trial court
ruled that the parties had perfected a contract to sell, as against petitioners claim
that no such contract existed. However, in resolving the issue of whether the
petitioner was obliged to sell the property to the respondents, while the CA
declared that XEI or OBM and the respondents failed to agree on the schedule of
payment of the balance of the purchase price of the property, it ruled that XEI and
the respondents had forged a contract to sell; hence, petitioner is entitled to
ventilate the issue before this Court.
We agree with petitioners contention that, for a perfected contract of sale or
contract to sell to exist in law, there must be an agreement of the parties, not only

on the price of the property sold, but also on the manner the price is to be paid by
the vendee.
Under Article 1458 of the New Civil Code, in a contract of sale, whether
absolute or conditional, one of the contracting parties obliges himself to transfer
the ownership of and deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent. A contract of sale is perfected at the
moment there is a meeting of the minds upon the thing which is the object of the
contract and the price. From the averment of perfection, the parties are bound, not
only

to

the

fulfillment

of

what

has

been

expressly stipulated, but also to all the consequences which, according to their
nature, may be in keeping with good faith, usage and law.[55] On the other hand,
when the contract of sale or to sell is not perfected, it cannot, as an independent
source of obligation, serve as a binding juridical relation between the parties.[56]
A definite agreement as to the price is an essential element of a binding
agreement to sell personal or real property because it seriously affects the rights
and obligations of the parties. Price is an essential element in the formation of a
binding and enforceable contract of sale. The fixing of the price can never be left
to the decision of one of the contracting parties. But a price fixed by one of the
contracting parties, if accepted by the other, gives rise to a perfected sale.[57]
It is not enough for the parties to agree on the price of the property. The
parties must also agree on the manner of payment of the price of the property to
give rise to a binding and enforceable contract of sale or contract to sell. This is so
because the agreement as to the manner of payment goes into the price, such that a
disagreement on the manner of payment is tantamount to a failure to agree on the
price.[58]
In a contract to sell property by installments, it is not enough that the parties agree
on the price as well as the amount of downpayment. The parties must, likewise,
agree on the manner of payment of the balance of the purchase price and on the
other terms and conditions relative to the sale. Even if the buyer makes a
downpayment or portion thereof, such payment cannot be considered as sufficient
proof of the perfection of any purchase and sale between the parties. Indeed, this
Court ruled in Velasco v. Court of Appeals[59] that:

It is not difficult to glean from the aforequoted averments that

the petitioners themselves admit that they and the respondent still had
to meet and agree on how and when the down-payment and the
installment payments were to be paid. Such being the situation, it
cannot, therefore, be said that a definite and firm sales agreement
between the parties had been perfected over the lot in question.
Indeed, this Court has already ruled before that a definite agreement
on the manner of payment of the purchase price is an essential
element in the formation of a binding and enforceable contract of sale.
The fact, therefore, that the petitioners delivered to the respondent the
sum of P10,000.00 as part of the downpayment that they had to pay
cannot be considered as sufficient proof of the perfection of any
purchase and sale agreement between the parties herein under article
1482 of the New Civil Code, as the petitioners themselves admit that
some essential matter the terms of payment still had to be mutually
covenanted.[60]

We agree with the contention of the petitioner that, as held by the CA, there
is no showing, in the records, of the schedule of payment of the balance of the
purchase price on the property amounting to P278,448.00. We have meticulously
reviewed the records, including Ramos February 8, 1972 and August 22, 1972
letters to respondents,[61] and find that said parties confined themselves to agreeing
on the price of the property (P348,060.00), the 20% downpayment of the purchase
price (P69,612.00), and credited respondents for the P34,887.00 owing from
Ramos as part of the 20% downpayment. The timeline for the payment of the
balance of the downpayment (P34,724.34) was also agreed upon, that is, on or
before XEI resumed its selling operations, on or before December 31, 1972, or
within five (5) days from written notice of such resumption of selling operations.
The parties had also agreed to incorporate all the terms and conditions relating to

the sale, inclusive of the terms of payment of the balance of the purchase price and
the other substantial terms and conditions in the corresponding contract of
conditional sale, to be later signed by the parties, simultaneously with respondents
settlement of the balance of the downpayment.
The February 8, 1972 letter of XEI reads:
Mr. Carlos T. Manalo, Jr.
Hurricane Rotary Well Drilling
Rizal Avenue Ext.,Caloocan City
Dear Mr. Manalo:
We agree with your verbal offer to exchange the proceeds of
your contract with us to form as a down payment for a lot in our
Xavierville Estate Subdivision.
Please let us know your choice lot so that we can fix the price
and terms of payment in our conditional sale.
Sincerely yours,
XAVIERVILLE ESTATE, INC.
(Signed)
EMERITO B. RAMOS, JR.
President
CONFORME:
(Signed)
CARLOS T. MANALO, JR.
Hurricane Rotary Well Drilling[62]

The August 22, 1972 letter agreement of XEI and the respondents reads:

Mrs. Perla P. Manalo

1548 Rizal Avenue Extension
Caloocan City
Dear Mrs. Manalo:
This is to confirm your reservation of Lot Nos. 1 and 2; Block 2 of our
consolidation-subdivision plan as amended, consisting of 1,740.3
square meters more or less, at the price of P200.00 per square meter or
a total price of P348,060.00.
It is agreed that as soon as we resume selling operations, you must pay
a down payment of 20% of the purchase price of the said lots and sign
the corresponding Contract of Conditional Sale, on or before
December 31, 1972, provided, however, that if we resume selling after
December 31, 1972, then you must pay the aforementioned down
payment and sign the aforesaid contract within five (5) days from
your receipt of our notice of resumption of selling operations.
In the meanwhile, you may introduce such improvements on the said
lots as you may desire, subject to the rules and regulations of the
subdivision.
If the above terms and conditions are acceptable to you, please signify
your conformity by signing on the space herein below provided.
Thank you.

Very truly yours,

XAVIERVILLE ESTATE, INC. CONFORME:
By:
(Signed) (Signed)
EMERITO B. RAMOS, JR. PERLA P. MANALO
President Buyer[63]

Based on these two letters, the determination of the terms of payment of

the P278,448.00 had yet to be agreed upon on or before December 31, 1972, or
even afterwards, when the parties sign the corresponding contract of conditional
sale.

Jurisprudence is that if a material element of a contemplated contract is left

for future negotiations, the same is too indefinite to be enforceable.[64] And when
an essential element of a contract is reserved for future agreement of the parties, no
legal obligation arises until such future agreement is concluded.[65]

So long as an essential element entering into the proposed obligation of

either of the parties remains to be determined by an agreement which they are to
make, the contract is incomplete and unenforceable.[66] The reason is that such a
contract is lacking in the necessary qualities of definiteness, certainty and
mutuality.[67]

There is no evidence on record to prove that XEI or OBM and the

respondents had agreed, after December 31, 1972, on the terms of payment of the
balance of the purchase price of the property and the other substantial terms and
conditions relative to the sale. Indeed, the parties are in agreement that there had
been no contract of conditional sale ever executed by XEI, OBM or petitioner, as
vendor, and the respondents, as vendees.[68]

The ruling of this Court in Buenaventura v. Court of Appeals has no bearing

in this case because the issue of the manner of payment of the purchase price of the
property was not raised therein.
We reject the submission of respondents that they and Ramos had intended
to incorporate the terms of payment contained in the three contracts of conditional
sale executed by XEI and other lot buyers in the corresponding contract of
conditional sale, which would later be signed by them.[69] We have meticulously
reviewed the respondents complaint and find no such allegation therein.[70] Indeed,
respondents merely alleged in their complaint that they were bound to pay the
balance of the purchase price of the property in installments. When respondent
Manalo, Jr. testified, he was never asked, on direct examination or even on crossexamination, whether the terms of payment of the balance of the purchase price of
the lots under the contracts of conditional sale executed by XEI and other lot
buyers would form part of the corresponding contract of conditional sale to be
signed by them simultaneously with the payment of the balance of the
downpayment on the purchase price.
We note that, in its letter to the respondents dated June 17, 1976, or almost
three years from the execution by the parties of their August 22, 1972 letter
agreement, XEI stated, in part, that respondents had purchased the property on
installment basis.[71]However, in the said letter, XEI failed to state a specific
amount for each installment, and whether such payments were to be made
monthly, semi-annually, or annually. Also, respondents, as plaintiffs below, failed
to adduce a shred of evidence to prove that they were obliged to pay

the P278,448.00 monthly, semi-annually or annually. The allegation that the

payment of the P278,448.00 was to be paid in installments is, thus, vague and
indefinite. Case law is that, for a contract to be enforceable, its terms must be
certain and explicit, not vague or indefinite.[72]
There is no factual and legal basis for the CA ruling that, based on the terms
of payment of the balance of the purchase price of the lots under the contracts of
conditional sale executed by XEI and the other lot buyers, respondents were
obliged to pay theP278,448.00 with pre-computed interest of 12% per annum in
120-month installments. As gleaned from the ruling of the appellate court, it failed
to justify its use of the terms of payment under the three contracts of conditional
sale as basis for such ruling, to wit:
On the other hand, the records do not disclose the schedule of
payment of the purchase price, net of the downpayment. Considering,
however, the Contracts of Conditional Sale (Exhs. N, O and P)
entered into by XEI with other lot buyers, it would appear that the
subdivision lots sold by XEI, under contracts to sell, were payable in
120 equal monthly installments (exclusive of the downpayment but
including pre-computed interests) commencing on delivery of the lot
to the buyer.[73]

By its ruling, the CA unilaterally supplied an essential element to the letter

agreement of XEI and the respondents. Courts should not undertake to make a
contract for the parties, nor can it enforce one, the terms of which are in
doubt.[74] Indeed, the Court emphasized in Chua v. Court of Appeals[75] that it is not
the province of a court to alter a contract by construction or to make a new contract
for the parties; its duty is confined to the interpretation of the one which they have

made for themselves, without regard to its wisdom or folly, as the court cannot
supply material stipulations or read into contract words which it does not contain.
Respondents, as plaintiffs below, failed to allege in their complaint that the
terms of payment of the P278,448.00 to be incorporated in the corresponding
contract of conditional sale were those contained in the contracts of conditional
sale executed by XEI and Soller, Aguila and Roque.[76] They likewise failed to
prove such allegation in this Court.
The bare fact that other lot buyers were allowed to pay the balance of the
purchase price of lots purchased by them in 120 or 180 monthly installments does
not constitute evidence that XEI also agreed to give the respondents the same mode
and timeline of payment of the P278,448.00.

Under Section 34, Rule 130 of the Revised Rules of Court, evidence that one
did a certain thing at one time is not admissible to prove that he did the same or
similar thing at another time, although such evidence may be received to prove
habit, usage, pattern of conduct or the intent of the parties.
Similar acts as evidence. Evidence that one did or did not do a
certain thing at one time is not admissible to prove that he did or did
not do the same or a similar thing at another time; but it may be
received to prove a specific intent or knowledge, identity, plan,
system, scheme, habit, custom or usage, and the like.

However, respondents failed to allege and prove, in the trial court, that, as a
matter of business usage, habit or pattern of conduct, XEI granted all lot buyers the

right to pay the balance of the purchase price in installments of 120 months of
fixed amounts with pre-computed interests, and that XEI and the respondents had
intended to adopt such terms of payment relative to the sale of the two lots in
question. Indeed, respondents adduced in evidence the three contracts of
conditional sale executed by XEI and other lot buyers merely to prove that XEI
continued to sell lots in the subdivision as sales agent of OBM after it acquired said
lots, not to prove usage, habit or pattern of conduct on the part of XEI to
require all lot buyers in the subdivision to pay the balance of the purchase price of
said lots in 120 months. It further failed to prive that the trial court admitted the
said deeds[77] as part of the testimony of respondent Manalo, Jr.[78]
Habit, custom, usage or pattern of conduct must be proved like any other
facts. Courts must contend with the caveat that, before they admit evidence of
usage, of habit or pattern of conduct, the offering party must establish the degree of
specificity and frequency of uniform response that ensures more than a mere
tendency to act in a given manner but rather, conduct that is semi-automatic in
nature. The offering party must allege and prove specific, repetitive conduct that
might constitute evidence of habit.The examples offered in evidence to prove
habit, or pattern of evidence must be numerous enough to base on inference of
systematic conduct. Mere similarity of contracts does not present the kind of
sufficiently similar circumstances to outweigh the danger of prejudice and
confusion.

In determining whether the examples are numerous enough, and sufficiently

regular, the key criteria are adequacy of sampling and uniformity of response.

After all, habit means a course of behavior of a person regularly represented in like
circumstances.[79] It is only when examples offered to establish pattern of conduct
or habit are numerous enough to lose an inference of systematic conduct that
examples are admissible. The key criteria are adequacy of sampling and uniformity
of response or ratio of reaction to situations.[80]

There are cases where the course of dealings to be followed is defined by the
usage of a particular trade or market or profession. As expostulated by Justice
Benjamin Cardozo of the United States Supreme Court: Life casts the moulds of
conduct, which will someday become fixed as law. Law preserves the moulds
which have taken form and shape from life.[81] Usage furnishes a standard for the
measurement of many of the rights and acts of men.[82] It is also well-settled that
parties who contract on a subject matter concerning which known usage prevail,
incorporate such usage by implication into their agreement, if nothing is said to be
contrary.[83]
However, the respondents inexplicably failed to adduce sufficient competent
evidence to prove usage, habit or pattern of conduct of XEI to justify the use of the
terms of payment in the contracts of the other lot buyers, and thus grant
respondents the right to pay the P278,448.00 in 120 months, presumably because
of respondents belief that the manner of payment of the said amount is not an
essential element of a contract to sell. There is no evidence that XEI or OBM and
all the lot buyers in the subdivision, including lot buyers who pay part of the
downpayment of the property purchased by them in the form of service, had
executed contracts of conditional sale containing uniform terms and conditions.

Moreover, under the terms of the contracts of conditional sale executed by XEI and
three lot buyers in the subdivision, XEI agreed to grant 120 months within which
to pay the balance of the purchase price to two of them, but granted one 180
months to do so.[84] There is no evidence on record that XEI granted the same right
to buyers of two or more lots.
Irrefragably, under Article 1469 of the New Civil Code, the price of the
property sold may be considered certain if it be so with reference to another thing
certain. It is sufficient if it can be determined by the stipulations of the contract
made by the parties thereto[85] or by reference to an agreement incorporated in the
contract of sale or contract to sell or if it is capable of being ascertained with
certainty in said contract;[86] or if the contract contains express or implied
provisions by which it may be rendered certain;[87] or if it provides some method or
criterion by which it can be definitely ascertained.[88] As this Court held
in Villaraza v. Court of Appeals,[89] the price is considered certain if, by its terms,
the contract furnishes a basis or measure for ascertaining the amount agreed upon.

We have carefully reviewed the August 22, 1972 letter agreement of the
parties and find no direct or implied reference to the manner and schedule of
payment of the balance of the purchase price of the lots covered by the deeds of
conditional sale executed by XEI and that of the other lot buyers [90] as basis for or
mode of determination of the schedule of the payment by the respondents of
the P278,448.00.

The ruling of this Court in Mitsui Bussan Kaisha v. Manila Electric

Railroad and Light Company[91] is not applicable in this case because the basic
price fixed in the contract was P9.45 per long ton, but it was stipulated that the
price was subject to modification in proportion to variations in calories and ash
content, and not otherwise. In this case, the parties did not fix in their lettersagreement, any method or mode of determining the terms of payment of the
balance of the purchase price of the property amounting to P278,448.00.
It bears stressing that the respondents failed and refused to pay the balance
of the downpayment and of the purchase price of the property amounting
to P278,448.00 despite notice to them of the resumption by XEI of its selling
operations. The respondents enjoyed possession of the property without paying a
centavo. On the other hand, XEI and OBM failed and refused to transmit a contract
of conditional sale to the respondents. The respondents could have at least
consigned the balance of the downpayment after notice of the resumption of the
selling operations of XEI and filed an action to compel XEI or OBM to transmit to
them the said contract; however, they failed to do so.
As a consequence, respondents and XEI (or OBM for that matter) failed to
forge a perfected contract to sell the two lots; hence, respondents have no cause of
action for specific performance against petitioner. Republic Act No. 6552 applies
only to a perfected contract to sell and not to a contract with no binding and
enforceable effect.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The

Decision

of

the

Court

of

Appeals

in

CA-G.R.

CV

No.

47458

is REVERSED and SET ASIDE. The Regional Trial Court of Quezon City,
Branch 98 is ordered to dismiss the complaint. Costs against the respondents.
SO ORDERED.

4. REPUBLIC OF THE PHILIPPINES, petitioner,

vs.
PHILIPPINE RESOURCES DEVELOPMENT CORPORATION and the
COURT OF APPEALS, respondents.
Office of the Solicitor General Ambrosio Padilla, and Solicitor Frine C.
Zaballero for petitioner.
Vicente L. Santiago for respondent Corporation.
PADILLA, J.:
This is a petition under Rule 46 to review a judgment rendered by the Court
of Appeals,in CA-GR No. 15767-R, Philippine Resources Development
Corporation vs. The Hon. Judge Magno Gatmaitan et al.
The findings of the Court of Appeals are, as follows.
It appears that on May 6, 1955, the Republic of the Philippines in
representation of the Bureau of Prisons instituted against Macario
Apostol and the Empire Insurance Co. a complaint docketed as Civil
Case No. 26166 of the Court of First instance of Manila. The
complaint alleges as the first cause of action, that defendant Apostol
submitted the highest bid the amount P450.00 per ton for the
purchase of 100 tons of Palawan Almaciga from the Bureau of
Prisons; that a contract therefor was drawn and by virtue of which,
Apostol obtained goods from the Bureau of Prisons valued
P15,878.59; that of said account, Apostol paid only P691.10 leaving a
balane obligation of P15,187.49. The complaint further averes, as
second cause of action, that Apostol submitted the best bid with the
Bureau of Prisons for the purchase of three million board feet of logs

at P88.00 per 1,000 board feet; that a contract was executed

between the Director of Prisons and Apostol pursuant to which
contract Apostol obtained deliveries of logs valued at P65.830.00,
and that Apostol failed to pay a balance account Of P18,827.57. All
told, for the total demand set forth in complaint against Apostol is for
P34,015.06 with legal interests thereon from January 8, 1952. The
Empire lnsurance Company was included in the complaint having
executed a performance bond of P10,000.00 in favor of Apostol.
In his answer, Apostol interposed payment as a defense and sought
the dismissal of the complaint.
On July 19, 1955, the Philippine Resources Development Corporation
moved to intervene, appending to its motion, the complaint in the
intervention of even date. The complaint recites that for sometime
prior to Apostol's transactions the corporate had some goods
deposited in a warehouse at 1201 Herran, Manila; that Apostol, then
the president of the corporation but without the knowledge or consent
of the stockholders thereof, disposed of said goods by delivering the
same to the Bureau of Prisons of in an attempt to settle his personal
debts with the latter entity; that upon discovery of Apodol's act, the
corporation took steps to recover said goods by demanding from the
Bureau of Prisons the return thereof; and that upon the refusal of the
Bureau to return said goods, the corporation sought leave to
intervene in Civil Case No. 26166.
As aforestated, His Honor denied the motion for intervention and
thereby issued an order to this effect on July 23, 1955. A motion for
the reconsideration of said order was filed by the movant corporation
and the same was likewise denied by His Honor on August 18, 1955 .
. . (Annex L.).
On 3 September 1955, in a petition for a writ of certiorari filed in the Court
of Appeals, the herein respondent corporation prayed for the setting aside
of the order of the Court of First Instance that had denied the admission of
its complaint-in-intervention and for an order directing the latter Court to
allow the herein respondent corporation to intervene in the action (Annex
G). On 12 December 1955 the Court of Appeals set aside the order
denying the motion to intervene and ordered the respondent court to admit

the herein respondent corporation's complaint-in-intervention with costs

against Macario Apostol.
On 9 January 1956 the Republic of the Philippines filed this petition in this
Court for the purpose stated at the beginning of this opinion.
The Goverment contends that the intervenor has no legal interest in the
matter in litigation, because the action brought in the Court of First Instance
of Manila against Macario Apostol and the Empire Insurance Company
(Civil Case No. 26166, Annex A) is just for the collection from the
defendant Apostol of a sum of money, the unpaid balance of the purchase
price of logs and almaciga bought by him from the Bureau of Prisons,
whereas the intervenor seeks to recover ownership and possession of G. I.
sheets, black sheets, M. S. plates, round bars and G. I. pipes that it claims
its owns-an intervention which would change a personal action into one ad
rem and would unduly delay the disposition of the case.
The Court of Appeals held that:
Petitioner ardently claims that the reason behind its motion to
intervene is the desire to protect its rights and interests over some
materials purportedly belonging to it; that said material were
unauthorizedly and illegally assigned and delivered to the Bureau of
Prisons by petitioning corporation's president Macario Apostol in
payment of the latter's personal accounts with the said entity; and
that the Bureau of Prisons refused to return said materials despite
petitioner's demands to do so.
Petitioner refers to the particulars recited in Apostol's answer dated
July 12, 1955 to the effect that Apostol had paid unto the Bureau of
Prisons his accounts covered, among others, by BPPO 1077 for the
sum of P4,638.40 and BPPO 1549 for the amount of P4,398.54.
Petitioner moreover, points to the State of Paid and Unpaid accounts
of Apostol dated January 16, 1954 prepared by the accounting of
officer of the Bureau of Prisons (Annex B. Complaint in Intervention),
wherein it appears that the aforementioned accounts covered
respectively by BPPO Nos. 1077 for 892 pieces of GI sheets and
1549 for 399 pieces of GI pipes in the total sum of P9,036.94 have
not been credited to Apostol's account in view of lack of supporting
papers; and that according to the reply letter of the Undersecretary of

Justice, said GI sheets and pipes were delivered by Macario Apostol

to the Bureau of Prisons allegedly in Apostol's capacity as owner and
that the black iron sheets were delivered by Apostol as President of
the petitioner corporation.
Respondents, on the other hand, assert that the subject matter of the
original litigation is a sum of money allegedly due to the Bureau of
Prisons from Macario Apostol and not the goods or the materials
reportedly turned over by Apostol as payment of his private debts to
the Bureau of Prisons and the recovery of which is sought by the
petitioner; and that for this reason, petitioner has no legal interest in
the very subject matter in litigation as to entitle it to intervene.
We find no merit in respondents' contention. It is true that the very
subject matter of the original case is a sum of money. But it is
likewise true as borne out by the records, that the materials
purportedly belonging to the petitioner corporation have been
assessed and evaluated and their price equivalent in terms of money
have been determined; and that said materials for whatever price
they have been assigned by defendant now respondent Apostol as
tokens of payment of his private debts with the Bureau of Prisons. In
view of these considerations, it becomes enormously plain in the
event the respondent judge decides to credit Macario Apostol with the
value of the goods delivered by the latter to the Bureau of Prisons,
the petitioner corporation stands to be adversely affected by such
judgment. The conclusion, therefore, is inescapable that the petitioner
possesses a legal interest in the matter in litigation and that such
interest is of an actual, material, direct and immediate nature as to
entitle petitioner to intervene.
xxx

xxx

xxx

Section 3 of Rule 13 of the Rules of Court endows the lower Court

with discretion to allow or disapprove the motion for intrvention
(Santarromana et al. vs. Barrios, 63 Phil. 456); and that in the
exercise of such discretion, the court shall consider whether or not
the intervention will unduly delay or prejudice the adjudicatio of the
rights of the original parties and whether or not the intervenors the
rights may be fully protected in a separate proceeding. The petitioner
in the instant case positively authorized to a separate action against

any of all the respondents. But considering that the resolution of the
issues raised in and enjoined by the pleadings in the main case,
would virtally affect the rights not only the original parties but also of
the berein petitioner: that far from unduly delaying or prejudicing the
adjudication of the rights of the original parties or bringing about
confusion in the original case, the adnission of the complaint in
intervention would help clarify the vital issue of the true and real
ownership of the materials involved, besides preventing an abhorrent
munltiplicity of suit, we believe that the motion to intervene should be
given due to cause.
We find no reason for disturbing the foregoing pronouncements. The
Government argues that "Price . . . is always paid in terms of money and
the supposed payment beeing in kind, it is no payment at all, "citing Article
1458 of the new Civil Code. However, the same Article provides that the
purschaser may pay "a price certain in money orits equivalent," which
means that they meant of the price need not be in money. Whether the G.I.
sheets, black sheets, M. S. Plates, round bars and G. I. pipes claimed by
the respondent corporation to belong to it and delivered to the Bureau of
Prison by Macario Apostol in payment of his account is sufficient payment
therefore, is for the court to pass upon and decide after hearing all the
parties in the case. Should the trial court hold that it is as to credit Apostol
with the value or price of the materials delivered by him, certainly the herein
respondent corporation would be affected adversely if its claim of
ownership of such sheets, plates, bars and pipes is true.
The Government reiterates in its original stand that counsel appearing for
the respondent corporation has no authority to represent it or/and sue in its
behalf, the Court of Appeals held that:
Respondents aver also that petitioner lacks legal capacity to sue and
that its counsel is acting merely in an individual capacity without the
benefit of the corporate act authorizing him to bring sue. In this
connection, respondents invoked among others section 20 of Rule
127 which provision, in our opinion, squarely disproves their claim as
by virtue thereof, the authority of petitioner's counsel is pressumed.
Withal, the claim of the counsel for the petitioner that a resolution to
proceed against Apostol, had been unanonimously adopted by the
stockholders of the corporation, has not been refuted.

Evidently, petitioner is a duly organized corporation with offices at the

Samanillo Building and that as such, it is endowed with a personality
distinct and separate from that of its president or stockholders. It has
the right to bring suit to safeguard its interests and ordinarily, such
right is exercised at the instance of the president. However, under the
circumstance now obtaining, such right properly devolves upon the
other officers of the corporations as said right is sought to be
exercised against the president himself who is the very object of the
intended suit.
The power of a corporation to sue and be sued in any court1 is lodged in
the board of directors which exercises it corporater powers,2 and not in the
president, as contended by the Government. The "motion for admission of
complaint in intervention" (Annex C) and the "complaint in intervention"
attached thereto, signed by counsel and filed in the Court of First Instance
begin with the following statement: "COMES NOW the above-name
Intervenor, by its undersigned counsel, . . . , "and underneath his
typewritten name is affixed the description" Counsel for the Intervenor." As
counsels authority to appeal for the respondent corporation was newer
questioned in the Court of First Instance, it is to be pressumed that he was
properly authorized to file the complaint in intervention and appeal for his
client.1 It was only in the Court of Appeals where his authority to appear
was questioned. As the Court of Appeals was satisfied that counsel was
duly authorized by his client to file the complaint does in intervention and to
appear in its behalf, hte resolution of the Court of Appeals on this point
should not be disturbed.
Granting that counsel has not been actually authorized by the board of
directors to appear for and in behalf of the respondent corporation, the fact
that counsel is the secretary treasurer of the respondent corporation and
member of the board of directors; and that the other members of the board,
namely, Macario Apostol, the president, and his wife Pacita R. Apostol,
who shuold normally initiate the action to protect the corporate properties
and in interest are the ones to be adversely affected thereby, a single
stockholder under such circumstances may sue in behalf of the
corporation.2 Counsel as a stockholder and director of the respondent
corporation may sue in its behalf and file the complaint in intervention in the
proper court.

The judgment under review is affirmed, without pronouncements as to

costs
6. SPOUSES GODOFREDO & DOMINICA FLANCIA, petitioners, vs.
COURT OF APPEALS & WILLIAM ONG GENATO, respondents.
DECISION
CORONA, J.:
Before us is a petition for review under Rule 45 of the Rules of Court,
seeking to set aside the October 6, 2000 decision[1] of the Court of Appeals
in CA-G.R. CV No. 56035.
The facts as outlined by the trial court[2] follow.
This is an action to declare null and void the mortgage executed by defendant
Oakland Development Resources Corp. xxx in favor of defendant William Ong
Genato over the house and lot plaintiffs spouses Godofredo and Dominica Flancia
purchased from defendant corporation.
In the complaint, plaintiffs allege that they purchased from defendant corporation a
parcel of land known as Lot 12, Blk. 3, Phase III-A containing an area of 128.75
square meters situated in Prater Village Subd. II located at Brgy. Old Balara,
Quezon City; that by virtue of the contract of sale, defendant corporation
authorized plaintiffs to transport all their personal belongings to their house at the
aforesaid lot; that on December 24, 1992, plaintiffs received a copy of the
execution foreclosing [the] mortgage issued by the RTC, Branch 98 ordering
defendant Sheriff Sula to sell at public auction several lots formerly owned by
defendant corporation including subject lot of plaintiffs; that the alleged mortgage
of subject lot is null and void as it is not authorized by plaintiffs pursuant to Art.
2085 of the Civil Code which requires that the mortgagor must be the absolute
owner of the mortgaged property; that as a consequence of the nullity of said
mortgage, the execution foreclosing [the] mortgage is likewise null and void; that
plaintiffs advised defendants to exclude subject lot from the auction sale but the
latter refused. Plaintiffs likewise prayed for damages in the sum of P50,000.00.
Defendant William Ong Genato filed a motion to dismiss the complaint which was
opposed by the plaintiffs and denied by the Court in its Order dated February 16,
1993.

Defendant Genato, then filed his answer averring that on May 19, 1989 codefendant Oakland Development Resources Corporation mortgaged to Genato two
(2) parcels of land covered by TCT Nos. 356315 and 366380 as security and
guaranty for the payment of a loan in the sum of P2,000,000.00; that it appears in
the complaint that the subject parcel of land is an unsubdivided portion of the
aforesaid TCT No. 366380 which covers an area of 4,334 square meters more or
less; that said real estate mortgage has been duly annotated at the back of TCT No.
366380 on May 22, 1989; that for non-payment of the loan of P2,000,000.00
defendant Genato filed an action for foreclosure of real estate mortgage against codefendant corporation; that after [trial], a decision was rendered by the Regional
Trial Court of Quezon City, Branch 98 against defendant corporation which
decision was affirmed by the Honorable Court of Appeals; that the decision of the
Court of Appeals has long become final and thus, the Regional Trial Court, Brach
98 of Quezon City issued an Order dated December 7, 1992 ordering defendant
Sheriff Ernesto Sula to cause the sale at public auction of the properties covered by
TCT No. 366380 for failure of defendant corporation to deposit in Court the
money judgment within ninety (90) days from receipt of the decision of the Court
of Appeals; that plaintiffs have no cause of action against defendant Genato; that
the alleged plaintiffs Contract to Sell does not appear to have been registered with
the Register of Deeds of Quezon City to affect defendant Genato and the latter is
thus not bound by the plaintiffs Contract to Sell; that the registered mortgage is
superior to plaintiffs alleged Contract to Sell and it is sufficient for defendant
Genato as mortgagee to know that the subject TCT No. 366380 was clean at the
time of the execution of the mortgage contract with defendant corporation and
defendant Genato is not bound to go beyond the title to look for flaws in the
mortgagors title; that plaintiffs alleged Contract to Sell is neither a mutual promise
to buy and sell nor a Contract of Sale. Ownership is retained by the seller,
regardless of delivery and is not to pass until full payment of the price; that
defendant Genato has not received any advice from plaintiffs to exclude the subject
lot from the auction sale, and by way of counterclaim, defendant Genato prays
for P150,000.00 moral damages and P20,000.00 for attorneys fees.
On the other hand, defendant Oakland Development Resources Corporation
likewise filed its answer and alleged that the complaint states no cause of action;
xxx Defendant corporation also prays for attorneys fees of P20,000.00 in its
counterclaim.[3]
After trial, the assisting judge[4] of the trial court rendered a decision
dated August 16, 1996, the decretal portion of which provided:

Wherefore, premises considered, judgment is hereby rendered.

1) Ordering defendant Oakland Devt. Resources Corporation to pay
plaintiffs:
a) the amount of P10,000.00 representing payment for the option
to purchase lot;
b) the amount of P140,000.00 representing the first downpayment
of the contract price;
c) the amount of P20,520.80 representing five monthly
amortizations for February, March, April, May and June 1990;
d) the amount of P3,000.00 representing amortization for
November 1990; all plus legal interest from the constitution of
the mortgage up to the time the instant case was filed.
2) Ordering said defendant corporation to pay further to plaintiffs the
sum of P30,000.00 for moral damages, P10,000.00 for exemplary
damages and P20,000.00 for and as reasonable attorneys fees
plus cost;
3) Dismissing defendant corporations counterclaim;
4) Dismissing defendant Genatos counterclaim.[5]
On motion for reconsideration, the regular presiding judge set aside the
judgment of the assisting judge and rendered a new one on November 27,
1996, the decretal portion of which read:
WHEREFORE, premises considered, the Motion for Reconsideration is hereby
GRANTED. The decision dated August 16, 1996 is hereby set aside and a new one
entered in favor of the plaintiffs, declaring the subject mortgage and the
foreclosure proceedings held thereunder as null and void insofar as they affect the
superior right of the plaintiffs over the subject lot, and ordering as follows:
1. Defendant Oakland Development Resources to pay to
plaintiffs the amount of P20,000.00 for litigation-related
expenses;
2. Ordering defendant Sheriff Ernesto L. Sula to desist from
conducting further proceedings in the extra-judicial
foreclosure insofar as they affect the plaintiffs, or, in the event
that title has been consolidated in the name of defendant
William O. Genato, ordering said defendant to reconvey to

plaintiffs the title corresponding to Lot 12, Blk. 3, Phase III-A

of Prater Village [Subd. II], located in Old Balara, Quezon
City, containing an area of 128.75 square meters; and
3. Dismissing the counterclaims of defendants Oakland and
Genato and with costs against them.[6]
On appeal, the Court of Appeals issued the assailed order:
Wherefore, foregoing premises considered, the appeal having merit in fact and in
law is hereby GRANTED and the decision of the Trial Court dated 27 November
1996 hereby SET ASIDE and REVERSED, and its judgment dated August 16,
1996 REINSTATED and AFFIRMED IN TOTO. No Costs.
SO ORDERED.[7]
Hence, this petition.
For resolution before us now are the following issues:
(1) whether or not the registered mortgage constituted over the property
was valid;
(2) whether or not the registered mortgage was superior to the contract
to sell; and
(3) whether or not the mortgagee was in good faith.
Under the Art. 2085 of the Civil Code, the essential requisites of a
contract of mortgage are: (a) that it be constituted to secure the fulfillment
of a principal obligation; (b) that the mortgagor be the absolute owner of the
thing mortgaged; and (c) that the persons constituting the mortgage have
the free disposal of their property, and in the absence thereof, that they be
legally authorized for the purpose.
All these requirements are present in this case.
FIRST ISSUE: WAS THE REGISTERED MORTGAGE VALID?
As to the first essential requisite of a mortgage, it is undisputed that the
mortgage was executed on May 15, 1989 as security for a loan obtained by
Oakland from Genato.

As to the second and third requisites, we need to discuss the difference

between a contract of sale and a contract to sell.
In a contract of sale, title to the property passes to the vendee upon the
delivery of the thing sold; in a contract to sell, ownership is, by agreement,
reserved by the vendor and is not to pass to the vendee until full payment
of the purchase price.
Otherwise stated, in a contract of sale, the vendor loses ownership over
the property and cannot recover it unless and until the contract is resolved
or rescinded; in a contract to sell, title is retained by the vendor until full
payment of the price.[8]
In the contract between petitioners and Oakland, aside from the fact
that it was denominated as a contract to sell, the intention of Oakland not to
transfer ownership to petitioners until full payment of the purchase price
was very clear. Acts of ownership over the property were expressly
withheld by Oakland from petitioner. All that was granted to them by the
occupancy permit was the right to possess it.
Specifically, the contract between Oakland and petitioners stated:
xxx xxx xxx
7. That the BUYER/S may be allowed to enter into and
take possession of the property upon issuance of Occupancy
Permit by the OWNER/DEVELOPER exclusively, although
title has not yet passed to the BUYER/S, in which case his
possession shall be that of a possessor by mere tolerance
Lessee, subject to certain restrictions contained in this deed.
xxx xxx xxx
13. That the BUYER/S cannot sell, mortgage, cede, transfer,
assign or in any manner alienate or dispose of, in whole or in
part, the rights acquired by and the obligations imposed on the
BUYER/S by virtue of this contract, without the express written
consent of the OWNER/DEVELOPER.
xxx xxx xxx
24. That this Contract to Sell shall not in any way [authorize] the
BUYER/S to occupy the assigned house and lot to them.[9]

xxx xxx xxx

Clearly, when the property was mortgaged to Genato in May 1989, what
was in effect between Oakland and petitioners was a contract to sell, not a
contract of sale. Oakland retained absolute ownership over the property.
Ownership is the independent and general power of a person over a
thing for purposes recognized by law and within the limits established
thereby.[10] According to Art. 428 of the Civil Code, this means that:
The owner has the right to enjoy and dispose of a thing, without other limitations
than those established by law.
xxx xxx xxx
Aside from the jus utendi and the jus abutendi [11] inherent in the right to
enjoy the thing, the right to dispose, or the jus disponendi, is the power of
the owner to alienate, encumber, transform and even destroy the thing
owned.[12]
Because Oakland retained all the foregoing rights as owner of the
property, it was entitled absolutely to mortgage it to Genato. Hence, the
mortgage was valid.
SECOND ISSUE: WAS THE REGISTERED MORTGAGE SUPERIOR TO
THE CONTRACT TO SELL?
In their memorandum, petitioners cite our ruling in State
Investment House, Inc. v. Court of Appeals [13] to the effect that
an unregistered sale is preferred over a registered mortgage over the
same property. The citation is misplaced.
This Court in that case explained the rationale behind the rule:
The unrecorded sale between respondents-spouses and SOLID is preferred for the
reason that if the original owner xxx had parted with his ownership of the thing
sold then he no longer had ownership and free disposal of that thing as to be able to
mortgage it again.
State Investment House is completely inapplicable to the case at bar. A
contract of sale and a contract to sell are worlds apart. State Investment

House clearly pertained to a contract of sale, not to a contract to sell which

was what Oakland and petitioners had. In State Investment House,
ownership had passed completely to the buyers and therefore, the former
owner no longer had any legal right to mortgage the property,
notwithstanding the fact that the new owner-buyers had not registered the
sale. In the case before us, Oakland retained absolute ownership over the
property under the contract to sell and therefore had every right to
mortgage it.
In sum, we rule that Genatos registered mortgage was superior to
petitioners contract to sell, subject to any liabilities Oakland may have
incurred in favor of petitioners by irresponsibly mortgaging the property to
Genato despite its commitments to petitioners under their contract to sell.
THIRD ISSUE: WAS THE MORTGAGE IN GOOD FAITH?
The third issue involves a factual matter which should not be raised in
this petition. Only questions of law may be raised in a Rule 45 petition. This
Court is not a trier of facts. The resolution of factual issues is the function of
the lower courts. We therefore adopt the factual findings of the Court of
Appeals and uphold the good faith of the mortgagee Genato.
RELIANCE ON WHAT APPEARS IN THE TITLE
Just as an innocent purchaser for value may rightfully rely on what
appears in the certificate of title, a mortgagee has the right to rely on what
appears in the title presented to him. In the absence of anything to arouse
suspicion, he is under no obligation to look beyond the certificate and
investigate the title of the mortgagor appearing on the face of the said
certificate. [14]
We agree with the findings and conclusions of the trial court regarding
the liabilities of Oakland in its August 16, 1996 decision, as affirmed by the
Court of Appeals:
Anent [plaintiffs] prayer for damages, the Court finds that defendant corporation is
liable to return to plaintiffs all the installments/payments made by plaintiffs
consisting of the amount of P10,000.00 representing payment for the option to
purchase lot; the amount of P140,000.00 which was the first downpayment; the

sum of P20,520.80 representing five monthly amortizations for February, March,

April, May and June 1990 and the amount ofP3,000.00 representing amortization
for November 1990 plus legal interest from the time of the mortgage up to the time
this instant case was filed. Further, considering that defendant corporation
wantonly and fraudulently mortgaged the subject property without regard to
[plaintiffs] rights over the same, said defendant should pay plaintiffs moral
damages in the reasonable amount of P30,000.00. xxx Furthermore, since
defendant [corporations] acts have compelled the plaintiffs to litigate and incur
expenses to protect their interest, it should likewise be adjudged to pay plaintiffs
attorneys fees ofP20,000.00 under Article 2208 paragraph two (2) of the Civil
Code.[15]
WHEREFORE, the petition for review is hereby DENIED. The decision
of the Court of Appeals reinstating the August 16, 1996 decision of the trial
court is hereby AFFIRMED.
SO ORDERED.

8. JOVAN LAND, petitioner, vs. COURT OF APPEALS and EUGENIO

QUESADA, INC., respondents.
DECISION
HERMOSISIMA, JR. J.:
This is a petition for review on certiorari to reverse and set aside the
decision of the Court of Appeals in C.A.-G.R. CV No. 47515.
Petitioner Jovan Land, Inc. is a corporation engaged in the real estate
business. Its President and Chairman of the Board of Directors is one
Joseph Sy.
Private respondent Eugenio Quesada is the owner of the Q Building
located on an 801 sq. m. lot at the corner of Mayhaligue Street and Rizal
Avenue, Sta. Cruz, Manila. The property is covered by TCT No. 77796 of
the Registry of Deeds of Manila.
Petitioner learned from co-petitioner Consolacion P. Mendoza that
private respondent was selling the aforesaid Mayhaligue property.Thus,
petitioner through Joseph Sy made a written offer, dated July 27, 1987
for P10.25 million. This first offer was not accepted by Conrado Quesada,
the General Manager of private respondent. Joseph Sy sent a second

written offer dated July 31, 1989 for the same price but inclusive of an
undertaking to pay the documentary stamp tax, transfer tax, registration
fees and notarial charges. Check No. 247048, dated July 31, 1989, for one
million pesos drawn against the Philippine Commercial and Industrial Bank
(PCIB) was enclosed therewith as earnest money. This second offer, with
earnest money, was again rejected by Conrado Quesada. Undaunted,
Joseph Sy, on August 10, 1989, sent a third written offer for twelve million
pesos with a similar check for one million pesos as earnest
money. Annotated on this third letter-offer was the phrase "Received
original, 9-4-89" beside which appears the signature of Conrado Quesada.
On the basis of this annotation which petitioner insists is the proof that
there already exists a valid, perfected agreement to sell the Mayhaligue
property, petitioner filed with the trial court, a complaint for specific
performance and collection of sum of money with damages.However, the
trial court held that:
"x x x the business encounters between Joseph Sy and Conrado Quesada
had not passed the negotiation stage relating to the intended sale by the
defendant corporation of the property in question. x x x As the court finds,
there is nothing in the record to point that a contract was ever perfected. In
fact, there is nothing in writing which is indispensably necessary in order
that the perfected contract could be enforced under the Statute of Frauds."[1]
Since the trial court dismissed petitioner's complaint for lack of cause of
action, petitioner appealed[2] to respondent Court of Appeals before which it
assigned the following errors:
"1. The Court a quo failed to appreciate that there was already a perfected
contract of sale between Jovan Land, Inc. and the private respondent];
2. The Court a quo erred in its conclusion that there was no implied
acceptance of the offer by appellants to appellee [private respondent];
3. The Court a quo was in error where it concluded that the contract of sale
was unenforceable;
4.The Court a quo failed to rule that appellant [petitioner] Mendoza is
entitled to her broker's commission."[3]
Respondent court placed petitioner to task on their assignment of errors
and concluded that not any of them justifies a reversal of the trial court
decision.
We agree.

In the case of Ang Yu Asuncion v. Court of Appeals,[4] we held that:

"xxx [A] contract (Art. 1157, Civil Code), x x x is a meeting of minds
between two persons whereby one binds himself, with respect to the other,
to give something or to render some service xxx. A contract undergoes
various stages that include its negotiation or preparation, its perfection and,
finally, its consummation. Negotiation covers the period from the time the
prospective contracting parties indicate interest in the contract to the time
the contract is concluded xxx. The perfection of the contract takes place
upon the concurrence of the essential elements thereof."
Moreover, it is a fundamental principle that before contract of sale can
be valid, the following elements must be present, viz: (a) consent or
meeting of the minds; (b) determinate subject matter; (3) price certain in
money or its equivalent. Until the contract of sale is perfected, it cannot, as
an independent source of obligation, serve as a binding juridical relation
between the parties.
In the case at bench, petitioner, anchors its main argument on the
annotation on its third letter-offer of the phrase "Received original, 9-4-89,"
beside which appears the signature of Conrado Quesada. It also contends
that the said annotation is evidence to show that there was already a
perfected agreement to sell as respondent can be said to have accepted
petitioner's payment in the form of a check which was enclosed in the third
letter.
However, as correctly elucidated by the Court of Appeals:
"Sy insisted in his testimony that this offer of P12M was accepted by
Conrado Quesada but there is nothing written or documentary to show that
such offer was accepted by Conrado Quesada. While Sy claimed that the
acceptance could be gleaned from the notation in the third written offer, the
court is not impressed thereon however because the notation merely states
as follows: "Received Original, (S)-Conrado Quesada" and below this
signature is "9-4-89". As explained by Conrado Quesada in his testimony
what was received by him was the original of the written offer.
The court cannot believe that this notation marked as Exhibit D-2 would
signify the acceptance of the offer. Neither does it signify, as Sy had
testified that the check was duly received on said date. If this were true Sy,
who appears to be an intelligent businessman could have easily asked
Conrado Quesada to indicate on Exhibit D the alleged fact of acceptance of
said check. And better still, Sy could have asked Quesada the acceptance in

writing separate of the written offer if indeed there was an agreement as to

the price of the proposed sale of the property in question."[5]
Clearly then, a punctilious examination of the receipt reveals that the
same can neither be regarded as a contract of sale nor a promise to
sell. Such an annotation by Conrado Quesada amounts to neither a written
nor an implied acceptance of the offer of Joseph Sy. It is merely a
memorandum of the receipt by the former of the latter's offer. The
requisites of a valid contract of sale are lacking in said receipt and therefore
the "sale" is neither valid nor enforceable.
Although there was a series of communications through letter-offers
and rejections as evident from the facts of this case, still it is undeniable
that no written agreement was reached between petitioner and private
respondent with regard to the sale of the realty. Hence, the alleged
transaction is unenforceable as the requirements under the Statute of
Frauds have not been complied with. Under the said provision, an
agreement for the sale of real property or of an interest therein, to be
enforceable, must be in writing and subscribed by the party charged or by
an agent thereof
Petitioner also asseverates that the failure of Conrado Quesada to
return the check for one million pesos, translates to implied acceptance of
its third letter-offer. It, however, does not rebut the finding of the trial court
that private respondent was returning the check but petitioner refused to
accept the same and that when Conrado Quesada subsequently sent it
back to petitioner through registered mail, the latter failed to claim its mail
from the post office.
Finally, we fittingly apply here the oft-repeated doctrine that the factual
findings of the trial court, especially as regards the credibility of witnesses,
are conclusive upon this court, unless the case falls under the
jurisprudentially established exceptions. But this is a case that tenders no
exceptional circumstance; rather, we find the observations of the trial court
to be legally sound and valid:
"x x x Joseph Sy's testimony is not impressive because of several
inconsistencies herein pointed out. On the matter of earnest money, the
same appears to be the idea solely of the [petitioner], assuming that he had
intended to bind the [petitioner] corporation. In the written second offer x x
x he had stated that the check of P1M had been enclosed (attached)
therewith. The same check x x x was again mentioned to be enclosed
(attached) in the third written offer under date August 10, 1989 x x x. Sy

testified in his direct examination that he had personally given this check to
Conrado Quesada. But on cross examination, he reversed himself by saying
that the check was given thru his [co-petitioner] Mendoza.Examining the
third written offer, it appears that when it was first typewritten, this P11M
was noted to have been corrected, and that as per his testimony, Sy had
increased it to P12M. This is the reason according to Sy why there was a
superimposition of the number '12' over the number '11' to mean P12M as
the revised consideration for the sale of the property in question."[6]
Respondent court thus concluded that:
"x x x [since] the matter of evaluation of the credibility of witness[es] is
addressed to the trial court and unless clearly contrary to the records before
Us, the findings of the said court are entitled to great respondent on appeal,
x x x it was Joseph Sy's idea to offer the earnest money, and the evidence to
show that Joseph Sy accepted the same, is wanting. x x x"[7]
and accordingly affirmed the trial court judgment appealed from.
As shown elucidated above, we agree with the findings and conclusions
of the trial court and the respondent court. Neither has petitioner posited
any new issues in the instant petition that warrant the further exercise by
this court of its review powers.
WHEREFORE, premises considered, this petition is DENIED.
Costs against petitioner.
SO ORDERED.

10.

SAN
LORENZO
DEVELOPMENT
CORPORATION, petitioner, vs. COURT OF APPEALS, PABLO S.
BABASANTA, SPS. MIGUEL LU and PACITA ZAVALLA
LU, respondents.
DECISION

TINGA, J.:
From a coaptation of the records of this case, it appears that
respondents Miguel Lu and Pacita Zavalla, (hereinafter, the Spouses Lu)
owned two (2) parcels of land situated in Sta. Rosa, Laguna covered by

TCT No. T-39022 and TCT No. T-39023 both measuring 15,808 square
meters or a total of 3.1616 hectares.
On 20 August 1986, the Spouses Lu purportedly sold the two parcels of
land to respondent Pablo Babasanta, (hereinafter, Babasanta) for the price
of fifteen pesos (P15.00) per square meter. Babasanta made a
downpayment of fifty thousand pesos (P50,000.00) as evidenced by a
memorandum receipt issued by Pacita Lu of the same date. Several other
payments totaling two hundred thousand pesos (P200,000.00) were made
by Babasanta.
Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to
demand the execution of a final deed of sale in his favor so that he could
effect full payment of the purchase price. In the same letter, Babasanta
notified the spouses about having received information that the spouses
sold the same property to another without his knowledge and consent. He
demanded that the second sale be cancelled and that a final deed of sale
be issued in his favor.
In response, Pacita Lu wrote a letter to Babasanta wherein she
acknowledged having agreed to sell the property to him at fifteen pesos
(P15.00) per square meter. She, however, reminded Babasanta that when
the balance of the purchase price became due, he requested for a
reduction of the price and when she refused, Babasanta backed out of the
sale. Pacita added that she returned the sum of fifty thousand pesos
(P50,000.00) to Babasanta through Eugenio Oya.
On 2 June 1989, respondent Babasanta, as plaintiff, filed before the
Regional Trial Court (RTC), Branch 31, of San Pedro, Laguna, aComplaint
for Specific Performance and Damages[1] against his co-respondents
herein, the Spouses Lu. Babasanta alleged that the lands covered by TCT
No. T- 39022 and T-39023 had been sold to him by the spouses at fifteen
pesos (P15.00) per square meter. Despite his repeated demands for the
execution of a final deed of sale in his favor, respondents allegedly refused.
In their Answer,[2] the Spouses Lu alleged that Pacita Lu obtained loans
from Babasanta and when the total advances of Pacita reached fifty
thousand pesos (P50,000.00), the latter and Babasanta, without the
knowledge and consent of Miguel Lu, had verbally agreed to transform the
transaction into a contract to sell the two parcels of land to Babasanta with
the fifty thousand pesos (P50,000.00) to be considered as the
downpayment for the property and the balance to be paid on or before 31
December 1987. Respondents Lu added that as of November 1987, total

payments made by Babasanta amounted to only two hundred thousand

pesos (P200,000.00) and the latter allegedly failed to pay the balance of
two hundred sixty thousand pesos (P260,000.00) despite repeated
demands. Babasanta had purportedly asked Pacita for a reduction of the
price from fifteen pesos (P15.00) to twelve pesos (P12.00) per square
meter and when the Spouses Lu refused to grant Babasantas request, the
latter rescinded the contract to sell and declared that the original loan
transaction just be carried out in that the spouses would be indebted to him
in the amount of two hundred thousand pesos (P200,000.00). Accordingly,
on 6 July 1989, they purchased Interbank Managers Check No. 05020269
in the amount of two hundred thousand pesos (P200,000.00) in the name
of Babasanta to show that she was able and willing to pay the balance of
her loan obligation.
Babasanta later filed an Amended Complaint dated 17 January
1990[3] wherein he prayed for the issuance of a writ of preliminary injunction
with temporary restraining order and the inclusion of the Register of Deeds
of Calamba, Laguna as party defendant. He contended that the issuance of
a preliminary injunction was necessary to restrain the transfer or
conveyance by the Spouses Lu of the subject property to other persons.
The Spouses Lu filed their Opposition[4] to the amended complaint
contending that it raised new matters which seriously affect their
substantive rights under the original complaint. However, the trial court in
its Order dated 17 January 1990[5] admitted the amended complaint.
On 19 January 1990, herein petitioner San Lorenzo Development
Corporation (SLDC) filed a Motion for Intervention[6] before the trial court.
SLDC alleged that it had legal interest in the subject matter under litigation
because on 3 May 1989, the two parcels of land involved, namely Lot
1764-A and 1764-B, had been sold to it in a Deed of Absolute Sale with
Mortgage.[7] It alleged that it was a buyer in good faith and for value and
therefore it had a better right over the property in litigation.
In his Opposition to SLDCs motion for intervention,[8] respondent
Babasanta demurred and argued that the latter had no legal interest in the
case because the two parcels of land involved herein had already been
conveyed to him by the Spouses Lu and hence, the vendors were without
legal capacity to transfer or dispose of the two parcels of land to the
intervenor.
Meanwhile, the trial court in its Order dated 21 March 1990 allowed
SLDC to intervene. SLDC filed its Complaint-in-Intervention on 19 April

1990.[9] Respondent Babasantas motion for the issuance of a preliminary

injunction was likewise granted by the trial court in its Orderdated 11
January 1991[10] conditioned upon his filing of a bond in the amount of fifty
thousand pesos (P50,000.00).
SLDC in its Complaint-in-Intervention alleged that on 11 February 1989,
the Spouses Lu executed in its favor an Option to Buy the lots subject of
the complaint. Accordingly, it paid an option money in the amount of three
hundred sixteen thousand one hundred sixty pesos (P316,160.00) out of
the total consideration for the purchase of the two lots of one million two
hundred sixty-four thousand six hundred forty pesos (P1,264,640.00). After
the Spouses Lu received a total amount of six hundred thirty-two thousand
three hundred twenty pesos (P632,320.00) they executed on 3 May 1989
a Deed of Absolute Sale with Mortgage in its favor. SLDC added that the
certificates of title over the property were delivered to it by the spouses
clean and free from any adverse claims and/or notice of lis pendens. SLDC
further alleged that it only learned of the filing of the complaint sometime in
the early part of January 1990 which prompted it to file the motion to
intervene without delay. Claiming that it was a buyer in good faith, SLDC
argued that it had no obligation to look beyond the titles submitted to it by
the Spouses Lu particularly because Babasantas claims were not
annotated on the certificates of title at the time the lands were sold to it.
After a protracted trial, the RTC rendered its Decision on 30 July 1993
upholding the sale of the property to SLDC. It ordered the Spouses Lu to
pay Babasanta the sum of two hundred thousand pesos (P200,000.00) with
legal interest plus the further sum of fifty thousand pesos (P50,000.00) as
and for attorneys fees. On the complaint-in-intervention, the trial court
ordered the Register of Deeds of Laguna, Calamba Branch to cancel the
notice of lis pendens annotated on the original of the TCT No. T-39022 (T7218) and No. T-39023 (T-7219).
Applying Article 1544 of the Civil Code, the trial court ruled that since
both Babasanta and SLDC did not register the respective sales in their
favor, ownership of the property should pertain to the buyer who first
acquired possession of the property. The trial court equated the execution
of a public instrument in favor of SLDC as sufficient delivery of the property
to the latter. It concluded that symbolic possession could be considered to
have been first transferred to SLDC and consequently ownership of the
property pertained to SLDC who purchased the property in good faith.

Respondent Babasanta appealed the trial courts decision to the Court

of Appeals alleging in the main that the trial court erred in concluding that
SLDC is a purchaser in good faith and in upholding the validity of the sale
made by the Spouses Lu in favor of SLDC.
Respondent spouses likewise filed an appeal to the Court of Appeals.
They contended that the trial court erred in failing to consider that the
contract to sell between them and Babasanta had been novated when the
latter abandoned the verbal contract of sale and declared that the original
loan transaction just be carried out. The Spouses Lu argued that since the
properties involved were conjugal, the trial court should have declared the
verbal contract to sell between Pacita Lu and Pablo Babasanta null and
void ab initio for lack of knowledge and consent of Miguel Lu. They further
averred that the trial court erred in not dismissing the complaint filed by
Babasanta; in awarding damages in his favor and in refusing to grant the
reliefs prayed for in their answer.
On 4 October 1995, the Court of Appeals rendered its Decision[11] which
set aside the judgment of the trial court. It declared that the sale between
Babasanta and the Spouses Lu was valid and subsisting and ordered the
spouses to execute the necessary deed of conveyance in favor of
Babasanta, and the latter to pay the balance of the purchase price in the
amount of two hundred sixty thousand pesos (P260,000.00). The appellate
court ruled that the Absolute Deed of Sale with Mortgage in favor of SLDC
was null and void on the ground that SLDC was a purchaser in bad faith.
The Spouses Lu were further ordered to return all payments made by
SLDC with legal interest and to pay attorneys fees to Babasanta.
SLDC and the Spouses Lu filed separate motions for reconsideration
with the appellate court.[12] However, in a Manifestation dated 20 December
1995,[13] the Spouses Lu informed the appellate court that they are no
longer contesting the decision dated 4 October 1995.
In its Resolution dated 11 March 1996,[14] the appellate court considered
as withdrawn the motion for reconsideration filed by the Spouses Lu in view
of their manifestation of 20 December 1995. The appellate court denied
SLDCs motion for reconsideration on the ground that no new or substantial
arguments were raised therein which would warrant modification or
reversal of the courts decision dated 4 October 1995.
Hence, this petition.

SLDC assigns the following errors allegedly committed by the appellate

court:
THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO
WAS NOT A BUYER IN GOOD FAITH BECAUSE WHEN THE SELLER
PACITA ZAVALLA LU OBTAINED FROM IT THE CASH ADVANCE
OF P200,000.00, SAN LORENZO WAS PUT ON INQUIRY OF A PRIOR
TRANSACTION ON THE PROPERTY.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE
ESTABLISHED FACT THAT THE ALLEGED FIRST BUYER, RESPONDENT
BABASANTA, WAS NOT IN POSSESSION OF THE DISPUTED PROPERTY
WHEN SAN LORENZO BOUGHT AND TOOK POSSESSION OF THE
PROPERTY AND NO ADVERSE CLAIM, LIEN, ENCUMBRANCE OR LIS
PENDENS WAS ANNOTATED ON THE TITLES.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE
FACT THAT RESPONDENT BABASANTA HAS SUBMITTED NO
EVIDENCE SHOWING THAT SAN LORENZO WAS AWARE OF HIS
RIGHTS OR INTERESTS IN THE DISPUTED PROPERTY.
THE COURT OF APPEALS ERRED IN HOLDING THAT
NOTWITHSTANDING ITS FULL CONCURRENCE ON THE FINDINGS OF
FACT OF THE TRIAL COURT, IT REVERSED AND SET ASIDE THE
DECISION OF THE TRIAL COURT UPHOLDING THE TITLE OF SAN
LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD FAITH. [15]
SLDC contended that the appellate court erred in concluding that it had
prior notice of Babasantas claim over the property merely on the basis of its
having advanced the amount of two hundred thousand pesos
(P200,000.00) to Pacita Lu upon the latters representation that she needed
the money to pay her obligation to Babasanta. It argued that it had no
reason to suspect that Pacita was not telling the truth that the money would
be used to pay her indebtedness to Babasanta. At any rate, SLDC averred
that the amount of two hundred thousand pesos (P200,000.00) which it
advanced to Pacita Lu would be deducted from the balance of the
purchase price still due from it and should not be construed as notice of the
prior sale of the land to Babasanta. It added that at no instance did Pacita
Lu inform it that the lands had been previously sold to Babasanta.

Moreover, SLDC stressed that after the execution of the sale in its favor
it immediately took possession of the property and asserted its rights as
new owner as opposed to Babasanta who has never exercised acts of
ownership. Since the titles bore no adverse claim, encumbrance, or lien at
the time it was sold to it, SLDC argued that it had every reason to rely on
the correctness of the certificate of title and it was not obliged to go beyond
the certificate to determine the condition of the property. Invoking the
presumption of good faith, it added that the burden rests on Babasanta to
prove that it was aware of the prior sale to him but the latter failed to do so.
SLDC pointed out that the notice of lis pendens was annotated only on 2
June 1989 long after the sale of the property to it was consummated on 3
May 1989.
Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999,
the Spouses Lu informed the Court that due to financial constraints they
have no more interest to pursue their rights in the instant case and submit
themselves to the decision of the Court of Appeals.[16]
On the other hand, respondent Babasanta argued that SLDC could not
have acquired ownership of the property because it failed to comply with
the requirement of registration of the sale in good faith. He emphasized that
at the time SLDC registered the sale in its favor on 30 June 1990, there
was already a notice of lis pendens annotated on the titles of the property
made as early as 2 June 1989. Hence, petitioners registration of the sale
did not confer upon it any right. Babasanta further asserted that petitioners
bad faith in the acquisition of the property is evident from the fact that it
failed to make necessary inquiry regarding the purpose of the issuance of
the two hundred thousand pesos (P200,000.00) managers check in his
favor.
The core issue presented for resolution in the instant petition is who
between SLDC and Babasanta has a better right over the two parcels of
land subject of the instant case in view of the successive transactions
executed by the Spouses Lu.
To prove the perfection of the contract of sale in his favor, Babasanta
presented a document signed by Pacita Lu acknowledging receipt of the
sum of fifty thousand pesos (P50,000.00) as partial payment for 3.6
hectares of farm lot situated at Barangay Pulong, Sta. Cruz, Sta. Rosa,
Laguna.[17] While the receipt signed by Pacita did not mention the price for
which the property was being sold, this deficiency was supplied by Pacita
Lus letter dated 29 May 1989[18] wherein she admitted that she agreed to

sell the 3.6 hectares of land to Babasanta for fifteen pesos (P15.00) per
square meter.
An analysis of the facts obtaining in this case, as well as the evidence
presented by the parties, irresistibly leads to the conclusion that the
agreement between Babasanta and the Spouses Lu is a contract to sell
and not a contract of sale.
Contracts, in general, are perfected by mere consent,[19] which is
manifested by the meeting of the offer and the acceptance upon the thing
which are to constitute the contract. The offer must be certain and the
acceptance absolute.[20] Moreover, contracts shall be obligatory in whatever
form they may have been entered into, provided all the essential requisites
for their validity are present.[21]
The receipt signed by Pacita Lu merely states that she accepted the
sum of fifty thousand pesos (P50,000.00) from Babasanta as partial
payment of 3.6 hectares of farm lot situated in Sta. Rosa, Laguna. While
there is no stipulation that the seller reserves the ownership of the property
until full payment of the price which is a distinguishing feature of a contract
to sell, the subsequent acts of the parties convince us that the Spouses Lu
never intended to transfer ownership to Babasanta except upon full
payment of the purchase price.
Babasantas letter dated 22 May 1989 was quite telling. He stated
therein that despite his repeated requests for the execution of the final
deed of sale in his favor so that he could effect full payment of the price,
Pacita Lu allegedly refused to do so. In effect, Babasanta himself
recognized that ownership of the property would not be transferred to him
until such time as he shall have effected full payment of the price.
Moreover, had the sellers intended to transfer title, they could have easily
executed the document of sale in its required form simultaneously with their
acceptance of the partial payment, but they did not. Doubtlessly, the receipt
signed by Pacita Lu should legally be considered as a perfected contract to
sell.
The distinction between a contract to sell and a contract of sale is quite
germane. In a contract of sale, title passes to the vendee upon the delivery
of the thing sold; whereas in a contract to sell, by agreement the ownership
is reserved in the vendor and is not to pass until the full payment of the
price.[22] In a contract of sale, the vendor has lost and cannot recover
ownership until and unless the contract is resolved or rescinded; whereas
in a contract to sell, title is retained by the vendor until the full payment of

the price, such payment being a positive suspensive condition and failure
of which is not a breach but an event that prevents the obligation of the
vendor to convey title from becoming effective.[23]
The perfected contract to sell imposed upon Babasanta the obligation to
pay the balance of the purchase price. There being an obligation to pay the
price, Babasanta should have made the proper tender of payment and
consignation of the price in court as required by law. Mere sending of a
letter by the vendee expressing the intention to pay without the
accompanying payment is not considered a valid tender of
payment.[24] Consignation of the amounts due in court is essential in order
to extinguish Babasantas obligation to pay the balance of the purchase
price. Glaringly absent from the records is any indication that Babasanta
even attempted to make the proper consignation of the amounts due, thus,
the obligation on the part of the sellers to convey title never acquired
obligatory force.
On the assumption that the transaction between the parties is a contract
of sale and not a contract to sell, Babasantas claim of ownership should
nevertheless fail.
Sale, being a consensual contract, is perfected by mere consent[25] and
from
that
moment,
the
parties
may
reciprocally
demand
[26]
performance. The essential elements of a contract of sale, to wit: (1)
consent or meeting of the minds, that is, to transfer ownership in exchange
for the price; (2) object certain which is the subject matter of the contract;
(3) cause of the obligation which is established.[27]
The perfection of a contract of sale should not, however, be confused
with its consummation. In relation to the acquisition and transfer of
ownership, it should be noted that sale is not a mode, but merely a title. A
mode is the legal means by which dominion or ownership is created,
transferred or destroyed, but title is only the legal basis by which to affect
dominion or ownership.[28] Under Article 712 of the Civil Code, ownership
and other real rights over property are acquired and transmitted by law, by
donation, by testate and intestate succession, and in consequence of
certain contracts, by tradition. Contracts only constitute titles or rights to the
transfer or acquisition of ownership, while delivery or tradition is the mode
of accomplishing the same.[29] Therefore, sale by itself does not transfer or
affect ownership; the most that sale does is to create the obligation to
transfer ownership. It is tradition or delivery, as a consequence of sale, that
actually transfers ownership.

Explicitly, the law provides that the ownership of the thing sold is
acquired by the vendee from the moment it is delivered to him in any of the
ways specified in Article 1497 to 1501.[30] The word delivered should not be
taken restrictively to mean transfer of actual physical possession of the
property. The law recognizes two principal modes of delivery, to wit: (1)
actual delivery; and (2) legal or constructive delivery.
Actual delivery consists in placing the thing sold in the control and
possession of the vendee.[31] Legal or constructive delivery, on the other
hand, may be had through any of the following ways: the execution of a
public instrument evidencing the sale;[32] symbolical tradition such as the
delivery of the keys of the place where the movable sold is being
kept;[33] traditio longa manu or by mere consent or agreement if the
movable sold cannot yet be transferred to the possession of the buyer at
the time of the sale;[34] traditio brevi manu if the buyer already had
possession of the object even before the sale;[35] and traditio constitutum
possessorium, where the seller remains in possession of the property in a
different capacity.[36]
Following the above disquisition, respondent Babasanta did not acquire
ownership by the mere execution of the receipt by Pacita Lu acknowledging
receipt of partial payment for the property. For one, the agreement between
Babasanta and the Spouses Lu, though valid, was not embodied in a public
instrument. Hence, no constructive delivery of the lands could have been
effected. For another, Babasanta had not taken possession of the property
at any time after the perfection of the sale in his favor or exercised acts of
dominion over it despite his assertions that he was the rightful owner of the
lands. Simply stated, there was no delivery to Babasanta, whether actual or
constructive, which is essential to transfer ownership of the property. Thus,
even on the assumption that the perfected contract between the parties
was a sale, ownership could not have passed to Babasanta in the absence
of delivery, since in a contract of sale ownership is transferred to the
vendee only upon the delivery of the thing sold.[37]
However, it must be stressed that the juridical relationship between the
parties in a double sale is primarily governed by Article 1544 which lays
down the rules of preference between the two purchasers of the same
property. It provides:
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person

acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in
good faith was first in the possession; and, in the absence thereof, to the person
who presents the oldest title, provided there is good faith.
The principle of primus tempore, potior jure (first in time, stronger in
right) gains greater significance in case of double sale of immovable
property. When the thing sold twice is an immovable, the one who acquires
it and first records it in the Registry of Property, both made in good faith,
shall be deemed the owner.[38] Verily, the act of registration must be
coupled with good faith that is, the registrant must have no knowledge of
the defect or lack of title of his vendor or must not have been aware of facts
which should have put him upon such inquiry and investigation as might be
necessary to acquaint him with the defects in the title of his vendor. [39]
Admittedly, SLDC registered the sale with the Registry of Deeds after it
had acquired knowledge of Babasantas claim. Babasanta, however,
strongly argues that the registration of the sale by SLDC was not sufficient
to confer upon the latter any title to the property since the registration was
attended by bad faith. Specifically, he points out that at the time SLDC
registered the sale on 30 June 1990, there was already a notice of lis
pendens on the file with the Register of Deeds, the same having been filed
one year before on 2 June 1989.
Did the registration of the sale after the annotation of the notice of lis
pendens obliterate the effects of delivery and possession in good faith
which admittedly had occurred prior to SLDCs knowledge of the transaction
in favor of Babasanta?
We do not hold so.
It must be stressed that as early as 11 February 1989, the Spouses Lu
executed the Option to Buy in favor of SLDC upon receivingP316,160.00
as option money from SLDC. After SLDC had paid more than one half of
the agreed purchase price of P1,264,640.00, the Spouses Lu subsequently
executed on 3 May 1989 a Deed of Absolute Sale in favor or SLDC. At the
time both deeds were executed, SLDC had no knowledge of the prior
transaction of the Spouses Lu with Babasanta. Simply stated, from the time
of execution of the first deed up to the moment of transfer and delivery of
possession of the lands to SLDC, it had acted in good faith and the

subsequent annotation of lis pendens has no effect at all on the

consummated sale between SLDC and the Spouses Lu.
A purchaser in good faith is one who buys property of
another without notice that some other person has a right to, or interest in,
such property and pays a full and fair price for the same at the time of such
purchase, or before he has notice of the claim or interest of some other
person in the property.[40] Following the foregoing definition, we rule that
SLDC qualifies as a buyer in good faith since there is no evidence extant in
the records that it had knowledge of the prior transaction in favor of
Babasanta. At the time of the sale of the property to SLDC, the vendors
were still the registered owners of the property and were in fact in
possession of the lands. Time and again, this Court has ruled that a person
dealing with the owner of registered land is not bound to go beyond the
certificate of title as he is charged with notice of burdens on the property
which are noted on the face of the register or on the certificate of title. [41] In
assailing knowledge of the transaction between him and the Spouses Lu,
Babasanta apparently relies on the principle of constructive notice
incorporated in Section 52 of the Property Registration Decree (P.D. No.
1529) which reads, thus:
Sec. 52. Constructive notice upon registration. Every conveyance, mortgage, lease,
lien, attachment, order, judgment, instrument or entry affecting registered land
shall, if registered, filed, or entered in the office of the Register of Deeds for the
province or city where the land to which it relates lies, be constructive notice to all
persons from the time of such registering, filing, or entering.
However, the constructive notice operates as suchby the express wording
of Section 52from the time of the registration of the notice of lis
pendens which in this case was effected only on 2 June 1989, at which
time the sale in favor of SLDC had long been consummated insofar as the
obligation of the Spouses Lu to transfer ownership over the property to
SLDC is concerned.
More fundamentally, given the superiority of the right of SLDC to the
claim of Babasanta the annotation of the notice of lis pendenscannot help
Babasantas position a bit and it is irrelevant to the good or bad faith
characterization of SLDC as a purchaser. A notice of lis pendens, as the
Court held in Natao v. Esteban,[42] serves as a warning to a prospective
purchaser or incumbrancer that the particular property is in litigation; and
that he should keep his hands off the same, unless he intends to gamble

on the results of the litigation. Precisely, in this case SLDC has intervened
in the pending litigation to protect its rights. Obviously, SLDCs faith in the
merit of its cause has been vindicated with the Courts present decision
which is the ultimate denouement on the controversy.
The Court of Appeals has made capital[43] of SLDCs averment in
its Complaint-in-Intervention[44] that at the instance of Pacita Lu it issued a
check for P200,000.00 payable to Babasanta and the confirmatory
testimony of Pacita Lu herself on cross-examination.[45]However, there is
nothing in the said pleading and the testimony which explicitly relates the
amount to the transaction between the Spouses Lu and Babasanta for what
they attest to is that the amount was supposed to pay off the advances
made by Babasanta to Pacita Lu. In any event, the incident took place after
the Spouses Lu had already executed the Deed of Absolute Sale with
Mortgage in favor of SLDC and therefore, as previously explained, it has no
effect on the legal position of SLDC.
Assuming ex gratia argumenti that SLDCs registration of the sale had
been tainted by the prior notice of lis pendens and assuming further for the
same nonce that this is a case of double sale, still Babasantas claim could
not prevail over that of SLDCs. In Abarquez v. Court of Appeals,[46] this
Court had the occasion to rule that if a vendee in a double sale registers
the sale after he has acquired knowledge of a previous sale, the
registration constitutes a registration in bad faith and does not confer upon
him any right. If the registration is done in bad faith, it is as if there is no
registration at all, and the buyer who has taken possession first of the
property in good faith shall be preferred.
In Abarquez, the first sale to the spouses Israel was notarized and
registered only after the second vendee, Abarquez, registered their deed of
sale with the Registry of Deeds, but the Israels were first in possession.
This Court awarded the property to the Israels because registration of the
property by Abarquez lacked the element of good faith. While the facts in
the instant case substantially differ from that inAbarquez, we would not
hesitate to rule in favor of SLDC on the basis of its prior possession of the
property in good faith. Be it noted that delivery of the property to SLDC was
immediately effected after the execution of the deed in its favor, at which
time SLDC had no knowledge at all of the prior transaction by the Spouses
Lu in favor of Babasanta.
The law speaks not only of one criterion. The first criterion is priority of
entry in the registry of property; there being no priority of such entry, the

second is priority of possession; and, in the absence of the two priorities,

the third priority is of the date of title, with good faith as the common critical
element. Since SLDC acquired possession of the property in good faith in
contrast to Babasanta, who neither registered nor possessed the property
at any time, SLDCs right is definitely superior to that of Babasantas.
At any rate, the above discussion on the rules on double sale would be
purely academic for as earlier stated in this decision, the contract between
Babasanta and the Spouses Lu is not a contract of sale but merely a
contract to sell. In Dichoso v. Roxas,[47] we had the occasion to rule that
Article 1544 does not apply to a case where there was a sale to one party
of the land itself while the other contract was a mere promise to sell the
land or at most an actual assignment of the right to repurchase the same
land. Accordingly, there was no double sale of the same land in that case.
WHEREFORE, the instant petition is hereby GRANTED. The decision
of the Court of Appeals appealed from is REVERSED and SET ASIDE and
the decision of the Regional Trial Court, Branch 31, of San Pedro, Laguna
is REINSTATED. No costs.
SO ORDERED.

12. THIRD DIVISION

[G.R. No. 115307. July 8, 1997]

MANUEL LAO, petitioner, vs. COURT OF APPEALS and BETTER

HOMES REALTY & HOUSING CORPORATION,respondents.
DECISION
PANGANIBAN, J.:

As a general rule, the main issue in an ejectment suit is possession de facto, not
possession de jure. In the event the issue of ownership is raised in the pleadings, such
issue shall be taken up only for the limited purpose of determining who between the
contending parties has the better right to possession. However, where neither of the
parties objects to the allegation of the question of ownership -- which may be initially
improvident or improper -- in an ejectment suit and, instead, both present evidence
thereon, argue the question in their various submissions and participate in all aspects of

the trial without objecting to the Metropolitan (or Municipal) Trial Courts jurisdiction to
decide the question of ownership, the Regional Trial Court -- in the exercise of its
original jurisdiction as authorized by Section 11, Rule 40 of the Rules of Court -- may
rule on the issue and the corollary question of whether the subject deed is one of sale or
of equitable mortgage.
These postulates are discussed by the Court as it resolves this petition under Rule
45 seeking a reversal of the December 21, 1993 Decision [1] and April 28, 1994
Resolution[2] of the Court of Appeals in CA-G.R. SP No. 92-14293.

The Antecedent Facts

The facts of this case are narrated by Respondent Court of Appeals as follows: [3]

On June 24, 1992, (herein Private Respondent Better Homes Realty and Housing
Corporation) filed with the Metropolitan Trial Court of Quezon City, a complaint for
unlawful detainer, on the ground that (said private respondent) is the owner of the
premises situated at Unit I, No. 21 N. Domingo Street, Quezon City, evidenced by
Transfer Certificate of Title No. 22184 of the Registry of Deeds of Quezon City; that
(herein Petitioner Manuel Lao) occupied the property without rent, but on (private
respondents) pure liberality with the understanding that he would vacate the property
upon demand, but despite demand to vacate made by letter received by (herein
petitioner) on February 5, 1992, the (herein petitioner) refused to vacate the premises.
In his answer to the complaint, (herein petitioner) claimed that he is the true owner of
the house and lot located at Unit I, No. 21 N. Domingo Street, Quezon City; that the
(herein private respondent) purchased the same from N. Domingo Realty and
Development Corporation but the agreement was actually a loan secured by mortgage;
and that plaintiffs cause of action is for accion publiciana, outside the jurisdiction of
an inferior court.
On October 9, 1992, the Metropolitan Trial Court of Quezon City rendered judgment
ordering the (petitioner) to vacate the premises located at Unit I, No. 21 N. Domingo
Street, Quezon City; to pay (private respondent) the sum of P300.00 a day starting on
January 31, 1992, as reasonable rent for the use and occupation of the premises; to
pay plaintiff P5,000.00, as attorneys fees, and costs.
On appeal to the Regional Trial Court of Quezon City, on March 30, 1993, the latter
court rendered a decision reversing that of the Metropolitan Trial Court, and ordering
the dismissal of the (private respondents) complaint for lack of merit, with costs taxed
against (private respondent).
[4]

In its decision, the Regional Trial Court held that the subject property was acquired by
(private respondent) from N. Domingo Realty and Development Corporation, by a
deed of sale, and (private respondent) is now the registered owner under Transfer
Certificate of Title No. 316634 of the Registry of Deeds of Quezon City, but in truth
the (petitioner) is the beneficial owner of the property because the real transaction
over the subject property was not a sale but a loan secured by a mortgage thereon.
The dispositive portion of the Regional Trial Courts decision is quoted below:[5]

WHEREFORE, judgment is hereby rendered reversing the appealed decision and

ordering the dismissal of plaintiffs complaint for lack of merit, with the costs taxed
against it.
IT IS SO ORDERED.
On April 28, 1993, private respondent filed an appeal with the Court of Appeals
which reversed the decision of the Regional Trial Court.The Respondent Court ruled:

The Metropolitan Trial Court has no jurisdiction to resolve the issue of ownership in
an action for unlawful detainer (B.P. 129, Sec. 33 [2]; Cf. Alvir vs. Vera, 130 SCRA
357). The jurisdiction of a court is determined by the nature of the action alleged in
the complaint (Ching vs. Malaya, 153 SCRA 412).In its complaint in the inferior
court, the plaintiff alleged that it is the owner of the premises located at Unit I, No. 21
N. Domingo Street, Quezon City, and that defendants occupation is rent free and
based on plaintiffs pure liberality coupled with defendants undertaking to vacate the
premises upon demand, but despite demands, defendant has refused to vacate. The
foregoing allegations suffice to constitute a cause of action for ejectment (Banco de
Oro vs. Court of Appeals, 182 SCRA 464).
The Metropolitan Trial Court is not ousted of jurisdiction simply because the
defendant raised the question of ownership (Bolus vs. Court of Appeals, 218 SCRA
798). The inferior court shall resolve the issue of ownership only to determine who is
entitled to the possession of the premises (B.P. 129, Sec. 33[2]; Bolus vs. Court of
Appeals, supra).
Here, the Metropolitan Trial Court ruled that as owner, plaintiff (herein private
respondent Better Homes Realty and Housing Corporation) is entitled to the
possession of the premises because the defendants stay is by mere tolerance of the
plaintiff (herein private respondent).
On the other hand, the Regional Trial Court ruled that the subject property is owned
by the defendant, (herein petitioner Manuel Lao) and, consequently, dismissed the

complaint for unlawful detainer. Thus, the Regional Trial Court resolved the issue of
ownership, as if the case were originally before it as an action for recovery of
possession, or accion publiciana, within its original jurisdiction. In an appeal from a
decision of the Municipal Trial Court, or Metropolitan Trial Court, in an unlawful
detainer case, the Regional Trial Court is simply to determine whether the inferior
court correctly resolved the issue of possession; it shall not delve into the issue of
ownership (Manuel vs. Court of Appeals, 199 SCRA 603). What the Regional Trial
Court did was to rule that the real agreement between the plaintiff and the previous
owner of the property was not a sale, but an equitable mortgage. Defendant was only a
director of the seller corporation, and his claim of ownership could not be true. This
question could not be determined summarily. It was not properly in issue before the
inferior court because, as aforesaid, the only issue was possession de facto (Manlapaz
vs. Court of Appeals, 191 SCRA 795), or who has a better right to physical possession
(Dalida vs. Court of Appeals, 117 SCRA 480). Consequently, the Regional Trial
Court erred in reversing the decision of the Metropolitan Trial Court.
WHEREFORE, the Court hereby REVERSES the decision of the Regional Trial
Court. In lieu thereof, We affirm the decision of the Metropolitan Trial Court of
Quezon City sentencing the defendant and all persons claiming right under him to
vacate the premises situated at Unit I, No. 21 N. Domingo Street, Quezon City, and to
surrender possession to the plaintiff; to pay plaintiff the sum of P300.00, a day starting
on January 31, 1992, until defendant shall have vacated the premises; to pay
plaintiff P5,000.00 as attorneys fees, and costs.
SO ORDERED.

[6]

Manuel Laos motion for reconsideration dated January 24, 1994 was denied by the
Court of Appeals in its Resolution promulgated on April 28, 1994. Hence, this petition for
review before this Court.[7]

The Issues
Petitioner Manuel Lao raises three issues:

3.1 Whether or not the lower court can decide on the issue of ownership in the present
ejectment case
3.2 Whether or not private respondent had acquired ownership over the property in
question
3.3 Whether or not petitioner should be ejected from the premises in question

[8]

The Courts Ruling

The petition for review is meritorious.

First Issue: Jurisdiction to Decide the Issue of Ownership

The Court of Appeals held that as a general rule, the issue in an ejectment suit is
possession de facto, not possession de jure, and that in the event the issue of
ownership is raised as a defense, the issue is taken up for the limited purpose of
determining who between the contending parties has the better right to
possession. Beyond this, the MTC acts in excess of its jurisdiction. However, we hold
that this is not a hard and fast rule that can be applied automatically to all unlawful
detainer cases.
Section 11, Rule 40 of the Rules of Court provides that [a] case tried by an inferior
court without jurisdiction over the subject matter shall be dismissed on appeal by the
Court of First Instance. But instead of dismissing the case, the Court of First Instance, in
the exercise of its original jurisdiction, may try the case on the merits if the parties
therein file their pleadings and go to the trial without any objection to such
jurisdiction. After a thorough review of the records of this case, the Court finds that the
respondent appellate court failed to apply this Rule and erroneously reversed the RTC
Decision.
Respondent Court cites Alvir vs. Vera to support its Decision. On the contrary, we
believe such case buttresses instead the Regional Trial Courts decision. The cited case
involves an unlawful detainer suit where the issue of possession was inseparable from
the issue of transfer of ownership, and the latter was determinable only after an
examination of a contract of sale involving the property in question. The Court ruled that
where a case was tried and heard by the lower court in the exercise of its original
jurisdiction by common assent of the parties by virtue of the issues raised x x x and the
proofs presented by them, any dismissal on the ground of lack of jurisdiction would only
lead to needless delays and multiplicity of suits. The Court held:

In actions of forcible entry and detainer, the main issue is possession de facto,
independently of any claim of ownership or possession de jure that either party may
set forth in his pleading. x x x Defendants claim of ownership of the property from
which plaintiff seeks to eject him is not sufficient to divest the inferior court of its
jurisdiction over the action of forcible entry and detainer. However, if it appears
during the trial that the principal issue relates to the ownership of the property in
dispute and any question of possession which may be involved necessarily depends
upon the result of the inquiry into the title, previous rulings of this Court are that the
jurisdiction of the municipal or city court is lost and the action should be dismissed.

We have at bar a case where, in effect, the question of physical possession could not
properly be determined without settling that of lawful or de jurepossession and of
ownership and hence, following early doctrine, the jurisdiction of the municipal court
over the ejectment case was lost and the action should have been dismissed. As a
consequence, respondent court would have no jurisdiction over the case on appeal and
it should have dismissed the case on appeal from the municipal trial court. However,
in line with Section 11, Rule 40 of the Revised Rules of Court, which reads -SEC. 11. Lack of Jurisdiction. -- A case tried by an inferior court without jurisdiction
over the subject matter shall be dismissed on appeal by the Court of First
Instance. But instead of dismissing the case, the Court of First Instance in the exercise
of its original jurisdiction, may try the case on the merits if the parties therein file their
pleadings and go to trial without objection to such jurisdiction.
this Court held in Saliwan vs. Amores, 51 SCRA 329, 337, that dismissal on the said
ground of lack of appellate jurisdiction on the part of the lower court flowing from the
municipal courts loss of jurisdiction would lead only to needless delay and
multiplicity of suits in the attainment of the same result and ignores, as above stated,
that the case was tried and heard by the lower court in the exercise of its original
jurisdiction by common assent of the parties by virtue of the issues raised by the
parties and the proof presented by them thereon.
[9]

This pronouncement was reiterated by this Court through Mr. Justice Teodoro R.
Padilla in Consignado vs. Court of Appeals[10] as follows:

As the MTC of Laguna had no jurisdiction over the unlawful detainer case in view of
the raised question of title or ownership over the property in dispute, the RTC of
Laguna also had no appellate jurisdiction to decide the case on the merits. It should
have dismissed the appeal. However, it had originaljurisdiction to pass upon the
controversy. It is to be noted, in this connection, that in their respective memoranda
filed with the RTC of Laguna, the petitioners and private respondents did not object to
the said court exercising its original jurisdiction pursuant to the aforequoted
provisions of Section 11, Rule 40 of the Rules of Court.
xxxxxxxxx

Petitioners now contend, among others, that the Court of Appeals erred in resolving
the question of ownership as if actual title, not mere possession of subject premises, is
involved in the instant case.

The petitioners contention is untenable. Since the MTC and RTC of Laguna decided
the question of ownership over the property in dispute, on appeal the Court of Appeals
had to review and resolve also the issue of ownership. x x x
It is clear, therefore, that although an action for unlawful detainer is inadequate for
the ventilation of issues involving title or ownership of controverted real property, [i]t is
more in keeping with procedural due process that where issues of title or ownership are
raised in the summary proceedings for unlawful detainer, said proceeding should
be dismissed for lack of jurisdiction, unless, in the case of an appeal from the inferior
court to the Court of First Instance, the parties agree to the latter Court hearing the case
in its original jurisdiction in accordance with Section 11, Rule 40 x x x.[11]
In the case at bar, a determination of the issue of ownership is indispensable to
resolving the rights of both parties over the property in controversy, and is inseparable
from a determination of who between them has the right to possess the same. Indeed,
the very complaint for unlawful detainer filed in the Metropolitan Trial Court of Quezon
City is anchored on the alleged ownership of private respondent over the subject
premises.[12] The parties did not object to the incongruity of a question of ownership
being brought in an ejectment suit. Instead they both submitted evidence on such
question, and the Metropolitan Trial Court decided on the issue. These facts are evident
in the Metropolitan Trial Courts decision:

From the records of the case, the evidence presented and the various arguments
advanced by the parties, the Court finds that the property subject matter of this case is
in the name of (herein private respondent) Better Homes and Realty Housing
Corporation; that the Deed of Absolute Sale which was the basis for the issuance of
said TCT No. 22184 is between N. Domingo Realty and Development Corporation
and Better Homes Realty and Housing Corporation which was signed by Artemio S.
Lao representing the seller N. Domingo and Realty Development Corporation; that a
Board Resolution of N. Domingo and Realty and Development Corporation (Exhibit
D position paper) shows that the Directors of the Board of the N. Domingo Realty and
Development Corporation passed a resolution selling apartment units I and F located
at No. 21 N. Domingo St., Quezon City and designating the (herein petitioner) with
his brother Artemio S. Lao as signatories to the Deed of Sale. The claim therefore of
the (herein petitioner) that he owns the property is not true. x x x
[13]

When the MTC decision was appealed to the Regional Trial Court, not one of the
parties questioned the Metropolitan Trial Courts jurisdiction to decide the issue of
ownership. In fact, the records show that both petitioner and private respondent
discussed the issue in their respective pleadings before the Regional Trial Court. [14] They
participated in all aspects of the trial without objection to its jurisdiction to decide the
issue of ownership. Consequently, the Regional Trial Court aptly decided the issue
based on the exercise of its original jurisdiction as authorized by Section 11, Rule 40 of
the Rules of Court.

This Court further notes that in both of the contending parties pleadings filed on
appeal before the Court of Appeals, the issue of ownership was likewise amply
discussed.[15] The totality of evidence presented was sufficient to decide categorically the
issue of ownership.
These considerations, taken together with the fact that both the Metropolitan Trial
Court and the Regional Trial Court decided the issue of ownership, justify the review of
the lower courts findings of fact and decision on the issue of ownership. This we now
do, as we dispose of the second issue and decide the case with finality to spare the
parties the time, trouble and expense of undergoing the rigors of another suit where
they will have to present the same evidence all over again and where, in all probability,
the same ultimate issue of ownership will be brought up on appeal.

Second Issue: Absolute Sale or Equitable Mortgage?

Private Respondent Better Homes Realty and Housing Corporation anchored its
right in the ejectment suit on a contract of sale in which petitioner (through their family
corporation) transferred the title of the property in question. Petitioner contends,
however, that their transaction was not an absolute sale, but an equitable mortgage.
In determining the nature of a contract, the Court looks at the intent of the parties
and not at the nomenclature used to describe it.Pivotal to deciding this issue is the true
aim and purpose of the contracting parties as shown by the terminology used in the
covenant, as well as by their conduct, words, actions and deeds prior to, during and
immediately after executing the agreement.[16] In this regard, parol evidence becomes
admissible to prove the true intent and agreement of the parties which the Court will
enforce even if the title of the property in question has already been registered and a
new transfer certificate of title issued in the name of the transferee. In Macapinlac vs.
Gutierrez Repide, which involved an identical question, the Court succintly stated:

x x x This conclusion is fully supported by the decision in Cuyugan vs. Santos (34
Phil., 100), where this court held that a conveyance in the form of a contract of sale
with pacto de retro will be treated as a mere mortgage, if really executed as security
for a debt, and that this fact can be shown by oral evidence apart from the instrument
of conveyance, a doctrine which has been followed in the later cases of Villa vs.
Santiago (38 Phil., 157), and Cuyugan vs. Santos (39 Phil., 970).
xxxxxxxxx

In the first place, it must be borne in mind that the equitable doctrine which has been
so fully stated above, to the effect that any conveyance intended as security for a debt
will be held in effect to be a mortgage, whether so actually expressed in the
instrument or not, operates regardless of the form of the agreement chosen by the
contracting parties as the repository of their will. Equity looks through the form and

considers the substance; and no kind of engagement can be adopted which will enable
the parties to escape from the equitable doctrine to which reference is made. In other
words, a conveyance of land, accompanied by registration in the name of the
transferee and the issuance of a new certificate, is no more secured from the operation
of this equitable doctrine than the most informal conveyance that could be devised.
[17]

The law enumerates when a contract may be presumed to be an equitable

mortgage:

(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period is
executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation.
x x x x x x x x x[18]
The foregoing presumption applies also to a contract purporting to be an absolute
sale.[19]
Applying the preceding principles to the factual milieu of this case, we find the
agreement between the private respondent and N. Domingo Realty & Housing
Corporation, as represented by petitioner, manifestly one of equitable mortgage. First,
possession of the property in the controversy remained with Petitioner Manuel Lao who
was the beneficial owner of the property, before, during and after the alleged sale. [20] It is
settled that a pacto de retro sale should be treated as a mortgage where the (property)
sold never left the possession of the vendors.[21] Second, the option given to Manuel Lao
to purchase the property in controversy had been extended twice[22] through documents
executed by Mr. Tan Bun Uy, President and Chairman of the Board of Better Homes
Realty & Housing Corporation. The wording of the first extension is a refreshing
revelation that indeed the parties really intended to be bound by a loan with mortgage,
not by apacto de retro. It reads, On June 10, 88, this option is extended for another sixty
days to expired (sic) on Aug. 11, 1988. The purchase price is increased
to P137,000.00. Since Mr. Lao borrow (sic) P20,000.00 from me.[23] These extensions
clearly represent the extension of time to pay the loan given to Manuel Lao upon his

failure to pay said loan on its maturity. Mr. Lao was even granted an additional loan
ofP20,000.00 as evidenced by the above-quoted document. Third, unquestionably,
Manuel Lao and his brother were in such dire need of money that they mortgaged their
townhouse units registered under the name of N. Domingo Realty Corporation, the
family corporation put up by their parents, to Private Respondent Better Homes Realty
& Housing Corporation. In retrospect, it is easy to blame Petitioner Manuel Lao for not
demanding a reformation of the contract to reflect the true intent of the parties. But this
seeming inaction is sufficiently explained by the Lao brothers desperate need for
money, compelling them to sign the document purporting to be a sale after they were
told that the same was just for formality.[24] In fact, this Court, in various cases involving
the same situation, had occasion to state:

x x x In Jayme, et al. v. Salvador, et al., this Court upheld a judgment of the Court of
First Instance of Iloilo which found the transaction between the parties to be a loan
instead of a sale of real property notwithstanding the terminology used in the
document, after taking into account the surrounding circumstances of the
transaction. The Court through Justice Norberto Romualdez stated that while it was
true that plaintiffs were aware of the contents of the contracts, the preponderance of
the evidence showed however that they signed knowing that said contracts did not
express their real intention, and if they did so notwithstanding this, it was due to the
urgent necessity of obtaining funds. Necessitous men are not, truly speaking, free
men; but to answer a present emergency, will submit to any terms that the crafty may
impose upon them.
[25]

Moreover, since the borrowers urgent need for money places the latter at a
disadvantage vis-a-vis the lender who can thus dictate the terms of their contract, the
Court, in case of an ambiguity, deems the contract to be one which involves the lesser
transmission of rights and interest over the property in controversy.[26]
As aptly found and concluded by the regional trial court:

The evidence of record indicates that while as of April 4, 1988 (the date of execution
of the Deed of Absolute Sale whereby the N. Domingo and Realty & Development
Corporation purportedly sold the townhouse and lot subject of this suit to [herein
private respondent Better Homes Realty & Housing Corporation] for P100,000.00)
said N. Domingo Realty & Development Corporation (NDRDC, for short) was the
registered owner of the subject property under Transfer Certificate of Title (TCT) No.
316634 of the Registry of Deeds for Quezon City, (herein petitioner Manuel Lao) in
fact was and has been since 1975 the beneficial owner of the subject property and,
thus, the same was assigned to him by the NDRDC, the family corporation set up by
his parents and of which (herein petitioner) and his siblings are directors. That the
parties real transaction or contract over the subject property was not one of sale but,
rather, one of loan secured by a mortgage thereon is unavoidably inferrable from the
following facts of record, to (herein petitioners) possession of the subject property,

which started in 1975 yet, continued and remained even after the alleged sale of April
4, 1988; (herein private respondent) executed an option to purchase in favor (herein
petitioner) as early as April 2, 1988 or two days before (herein private respondent)
supposedly acquired ownership of the property; the said option was renewed several
times and the price was increased with each renewal (thus, the original period for the
exercise of the option was up to June 11, 1988 and the price was P109,000.00; then,
on June 10, 1988, the option was extended for 60 days or until August 11, 1988 and
the price was increased to P137,000.00; and then on August 11, 1988, the option was
again extended until November 11, 1988 and the price was increased to P158,
840.00); and, the Deed of Absolute Sale of April 4, 1988 was registered and the
property transferred in the name of (private respondent) only on May 10, 1989, per
TCT No. 22184 of the Registry of Deeds for Quezon City (Arts. 1602, nos. 2, 3, & 6,
& 1604, Civil Code). Indeed, if it were true, as it would have the Court believe, that
(private respondent) was so appreciative of (petitioners) alleged facilitation of the
subject propertys sale to it, it is quite strange why (private respondent) some two days
before such supposed sale would have been minded and inclined to execute an option
to purchase allowing (petitioner) to acquire the property -- the very same property it
was still hoping to acquire at the time. Certainly, what is more likely and thus credible
is that, if (private respondent) was indeed thankful that it was able to purchase the
property, it would not given (petitioner) any option to purchase at all x x x.
[27]

Based on the conduct of the petitioner and private respondent and even the
terminology of the second option to purchase, we rule that the intent and agreement
between them was undoubtedly one of equitable mortgage and not of sale.

Third Issue: Should Petitioner Be Ejected?

We answer in the negative. An action for unlawful detainer is grounded on Section
1, Rule 70 of the Rules of Court which provides that:

x x x a landlord, vendor, vendee, or other person against whom the possession of any
land or building is unlawfully withheld after the expiration or termination of the right
to hold possession, by virtue of any contract, express or implied, or the legal
representatives or assigns of any such landlord, vendor, vendee, or other person, may,
at any time within one (1) year after such unlawful deprivation or withholding of
possession, bring an action in the proper inferior court against the person or persons
unlawfully withholding or depriving of possession, or any person or persons claiming
under them, for the restitution of such possession, together with damages and costs. x
x x.

Based on the previous discussion, there was no sale of the disputed

property. Hence, it still belongs to petitioners family corporation, N. Domingo Realty &
Development Corporation. Private respondent, being a mere mortgagee, has no right to
eject petitioner. Private respondent, as a creditor and mortgagee, x x x cannot
appropriate the things given by way of pledge or mortgage, or dispose of them. Any
stipulation to the contrary is null and void.[28]

Other Matters
Private respondent in his memorandum also contends that (1) petitioner is not the
real party in interest and (2) the petition should be dismissed for raising/stating facts not
so found by the Court of Appeals. These deserve scant consideration. Petitioner was
impleaded as party defendant in the ejectment suit by private respondent itself. Thus,
private respondent cannot question his standing as a party. As such party, petitioner
should be allowed to raise defenses which negate private respondents right to the
property in question. The second point is really academic. This ponencia relies on the
factual narration of the Court of Appeals and not on the facts supplied by petitioner.
WHEREFORE, the petition is hereby GRANTED. The challenged Decision of the
Court of Appeals is REVERSED and SET ASIDE. The decision of the Regional Trial
Court of Quezon City ordering the dismissal of the complaint for ejectment
is REINSTATED and AFFIRMED.No pronouncement as to costs.
SO ORDERED

14. FERNANDO A. GAITE, plaintiff-appellee,

vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES &
SMELTING CO., INC., SEGUNDINA VIVAS, FRNACISCO DANTE,
PACIFICO ESCANDOR and FERNANDO TY, defendants-appellants.
Alejo Mabanag for plaintiff-appellee.
Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendantsappellants.
REYES, J.B.L., J.:
This appeal comes to us directly from the Court of First Instance because
the claims involved aggregate more than P200,000.00.
Defendant-appellant Isabelo Fonacier was the owner and/or holder, either
by himself or in a representative capacity, of 11 iron lode mineral claims,

known as the Dawahan Group, situated in the municipality of Jose

Panganiban, province of Camarines Norte.
By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"),
Fonacier constituted and appointed plaintiff-appellee Fernando A. Gaite as
his true and lawful attorney-in-fact to enter into a contract with any
individual or juridical person for the exploration and development of the
mining claims aforementioned on a royalty basis of not less than P0.50 per
ton of ore that might be extracted therefrom. On March 19, 1954, Gaite in
turn executed a general assignment (Record on Appeal, pp. 17-19)
conveying the development and exploitation of said mining claims into the
Larap Iron Mines, a single proprietorship owned solely by and belonging to
him, on the same royalty basis provided for in Exhibit "3". Thereafter, Gaite
embarked upon the development and exploitation of the mining claims in
question, opening and paving roads within and outside their boundaries,
making other improvements and installing facilities therein for use in the
development of the mines, and in time extracted therefrom what he claim
and estimated to be approximately 24,000 metric tons of iron ore.
For some reason or another, Isabelo Fonacier decided to revoke the
authority granted by him to Gaite to exploit and develop the mining claims
in question, and Gaite assented thereto subject to certain conditions. As a
result, a document entitled "Revocation of Power of Attorney and Contract"
was executed on December 8, 1954 (Exhibit "A"),wherein Gaite transferred
to Fonacier, for the consideration of P20,000.00, plus 10% of the royalties
that Fonacier would receive from the mining claims, all his rights and
interests on all the roads, improvements, and facilities in or outside said
claims, the right to use the business name "Larap Iron Mines" and its
goodwill, and all the records and documents relative to the mines. In the
same document, Gaite transferred to Fonacier all his rights and interests
over the "24,000 tons of iron ore, more or less" that the former had already
extracted from the mineral claims, in consideration of the sum of
P75,000.00, P10,000.00 of which was paid upon the signing of the
agreement, and
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will
be paid from and out of the first letter of credit covering the first
shipment of iron ores and of the first amount derived from the local
sale of iron ore made by the Larap Mines & Smelting Co. Inc., its
assigns, administrators, or successors in interests.

To secure the payment of the said balance of P65,000.00, Fonacier

promised to execute in favor of Gaite a surety bond, and pursuant to the
promise, Fonacier delivered to Gaite a surety bond dated December 8,
1954 with himself (Fonacier) as principal and the Larap Mines and Smelting
Co. and its stockholders George Krakower, Segundina Vivas, Pacifico
Escandor, Francisco Dante, and Fernando Ty as sureties (Exhibit "A-1").
Gaite testified, however, that when this bond was presented to him by
Fonacier together with the "Revocation of Power of Attorney and Contract",
Exhibit "A", on December 8, 1954, he refused to sign said Exhibit "A"
unless another bond under written by a bonding company was put up by
defendants to secure the payment of the P65,000.00 balance of their price
of the iron ore in the stockpiles in the mining claims. Hence, a second
bond, also dated December 8, 1954 (Exhibit "B"),was executed by the
same parties to the first bond Exhibit "A-1", with the Far Eastern Surety and
Insurance Co. as additional surety, but it provided that the liability of the
surety company would attach only when there had been an actual sale of
iron ore by the Larap Mines & Smelting Co. for an amount of not less then
P65,000.00, and that, furthermore, the liability of said surety company
would automatically expire on December 8, 1955. Both bonds were
attached to the "Revocation of Power of Attorney and Contract", Exhibit
"A", and made integral parts thereof.
On the same day that Fonacier revoked the power of attorney he gave to
Gaite and the two executed and signed the "Revocation of Power of
Attorney and Contract", Exhibit "A", Fonacier entered into a "Contract of
Mining Operation", ceding, transferring, and conveying unto the Larap
Mines and Smelting Co., Inc. the right to develop, exploit, and explore the
mining claims in question, together with the improvements therein and the
use of the name "Larap Iron Mines" and its good will, in consideration of
certain royalties. Fonacier likewise transferred, in the same document, the
complete title to the approximately 24,000 tons of iron ore which he
acquired from Gaite, to the Larap & Smelting Co., in consideration for the
signing by the company and its stockholders of the surety bonds delivered
by Fonacier to Gaite (Record on Appeal, pp. 82-94).
Up to December 8, 1955, when the bond Exhibit "B" expired with respect to
the Far Eastern Surety and Insurance Company, no sale of the
approximately 24,000 tons of iron ore had been made by the Larap Mines
& Smelting Co., Inc., nor had the P65,000.00 balance of the price of said
ore been paid to Gaite by Fonacier and his sureties payment of said

amount, on the theory that they had lost right to make use of the period
given them when their bond, Exhibit "B" automatically expired (Exhibits "C"
to "C-24"). And when Fonacier and his sureties failed to pay as demanded
by Gaite, the latter filed the present complaint against them in the Court of
First Instance of Manila (Civil Case No. 29310) for the payment of the
P65,000.00 balance of the price of the ore, consequential damages, and
attorney's fees.
All the defendants except Francisco Dante set up the uniform defense that
the obligation sued upon by Gaite was subject to a condition that the
amount of P65,000.00 would be payable out of the first letter of credit
covering the first shipment of iron ore and/or the first amount derived from
the local sale of the iron ore by the Larap Mines & Smelting Co., Inc.; that
up to the time of the filing of the complaint, no sale of the iron ore had been
made, hence the condition had not yet been fulfilled; and that
consequently, the obligation was not yet due and demandable. Defendant
Fonacier also contended that only 7,573 tons of the estimated 24,000 tons
of iron ore sold to him by Gaite was actually delivered, and counterclaimed
for more than P200,000.00 damages.
At the trial of the case, the parties agreed to limit the presentation of
evidence to two issues:
(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite
P65,000.00 become due and demandable when the defendants failed to
renew the surety bond underwritten by the Far Eastern Surety and
Insurance Co., Inc. (Exhibit "B"), which expired on December 8, 1955; and
(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to
defendant Fonacier were actually in existence in the mining claims when
these parties executed the "Revocation of Power of Attorney and Contract",
Exhibit "A."
On the first question, the lower court held that the obligation of the
defendants to pay plaintiff the P65,000.00 balance of the price of the
approximately 24,000 tons of iron ore was one with a term: i.e., that it
would be paid upon the sale of sufficient iron ore by defendants, such sale
to be effected within one year or before December 8, 1955; that the giving
of security was a condition precedent to Gait's giving of credit to
defendants; and that as the latter failed to put up a good and sufficient

security in lieu of the Far Eastern Surety bond (Exhibit "B") which expired
on December 8, 1955, the obligation became due and demandable under
Article 1198 of the New Civil Code.
As to the second question, the lower court found that plaintiff Gaite did
have approximately 24,000 tons of iron ore at the mining claims in question
at the time of the execution of the contract Exhibit "A."
Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering
defendants to pay him, jointly and severally, P65,000.00 with interest at 6%
per annum from December 9, 1955 until payment, plus costs. From this
judgment, defendants jointly appealed to this Court.
During the pendency of this appeal, several incidental motions were
presented for resolution: a motion to declare the appellants Larap Mines &
Smelting Co., Inc. and George Krakower in contempt, filed by appellant
Fonacier, and two motions to dismiss the appeal as having become
academic and a motion for new trial and/or to take judicial notice of certain
documents, filed by appellee Gaite. The motion for contempt is
unmeritorious because the main allegation therein that the appellants Larap
Mines & Smelting Co., Inc. and Krakower had sold the iron ore here in
question, which allegedly is "property in litigation", has not been
substantiated; and even if true, does not make these appellants guilty of
contempt, because what is under litigation in this appeal is appellee Gaite's
right to the payment of the balance of the price of the ore, and not the iron
ore itself. As for the several motions presented by appellee Gaite, it is
unnecessary to resolve these motions in view of the results that we have
reached in this case, which we shall hereafter discuss.
The main issues presented by appellants in this appeal are:
(1) that the lower court erred in holding that the obligation of appellant
Fonacier to pay appellee Gaite the P65,000.00 (balance of the price of the
iron ore in question)is one with a period or term and not one with a
suspensive condition, and that the term expired on December 8, 1955; and
(2) that the lower court erred in not holding that there were only 10,954.5
tons in the stockpiles of iron ore sold by appellee Gaite to appellant
Fonacier.

The first issue involves an interpretation of the following provision in the

contract Exhibit "A":
7. That Fernando Gaite or Larap Iron Mines hereby transfers to
Isabelo F. Fonacier all his rights and interests over the 24,000 tons of
iron ore, more or less, above-referred to together with all his rights
and interests to operate the mine in consideration of the sum of
SEVENTY-FIVE THOUSAND PESOS (P75,000.00) which the latter
binds to pay as follows:
a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the
signing of this agreement.
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will
be paid from and out of the first letter of credit covering the first
shipment of iron ore made by the Larap Mines & Smelting Co., Inc.,
its assigns, administrators, or successors in interest.
We find the court below to be legally correct in holding that the shipment or
local sale of the iron ore is not a condition precedent (or suspensive) to the
payment of the balance of P65,000.00, but was only a suspensive period or
term. What characterizes a conditional obligation is the fact that its efficacy
or obligatory force (as distinguished from its demandability) is subordinated
to the happening of a future and uncertain event; so that if the suspensive
condition does not take place, the parties would stand as if the conditional
obligation had never existed. That the parties to the contract Exhibit "A" did
not intend any such state of things to prevail is supported by several
circumstances:
1) The words of the contract express no contingency in the buyer's
obligation to pay: "The balance of Sixty-Five Thousand Pesos
(P65,000.00) will be paid out of the first letter of credit covering the first
shipment of iron ores . . ." etc. There is no uncertainty that the payment will
have to be made sooner or later; what is undetermined is merely the exact
date at which it will be made. By the very terms of the contract, therefore,
the existence of the obligation to pay is recognized; only
its maturity or demandability is deferred.
2) A contract of sale is normally commutative and onerous: not only does
each one of the parties assume a correlative obligation (the seller to deliver
and transfer ownership of the thing sold and the buyer to pay the price),but

each party anticipates performance by the other from the very start. While
in a sale the obligation of one party can be lawfully subordinated to an
uncertain event, so that the other understands that he assumes the risk of
receiving nothing for what he gives (as in the case of a sale of hopes or
expectations, emptio spei), it is not in the usual course of business to do
so; hence, the contingent character of the obligation must clearly appear.
Nothing is found in the record to evidence that Gaite desired or assumed to
run the risk of losing his right over the ore without getting paid for it, or that
Fonacier understood that Gaite assumed any such risk. This is proved by
the fact that Gaite insisted on a bond a to guarantee payment of the
P65,000.00, an not only upon a bond by Fonacier, the Larap Mines &
Smelting Co., and the company's stockholders, but also on one by a surety
company; and the fact that appellants did put up such bonds indicates that
they admitted the definite existence of their obligation to pay the balance of
P65,000.00.
3) To subordinate the obligation to pay the remaining P65,000.00 to the
sale or shipment of the ore as a condition precedent, would be tantamount
to leaving the payment at the discretion of the debtor, for the sale or
shipment could not be made unless the appellants took steps to sell the
ore. Appellants would thus be able to postpone payment indefinitely. The
desireability of avoiding such a construction of the contract Exhibit "A"
needs no stressing.
4) Assuming that there could be doubt whether by the wording of the
contract the parties indented a suspensive condition or a suspensive period
(dies ad quem) for the payment of the P65,000.00, the rules of
interpretation would incline the scales in favor of "the greater reciprocity of
interests", since sale is essentially onerous. The Civil Code of the
Philippines, Article 1378, paragraph 1, in fine, provides:
If the contract is onerous, the doubt shall be settled in favor of the
greatest reciprocity of interests.
and there can be no question that greater reciprocity obtains if the buyer'
obligation is deemed to be actually existing, with only its maturity (due date)
postponed or deferred, that if such obligation were viewed as non-existent
or not binding until the ore was sold.

The only rational view that can be taken is that the sale of the ore to
Fonacier was a sale on credit, and not an aleatory contract where the
transferor, Gaite, would assume the risk of not being paid at all; and that
the previous sale or shipment of the ore was not a suspensive condition for
the payment of the balance of the agreed price, but was intended merely to
fix the future date of the payment.
This issue settled, the next point of inquiry is whether appellants, Fonacier
and his sureties, still have the right to insist that Gaite should wait for the
sale or shipment of the ore before receiving payment; or, in other words,
whether or not they are entitled to take full advantage of the period granted
them for making the payment.
We agree with the court below that the appellant have forfeited the right
court below that the appellants have forfeited the right to compel Gaite to
wait for the sale of the ore before receiving payment of the balance of
P65,000.00, because of their failure to renew the bond of the Far Eastern
Surety Company or else replace it with an equivalent guarantee. The
expiration of the bonding company's undertaking on December 8, 1955
substantially reduced the security of the vendor's rights as creditor for the
unpaid P65,000.00, a security that Gaite considered essential and upon
which he had insisted when he executed the deed of sale of the ore to
Fonacier (Exhibit "A"). The case squarely comes under paragraphs 2 and 3
of Article 1198 of the Civil Code of the Philippines:
"ART. 1198. The debtor shall lose every right to make use of the
period:
(1) . . .
(2) When he does not furnish to the creditor the guaranties or
securities which he has promised.
(3) When by his own acts he has impaired said guaranties or
securities after their establishment, and when through fortuitous event
they disappear, unless he immediately gives new ones equally
satisfactory.
Appellants' failure to renew or extend the surety company's bond upon its
expiration plainly impaired the securities given to the creditor (appellee
Gaite), unless immediately renewed or replaced.

There is no merit in appellants' argument that Gaite's acceptance of the

surety company's bond with full knowledge that on its face it would
automatically expire within one year was a waiver of its renewal after the
expiration date. No such waiver could have been intended, for Gaite stood
to lose and had nothing to gain barely; and if there was any, it could be
rationally explained only if the appellants had agreed to sell the ore and pay
Gaite before the surety company's bond expired on December 8, 1955. But
in the latter case the defendants-appellants' obligation to pay became
absolute after one year from the transfer of the ore to Fonacier by virtue of
the deed Exhibit "A.".
All the alternatives, therefore, lead to the same result: that Gaite acted
within his rights in demanding payment and instituting this action one year
from and after the contract (Exhibit "A") was executed, either because the
appellant debtors had impaired the securities originally given and thereby
forfeited any further time within which to pay; or because the term of
payment was originally of no more than one year, and the balance of
P65,000.00 became due and payable thereafter.
Coming now to the second issue in this appeal, which is whether there
were really 24,000 tons of iron ore in the stockpiles sold by appellee Gaite
to appellant Fonacier, and whether, if there had been a short-delivery as
claimed by appellants, they are entitled to the payment of damages, we
must, at the outset, stress two things:first, that this is a case of a sale of a
specific mass of fungible goods for a single price or a lump sum, the
quantity of "24,000 tons of iron ore, more or less," stated in the contract
Exhibit "A," being a mere estimate by the parties of the total tonnage weight
of the mass; and second, that the evidence shows that neither of the
parties had actually measured of weighed the mass, so that they both tried
to arrive at the total quantity by making an estimate of the volume thereof in
cubic meters and then multiplying it by the estimated weight per ton of each
cubic meter.
The sale between the parties is a sale of a specific mass or iron ore
because no provision was made in their contract for the measuring or
weighing of the ore sold in order to complete or perfect the sale, nor was
the price of P75,000,00 agreed upon by the parties based upon any such
measurement.(see Art. 1480, second par., New Civil Code). The subject
matter of the sale is, therefore, a determinate object, the mass, and not the
actual number of units or tons contained therein, so that all that was

required of the seller Gaite was to deliver in good faith to his buyer all of the
ore found in the mass, notwithstanding that the quantity delivered is less
than the amount estimated by them (Mobile Machinery & Supply Co., Inc.
vs. York Oilfield Salvage Co., Inc. 171 So. 872, applying art. 2459 of the
Louisiana Civil Code). There is no charge in this case that Gaite did not
deliver to appellants all the ore found in the stockpiles in the mining claims
in questions; Gaite had, therefore, complied with his promise to deliver, and
appellants in turn are bound to pay the lump price.
But assuming that plaintiff Gaite undertook to sell and appellants undertook
to buy, not a definite mass, but approximately 24,000 tons of ore, so that
any substantial difference in this quantity delivered would entitle the buyers
to recover damages for the short-delivery, was there really a short-delivery
in this case?
We think not. As already stated, neither of the parties had actually
measured or weighed the whole mass of ore cubic meter by cubic meter, or
ton by ton. Both parties predicate their respective claims only upon an
estimated number of cubic meters of ore multiplied by the average tonnage
factor per cubic meter.
Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in
the stockpiles of ore that he sold to Fonacier, while appellants contend that
by actual measurement, their witness Cirpriano Manlagit found the total
volume of ore in the stockpiles to be only 6.609 cubic meters. As to the
average weight in tons per cubic meter, the parties are again in
disagreement, with appellants claiming the correct tonnage factor to be
2.18 tons to a cubic meter, while appellee Gaite claims that the correct
tonnage factor is about 3.7.
In the face of the conflict of evidence, we take as the most reliable estimate
of the tonnage factor of iron ore in this case to be that made by Leopoldo F.
Abad, chief of the Mines and Metallurgical Division of the Bureau of Mines,
a government pensionado to the States and a mining engineering graduate
of the Universities of Nevada and California, with almost 22 years of
experience in the Bureau of Mines. This witness placed the tonnage factor
of every cubic meter of iron ore at between 3 metric tons as minimum to 5
metric tons as maximum. This estimate, in turn, closely corresponds to the
average tonnage factor of 3.3 adopted in his corrected report (Exhibits "FF"
and FF-1") by engineer Nemesio Gamatero, who was sent by the Bureau of

Mines to the mining claims involved at the request of appellant Krakower,

precisely to make an official estimate of the amount of iron ore in Gaite's
stockpiles after the dispute arose.
Even granting, then, that the estimate of 6,609 cubic meters of ore in the
stockpiles made by appellant's witness Cipriano Manlagit is correct, if we
multiply it by the average tonnage factor of 3.3 tons to a cubic meter, the
product is 21,809.7 tons, which is not very far from the estimate of 24,000
tons made by appellee Gaite, considering that actual weighing of each unit
of the mass was practically impossible, so that a reasonable percentage of
error should be allowed anyone making an estimate of the exact quantity in
tons found in the mass. It must not be forgotten that the contract Exhibit "A"
expressly stated the amount to be 24,000 tons, more or less. (ch. Pine
River Logging & Improvement Co. vs U.S., 279, 46 L. Ed. 1164).
There was, consequently, no short-delivery in this case as would entitle
appellants to the payment of damages, nor could Gaite have been guilty of
any fraud in making any misrepresentation to appellants as to the total
quantity of ore in the stockpiles of the mining claims in question, as
charged by appellants, since Gaite's estimate appears to be substantially
correct.
WHEREFORE, finding no error in the decision appealed from, we hereby
affirm the same, with costs against appellants.