G.R. No.
118114 December 7, 1995
TEODORO ACAP, petitioner,
vs.
COURT OF APPEALS and EDY DE LOS
REYES, respondents.
PADILLA, J.:
This is a petition for review on certiorari of the
decision1 of the Court of Appeals, 2nd Division, in
CA-G.R. No. 36177, which affirmed the decision2 of
the Regional Trial Court of Himamaylan, Negros
Occidental holding that private respondent Edy de los
Reyes had acquired ownership of Lot No. 1130 of the
Cadastral Survey of Hinigaran, Negros Occidental
based on a document entitled "Declaration of
Heirship and Waiver of Rights", and ordering the
dispossession of petitioner as leasehold tenant of the
land for failure to pay rentals.
The facts of the case are as follows:
The title to Lot No. 1130 of the Cadastral Survey of
Hinigaran, Negros Occidental was evidenced by OCT
No. R-12179. The lot has an area of 13,720 sq.
meters. The title was issued and is registered in the
name of spouses Santiago Vasquez and Lorenza
Oruma. After both spouses died, their only son
Felixberto inherited the lot. In 1975, Felixberto
executed a duly notarized document entitled
"Declaration of Heirship and Deed of Absolute Sale"
in favor of Cosme Pido.
The evidence before the court a quo established that
since 1960, petitioner Teodoro Acap had been the
tenant of a portion of the said land, covering an area
of nine thousand five hundred (9,500) meters. When
ownership was transferred in 1975 by Felixberto to
Cosme Pido, Acap continued to be the registered
tenant thereof and religiously paid his leasehold
rentals to Pido and thereafter, upon Pido's death, to
his widow Laurenciana.
The controversy began when Pido died intestate and
on 27 November 1981, his surviving heirs executed a
notarized document denominated as "Declaration of
Heirship and Waiver of Rights of Lot No. 1130
Hinigaran Cadastre," wherein they declared; to quote
its pertinent portions, that:
. . . Cosme Pido died in the
Municipality of Hinigaran, Negros
Occidental, he died intestate and
without any known debts and
obligations which the said parcel of
land is (sic) held liable.
That Cosme Pido was survived by
his/her legitimate heirs, namely:
LAURENCIANA PIDO, wife,
ELY, ERVIN, ELMER, and
ELECHOR all surnamed PIDO;
children;
1
That invoking the provision of
Section 1, Rule 74 of the Rules of
Court, the above-mentioned heirs
do hereby declare unto [sic]
ourselves the only heirs of the late
Cosme Pido and that we hereby
adjudicate unto ourselves the
above-mentioned parcel of land in
equal shares.
Now, therefore, We
LAURENCIANA3 , ELY, ELMER,
ERVIN and ELECHOR all
surnamed PIDO, do hereby waive,
quitclaim all our rights, interests
and participation over the said
parcel of land in favor of EDY DE
LOS REYES, of legal age,
(f)ilipino, married to VIRGINIA
DE LOS REYES, and resident of
Hinigaran, Negros Occidental,
Philippines. . . .4 (Emphasis
supplied)
The document was signed by all of Pido's heirs.
Private respondent Edy de los Reyes did not sign said
document.
It will be noted that at the time of Cosme Pido's
death, title to the property continued to be registered
in the name of the Vasquez spouses. Upon obtaining
the Declaration of Heirship with Waiver of Rights in
his favor, private respondent Edy de los Reyes filed
the same with the Registry of Deeds as part of
a notice of an adverse claim against the original
certificate of title.
Thereafter, private respondent sought for petitioner
(Acap) to personally inform him that he (Edy) had
become the new owner of the land and that the lease
rentals thereon should be paid to him. Private
respondent further alleged that he and petitioner
entered into an oral lease agreement wherein
petitioner agreed to pay ten (10) cavans of palay per
annum as lease rental. In 1982, petitioner allegedly
complied with said obligation. In 1983, however,
petitioner refused to pay any further lease rentals on
the land, prompting private respondent to seek the
assistance of the then Ministry of Agrarian Reform
(MAR) in Hinigaran, Negros Occidental. The MAR
invited petitioner to a conference scheduled on 13
October 1983. Petitioner did not attend the
conference but sent his wife instead to the
conference. During the meeting, an officer of the
Ministry informed Acap's wife about private
respondent's ownership of the said land but she stated
that she and her husband (Teodoro) did not recognize
private respondent's claim of ownership over the
land.
On 28 April 1988, after the lapse of four (4) years,
private respondent filed a complaint for recovery of
possession and damages against petitioner, alleging
in the main that as his leasehold tenant, petitioner
refused and failed to pay the agreed annual rental of
ten (10) cavans of palay despite repeated demands.
During the trial before the court a quo, petitioner
reiterated his refusal to recognize private respondent's
ownership over the subject land. He averred that he
continues to recognize Cosme Pido as the owner of
the said land, and having been a registered tenant
therein since 1960, he never reneged on his rental
obligations. When Pido died, he continued to pay
rentals to Pido's widow. When the latter left for
abroad, she instructed him to stay in the landholding
and to pay the accumulated rentals upon her demand
or return from abroad.
Petitioner further claimed before the trial court that
he had no knowledge about any transfer or sale of the
lot to private respondent in 1981 and even the
following year after Laurenciana's departure for
abroad. He denied having entered into a verbal lease
tenancy contract with private respondent and that
assuming that the said lot was indeed sold to private
respondent without his knowledge, R.A. 3844, as
amended, grants him the right to redeem the same at
a reasonable price. Petitioner also bewailed private
respondent's ejectment action as a violation of his
right to security of tenure under P.D. 27.
On 20 August 1991, the lower court rendered a
decision in favor of private respondent, the
dispositive part of which reads:
WHEREFORE, premises
considered, the Court renders
judgment in favor of the plaintiff,
Edy de los Reyes, and against the
defendant, Teodoro Acap, ordering
the following, to wit:
1. Declaring forfeiture of
defendant's preferred right to
issuance of a Certificate of Land
Transfer under Presidential Decree
No. 27 and his farmholdings;
2. Ordering the defendant Teodoro
Acap to deliver possession of said
farm to plaintiff, and;
3. Ordering the defendant to pay
P5,000.00 as attorney's fees, the
sum of P1,000.00 as expenses of
litigation and the amount of
P10,000.00 as actual damages.5
In arriving at the above-mentioned judgment, the trial
court stated that the evidence had established that the
subject land was "sold" by the heirs of Cosme Pido to
private respondent. This is clear from the following
disquisitions contained in the trial court's six (6) page
decision:
There is no doubt that defendant is
a registered tenant of Cosme Pido.
However, when the latter died their
tenancy relations changed since
ownership of said land was passed
on to his heirs who, by executing
a Deed of Sale, which defendant
2
admitted in his affidavit, likewise
passed on their ownership of Lot
1130 to herein plaintiff (private
respondent). As owner hereof,
plaintiff has the right to demand
payment of rental and the tenant is
obligated to pay rentals due from
the time demand is made. . . .6
xxx xxx xxx
Certainly, the sale of the Pido
family of Lot 1130 to herein
plaintiff does not of itself
extinguish the relationship. There
was only a change of the
personality of the lessor in the
person of herein plaintiff Edy de
los Reyes who being the purchaser
or transferee, assumes the rights
and obligations of the former
landowner to the tenant Teodoro
Acap, herein defendant.7
Aggrieved, petitioner appealed to the Court of
Appeals, imputing error to the lower court when it
ruled that private respondent acquired ownership of
Lot No. 1130 and that he, as tenant, should pay
rentals to private respondent and that failing to pay
the same from 1983 to 1987, his right to a certificate
of land transfer under P.D. 27 was deemed forfeited.
The Court of Appeals brushed aside petitioner's
argument that the Declaration of Heirship and Waiver
of Rights (Exhibit "D"), the document relied upon by
private respondent to prove his ownership to the lot,
was excluded by the lower court in its order dated 27
August 1990. The order indeed noted that the
document was not identified by Cosme Pido's heirs
and was not registered with the Registry of Deeds of
Negros Occidental. According to respondent court,
however, since the Declaration of Heirship and
Waiver of Rights appears to have been duly
notarized, no further proof of its due execution was
necessary. Like the trial court, respondent court was
also convinced that the said document stands
as prima facie proof of appellee's (private
respondent's) ownership of the land in dispute.
With respect to its non-registration, respondent court
noted that petitioner had actual knowledge of the
subject sale of the land in dispute to private
respondent because as early as 1983, he (petitioner)
already knew of private respondent's claim over the
said land but which he thereafter denied, and that in
1982, he (petitioner) actually paid rent to private
respondent. Otherwise stated, respondent court
considered this fact of rental payment in 1982 as
estoppel on petitioner's part to thereafter refute
private respondent's claim of ownership over the said
land. Under these circumstances, respondent court
ruled that indeed there was deliberate refusal by
petitioner to pay rent for a continued period of five
years that merited forfeiture of his otherwise
preferred right to the issuance of a certificate of land
transfer.
In the present petition, petitioner impugns the
decision of the Court of Appeals as not in accord
with the law and evidence when it rules that private
respondent acquired ownership of Lot No. 1130
through the aforementioned Declaration of Heirship
and Waiver of Rights.
Hence, the issues to be resolved presently are the
following:
1. WHETHER OR NOT THE
SUBJECT DECLARATION OF
HEIRSHIP AND WAIVER OF
RIGHTS IS A RECOGNIZED
MODE OF ACQUIRING
OWNERSHIP BY PRIVATE
RESPONDENT OVER THE LOT
IN QUESTION.
2. WHETHER OR NOT THE
SAID DOCUMENT CAN BE
CONSIDERED A DEED OF
SALE IN FAVOR OF PRIVATE
RESPONDENT OF THE LOT IN
QUESTION.
Petitioner argues that the Regional Trial Court, in its
order dated 7 August 1990, explicitly excluded the
document marked as Exhibit "D" (Declaration of
Heirship, etc.) as private respondent's evidence
because it was not registered with the Registry of
Deeds and was not identified by anyone of the heirs
of Cosme Pido. The Court of Appeals, however, held
the same to be admissible, it being a notarized
document, hence, a prima facie proof of private
respondents' ownership of the lot to which it refers.
Petitioner points out that the Declaration of Heirship
and Waiver of Rights is not one of the recognized
modes of acquiring ownership under Article 712 of
the Civil Code. Neither can the same be considered a
deed of sale so as to transfer ownership of the land to
private respondent because no consideration is stated
in the contract (assuming it is a contract or deed of
sale).
Private respondent defends the decision of
respondent Court of Appeals as in accord with the
evidence and the law. He posits that while it may
indeed be true that the trial court excluded his Exhibit
"D" which is the Declaration of Heirship and Waiver
of Rights as part of his evidence, the trial court
declared him nonetheless owner of the subject lot
based on other evidence adduced during the trial,
namely, the notice of adverse claim (Exhibit "E")
duly registered by him with the Registry of Deeds,
which contains the questioned Declaration of
Heirship and Waiver of Rights as an integral part
thereof.
We find the petition impressed with merit.
In the first place, an asserted right or claim to
ownership or a real right over a thing arising from a
juridical act, however justified, is not per
se sufficient to give rise to ownership over the res.
3
That right or title must be completed by fulfilling
certain conditions imposed by law. Hence, ownership
and real rights are acquired only pursuant to a legal
mode or process. While title is the juridical
justification, mode is the actual process of acquisition
or transfer of ownership over a thing in question.8
Under Article 712 of the Civil Code, the modes of
acquiring ownership are generally classified into two
(2) classes, namely, the original mode (i.e., through
occupation, acquisitive prescription, law or
intellectual creation) and the derivative mode (i.e.,
through succession mortis causa or tradition as a
result of certain contracts, such as sale, barter,
donation, assignment or mutuum).
In the case at bench, the trial court was obviously
confused as to the nature and effect of the
Declaration of Heirship and Waiver of Rights,
equating the same with a contract (deed) of sale.
They are not the same.
In a Contract of Sale, one of the contracting parties
obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other party to pay
a price certain in money or its equivalent.9
Upon the other hand, a declaration of heirship and
waiver of rights operates as a public instrument when
filed with the Registry of Deeds whereby the intestate
heirs adjudicate and divide the estate left by the
decedent among themselves as they see fit. It is in
effect an extrajudicial settlement between the heirs
under Rule 74 of the Rules of Court.10
Hence, there is a marked difference between a sale of
hereditary rights and a waiver of hereditary rights.
The first presumes the existence of a contract or deed
of sale between the parties. 11 The second is,
technically speaking, a mode of extinction of
ownership where there is an abdication or intentional
relinquishment of a known right with knowledge of
its existence and intention to relinquish it, in favor of
other persons who are co-heirs in the
succession.12 Private respondent, being then a
stranger to the succession of Cosme Pido, cannot
conclusively claim ownership over the subject lot on
the sole basis of the waiver document which neither
recites the elements of either a sale, 13 or a
donation,14 or any other derivative mode of acquiring
ownership.
Quite surprisingly, both the trial court and public
respondent Court of Appeals concluded that a "sale"
transpired between Cosme Pido's heirs and private
respondent and that petitioner acquired actual
knowledge of said sale when he was summoned by
the Ministry of Agrarian Reform to discuss private
respondent's claim over the lot in question. This
conclusion has no basis both in fact and in law.
On record, Exhibit "D", which is the "Declaration of
Heirship and Waiver of Rights" was excluded by the
trial court in its order dated 27 August 1990 because
the document was neither registered with the Registry
of Deeds nor identified by the heirs of Cosme Pido.
There is no showing that private respondent had the
same document attached to or made part of the
record. What the trial court admitted was Annex "E",
a notice of adverse claim filed with the Registry of
Deeds which contained the Declaration of Heirship
with Waiver of rights and was annotated at the back
of the Original Certificate of Title to the land in
question.
A notice of adverse claim, by its nature, does not
however prove private respondent's ownership over
the tenanted lot. "A notice of adverse claim is nothing
but a notice of a claim adverse to the registered
owner, the validity of which is yet to be established
in court at some future date, and is no better than a
notice of lis pendens which is a notice of a case
already pending in court."15
It is to be noted that while the existence of said
adverse claim was duly proven, there is no evidence
whatsoever that a deed of sale was executed between
Cosme Pido's heirs and private respondent
transferring the rights of Pido's heirs to the land in
favor of private respondent. Private respondent's right
or interest therefore in the tenanted lot remains an
adverse claim which cannot by itself be sufficient to
cancel the OCT to the land and title the same in
private respondent's name.
landowner/agricultural lessor which, in this case,
private respondent failed to establish in his favor by
clear and convincing evidence.16
Consequently, the sanction of forfeiture of his
preferred right to be issued a Certificate of Land
Transfer under P.D. 27 and to the possession of his
farmholdings should not be applied against
petitioners, since private respondent has not
established a cause of action for recovery of
possession against petitioner.
WHEREFORE, premises considered, the Court
hereby GRANTS the petition and the decision of the
Court of Appeals dated 1 May 1994 which affirmed
the decision of the RTC of Himamaylan, Negros
Occidental dated 20 August 1991 is hereby SET
ASIDE. The private respondent's complaint for
recovery of possession and damages against
petitioner Acap is hereby DISMISSED for failure to
properly state a cause of action, without prejudice to
private respondent taking the proper legal steps to
establish the legal mode by which he claims to have
acquired ownership of the land in question.
SO ORDERED.

Consequently, while the transaction between Pido's

heirs and private respondent may be binding on both
parties, the right of petitioner as a registered tenant to
the land cannot be perfunctorily forfeited on a mere
allegation of private respondent's ownership without
the corresponding proof thereof.
G.R. No. L-116650 May 23, 1995
Petitioner had been a registered tenant in the subject
land since 1960 and religiously paid lease rentals TOYOTA SHAW, INC., petitioner,
thereon. In his mind, he continued to be the registered vs.
tenant of Cosme Pido and his family (after Pido's COURT OF APPEALS and LUNA L.
death), even if in 1982, private respondent allegedly SOSA, respondents.
informed petitioner that he had become the new
owner of the land. DAVIDE, JR., J.:

Under the circumstances, petitioner may have, in At the heart of the present controversy is the
good faith, assumed such statement of private document marked Exhibit "A" 1 for the private
respondent to be true and may have in fact delivered respondent, which was signed by a sales
10 cavans of palay as annual rental for 1982 to representative of Toyota Shaw, Inc. named Popong
private respondent. But in 1983, it is clear that Bernardo. The document reads as follows:
petitioner had misgivings over private respondent's
claim of ownership over the said land because in the AGREEMENTS BETWEEN MR.
October 1983 MAR conference, his wife Laurenciana SOSA
categorically denied all of private respondent's & POPONG BERNARDO OF
allegations. In fact, petitioner even secured a TOYOTA
certificate from the MAR dated 9 May 1988 to the SHAW, INC.
effect that he continued to be the registered tenant of
Cosme Pido and not of private respondent. The
1. all necessary documents will be
reason is that private respondent never registered the
submitted to TOYOTA SHAW,
Declaration of Heirship with Waiver of Rights with
INC. (POPONG BERNARDO) a
the Registry of Deeds or with the MAR. Instead, he
week after, upon arrival of Mr.
(private respondent) sought to do indirectly what
Sosa from the Province
could not be done directly, i.e., file a notice of
(Marinduque) where the unit will
adverse claim on the said lot to establish ownership
be used on the 19th of June.
thereover.
2. the downpayment of
It stands to reason, therefore, to hold that there was
P100,000.00 will be paid by Mr.
no unjustified or deliberate refusal by petitioner to
Sosa on June 15, 1989.
pay the lease rentals or amortizations to the

4
 3. the TOYOTA SHAW, INC.
LITE ACE yellow, will be pick-up
[sic] and released by TOYOTA
SHAW, INC. on the 17th of June at
10 a.m.
Was this document, executed and signed by the
petitioner's sales representative, a perfected contract
of sale, binding upon the petitioner, breach of which
would entitle the private respondent to damages and
attorney's fees? The trial court and the Court of
Appeals took the affirmative view. The petitioner
disagrees. Hence, this petition for review
on certiorari.
The antecedents as disclosed in the decisions of both
the trial court and the Court of Appeals, as well as in
the pleadings of petitioner Toyota Shaw, Inc.
(hereinafter Toyota) and respondent Luna L. Sosa
(hereinafter Sosa) are as follows.
Sometime in June of 1989, Luna L. Sosa wanted to
purchase a Toyota Lite Ace. It was then a seller's
market and Sosa had difficulty finding a dealer with
an available unit for sale. But upon contacting Toyota
Shaw, Inc., he was told that there was an available
unit. So on 14 June 1989, Sosa and his son, Gilbert,
went to the Toyota office at Shaw Boulevard, Pasig,
Metro Manila. There they met Popong Bernardo, a
sales representative of Toyota.
Sosa emphasized to Bernardo that he needed the Lite
Ace not later than 17 June 1989 because he, his
family, and a balikbayan guest would use it on 18
June 1989 to go to Marinduque, his home province,
where he would celebrate his birthday on the 19th of
June. He added that if he does not arrive in his
hometown with the new car, he would become a
"laughing stock." Bernardo assured Sosa that a unit
would be ready for pick up at 10:00 a.m. on 17 June
1989. Bernardo then signed the aforequoted
"Agreements Between Mr. Sosa & Popong Bernardo
of Toyota Shaw, Inc." It was also agreed upon by the
parties that the balance of the purchase price would
be paid by credit financing through B.A. Finance, and
for this Gilbert, on behalf of his father, signed the
documents of Toyota and B.A. Finance pertaining to
the application for financing.
The next day, 15 June 1989, Sosa and Gilbert went to
Toyota to deliver the downpayment of P100,000.00.
They met Bernardo who then accomplished a printed
Vehicle Sales Proposal (VSP) No. 928, 2 on which
Gilbert signed under the subheading CONFORME.
This document shows that the customer's name is
"MR. LUNA SOSA" with home address at No. 2316
Guijo Street, United Parañaque II; that the model
series of the vehicle is a "Lite Ace 1500" described as
"4 Dr minibus"; that payment is by "installment," to
be financed by "B.A.," 3 with the initial cash outlay of
P100,000.00 broken down as follows:
a) downpayment — P 53,148.00
b) insurance — P 13,970.00
c) BLT registration fee — P 1,067.00
CHMO fee — P 2,715.00
5
service fee — P 500.00
accessories — P 29,000.00
 
and that the "BALANCE TO BE FINANCED" is
"P274,137.00." The spaces provided for "Delivery
Terms" were not filled-up. It also contains the
following pertinent provisions:
CONDITIONS OF SALES
1. This sale is subject to availability
of unit.
2. Stated Price is subject to change
without prior notice, Price
prevailing and in effect at time of
selling will apply. . . .
Rodrigo Quirante, the Sales Supervisor of Bernardo,
checked and approved the VSP.
On 17 June 1989, at around 9:30 a.m., Bernardo
called Gilbert to inform him that the vehicle would
not be ready for pick up at 10:00 a.m. as previously
agreed upon but at 2:00 p.m. that same day. At 2:00
p.m., Sosa and Gilbert met Bernardo at the latter's
office. According to Sosa, Bernardo informed them
that the Lite Ace was being readied for delivery.
After waiting for about an hour, Bernardo told them
that the car could not be delivered because "nasulot
ang unit ng ibang malakas."
Toyota contends, however, that the Lite Ace was not
delivered to Sosa because of the disapproval by B.A.
Finance of the credit financing application of Sosa. It
further alleged that a particular unit had already been
reserved and earmarked for Sosa but could not be
released due to the uncertainty of payment of the
balance of the purchase price. Toyota then gave Sosa
the option to purchase the unit by paying the full
purchase price in cash but Sosa refused.
After it became clear that the Lite Ace would not be
delivered to him, Sosa asked that his downpayment
be refunded. Toyota did so on the very same day by
issuing a Far East Bank check for the full amount of
P100,000.00, 4 the receipt of which was shown by a
check voucher of Toyota,5 which Sosa signed with
the reservation, "without prejudice to our future
claims for damages."
Thereafter, Sosa sent two letters to Toyota. In the
first letter, dated 27 June 1989 and signed by him, he
demanded the refund, within five days from receipt,
of the downpayment of P100,000.00 plus interest
from the time he paid it and the payment of damages
with a warning that in case of Toyota's failure to do
so he would be constrained to take legal action. 6 The
second, dated 4 November 1989 and signed by M. O.
Caballes, Sosa's counsel, demanded one million
pesos representing interest and damages, again, with
a warning that legal action would be taken if payment
was not made within three days.7 Toyota's counsel
answered through a letter dated 27 November as to the company's sales policy and guidelines
1989 8 refusing to accede to the demands of Sosa. But because they are internal matters." 13 Moreover,
even before this answer was made and received by "[f]rom the beginning of the transaction up to its
Sosa, the latter filed on 20 November 1989 with consummation when the downpayment was made by
Branch 38 of the Regional Trial Court (RTC) of the plaintiff, the defendants had made known to the
Marinduque a complaint against Toyota for damages plaintiff the impression that Popong Bernardo is an
under Articles 19 and 21 of the Civil Code in the total authorized sales executive as it permitted the latter to
amount of P1,230,000.00.9 He alleges, inter do acts within the scope of an apparent authority
alia, that: holding him out to the public as possessing power to
do these acts." 14 Bernardo then "was an agent of the
9. As a result of defendant's failure defendant Toyota Shaw, Inc. and hence bound the
and/or refusal to deliver the vehicle defendants." 15
to plaintiff, plaintiff suffered
embarrassment, humiliation, The court further declared that "Luna Sosa proved his
ridicule, mental anguish and social standing in the community and suffered
sleepless nights because: (i) he and besmirched reputation, wounded feelings and
his family were constrained to take sleepless nights for which he ought to be
the public transportation from compensated." 16 Accordingly, it disposed as follows:
Manila to Lucena City on their way
to Marinduque; (ii) his balikbayan- WHEREFORE, viewed from the
guest canceled his scheduled first above findings, judgment is hereby
visit to Marinduque in order to rendered in favor of the plaintiff
avoid the inconvenience of taking and against the defendant:
public transportation; and (iii) his
relatives, friends, neighbors and 1. ordering the
other provincemates, continuously defendant to pay
irked him about "his Brand-New to the plaintiff the
Toyota Lite Ace — that never sum of
was." Under the circumstances, P75,000.00 for
defendant should be made liable to moral damages;
the plaintiff for moral damages in
the amount of One Million Pesos
(P1,000,000.00). 10 2. ordering the
defendant to pay
the plaintiff the
In its answer to the complaint, Toyota alleged that no sum of
sale was entered into between it and Sosa, that P10,000.00 for
Bernardo had no authority to sign Exhibit "A" for and exemplary
in its behalf, and that Bernardo signed Exhibit "A" in damages;
his personal capacity. As special and affirmative
defenses, it alleged that: the VSP did not state date of
delivery; Sosa had not completed the documents 3. ordering the
required by the financing company, and as a matter defendant to pay
of policy, the vehicle could not and would not be the sum of
released prior to full compliance with financing P30,000.00
requirements, submission of all documents, and attorney's fees
execution of the sales agreement/invoice; the plus P2,000.00
P100,000.00 was returned to and received by Sosa; lawyer's
the venue was improperly laid; and Sosa did not have transportation
a sufficient cause of action against it. It also fare per trip in
interposed compulsory counterclaims. attending to the
hearing of this
case;
After trial on the issues agreed upon during the pre-
trial session, 11 the trial court rendered on 18 February
1992 a decision in favor of Sosa. 12 It ruled that 4. ordering the
Exhibit "A," the "AGREEMENTS BETWEEN MR. defendant to pay
SOSA AND POPONG BERNARDO," was a valid the plaintiff the
perfected contract of sale between Sosa and Toyota sum of P2,000.00
which bound Toyota to deliver the vehicle to Sosa, transportation
and further agreed with Sosa that Toyota acted in bad fare per trip of
faith in selling to another the unit already reserved for the plaintiff in
him. attending the
hearing of this
case; and
As to Toyota's contention that Bernardo had no
authority to bind it through Exhibit "A," the trial
court held that the extent of Bernardo's authority 5. ordering the
"was not made known to plaintiff," for as testified to defendant to pay
by Quirante, "they do not volunteer any information the cost of suit.

6
 SO ORDERED.
Dissatisfied with the trial court's judgment, Toyota
appealed to the Court of Appeals. The case was
docketed as CA-G.R. CV No. 40043. In its decision
promulgated on 29 July 1994,17 the Court of Appeals
affirmed in toto the appealed decision.
Toyota now comes before this Court via this petition
and raises the core issue stated at the beginning of
the ponencia and also the following related issues:
(a) whether or not the standard VSP was the true and
documented understanding of the parties which
would have led to the ultimate contract of sale, (b)
whether or not Sosa has any legal and demandable
right to the delivery of the vehicle despite the non-
payment of the consideration and the non-approval of
his credit application by B.A. Finance, (c) whether or
not Toyota acted in good faith when it did not release
the vehicle to Sosa, and (d) whether or not Toyota
may be held liable for damages.
We find merit in the petition.
Neither logic nor recourse to one's imagination can
lead to the conclusion that Exhibit "A" is a perfected
contract of sale.
Article 1458 of the Civil Code defines a contract of
sale as follows:
Art. 1458. By the contract of sale
one of the contracting parties
obligates himself to transfer the
ownership of and to deliver a
determinate thing, and the other to
pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute
or conditional.
and Article 1475 specifically provides when it is
deemed perfected:
Art. 1475. The contract of sale is
perfected at the moment there is a
meeting of minds upon the thing
which is the object of the contract
and upon the price.
From that moment, the parties may
reciprocally demand performance,
subject to the provisions of the law
governing the form of contracts.
What is clear from Exhibit "A" is not what the trial
court and the Court of Appeals appear to see. It is not
a contract of sale. No obligation on the part of Toyota
to transfer ownership of a determinate thing to Sosa
and no correlative obligation on the part of the latter
to pay therefor a price certain appears therein. The
provision on the downpayment of P100,000.00 made
no specific reference to a sale of a vehicle. If it was
intended for a contract of sale, it could only refer to a
sale on installment basis, as the VSP executed the
7
following day confirmed. But nothing was mentioned
about the full purchase price and the manner the
installments were to be paid.
This Court had already ruled that a definite
agreement on the manner of payment of the price is
an essential element in the formation of a binding and
enforceable contract of sale. 18 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. Definiteness as to the price is an essential
element of a binding agreement to sell personal
property. 19
Moreover, Exhibit "A" shows the absence of a
meeting of minds between Toyota and Sosa. For one
thing, Sosa did not even sign it. For another, Sosa
was well aware from its title, written in bold
letters, viz.,
AGREEMENTS
BETWEEN MR.
SOSA &
POPONG
BERNARDO OF
TOYOTA
SHAW, INC.
that he was not dealing with Toyota but with Popong
Bernardo and that the latter did not misrepresent that
he had the authority to sell any Toyota vehicle. He
knew that Bernardo was only a sales
representative of Toyota and hence a mere agent of
the latter. It was incumbent upon Sosa to act with
ordinary prudence and reasonable diligence to know
the extent of Bernardo's authority as an
agent20 in respect of contracts to sell Toyota's
vehicles. A person dealing with an agent is put upon
inquiry and must discover upon his peril the authority
of the agent.21
At the most, Exhibit "A" may be considered as part
of the initial phase of the generation or negotiation
stage of a contract of sale. There are three stages in
the contract of sale, namely:
(a) preparation, conception, or
generation, which is the period of
negotiation and bargaining, ending
at the moment of agreement of the
parties;
(b) perfection or birth of the
contract, which is the moment
when the parties come to agree on
the terms of the contract; and
(c) consummation or death, which
is the fulfillment or performance of
the terms agreed upon in the
contract.22
The second phase of the generation or negotiation
stage in this case was the execution of the VSP. It
must be emphasized that thereunder, the
downpayment of the purchase price was P53,148.00
while the balance to be paid on installment should be
financed by B.A. Finance Corporation. It is, of
course, to be assumed that B.A. Finance Corp. was
acceptable to Toyota, otherwise it should not have
mentioned B.A. Finance in the VSP.
Financing companies are defined in Section 3(a) of
R.A. No. 5980, as amended by P.D. No. 1454 and
P.D. No. 1793, as "corporations or partnerships,
except those regulated by the Central Bank of the
Philippines, the Insurance Commission and the
Cooperatives Administration Office, which are
primarily organized for the purpose of extending
credit facilities to consumers and to industrial,
commercial, or agricultural enterprises, either by
discounting or factoring commercial papers or
accounts receivables, or by buying and selling
contracts, leases, chattel mortgages, or other evidence
of indebtedness, or by leasing of motor vehicles,
heavy equipment and industrial machinery, business
and office machines and equipment, appliances and
other movable property." 23
Accordingly, in a sale on installment basis which is
financed by a financing company, three parties are
thus involved: the buyer who executes a note or notes
for the unpaid balance of the price of the thing
purchased on installment, the seller who assigns the
notes or discounts them with a financing company,
and the financing company which is subrogated in
the place of the seller, as the creditor of the
installment buyer. 24 Since B.A. Finance did not
approve Sosa's application, there was then no
meeting of minds on the sale on installment basis.
We are inclined to believe Toyota's version that B.A.
Finance disapproved Sosa's application for which
reason it suggested to Sosa that he pay the full
purchase price. When the latter refused, Toyota
cancelled the VSP and returned to him his
P100,000.00. Sosa's version that the VSP was
cancelled because, according to Bernardo, the vehicle
was delivered to another who was "mas malakas"
does not inspire belief and was obviously a delayed
afterthought. It is claimed that Bernardo said,
"Pasensiya kayo, nasulot ang unit ng ibang
malakas," while the Sosas had already been waiting
for an hour for the delivery of the vehicle in the
afternoon of 17 June 1989. However, in paragraph 7
of his complaint, Sosa solemnly states:
On June 17, 1989 at around 9:30
o'clock in the morning, defendant's
sales representative, Mr. Popong
Bernardo, called plaintiff's house
and informed the plaintiff's son that
the vehicle will not be ready for
pick-up at 10:00 a.m. of June 17,
1989 but at 2:00 p.m. of that day
instead. Plaintiff and his son went
to defendant's office on June 17
1989 at 2:00 p.m. in order to pick-
up the vehicle but the defendant for
reasons known only to its
representatives, refused and/or
failed to release the vehicle to the
8
plaintiff. Plaintiff demanded for an
explanation, but nothing was given;
. . . (Emphasis supplied). 25
The VSP was a mere proposal which was aborted in
lieu of subsequent events. It follows that the VSP
created no demandable right in favor of Sosa for the
delivery of the vehicle to him, and its non-delivery
did not cause any legally indemnifiable injury.
The award then of moral and exemplary damages and
attorney's fees and costs of suit is without legal basis.
Besides, the only ground upon which Sosa claimed
moral damages is that since it was known to his
friends, townmates, and relatives that he was buying
a Toyota Lite Ace which they expected to see on his
birthday, he suffered humiliation, shame, and
sleepless nights when the van was not delivered. The
van became the subject matter of talks during his
celebration that he may not have paid for it, and this
created an impression against his business standing
and reputation. At the bottom of this claim is nothing
but misplaced pride and ego. He should not have
announced his plan to buy a Toyota Lite Ace
knowing that he might not be able to pay the full
purchase price. It was he who brought embarrassment
upon himself by bragging about a thing which he did
not own yet.
Since Sosa is not entitled to moral damages and there
being no award for temperate, liquidated, or
compensatory damages, he is likewise not entitled to
exemplary damages. Under Article 2229 of the Civil
Code, exemplary or corrective damages are imposed
by way of example or correction for the public good,
in addition to moral, temperate, liquidated, or
compensatory damages.
Also, it is settled that for attorney's fees to be granted,
the court must explicitly state in the body of the
decision, and not only in the dispositive portion
thereof, the legal reason for the award of attorney's
fees. 26 No such explicit determination thereon was
made in the body of the decision of the trial court. No
reason thus exists for such an award.
WHEREFORE, the instant petition is GRANTED.
The challenged decision of the Court of Appeals in
CA-G.R. CV NO. 40043 as well as that of Branch 38
of the Regional Trial Court of Marinduque in Civil
Case No. 89-14 are REVERSED and SET ASIDE
and the complaint in Civil Case No. 89-14 is
DISMISSED. The counterclaim therein is likewise
DISMISSED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 143513            November 14, 2001
POLYTECHNIC UNIVERSITY OF THE
PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and FIRESTONE
CERAMICS, INC., respondents.
 x---------------------------------------------------------x
G.R. No. 143590                        November 14, 2001
NATIONAL DEVELOPMENT
CORPORATION, petitioner,
vs.
FIRESTONE CERAMICS, INC., respondents.
BELLOSILLO, J.:
A litigation is not simply a contest of litigants before
the bar of public opinion; more than that, it is a
pursuit of justice through legal and equitable means.
To prevent the search for justice from evolving into a
competition for public approval, society invests the
judiciary with complete independence thereby
insulating it from demands expressed through any
medium, the press not excluded. Thus, if the court
would merely reflect, and worse, succumb to the
great pressures of the day, the end result, it is feared,
would be a travesty of justice.
In the early sixties, petitioner National Development
Corporation (NDC), a government owned and
controlled corporation created under CA 182 as
amended by CA 311 and PD No. 668, had in its
disposal a ten (10)-hectare property located along
Pureza St., Sta. Mesa, Manila. The estate was
popularly known as the NDC compound and covered
by Transfer Certificates of Title Nos. 92885, 110301
and 145470.
Sometime in May 1965 private respondent Firestone
Ceramics Inc. (FIRESTONE) manifested its desire to
lease a portion of the property for its ceramic
manufacturing business. On 24 August 1965 NDC
and FIRESTONE entered into a contract of lease
denominated as Contract No. C-30-65 covering a
portion of the property measured at 2.90118 hectares
for use as a manufacturing plant for a term of ten (10)
years, renewable for another ten (10) years under the
same terms and conditions.1 In consequence of the
agreement, FIRESTONE constructed on the leased
premises several warehouses and other improvements
needed for the fabrication of ceramic products.
Three and a half (3-1/2) years later, or on 8 January
1969, FIRESTONE entered into a second contract of
lease with NDC over the latter's four (4)-unit pre-
fabricated reparation steel warehouse stored in
Daliao, Davao. FIRESTONE agreed to ship the
warehouse to Manila for eventual assembly within
the NDC compound. The second contract,
denominated as Contract No. C-26-68, was for
similar use as a ceramic manufacturing plant and was
agreed expressly to be "co-extensive with the lease of
LESSEE with LESSOR on the 2.60 hectare-lot."2
On 31 July 1974 the parties signed a similar contract
concerning a six (6)-unit pre-fabricated steel
warehouse which, as agreed upon by the parties,
would expire on 2 December 1978.3 Prior to the
expiration of the aforementioned contract,
FIRESTONE wrote NDC requesting for an extension
of their lease agreement. Consequently on 29
9
November 1978 the Board of Directors of NDC
adopted Resolution No. 11-78-117 extending the
term of the lease, subject to several conditions among
which was that in the event NDC "with the approval
of higher authorities, decide to dispose and sell these
properties including the lot, priority should be given
to the LESSEE"4 (underscoring supplied). On 22
December 1978, in pursuance of the resolution, the
parties entered into a new agreement for a ten-year
lease of the property, renewable for another ten (10)
years, expressly granting FIRESTONE the first
option to purchase the leased premises in the event
that it decided "to dispose and sell these properties
including the lot . . . . "5
The contracts of lease conspicuously contain an
identically worded provision requiring FIRESTONE
to construct buildings and other improvements within
the leased premises worth several hundred thousands
of pesos.6
The parties' lessor-lessee relationship went smoothly
until early 1988 when FIRESTONE, cognizant of the
impending expiration of their lease agreement with
NDC, informed the latter through several letters and
telephone calls that it was renewing its lease over the
property. While its letter of 17 March 1988 was
answered by Antonio A. Henson, General Manager
of NDC, who promised immediate action on the
matter, the rest of its communications remained
unacknowledged.7 FIRESTONE's predicament
worsened when rumors of NDC's supposed plans to
dispose of the subject property in favor of petitioner
Polytechnic University of the Philippines (PUP)
came to its knowledge. Forthwith, FIRESTONE
served notice on NDC conveying its desire to
purchase the property in the exercise of its
contractual right of first refusal.
Apprehensive that its interest in the property would
be disregarded, FIRESTONE instituted an action for
specific performance to compel NDC to sell the
leased property in its favor. FIRESTONE averred
that it was pre-empting the impending sale of the
NDC compound to petitioner PUP in violation of its
leasehold rights over the 2.60-hectare 8 property and
the warehouses thereon which would expire in 1999.
FIRESTONE likewise prayed for the issuance of a
writ of preliminary injunction to enjoin NDC from
disposing of the property pending the settlement of
the controversy.9
In support of its complaint, FIRESTONE adduced in
evidence a letter of Antonio A. Henson dated 15 July
1988 addressed to Mr. Jake C. Lagonera, Director
and Special Assistant to Executive Secretary Catalino
Macaraeg, reviewing a proposed memorandum order
submitted to then President Corazon C. Aquino
transferring the whole NDC compound, including the
leased property, in favor of petitioner PUP. Attached
to the letter was a draft of the proposed memorandum
order as well as a summary of existing leases on the
subject property. The survey listed FIRESTONE as
lessee of a portion of the property, placed at
29,00010 square meters, whose contract with NDC
was set to expire on 31 December 1989 11 renewable
for another ten (10) years at the option of the
lessee. The report expressly recognized
FIRESTONE's right of first refusal to purchase the
leased property "should the lessor decide to sell the
same."12
Meanwhile, on 21 February 1989 PUP moved to
intervene and asserted its interest in the subject
property, arguing that a "purchaser pendente lite of
property which is subject of a litigation is entitled to
intervene in the proceedings."13 PUP referred
to Memorandum Order No. 214 issued by then
President Aquino ordering the transfer of the whole
NDC compound to the National Government, which
in turn would convey the aforementioned property in
favor of PUP at acquisition cost. The issuance was
supposedly made in recognition of PUP's status as the
"Poor Man's University" as well as its serious need to
extend its campus in order to accommodate the
growing student population. The order of conveyance
of the 10.31-hectare property would automatically
result in the cancellation of NDC's total obligation in
favor of the National Government in the amount
of P57,193,201.64.
Convinced that PUP was a necessary party to the
controversy that ought to be joined as party defendant
in order to avoid multiplicity of suits, the trial court
granted PUP's motion to intervene. FIRESTONE
moved for reconsideration but was denied. On
certiorari, the Court of Appeals affirmed the order of
the trial court. FIRESTONE came to us on review but
in a Resolution dated 11 July 1990 we upheld PUP's
inclusion as party-defendant in the present
controversy.
Following the denial of its petition, FIRESTONE
amended its complaint to include PUP and Executive
Secretary Catalino Macaraeg, Jr., as party-
defendants, and sought the annulment
of Memorandum Order No. 214. FIRESTONE
alleged that although Memorandum Order No.
214 was issued "subject to such liens/leases existing
[on the subject property]," PUP disregarded and
violated its existing lease by increasing the rental rate
at P200,000.00 a month while demanding that it
vacated the premises immediately.14 FIRESTONE
prayed that in the event Memorandum Order No.
214 was not declared unconstitutional, the property
should be sold in its favor at the price for which it
was sold to PUP - P554.74 per square meter or for a
total purchase price of P14,423,240.00.15
Petitioner PUP, in its answer to the amended
complaint, argued in essence that the lease contract
covering the property had expired long before the
institution of the complaint, and that further, the right
of first refusal invoked by FIRESTONE applied
solely to the six-unit pre-fabricated warehouse and
not the lot upon which it stood.
After trial on the merits, judgment was rendered
declaring the contracts of lease executed between
FIRESTONE and NDC covering the 2.60-hectare
property and the warehouses constructed thereon
valid and existing until 2 June 1999. PUP was
ordered and directed to sell to FIRESTONE the "2.6
hectare leased premises or as may be determined by
10
actual verification and survey of the actual size of the
leased properties where plaintiff's fire brick factory is
located" at P1,500.00 per square meter considering
that, as admitted by FIRESTONE, such was the
prevailing market price thereof.
The trial court ruled that the contracts of lease
executed between FIRESTONE and NDC were
interrelated and inseparable because "each of them
forms part of the integral system of plaintiff's brick
manufacturing plant x x x if one of the leased
premises will be taken apart or otherwise detached
from the two others, the purpose of the lease as well
as plaintiff's business operations would be rendered
useless and inoperative."16 It thus decreed that
FIRESTONE could exercise its option to purchase
the property until 2 June 1999 inasmuch as the 22
December 1978 contract embodied a covenant to
renew the lease for another ten (10) years at the
option of the lessee as well as an agreement giving
the lessee the right of first refusal.
The trial court also sustained the constitutionality
of Memorandum Order No. 214 which was not per
se hostile to FIRESTONE's property rights, but
deplored as prejudicial thereto the "very manner with
which defendants NDC and PUP interpreted and
applied the same, ignoring in the process that plaintiff
has existing contracts of lease protectable by express
provisions in the Memorandum No. 214 itself."17 It
further explained that the questioned memorandum
was issued "subject to such liens/leases existing
thereon"18 and petitioner PUP was under express
instructions "to enter, occupy and take possession of
the transferred property subject to such leases or
liens and encumbrances that may be existing
thereon"19 (italics supplied).
Petitioners PUP, NDC and the Executive Secretary
separately filed their Notice of Appeal, but a few days
thereafter, or on 3 September 1996, perhaps realizing
the groundlessness and the futility of it all, the
Executive Secretary withdrew his appeal.20
Subsequently, the Court of Appeals affirmed the
decision of the trial court ordering the sale of the
property in favor of FIRESTONE but deleted the
award of attorney's fees in the amount of Three
Hundred Thousand Pesos (P300,000.00).
Accordingly, FIRESTONE was given a grace period
of six (6) months from finality of the court's
judgment within which to purchase the property in
questioned in the exercise of its right of first refusal.
The Court of Appeals observed that as there was a
sale of the subject property, NDC could not excuse
itself from its obligation TO OFFER THE
PROPERTY FOR SALE FIRST TO FIRESTONE
BEFORE IT COULD TO OTHER PARTIES. The
Court of Appeals held: "NDC cannot look
to Memorandum Order No. 214 to excuse or shield it
from its contractual obligations to FIRESTONE.
There is nothing therein that allows NDC to disavow
or repudiate the solemn engagement that it freely and
voluntarily undertook, or agreed to undertake."21
PUP moved for reconsideration asserting that in
ordering the sale of the property in favor of
FIRESTONE the courts a quo unfairly created a
contract to sell between the parties. It argued that the
"court cannot substitute or decree its mind or consent
for that of the parties in determining whether or not a
contract (has been) perfected between PUP and
NDC."22 PUP further contended that since "a real
property located in Sta. Mesa can readily command a
sum of P10,000.00 per square (meter)," the lower
court gravely erred in ordering the sale of the
property at only P1,500.00 per square meter. PUP
also advanced the theory that the enactment
of Memorandum Order No. 214 amounted to a
withdrawal of the option to purchase the property
granted to FIRESTONE. NDC, for its part,
vigorously contended that the contracts of lease
executed between the parties had expired without
being renewed by FIRESTONE; consequently,
FIRESTONE was no longer entitled to any
preferential right in the sale or disposition of the
leased property.
We do not see it the way PUP and NDC did. It is
elementary that a party to a contract cannot
unilaterally withdraw a right of first refusal that
stands upon valuable consideration. That principle
was clearly upheld by the Court of Appeals when it
denied on 6 June 2000 the twin motions for
reconsideration filed by PUP and NDC on the ground
that the appellants failed to advance new arguments
substantial enough to warrant a reversal of the
Decision sought to be reconsidered. 23 On 28 June
2000 PUP filed an urgent motion for an additional
period of fifteen (15) days from 29 June 2000 or until
14 July 2000 within which to file a Petition for
Review on Certiorari of the Decision of the Court of
Appeals.
On the last day of the extended period PUP filed
its Petition for Review on Certiorari assailing
the Decision of the Court of Appeals of 6 December
1999 as well as the Resolution of 6 June 2000
denying reconsideration thereof. PUP raised two
issues: (a) whether the courts a quo erred when they
"conjectured" that the transfer of the leased property
from NDC to PUP amounted to a sale; and, (b)
whether FIRESTONE can rightfully invoke its right
of first refusal. Petitioner posited that if we were to
place our imprimatur on the decisions of the courts a
quo, "public welfare or specifically the constitutional
priority accorded to education" would greatly be
prejudiced.24
Paradoxically, our paramount interest in education
does not license us, or any party for that matter, to
destroy the sanctity of binding obligations. Education
may be prioritized for legislative or budgetary
purposes, but we doubt if such importance can be
used to confiscate private property such as
FIRESTONE's right of first refusal.
On 17 July 2000 we denied PUP's motion for
extension of fifteen (15) days within which to appeal
inasmuch as the aforesaid pleading lacked an
affidavit of service of copies thereof on the Court of
Appeals and the adverse party, as well as written
explanation for not filing and serving the pleading
personally.25
11
Accordingly, on 26 July 2000 we issued
a Resolution dismissing PUP's Petition for Review for
having been filed out of time. PUP moved for
reconsideration imploring a resolution or decision on
the merits of its petition. Strangely, about the same
time, several articles came out in the newspapers
assailing the denial of the petition. The daily papers
reported that we unreasonably dismissed PUP's
petition on technical grounds, affirming in the
process the decision of the trial court to sell the
disputed property to the prejudice of the government
in the amount of P1,000,000,000.00.26 Counsel for
petitioner PUP, alleged that the trial court and the
Court of Appeals "have decided a question of
substance in a way definitely not in accord with law
or jurisprudence."27
At the outset, let it be noted that the amount
of P1,000,000,000.00 as reported in the papers was
way too exaggerated, if not fantastic. We stress that
NDC itself sold the whole 10.31-hectare property to
PUP at only P57,193,201.64 which represents NDC's
obligation to the national government that was, in
exchange, written off. The price offered per square
meter of the property was pegged at P554.74.
FIRESTONE's leased premises would therefore be
worth only P14,423,240.00. From any angle, this
amount is certainly far below the ballyhooed price
of P1,000,000,000.00.
On 4 October 2000 we granted PUP's Motion for
Reconsideration to give it a chance to ventilate its
right, if any it still had in the leased premises, thereby
paving the way for a reinstatement of its Petition for
Review.28 In its appeal, PUP took to task the courts a
quo for supposedly "substituting or decreeing its
mind or consent for that of the parties (referring to
NDC and PUP) in determining whether or not a
contract of sale was perfected." PUP also argued that
inasmuch as "it is the parties alone whose minds must
meet in reference to the subject matter and cause," it
concluded that it was error for the lower courts to
have decreed the existence of a sale of the NDC
compound thus allowing FIRESTONE to exercise its
right of first refusal.
On the other hand, NDC separately filed its
own Petition for Review and advanced arguments
which, in fine, centered on whether or not the
transaction between petitioners NDC and PUP
amounted to a sale considering that "ownership of the
property remained with the government."29 Petitioner
NDC introduced the novel proposition that if the
parties involved are both government entities the
transaction cannot be legally called a sale.
In due course both petitions were consolidated.30
We believe that the courts a quo did not hypothesize,
much less conjure, the sale of the disputed property
by NDC in favor of petitioner PUP. Aside from the
fact that the intention of NDC and PUP to enter into a
contract of sale was clearly expressed in
the Memorandum Order No. 214,31 a close perusal of
the circumstances of this case strengthens the theory
that the conveyance of the property from NDC to
PUP was one of absolute sale, for a valuable
consideration, and not a mere paper transfer as
argued by petitioners.
A contract of sale, as defined in the Civil Code, is a
contract where one of the parties obligates himself to
transfer the ownership of and to deliver a determinate
thing to the other or others who shall pay therefore a
sum certain in money or its equivalent. 32 It is
therefore a general requisite for the existence of a
valid and enforceable contract of sale that it be
mutually obligatory, i.e., there should be a
concurrence of the promise of the vendor to sell a
determinate thing and the promise of the vendee to
receive and pay for the property so delivered and
transferred. The Civil Code provision is, in effect, a
"catch-all" provision which effectively brings within
its grasp a whole gamut of transfers whereby
ownership of a thing is ceded for a consideration.
Contrary to what petitioners PUP and NDC propose,
there is not just one party involved in the questioned
transaction. Petitioners NDC and PUP have their
respective charters and therefore each possesses a
separate and distinct individual personality.33 The
inherent weakness of NDC's proposition that there
was no sale as it was only the government which was
involved in the transaction thus reveals itself. Tersely
put, it is not necessary to write an extended
dissertation on government owned and controlled
corporations and their legal personalities. Beyond
cavil, a government owned and controlled
corporation has a personality of its own, distinct and
separate from that of the government. 34 The
intervention in the transaction of the Office of the
President through the Executive Secretary did not
change the independent existence of these entities.
The involvement of the Office of the President was
limited to brokering the consequent relationship
between NDC and PUP. But the withdrawal of the
appeal by the Executive Secretary is considered
significant as he knew, after a review of the records,
that the transaction was subject to existing liens and
encumbrances, particularly the priority to purchase
the leased premises in favor of FIRESTONE.
True that there may be instances when a particular
deed does not disclose the real intentions of the
parties, but their action may nevertheless indicate that
a binding obligation has been undertaken. Since the
conduct of the parties to a contract may be sufficient
to establish the existence of an agreement and the
terms thereof, it becomes necessary for the courts to
examine the contemporaneous behavior of the parties
in establishing the existence of their contract.
The preponderance of evidence shows that NDC sold
to PUP the whole NDC compound, including the
leased premises, without the knowledge much less
consent of private respondent FIRESTONE which
had a valid and existing right of first refusal.
All three (3) essential elements of a valid sale,
without which there can be no sale, were attendant in
the "disposition" and "transfer" of the property from
NDC to PUP - consent of the parties, determinate
subject matter, and consideration therefor.
12
Consent to the sale is obvious from the prefatory
clauses of Memorandum Order No. 214 which
explicitly states the acquiescence of the parties to the
sale of the property -
WHEREAS, PUP has expressed its
willingness to acquire said NDC properties
and NDC has expressed its willingness to
sell the properties to PUP (underscoring
supplied).35
Furthermore, the cancellation of NDC's liabilities in
favor of the National Government in the amount
of P57,193,201.64 constituted the "consideration" for
the sale. As correctly observed by the Court of
Appeals-
The defendants-appellants' interpretation
that there was a mere transfer, and not a
sale, apart from being specious sophistry
and a mere play of words, is too strained and
hairsplitting. For it is axiomatic that every
sale imposes upon the vendor the obligation
to transfer ownership as an essential element
of the contract. Transfer of title or an
agreement to transfer title for a price paid, or
promised to be paid, is the very essence of
sale (Kerr & Co. v. Lingad, 38 SCRA
524; Schmid & Oberly, Inc., v. RJL
Martinez Fishing Corp., 166 SCRA 493). At
whatever legal angle we view it, therefore,
the inescapable fact remains that all the
requisites of a valid sale were attendant in
the transaction between co-defendants-
appellants NDC and PUP concerning the
realities subject of the present suit.36
What is more, the conduct of petitioner PUP
immediately after the transaction is in itself an
admission that there was a sale of the NDC
compound in its favor. Thus, after the issuance
of Memorandum Order No. 214 petitioner PUP
asserted its ownership over the property by posting
notices within the compound advising residents and
occupants to vacate the premises.37 In its Motion for
Intervention petitioner PUP also admitted that its
interest as a "purchaser pendente lite" would be better
protected if it was joined as party-defendant in the
controversy thereby confessing that it
indeed purchased the property.
In light of the foregoing disquisition, we now proceed
to determine whether FIRESTONE should be
allowed to exercise its right of first refusal over the
property. Such right was expressly stated by NDC
and FIRESTONE in par. XV of their third contract
denominated as A-10-78 executed on 22 December
1978 which, as found by the courts a quo, was
interrelated to and inseparable from their first
contract denominated as C-30-65 executed on 24
August 1965 and their second contract denominated
as C-26-68 executed on 8 January 1969. Thus -
Should the LESSOR desire to sell the leased
premises during the term of this Agreement, or any
extension thereof, the LESSOR shall first give to the
LESSEE, which shall have the right of first option to
purchase the leased premises subject to mutual
agreement of both parties.38
In the instant case, the right of first refusal is an
integral and indivisible part of the contract of lease
and is inseparable from the whole contract. The
consideration for the right is built into the reciprocal
obligations of the parties. Thus, it is not correct for
petitioners to insist that there was no consideration
paid by FIRESTONE to entitle it to the exercise of
the right, inasmuch as the stipulation is part and
parcel of the contract of lease making the
consideration for the lease the same as that for the
option.
It is a settled principle in civil law that when a lease
contract contains a right of first refusal, the lessor is
under a legal duty to the lessee not to sell to anybody
at any price until after he has made an offer to sell to
the latter at a certain price and the lessee has failed to
accept it.39 The lessee has a right that the lessor's first
offer shall be in his favor.
The option in this case was incorporated in the
contracts of lease by NDC for the benefit of
FIRESTONE which, in view of the total amount of
its investments in the property, wanted to be assured
that it would be given the first opportunity to buy the
property at a price for which it would be offered.
Consistent with their agreement, it was then implicit
for NDC to have first offered the leased premises of
2.60 hectares to FIRESTONE prior to the sale in
favor of PUP. Only if FIRESTONE failed to exercise
its right of first priority could NDC lawfully sell the
property to petitioner PUP.
It now becomes apropos to ask whether the courts a
quo were correct in fixing the proper consideration of
the sale at P1,500.00 per square meter. In contracts of
sale, the basis of the right of first refusal must be the
current offer of the seller to sell or the offer to
purchase of the prospective buyer. Only after the
lessee-grantee fails to exercise its right under the
same terms and within the period contemplated can
the owner validly offer to sell the property to a third
person, again, under the same terms as offered to the
grantee.40 It appearing that the whole NDC
compound was sold to PUP for P554.74 per square
meter, it would have been more proper for the courts
below to have ordered the sale of the property also at
the same price. However, since FIRESTONE never
raised this as an issue, while on the other hand it
admitted that the value of the property stood
at P1,500.00 per square meter, then we see no
compelling reason to modify the holdings of the
courts a quo that the leased premises be sold at that
price.
Our attention is invited by petitioners to Ang Yu
Asuncion v. CA41 in concluding that if our holding
in Ang Yu would be applied to the facts of this case
then FIRESTONE's "option, if still subsisting, is not
enforceable," the option being merely a preparatory
contract which cannot be enforced.
The contention has no merit. At the heels of Ang
Yu came Equatorial Realty Development, Inc., v.
13
Mayfair Theater, Inc.,42 where after much
deliberation we declared, and so we hold, that a right
of first refusal is neither "amorphous nor merely
preparatory" and can be enforced and executed
according to its terms. Thus, in Equatorial we
ordered the rescission of the sale which was made in
violation of the lessee's right of first refusal and
further ordered the sale of the leased property in
favor of Mayfair Theater, as grantee of the right.
Emphatically, we held that "(a right of first priority)
should be enforced according to the law on contracts
instead of the panoramic and indefinite rule on
human relations." We then concluded that the
execution of the right of first refusal consists in
directing the grantor to comply with his obligation
according to the terms at which he should have
offered the property in favor of the grantee and at that
price when the offer should have been made.
One final word. Petitioner PUP should be cautioned
against bidding for public sympathy by bewailing the
dismissal of its petition before the press. Such
advocacy is not likely to elicit the compassion of this
Court or of any court for that matter. An entreaty for
a favorable disposition of a case not made directly
through pleadings and oral arguments before the
courts do not persuade us, for as judges, we are ruled
only by our forsworn duty to give justice where
justice is due.
WHEREFORE, the petitions in G.R. No. 143513
and G.R. No. 143590 are DENIED. Inasmuch as the
first contract of lease fixed the area of the leased
premises at 2.90118 hectares while the second
contract placed it at 2.60 hectares, let a ground survey
of the leased premises be immediately conducted by
a duly licensed, registered surveyor at the expense of
private respondent FIRESTONE CERAMICS, INC.,
within two (2) months from finality of the judgment
in this case. Thereafter, private respondent
FIRESTONE CERAMICS, INC., shall have six (6)
months from receipt of the approved survey within
which to exercise its right to purchase the leased
property at P1,500.00 per square meter, and
petitioner Polytechnic University of the Philippines is
ordered to reconvey the property to FIRESTONE
CERAMICS, INC., in the exercise of its right of first
refusal upon payment of the purchase price thereof.
SO ORDERED.
G.R. No. 137290               July 31, 2000
SAN MIGUEL PROPERTIES PHILIPPINES,
INC., petitioner,
vs.
SPOUSES ALFREDO HUANG and GRACE
HUANG, respondents.
MENDOZA, J.:
This is a petition for review of the decision, 1 dated
April 8, 1997, of the Court of Appeals which
reversed the decision of the Regional Trial Court,
Branch 153, Pasig City dismissing the complaint
brought by respondents against petitioner for
enforcement of a contract of sale.
The facts are not in dispute.
Petitioner San Miguel Properties Philippines, Inc. is a
domestic corporation engaged in the purchase and
sale of real properties. Part of its inventory are two
parcels of land totalling 1, 738 square meters at the
corner of Meralco Avenue and General Capinpin
Street, Barrio Oranbo, Pasig City, which are covered
by TCT Nos. PT-82395 and PT-82396 of the Register
of Deeds of Pasig City.
On February 21, 1994, the properties were offered for
sale for ₱52,140,000.00 in cash. The offer was made
to Atty. Helena M. Dauz who was acting for
respondent spouses as undisclosed principals. In a
letter2 dated March 24, 1994, Atty. Dauz signified her
clients’ interest in purchasing the properties for the
amount for which they were offered by petitioner,
under the following terms: the sum of ₱500,000.00
would be given as earnest money and the balance
would be paid in eight equal monthly installments
from May to December, 1994. However, petitioner
refused the counter-offer.
On March 29, 1994, Atty. Dauz wrote another
letter3 proposing the following terms for the purchase
of the properties, viz:
This is to express our interest to buy your-above-
mentioned property with an area of 1, 738 sq. meters.
For this purpose, we are enclosing herewith the sum
of ₱1,000,000.00 representing earnest-deposit
money, subject to the following conditions.
1. We will be given the exclusive option to
purchase the property within the 30 days
from date of your acceptance of this offer.
2. During said period, we will negotiate on
the terms and conditions of the purchase;
SMPPI will secure the necessary
Management and Board approvals; and we
initiate the documentation if there is mutual
agreement between us.
3. In the event that we do not come to an
agreement on this transaction, the said
amount of ₱1,000,000.00 shall be
refundable to us in full upon demand. . . .
Isidro A. Sobrecarey, petitioner’s vice-president and
operations manager for corporate real estate,
indicated his conformity to the offer by affixing his
signature to the letter and accepted the "earnest-
deposit" of ₱1 million. Upon request of respondent
spouses, Sobrecarey ordered the removal of the "FOR
SALE" sign from the properties.
Atty. Dauz and Sobrecarey then commenced
negotiations. During their meeting on April 8, 1994,
Sobrecarey informed Atty. Dauz that petitioner was
willing to sell the subject properties on a 90-day
term. Atty. Dauz countered with an offer of six
months within which to pay.
14
On April 14, 1994, the parties again met during
which Sobrecarey informed Atty. Dauz that petitioner
had not yet acted on her counter-offer. This prompted
Atty. Dauz to propose a four-month period of
amortization.
On April 25, 1994, Atty. Dauz asked for an extension
of 45 days from April 29, 1994 to June 13, 1994
within which to exercise her option to purchase the
property, adding that within that period, "[we] hope
to finalize [our] agreement on the matter." 4 Her
request was granted.
On July 7, 1994, petitioner, through its president and
chief executive officer, Federico Gonzales, wrote
Atty. Dauz informing her that because the parties
failed to agree on the terms and conditions of the sale
despite the extension granted by petitioner, the latter
was returning the amount of ₱1 million given as
"earnest-deposit."5
On July 20, 1994, respondent spouses, through
counsel, wrote petitioner demanding the execution
within five days of a deed of sale covering the
properties. Respondents attempted to return the
"earnest-deposit" but petitioner refused on the ground
that respondents’ option to purchase had already
expired.
On August 16, 1994, respondent spouses filed a
complaint for specific performance against petitioner
before the Regional Trial Court, Branch 133, Pasig
City where it was docketed as Civil Case No. 64660.
Within the period for filing a responsive pleading,
petitioner filed a motion to dismiss the complaint
alleging that (1) the alleged "exclusive option" of
respondent spouses lacked a consideration separate
and distinct from the purchase price and was thus
unenforceable and (2) the complaint did not allege a
cause of action because there was no "meeting of the
minds" between the parties and, therefore, no
perfected contract of sale. The motion was opposed
by respondents.
On December 12, 1994, the trial court granted
petitioner’s motion and dismissed the action.
Respondents filed a motion for reconsideration, but it
was denied by the trial court. They then appealed to
the Court of Appeals which, on April 8, 1997,
rendered a decision6 reversing the judgment of the
trial court. The appellate court held that all the
requisites of a perfected contract of sale had been
complied with as the offer made on March 29, 1994,
in connection with which the earnest money in the
amount of ₱1 million was tendered by respondents,
had already been accepted by petitioner. The court
cited Art. 1482 of the Civil Code which provides that
"[w]henever earnest money is given in a contract of
sale, it shall be considered as part of the price and as
proof of the perfection of the contract." The fact the
parties had not agreed on the mode of payment did
not affect the contract as such is not an essential
element for its validity. In addition, the court found
that Sobrecarey had authority to act in behalf of
petitioner for the sale of the properties.7
Petitioner moved for reconsideration of the trial
court’s decision, but its motion was denied. Hence,
this petition.
Petitioner contends that the Court of Appeals erred in
finding that there was a perfected contract of sale
between the parties because the March 29, 1994 letter
of respondents, which petitioner accepted, merely
resulted in an option contract, albeit it was
unenforceable for lack of a distinct consideration.
Petitioner argues that the absence of agreement as to
the mode of payment was fatal to the perfection of
the contract of sale. Petitioner also disputes the
appellate court’s ruling that Isidro A. Sobrecarey had
authority to sell the subject real properties.8
Respondents were required to comment within ten
(10) days from notice. However, despite 13
extensions totalling 142 days which the Court had
given to them, respondents failed to file their
comment. They were thus considered to have waived
the filing of a comment.
The petition is meritorious.
In holding that there is a perfected contract of sale,
the Court of Appeals relied on the following findings:
(1) earnest money was allegedly given by
respondents and accepted by petitioner through its
vice-president and operations manager, Isidro A.
Sobrecarey; and (2) the documentary evidence in the
records show that there was a perfected contract of
sale.
With regard to the alleged payment and acceptance of
earnest money, the Court holds that respondents did
not give the ₱1 million as "earnest money" as
provided by Art. 1482 of the Civil Code. They
presented the amount merely as a deposit of what
would eventually become the earnest money or
downpayment should a contract of sale be made by
them. The amount was thus given not as a part of the
purchase price and as proof of the perfection of the
contract of sale but only as a guarantee that
respondents would not back out of the sale.
Respondents in fact described the amount as an
"earnest-deposit." In Spouses Doromal, Sr. v. Court
of Appeals,9 it was held:
. . . While the ₱5,000 might have indeed been paid to
Carlos in October, 1967, there is nothing to show that
the same was in the concept of the earnest money
contemplated in Art. 1482 of the Civil Code, invoked
by petitioner, as signifying perfection of the
sale. Viewed in the backdrop of the factual milieu
thereof extant in the record, We are more inclined to
believe that the said ₱5,000.00 were paid in the
concept of earnest money as the term was understood
under the Old Civil Code, that is, as a guarantee that
the buyer would not back out, considering that it is
not clear that there was already a definite agreement
as to the price then and that petitioners were decided
to buy 6/7 only of the property should respondent
Javellana refuse to agree to part with her 1/7 share.10
In the present case, the ₱1 million "earnest-deposit"
could not have been given as earnest money as
15
contemplated in Art. 1482 because, at the time when
petitioner accepted the terms of respondents’ offer of
March 29, 1994, their contract had not yet been
perfected. This is evident from the following
conditions attached by respondents to their letter, to
wit: (1) that they be given the exclusive option to
purchase the property within 30 days from
acceptance of the offer; (2) that during the option
period, the parties would negotiate the terms and
conditions of the purchase; and (3) petitioner would
secure the necessary approvals while respondents
would handle the documentation.
The first condition for an option period of 30 days
sufficiently shows that a sale was never
perfected.1âwphi1 As petitioner correctly points out,
acceptance of this condition did not give rise to a
perfected sale but merely to an option or an accepted
unilateral promise on the part of respondents to buy
the subject properties within 30 days from the date of
acceptance of the offer. Such option giving
respondents the exclusive right to buy the properties
within the period agreed upon is separate and distinct
from the contract of sale which the parties may
enter.11 All that respondents had was just the option to
buy the properties which privilege was not, however,
exercised by them because there was a failure to
agree on the terms of payment. No contract of sale
may thus be enforced by respondents.
Furthermore, even the option secured by respondents
from petitioner was fatally defective. Under the
second paragraph of Art. 1479, an accepted unilateral
promise to buy or sell a determinate thing for a price
certain is binding upon the promisor only if the
promise is supported by a distinct consideration.
Consideration in an option contract may be anything
of value, unlike in sale where it must be the price
certain in money or its equivalent. There is no
showing here of any consideration for the option.
Lacking any proof of such consideration, the option
is unenforceable.
Equally compelling as proof of the absence of a
perfected sale is the second condition that, during the
option period, the parties would negotiate the terms
and conditions of the purchase. The stages of a
contract of sale are as follows: (1) negotiation,
covering the period from the time the prospective
contracting parties indicate interest in the contract to
the time the contract is perfected; (2) perfection,
which takes place upon the concurrence of the
essential elements of the sale which are the meeting
of the minds of the parties as to the object of the
contract and upon the price; and (3) consummation,
which begins when the parties perform their
respective undertakings under the contract of sale,
culminating in the extinguishment thereof. 12 In the
present case, the parties never got past the negotiation
stage. The alleged "indubitable evidence"13 of a
perfected sale cited by the appellate court was
nothing more than offers and counter-offers which
did not amount to any final arrangement containing
the essential elements of a contract of sale. While the
parties already agreed on the real properties which
were the objects of the sale and on the purchase price,
the fact remains that they failed to arrive at mutually
acceptable terms of payment, despite the 45-day
extension given by petitioner.

The appellate court opined that the failure to agree on

the terms of payment was no bar to the perfection of
the sale because Art. 1475 only requires agreement
by the parties as to the price of the object. This is
error. In Navarro v. Sugar Producers Cooperative
Marketing Association, Inc.,14 we laid down the rule
that the manner of payment of the purchase price is
an essential element before a valid and binding
contract of sale can exist. Although the Civil Code
does not expressly state that the minds of the parties
must also meet on the terms or manner of payment of
the price, the same is needed, otherwise there is no
sale. As held in Toyota Shaw, Inc. v. Court of
Appeals,15 agreement on 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.16 In Velasco v. Court of Appeals,17 the parties to
a proposed sale had already agreed on the object of
sale and on the purchase price. By the buyer’s own
admission, however, the parties still had to agree on
how and when the downpayment and the installments
were to be paid. It was held:

. . . Such being the situation, it can not, 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 as part of the
down-payment 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 Art. 1482 of the new Civil Code, as the
petitioners themselves admit that some essential
matter - the terms of the payment - still had to be
mutually covenanted.18

Thus, it is not the giving of earnest money, but the

proof of the concurrence of all the essential elements
of the contract of sale which establishes the existence
of a perfected sale.

In the absence of a perfected contract of sale, it is

immaterial whether Isidro A. Sobrecarey had the
authority to enter into a contract of sale in behalf of
petitioner. This issue, therefore, needs no further
discussion.

WHEREFORE, the decision of the Court of

Appeals is REVERSED and respondents’ complaint
is DISMISSED.

SO ORDERED.

16