G.R. No.
103577 October 7, 1996
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL,
ANNABELLE C. GONZALES (for herself and on behalf of Florida C. Tupper, as
attorney-in-fact), CIELITO A. CORONEL, FLORAIDA A. ALMONTE, and
CATALINA BALAIS MABANAG, petitioners,
vs.
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and RAMONA
PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as attorney-in-
fact, respondents.
MELO, J.:
The petition before us has its roots in a complaint for specific performance to compel
herein petitioners (except the last named, Catalina Balais Mabanag) to consummate the sale
of a parcel of land with its improvements located along Roosevelt Avenue in Quezon City
entered into by the parties sometime in January 1985 for the price of P1,240,000.00.
The undisputed facts of the case were summarized by respondent court in this wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et al.
(hereinafter referred to as Coronels) executed a document entitled
"Receipt of Down Payment" (Exh. "A") in favor of plaintiff Ramona
Patricia Alcaraz (hereinafter referred to as Ramona) which is reproduced
hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 — Total amount
50,000 — Down payment
———————————
P1,190,000.00 — Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon
City, the sum of Fifty Thousand Pesos purchase price of our inherited
house and lot, covered by TCT No. 119627 of the Registry of Deeds of
Quezon City, in the total amount of P1,240,000.00.
We bind ourselves to effect the transfer in our names from our deceased
father, Constancio P. Coronel, the transfer certificate of title immediately
upon receipt of the down payment above-stated.
On our presentation of the TCT already in or name, We will immediately
execute the deed of absolute sale of said property and Miss Ramona
Patricia Alcaraz shall immediately pay the balance of the P1,190,000.00.
Clearly, the conditions appurtenant to the sale are the following:
1. Ramona will make a down payment of Fifty Thousand (P50,000.00)
Pesos upon execution of the document aforestated;
2. The Coronels will cause the transfer in their names of the title of the
property registered in the name of their deceased father upon receipt of
the Fifty Thousand (P50,000.00) Pesos down payment;
3. Upon the transfer in their names of the subject property, the Coronels
will execute the deed of absolute sale in favor of Ramona and the latter
will pay the former the whole balance of One Million One Hundred
Ninety Thousand (P1,190,000.00) Pesos.
On the same date (January 15, 1985), plaintiff-appellee Concepcion D.
Alcaraz (hereinafter referred to as Concepcion), mother of Ramona, paid
the down payment of Fifty Thousand (P50,000.00) Pesos (Exh. "B", Exh.
"2").
On February 6, 1985, the property originally registered in the name of the
Coronels' father was transferred in their names under TCT
No. 327043 (Exh. "D"; Exh. "4")
On February 18, 1985, the Coronels sold the property covered by TCT
No. 327043 to intervenor-appellant Catalina B. Mabanag (hereinafter
referred to as Catalina) for One Million Five Hundred Eighty Thousand
(P1,580,000.00) Pesos after the latter has paid Three Hundred Thousand
(P300,000.00) Pesos (Exhs. "F-3"; Exh. "6-C")
For this reason, Coronels canceled and rescinded the contract (Exh. "A")
with Ramona by depositing the down payment paid by Concepcion in the
bank in trust for Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et al., filed a complaint for specific
performance against the Coronels and caused the annotation of a notice
of lis pendens at the back of TCT No. 327403 (Exh. "E"; Exh. "5").
 On April 2, 1985, Catalina caused the annotation of a notice of adverse
claim covering the same property with the Registry of Deeds of Quezon
City (Exh. "F"; Exh. "6").
On April 25, 1985, the Coronels executed a Deed of Absolute Sale over
the subject property in favor of Catalina (Exh. "G"; Exh. "7").
On June 5, 1985, a new title over the subject property was issued in the
name of Catalina under TCT No. 351582 (Exh. "H"; Exh. "8").
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch 83, RTC, Quezon City) the
parties agreed to submit the case for decision solely on the basis of documentary exhibits.
Thus, plaintiffs therein (now private respondents) proffered their documentary evidence
accordingly marked as Exhibits "A" through "J", inclusive of their corresponding
submarkings. Adopting these same exhibits as their own, then defendants (now petitioners)
accordingly offered and marked them as Exhibits "1" through "10", likewise inclusive of
their corresponding submarkings. Upon motion of the parties, the trial court gave them
thirty (30) days within which to simultaneously submit their respective memoranda, and an
additional 15 days within which to submit their corresponding comment or reply thereof,
after which, the case would be deemed submitted for resolution.
On April 14, 1988, the case was submitted for resolution before Judge Reynaldo Roura,
who was then temporarily detailed to preside over Branch 82 of the RTC of Quezon City.
On March 1, 1989, judgment was handed down by Judge Roura from his regular bench at
Macabebe, Pampanga for the Quezon City branch, disposing as follows:
WHEREFORE, judgment for specific performance is hereby rendered
ordering defendant to execute in favor of plaintiffs a deed of absolute
sale covering that parcel of land embraced in and covered by Transfer
Certificate of Title No. 327403 (now TCT No. 331582) of the Registry of
Deeds for Quezon City, together with all the improvements existing
thereon free from all liens and encumbrances, and once accomplished, to
immediately deliver the said document of sale to plaintiffs and upon
receipt thereof, the said document of sale to plaintiffs and upon receipt
thereof, the plaintiffs are ordered to pay defendants the whole balance of
the purchase price amounting to P1,190,000.00 in cash. Transfer
Certificate of Title No. 331582 of the Registry of Deeds for Quezon City
in the name of intervenor is hereby canceled and declared to be without
force and effect. Defendants and intervenor and all other persons
claiming under them are hereby ordered to vacate the subject property
and deliver possession thereof to plaintiffs. Plaintiffs' claim for damages
and attorney's fees, as well as the counterclaims of defendants and
intervenors are hereby dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioner before the new presiding judge of the
Quezon City RTC but the same was denied by Judge Estrella T. Estrada, thusly:
The prayer contained in the instant motion, i.e., to annul the decision and
to render anew decision by the undersigned Presiding Judge should be
denied for the following reasons: (1) The instant case became submitted
for decision as of April 14, 1988 when the parties terminated the
presentation of their respective documentary evidence and when the
Presiding Judge at that time was Judge Reynaldo Roura. The fact that
they were allowed to file memoranda at some future date did not change
the fact that the hearing of the case was terminated before Judge Roura
and therefore the same should be submitted to him for decision; (2)
When the defendants and intervenor did not object to the authority of
Judge Reynaldo Roura to decide the case prior to the rendition of the
decision, when they met for the first time before the undersigned
Presiding Judge at the hearing of a pending incident in Civil Case No. Q-
46145 on November 11, 1988, they were deemed to have acquiesced
thereto and they are now estopped from questioning said authority of
 Judge Roura after they received the decision in question which happens
to be adverse to them; (3) While it is true that Judge Reynaldo Roura was
merely a Judge-on-detail at this Branch of the Court, he was in all
respects the Presiding Judge with full authority to act on any pending
incident submitted before this Court during his incumbency. When he
returned to his Official Station at Macabebe, Pampanga, he did not lose
his authority to decide or resolve such cases submitted to him for
decision or resolution because he continued as Judge of the Regional
Trial Court and is of co-equal rank with the undersigned Presiding Judge.
The standing rule and supported by jurisprudence is that a Judge to
whom a case is submitted for decision has the authority to decide the case
notwithstanding his transfer to another branch or region of the same court
(Sec. 9, Rule 135, Rule of Court).
Coming now to the twin prayer for reconsideration of the Decision dated
March 1, 1989 rendered in the instant case, resolution of which now
pertains to the undersigned Presiding Judge, after a meticulous
examination of the documentary evidence presented by the parties, she is
convinced that the Decision of March 1, 1989 is supported by evidence
and, therefore, should not be disturbed.
IN VIEW OF THE FOREGOING, the "Motion for Reconsideration
and/or to Annul Decision and Render Anew Decision by the Incumbent
Presiding Judge" dated March 20, 1989 is hereby DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court of
Appeals (Buena, Gonzaga-Reyes, Abad Santos (P), JJ.) rendered its decision fully agreeing
with the trial court.
Hence, the instant petition which was filed on March 5, 1992. The last pleading, private
respondents' Reply Memorandum, was filed on September 15, 1993. The case was,
however, re-raffled to undersigned ponente only on August 28, 1996, due to the voluntary
inhibition of the Justice to whom the case was last assigned.
While we deem it necessary to introduce certain refinements in the disquisition of
respondent court in the affirmance of the trial court's decision, we definitely find the instant
petition bereft of merit.
The heart of the controversy which is the ultimate key in the resolution of the other issues
in the case at bar is the precise determination of the legal significance of the document
entitled "Receipt of Down Payment" which was offered in evidence by both parties. There
is no dispute as to the fact that said document embodied the binding contract between
Ramona Patricia Alcaraz on the one hand, and the heirs of Constancio P. Coronel on the
other, pertaining to a particular house and lot covered by TCT No. 119627, as defined in
Article 1305 of the Civil Code of the Philippines which reads as follows:
Art. 1305. A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give something
or to render some service.
While, it is the position of private respondents that the "Receipt of Down Payment"
embodied a perfected contract of sale, which perforce, they seek to enforce by means of an
action for specific performance, petitioners on their part insist that what the document
signified was a mere executory contract to sell, subject to certain suspensive conditions,
and because of the absence of Ramona P. Alcaraz, who left for the United States of
America, said contract could not possibly ripen into a contract absolute sale.
Plainly, such variance in the contending parties' contentions is brought about by the way
each interprets the terms and/or conditions set forth in said private instrument. Withal,
based on whatever relevant and admissible evidence may be available on record, this,
Court, as were the courts below, is now called upon to adjudge what the real intent of the
parties was at the time the said document was executed.
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing,
and the other to pay therefor a price certain in money or its equivalent.
Sale, by its very nature, is a consensual contract because it is perfected by mere consent.
The essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership
in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a Contract of Sale
because the first essential element is lacking. In a contract to sell, the prospective seller
explicity reserves the transfer of title to the prospective buyer, meaning, the prospective
seller does not as yet agree or consent to transfer ownership of the property subject of the
contract to sell until the happening of an event, which for present purposes we shall take as
the full payment of the purchase price. What the seller agrees or obliges himself to do is to
fulfill is promise to sell the subject property when the entire amount of the purchase price is
delivered to him. In other words the full payment of the purchase price partakes of a
suspensive condition, the non-fulfillment of which prevents the obligation to sell from
arising and thus, ownership is retained by the prospective seller without further remedies
by the prospective buyer. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court had
occasion to rule:
Hence, We hold that the contract between the petitioner and the
respondent was a contract to sell where the ownership or title is retained
by the seller and is not to pass until the full payment of the price, such
payment being a positive suspensive condition and failure of which is not
a breach, casual or serious, but simply an event that prevented the
obligation of the vendor to convey title from acquiring binding force.
Stated positively, upon the fulfillment of the suspensive condition which is the full
payment of the purchase price, the prospective seller's obligation to sell the subject
property by entering into a contract of sale with the prospective buyer becomes
demandable as provided in Article 1479 of the Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor if the promise is supported by
a consideration distinct from the price.
A contract to sell may thus be defined as a bilateral contract whereby the prospective seller,
while expressly reserving the ownership of the subject property despite delivery thereof to
the prospective buyer, binds himself to sell the said property exclusively to the prospective
buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase
price.
A contract to sell as defined hereinabove, may not even be considered as a conditional
contract of sale where the seller may likewise reserve title to the property subject of the
sale until the fulfillment of a suspensive condition, because in a conditional contract of
sale, the first element of consent is present, although it is conditioned upon the happening
of a contingent event which may or may not occur. If the suspensive condition is not
fulfilled, the perfection of the contract of sale is completely abated (cf. Homesite and
housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if the suspensive
condition is fulfilled, the contract of sale is thereby perfected, such that if there had already
been previous delivery of the property subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law without any further act having to
be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the full
payment of the purchase price, ownership will not automatically transfer to the buyer
although the property may have been previously delivered to him. The prospective seller
still has to convey title to the prospective buyer by entering into a contract of absolute sale.
It is essential to distinguish between a contract to sell and a conditional contract of sale
specially in cases where the subject property is sold by the owner not to the party the seller
contracted with, but to a third person, as in the case at bench. In a contract to sell, there
being no previous sale of the property, a third person buying such property despite the
fulfillment of the suspensive condition such as the full payment of the purchase price, for
instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the
relief of reconveyance of the property. There is no double sale in such case. Title to the
property will transfer to the buyer after registration because there is no defect in the owner-
seller's title per se, but the latter, of course, may be used for damages by the intending
buyer.
In a conditional contract of sale, however, upon the fulfillment of the suspensive condition,
the sale becomes absolute and this will definitely affect the seller's title thereto. In fact, if
there had been previous delivery of the subject property, the seller's ownership or title to
the property is automatically transferred to the buyer such that, the seller will no longer
have any title to transfer to any third person. Applying Article 1544 of the Civil Code, such
second buyer of the property who may have had actual or constructive knowledge of such
defect in the seller's title, or at least was charged with the obligation to discover such
defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first
buyer's title. In case a title is issued to the second buyer, the first buyer may seek
reconveyance of the property subject of the sale.
With the above postulates as guidelines, we now proceed to the task of deciphering the real
nature of the contract entered into by petitioners and private respondents.
It is a canon in the interpretation of contracts that the words used therein should be given
their natural and ordinary meaning unless a technical meaning was intended (Tan vs. Court
of Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared in the said "Receipt
of Down Payment" that they —
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon
City, the sum of Fifty Thousand Pesos purchase price of our inherited
house and lot, covered by TCT No. 1199627 of the Registry of Deeds of
Quezon City, in the total amount of P1,240,000.00.
 without any reservation of title until full payment of the entire purchase price, the
natural and ordinary idea conveyed is that they sold their property.
When the "Receipt of Down Payment" is considered in its entirety, it becomes more
manifest that there was a clear intent on the part of petitioners to transfer title to the buyer,
but since the transfer certificate of title was still in the name of petitioner's father, they
could not fully effect such transfer although the buyer was then willing and able to
immediately pay the purchase price. Therefore, petitioners-sellers undertook upon receipt
of the down payment from private respondent Ramona P. Alcaraz, to cause the issuance of
a new certificate of title in their names from that of their father, after which, they promised
to present said title, now in their names, to the latter and to execute the deed of absolute
sale whereupon, the latter shall, in turn, pay the entire balance of the purchase price.
The agreement could not have been a contract to sell because the sellers herein made no
express reservation of ownership or title to the subject parcel of land. Furthermore, the
circumstance which prevented the parties from entering into an absolute contract of sale
pertained to the sellers themselves (the certificate of title was not in their names) and not
the full payment of the purchase price. Under the established facts and circumstances of the
case, the Court may safely presume that, had the certificate of title been in the names of
petitioners-sellers at that time, there would have been no reason why an absolute contract
of sale could not have been executed and consummated right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise
to sell the properly to private respondent upon the fulfillment of the suspensive condition.
On the contrary, having already agreed to sell the subject property, they undertook to have
the certificate of title changed to their names and immediately thereafter, to execute the
written deed of absolute sale.
Thus, the parties did not merely enter into a contract to sell where the sellers, after
compliance by the buyer with certain terms and conditions, promised to sell the property to
the latter. What may be perceived from the respective undertakings of the parties to the
contract is that petitioners had already agreed to sell the house and lot they inherited from
their father, completely willing to transfer full ownership of the subject house and lot to the
buyer if the documents were then in order. It just happened, however, that the transfer
certificate of title was then still in the name of their father. It was more expedient to first
effect the change in the certificate of title so as to bear their names. That is why they
undertook to cause the issuance of a new transfer of the certificate of title in their names
upon receipt of the down payment in the amount of P50,000.00. As soon as the new
certificate of title is issued in their names, petitioners were committed to immediately
execute the deed of absolute sale. Only then will the obligation of the buyer to pay the
remainder of the purchase price arise.
There is no doubt that unlike in a contract to sell which is most commonly entered into so
as to protect the seller against a buyer who intends to buy the property in installment by
withholding ownership over the property until the buyer effects full payment therefor, in
the contract entered into in the case at bar, the sellers were the one who were unable to
enter into a contract of absolute sale by reason of the fact that the certificate of title to the
property was still in the name of their father. It was the sellers in this case who, as it were,
had the impediment which prevented, so to speak, the execution of an contract of absolute
sale.
What is clearly established by the plain language of the subject document is that when the
said "Receipt of Down Payment" was prepared and signed by petitioners Romeo A.
Coronel, et al., the parties had agreed to a conditional contract of sale, consummation of
which is subject only to the successful transfer of the certificate of title from the name of
petitioners' father, Constancio P. Coronel, to their names.
The Court significantly notes this suspensive condition was, in fact, fulfilled on February 6,
1985 (Exh. "D"; Exh. "4"). Thus, on said date, the conditional contract of sale between
petitioners and private respondent Ramona P. Alcaraz became obligatory, the only act
required for the consummation thereof being the delivery of the property by means of the
execution of the deed of absolute sale in a public instrument, which petitioners
unequivocally committed themselves to do as evidenced by the "Receipt of Down
Payment."
Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the
case at bench. Thus,
Art. 1475. The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and
upon the price.
From the moment, the parties may reciprocally demand performance,
subject to the provisions of the law governing the form of contracts.
Art. 1181. In conditional obligations, the acquisition of rights, as well as
the extinguishment or loss of those already acquired, shall depend upon
the happening of the event which constitutes the condition.
Since the condition contemplated by the parties which is the issuance of a certificate of title
in petitioners' names was fulfilled on February 6, 1985, the respective obligations of the
parties under the contract of sale became mutually demandable, that is, petitioners, as
sellers, were obliged to present the transfer certificate of title already in their names to
private respondent Ramona P. Alcaraz, the buyer, and to immediately execute the deed of
absolute sale, while the buyer on her part, was obliged to forthwith pay the balance of the
purchase price amounting to P1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of their petition, petitioners
conclusively admitted that:
3. The petitioners-sellers Coronel bound themselves "to effect the
transfer in our names from our deceased father Constancio P. Coronel,
the transfer certificate of title immediately upon receipt of the
downpayment above-stated". The sale was still subject to this suspensive
condition. (Emphasis supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a contract of sale subject to a
suspensive condition. Only, they contend, continuing in the same paragraph, that:
. . . Had petitioners-sellers not complied with this condition of first
transferring the title to the property under their names, there could be no
perfected contract of sale. (Emphasis supplied.)
(Ibid.)
not aware that they set their own trap for themselves, for Article 1186 of the Civil
Code expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment.
Besides, it should be stressed and emphasized that what is more controlling than these mere
hypothetical arguments is the fact that the condition herein referred to was actually and
indisputably fulfilled on February 6, 1985, when a new title was issued in the names of
petitioners as evidenced by TCT No. 327403 (Exh. "D"; Exh. "4").
The inevitable conclusion is that on January 19, 1985, as evidenced by the document
denominated as "Receipt of Down Payment" (Exh. "A"; Exh. "1"), the parties entered into
a contract of sale subject only to the suspensive condition that the sellers shall effect the
issuance of new certificate title from that of their father's name to their names and that, on
February 6, 1985, this condition was fulfilled (Exh. "D"; Exh. "4").
We, therefore, hold that, in accordance with Article 1187 which pertinently provides —
Art. 1187. The effects of conditional obligation to give, once the
condition has been fulfilled, shall retroact to the day of the constitution of
the obligation . . .
In obligation to do or not to do, the courts shall determine, in each case,
the retroactive effect of the condition that has been complied with.
the rights and obligations of the parties with respect to the perfected contract of
sale became mutually due and demandable as of the time of fulfillment or
occurrence of the suspensive condition on February 6, 1985. As of that point in
time, reciprocal obligations of both seller and buyer arose.
Petitioners also argue there could been no perfected contract on January 19, 1985 because
they were then not yet the absolute owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of transferring ownership as
follows:
Art. 774. Succession is a mode of acquisition by virtue of which the
property, rights and obligations to be extent and value of the inheritance
of a person are transmitted through his death to another or others by his
will or by operation of law.
Petitioners-sellers in the case at bar being the sons and daughters of the decedent
Constancio P. Coronel are compulsory heirs who were called to succession by
operation of law. Thus, at the point their father drew his last breath, petitioners
stepped into his shoes insofar as the subject property is concerned, such that any
rights or obligations pertaining thereto became binding and enforceable upon
them. It is expressly provided that rights to the succession are transmitted from the
moment of death of the decedent (Article 777, Civil Code; Cuison vs. Villanueva,
90 Phil. 850 [1952]).
Be it also noted that petitioners' claim that succession may not be declared unless the
creditors have been paid is rendered moot by the fact that they were able to effect the
transfer of the title to the property from the decedent's name to their names on February 6,
1985.
Aside from this, petitioners are precluded from raising their supposed lack of capacity to
enter into an agreement at that time and they cannot be allowed to now take a posture
contrary to that which they took when they entered into the agreement with private
respondent Ramona P. Alcaraz. The Civil Code expressly states that:
Art. 1431. Through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved
as against the person relying thereon.
 Having represented themselves as the true owners of the subject property at the
time of sale, petitioners cannot claim now that they were not yet the absolute
owners thereof at that time.
Petitioners also contend that although there was in fact a perfected contract of sale between
them and Ramona P. Alcaraz, the latter breached her reciprocal obligation when she
rendered impossible the consummation thereof by going to the United States of America,
without leaving her address, telephone number, and Special Power of Attorney (Paragraphs
14 and 15, Answer with Compulsory Counterclaim to the Amended Complaint, p. 2; Rollo,
p. 43), for which reason, so petitioners conclude, they were correct in unilaterally
rescinding rescinding the contract of sale.
We do not agree with petitioners that there was a valid rescission of the contract of sale in
the instant case. We note that these supposed grounds for petitioners' rescission, are mere
allegations found only in their responsive pleadings, which by express provision of the
rules, are deemed controverted even if no reply is filed by the plaintiffs (Sec. 11, Rule 6,
Revised Rules of Court). The records are absolutely bereft of any supporting evidence to
substantiate petitioners' allegations. We have stressed time and again that allegations must
be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro
vs. Embisan, 2 SCRA 598 [1961]. Mere allegation is not an evidence (Lagasca vs. De
Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the United States of America on
February 6, 1985, we cannot justify petitioner-sellers' act of unilaterally and extradicially
rescinding the contract of sale, there being no express stipulation authorizing the sellers to
extarjudicially rescind the contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988];
Taguba vs. Vda. de Leon, 132 SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz
because although the evidence on record shows that the sale was in the name of Ramona P.
Alcaraz as the buyer, the sellers had been dealing with Concepcion D. Alcaraz, Ramona's
mother, who had acted for and in behalf of her daughter, if not also in her own behalf.
Indeed, the down payment was made by Concepcion D. Alcaraz with her own personal
check (Exh. "B"; Exh. "2") for and in behalf of Ramona P. Alcaraz. There is no evidence
showing that petitioners ever questioned Concepcion's authority to represent Ramona P.
Alcaraz when they accepted her personal check. Neither did they raise any objection as
regards payment being effected by a third person. Accordingly, as far as petitioners are
concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind the
contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as her
obligation to pay the full purchase price is concerned. Petitioners who are precluded from
setting up the defense of the physical absence of Ramona P. Alcaraz as above-explained
offered no proof whatsoever to show that they actually presented the new transfer
certificate of title in their names and signified their willingness and readiness to execute the
deed of absolute sale in accordance with their agreement. Ramona's corresponding
obligation to pay the balance of the purchase price in the amount of P1,190,000.00 (as
buyer) never became due and demandable and, therefore, she cannot be deemed to have
been in default.
Article 1169 of the Civil Code defines when a party in a contract involving reciprocal
obligations may be considered in default, to wit:
Art. 1169. Those obliged to deliver or to do something, incur in delay
from the time the obligee judicially or extrajudicially demands from them
the fulfillment of their obligation.
xxx xxx xxx
In reciprocal obligations, neither party incurs in delay if the other does
not comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfill his
obligation, delay by the other begins. (Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the contract of sale between
petitioners and respondents.
With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave
rise to a case of double sale where Article 1544 of the Civil Code will apply, to wit:
Art. 1544. If the same thing should have been sold to different vendees,
the ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
Should if be immovable property, the ownership shall belong to the
person acquiring it who in good faith first recorded it in Registry of
Property.
Should there be no inscription, the ownership shall pertain to the person
who in good faith was first in the possession; and, in the absence thereof
to the person who presents the oldest title, provided there is good faith.
The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof
of the second contract of sale was registered with the Registry of Deeds of Quezon City
giving rise to the issuance of a new certificate of title in the name of Catalina B. Mabanag
on June 5, 1985. Thus, the second paragraph of Article 1544 shall apply.
The above-cited provision on double sale presumes title or ownership to pass to the first
buyer, the exceptions being: (a) when the second buyer, in good faith, registers the sale
ahead of the first buyer, and (b) should there be no inscription by either of the two buyers,
when the second buyer, in good faith, acquires possession of the property ahead of the first
buyer. Unless, the second buyer satisfies these requirements, title or ownership will not
transfer to him to the prejudice of the first buyer.
In his commentaries on the Civil Code, an accepted authority on the subject, now a
distinguished member of the Court, Justice Jose C. Vitug, explains:
The governing principle is prius tempore, potior jure (first in time,
stronger in right). Knowledge by the first buyer of the second sale cannot
defeat the first buyer's rights except when the second buyer first registers
in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33).
Conversely, knowledge gained by the second buyer of the first sale
defeats his rights even if he is first to register, since knowledge taints his
registration with bad faith (see also Astorga vs. Court of Appeals, G.R.
No. 58530, 26 December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22
June 1984, 129 SCRA 656), it has held that it is essential, to merit the
protection of Art. 1544, second paragraph, that the second realty buyer
must act in good faith in registering his deed of sale (citing Carbonell vs.
Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02
September 1992).
(J. Vitug Compendium of Civil Law and Jurisprudence, 1993 Edition, p.
604).
Petitioner point out that the notice of lis pendens in the case at bar was annoted on the title
of the subject property only on February 22, 1985, whereas, the second sale between
petitioners Coronels and petitioner Mabanag was supposedly perfected prior thereto or on
February 18, 1985. The idea conveyed is that at the time petitioner Mabanag, the second
buyer, bought the property under a clean title, she was unaware of any adverse claim or
previous sale, for which reason she is buyer in good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality is not whether or not the
second buyer was a buyer in good faith but whether or not said second buyer registers such
second sale in good faith, that is, without knowledge of any defect in the title of the
property sold.
As clearly borne out by the evidence in this case, petitioner Mabanag could not have in
good faith, registered the sale entered into on February 18, 1985 because as early as
February 22, 1985, a notice of lis pendens had been annotated on the transfer certificate of
title in the names of petitioners, whereas petitioner Mabanag registered the said sale
sometime in April, 1985. At the time of registration, therefore, petitioner Mabanag knew
that the same property had already been previously sold to private respondents, or, at least,
she was charged with knowledge that a previous buyer is claiming title to the same
property. Petitioner Mabanag cannot close her eyes to the defect in petitioners' title to the
property at the time of the registration of the property.
This Court had occasions to rule that:
If a vendee in a double sale registers that sale after he has acquired
knowledge that there was a previous sale of the same property to a third
party or that another person claims said property in a pervious sale, the
registration will constitute a registration in bad faith and will not confer
upon him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing
Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil.
554; Fernandez vs. Mercader, 43 Phil. 581.)
Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz,
perfected on February 6, 1985, prior to that between petitioners and Catalina B. Mabanag
on February 18, 1985, was correctly upheld by both the courts below.
Although there may be ample indications that there was in fact an agency between Ramona
as principal and Concepcion, her mother, as agent insofar as the subject contract of sale is
concerned, the issue of whether or not Concepcion was also acting in her own behalf as a
co-buyer is not squarely raised in the instant petition, nor in such assumption disputed
between mother and daughter. Thus, We will not touch this issue and no longer disturb the
lower courts' ruling on this point.
WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the
appealed judgment AFFIRMED.
SO ORDERED.
G.R. No. 125531 February 12, 1997
JOVAN LAND, petitioner,
vs.
COURT OF APPEALS and EUGENIO QUESADA INC., respondents.

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:
. . . 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. . . . 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:
. . . [A] contract (Art. 1157, Civil Code), . . . 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. . . . 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 . . . . 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:
. . . 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 . . . he had stated that the check of P1M had been enclosed
(attached) therewith. The same check . . . was again mentioned to be
enclosed (attached) in the third written offer under date August 10, 1989 .
. . . 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:
. . . [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, . . . it was Joseph Sy's idea to offer the earnest money, and the
evidence to show that Joseph Sy accepted the same, is wanting. . . .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.
G.R. No. 133749            August 23, 2001
 HERNANDO R. PEÑALOSA alias "HENRY PEÑALOSA," petitioner,
vs.
SEVERINO C. SANTOS (deceased), Substituted by his heirs: OLIVER SANTOS and
ADYLL M. SANTOS, and ADELA DURAN MENDEZ SANTOS, respondents.
QUISUMBING, J.:
Petitioner appeals by certiorari from the decision of the Court of Appeals, which affirmed
the judgment of the Regional Trial Court of Quezon City, Branch 78, in Civil Case No. Q-
92-13531, declaring the deed of absolute sale entered into between petitioner and
respondents as void and inexistent and ordering petitioner to vacate the subject property
and to pay reasonable compensation for its use.
The facts, as revealed by the records, are as follows:
Respondents Severino C. Santos (deceased) and Adela Mendez Santos are registered
owners of a residential house and lot located at No. 113 Scout Rallos Street, Quezon City
under TCT No. PT-23458 (54434).1 In 1988, Severino and Adela decided to sell their
property and for this purpose, negotiated with petitioner Hernando (or Henry) Peñalosa.
The property was then occupied by a lessee, Eleuterio Perez, who was given preference to
buy it under the same terms offered by the buyer.2 Perez proposed less favorable terms3 and
expectedly, Severino rejected his offer.
On August 1, 1988, petitioner Henry Peñalosa and respondent Severino Santos attempted
to enter into an agreement whereby the latter, for a consideration of P1,800.000.00, would
sell to the former the property subject of the instant case. The deed of absolute sale4 (first
deed) evidencing this transaction was signed by Henry but not by Severino, because
according to the latter, Henry "took time to decide" on the matter.5
On August 15, 1988, Henry signed a document6 stating that the first deed was executed
between him and Severino, for the sole purpose of helping the latter eject Perez, the
occupant of the property. Henry acknowledged in said document that although Severino
had agreed to sell the property to him, he had not paid the consideration stated in the first
deed.
Thereafter, Henry and Severino executed another deed of absolute sale7 (second deed) for a
higher consideration of P2,000,000.00. Although the second deed was originally dated
"August 1988", superimposed upon the same was the date "September 12, 1988". This
second deed was signed by both parties and duly notarized. It states that Severino sells and
transfers the house and lot to Henry, who had paid the full price of P2,000,000.00 therefor.
Severino explained that his initial asking price for the property was only P1,800,000.00 as
shown in the first deed. But he later asked for a higher price because Henry could not give
the money as soon as expected. However, Severino claimed that he made it clear to Henry
that he agreed to sell the property under the second deed for P2,000,000.00, provided that
payment be immediately effected. Severino said that he wanted to use the money to invest
in another property located in Alabang and told Henry that if payment was made at a later
date, the price would be the current market value at the time of payment.
Henry then gave Severino P300,000.00 as "earnest money", purportedly with the
understanding that the former was to pay the balance within 60 days. Otherwise, said
amount would be forfeited in favor of Severino.8 The latter also maintained that he signed
the second deed only for the purpose of facilitating Henry's acquisition of a bank loan to
finance payment of the balance of the purchase price9 and added that execution of the
second deed was necessary to enable Henry to file a court action for ejectment of the
tenant.10
After execution of the second deed, Henry filed a loan application with the Philippine
American Life Insurance Company (Philam Life) for the amount of
P2,500,000.00.11 According to Henry, he had agreed with Severino during the signing of
the second deed, that the balance of P1,700,000.00 would be paid by means of a loan, with
the property itself given as collateral.12
Meanwhile, on the strength of the first deed and as new "owner" of the property, Henry
wrote a letter13 dated August 8, 1988 to the lessee, Eleuterio Perez, demanding that the
latter vacate the premises within 10 days. Failing in this effort, Henry brought a complaint
for ejectment14 against Perez before the Office of the Barangay Captain.
On September 1, 1988, a Certification To File Action15 was issued by the barangay lupon.
This led to the subsequent filing of Civil Case No. 88 0439 for unlawful detainer, before
the Metropolitan Trial Court of Quezon City, Branch 43, entitled "Henry Peñalosa,
Plaintiff vs. Eleuterio Perez, Defendant". Claiming that he still had a subsisting contract of
lease over the property, Perez countersued and brought Civil Case No. Q-88-1062 before
the Regional Trial Court of Quezon City, Branch 96, entitled "Eleuterio Perez, Plaintiffs
vs. Severino Santos, et. al, Defendants". In this latter case, Perez assailed the validity of the
sale transaction between Henry and Severino and impleaded the former as co-defendant of
Severino.
While the aforesaid court cases were pending resolution, Philam Life informed Severino
through a letter,16 that Henry's loan application had been approved by the company on
January 18, 1989. Philam Life stated in the letter that of the total purchase price
of P2,500,000.00, the amount of P1,700,000.00 would be paid directly to Severino by
Philam Life, while P800,000.00 would be paid by Henry.
The release of the loan proceeds was made subject to the submission of certain documents
in Severino's possession, one of which is the owner's duplicate of the Transfer Certificate
of Title (TCT) pertaining to the property. However, when Henry and Severino met with
officials of Philam Life to finalize the loan/mortgage contract, Severino refused to
surrender the owner's duplicate title and insisted on being paid immediately in cash. 17 As a
consequence, the loan/mortgage contract with Philam Life did not materialize.
Subsequently, on April 28, 1989, judgment18 was rendered by the MTC-QC, Branch 43, in
Civil Case No. 0439, ordering the tenant Perez to vacate and surrender possession of the
property to Henry. In said judgment, Henry was explicitly recognized as the new owner of
the property by virtue of the contract of sale dated September 12, 1988, after full payment
of the purchase price of P2,000,000.00, receipt of which was duly acknowledged by
Severino.
Upon finality of said judgment, Henry and his family moved into the disputed house and
lot on August 1989, after making repairs and improvements.19 Henry spent a total of
P700,000.00 for the renovation, as evidenced by receipts.20
On July 27, 1992, Severino sent a letter21 to Henry, through counsel, demanding that Henry
vacate the house and lot, on the ground that Henry did not conclusively offer nor tender a
price certain for the purchase of the property. The letter also stated that Henry's alleged
offer and promise to buy the property has since been rejected by Severino.
When Henry refused to vacate the property, Severino brought this action for quieting of
title, recovery of possession and damages before the Regional Trial Court of Quezon City,
Branch 78, on September 28, 1992. Severino alleged in his complaint22 that there was a
cloud over the title to the property, brought about by the existence of the second deed of
sale.
Essentially, Severino averred that the second deed was void and inexistent because: a) there
was no cause or consideration therefor, since he did not receive the P2,000,000.00 stated in
the deed; b) his wife, Adela, in whose name the property was titled, did not consent to the
sale nor sign the deed; c) the deed was not registered with the Register of Deeds; d) he did
not acknowledge the deed personally before the notary public; e) his residence certificate,
as appearing in the deed, was falsified; and f) the deed is fictitious and simulated because it
was executed only for the purpose of placing Henry in possession of the property because
he tendered "earnest money". Severino also claimed that there was no meeting of minds
with respect to the cause or consideration, since Henry's varied offers of P1,800,000.00,
P2,000,000.00, and P2,500,000.00, were all rejected by him.
For his part, Henry asserted that he was already the owner of the property being claimed by
Severino, by virtue of a final agreement reached with the latter. Contrary to Severino's
claim, the price of the property was pegged at P2,000,000.00, as agreed upon by the parties
under the second deed. Prior to the filing of the action, his possession of the property
remained undisturbed for three (3) years. Nevertheless, he admitted that since the signing
of the second deed, he has not paid Severino the balance of the purchase price. He,
however, faulted the latter for the non-payment, since according to him, Severino refused
to deliver the owner's duplicate title to the financing company.
On Aug. 20, 1993, the trial court rendered judgment in favor of Severino and disposed:
WHEREFORE, judgment is rendered as follows:
1) DECLARING the "Deed of Absolute Sale" which was signed by the plaintiff
Severino C. Santos as vendor and the defendant as vendee and which was entered
in the notarial register of notary public Dionilo Marfil of Quezon City as Doc. No.
474, Page No. 95, Book No. 173, Series of 1988, as inexistent and void from the
beginning; and consequently, plaintiff's title to the property under T.C.T. No. PT-
23458 (54434) issued by the Register of Deeds of Quezon City is quieted,
sustained and maintained;
2) ORDERING the defendant to pay plaintiffs the amount of P15, 000.00 a month
as reasonable compensation for the use of the House and Lot located at No. 113
Scout Rallos St., Quezon City, beginning on the month of August, 1993, until the
premises is fully vacated, (the compensation for the use thereof from the time the
defendant had occupied the premises up to July, 1993, is recompensed for the
repairs made by him); and
3) ORDERING the plaintiffs to reimburse the defendant the amount of
P300,000.00 after defendant had vacated the premises in question, and the
reasonable compensation for the use thereof had been paid.
All other claims and counterclaims are DENIED for lack of legal and factual
bases. No pronouncement as to costs.
SO ORDERED.23
Both Henry and Severino appealed the above decision to the Court of Appeals. Before the
appellate court could decide the same, Severino passed away and was substituted by his
wife and children as respondents. Henry filed a motion for leave to be allowed to deposit
P1,700,000.00 in escrow with the Landbank of the Philippines to answer for the money
portion of the decision.24 This motion was granted.
On December 29, 1997, the appellate court affirmed25 the judgment of the trial court and
thereafter, denied Henry's motion for reconsideration.26 Thus, Henry brought this petition,
citing the following as alleged errors:
I.
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN CONCLUDING
THAT THERE WAS NO PERFECTED CONTRACT OF SALE BETWEEN SEVERINO
C. SANTOS AND PETITIONER HENRY R. PEÑALOSA.
II.
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN CONSIDERING
NON-PAYMENT OF THE FULL PURCHASE PRICE AS CAUSE FOR DECLARING A
PERFECTED CONTRACT OF SALE AS NULL AND VOID.
III.
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN REFUSING TO
RECOGNIZE THAT OWNERSHIP OF THE SUBJECT PROPERTY HAD BEEN
EFFECTIVELY VESTED UPON PETITIONER HENRY R. PEÑALOSA WHEN
ACTUAL POSSESSION THEREOF HAD LAWFULLY TRANSFERRED TO
PETITIONER HENRY R. PEÑALOSA BY VIRTUE OF THE COURT JUDGMENT IN
THE EJECTMENT SUIT AGAINST THE FORMER LESSEE.27
The pivotal issue presented before us is whether or not the second deed is valid and
constitutes evidence of the final agreement between the parties regarding the sale
transaction entered into by them.
Petitioner maintains that the existence of a perfected contract of sale in this case is beyond
doubt, since there clearly was a meeting of minds between the parties as to the object and
consideration of the contract. According to petitioner, the agreement of the parties is
evidenced by provisions contained in the second deed, which cannot possibly be simulated
or fictitious. Subsequent and contemporaneous acts indubitably point to the fact that the
parties truly intended to be bound by the second deed. Accordingly, the P2,000,000.00
stated therein was the actual price agreed upon by the parties as consideration for the sale.
On the other hand, in their memorandum, respondents insist that the second deed is a
complete nullity because, as found by both the appellate and trial court: a) the
consideration stated in the deed was not paid; b) Severino's passport showed that he was in
the U.S. when said deed was notarized; c) Severino did not surrender a copy of the title at
the time of the alleged sale; d) petitioner did not pay real estate taxes on the property; e) it
was executed only for the purpose of helping Severino eject the tenant; f) Severino's wife,
Adela, did not sign the deed; and g) the various documentary exhibits proved that there was
no price certain accepted or paid.
Respondents additionally argue that petitioner merely seeks a review of the aforesaid
factual findings of the lower court and that consequently, we should deny the petition on
the ground that it raises only factual questions.
Considering the pivotal issue presented after close scrutiny of the assigned errors as well as
the arguments of the parties, we are unable to agree with respondents and we must give due
course to the petition.
First of all, the petition filed before this Court explicitly questions "the legal significance
and consequences of the established facts"28 and not the findings of fact themselves. As
pointed out by petitioner, he submits to the factual findings of the lower court, but
maintains that its legal conclusions are irreconcilable and inconsistent therewith. He also
states that the grounds relied upon in this petition do not call for the weighing of conflicting
evidence submitted by the parties. Rather, he merely asks the Court to give due
significance to certain undisputed and admitted facts spread throughout the record, which,
if properly appreciated, would justify a different conclusion.
At any rate, in Baricuatro, Jr. vs. Court of Appeals, 325 SCRA 137, 145 (2000), we
reiterated the doctrine that findings of fact of the Court of Appeals are binding and
conclusive upon this Court, subject to certain exceptions, one of which is when the
judgment is based on a misapprehension of facts. In this case, after carefully poring over
the records, we are convinced that the lower courts misappreciated the evidence presented
by the parties and that, indeed, a reversal of the assailed judgment is in order.
It should have been readily apparent to the trial court that the circumstances it cited in its
decision are not proper grounds for holding that the second deed is simulated. Simulation is
a declaration of a fictitious will, deliberately made by agreement of the parties, in order to
produce, for purposes of deception, the appearance of a juridical act which does not exist or
is different from that which was really executed. Its requisites are: a) an outward
declaration of will different from the will of the parties; b) the false appearance must have
been intended by mutual agreement; and c) the purpose is to deceive third persons.29 None
of these requisites is present in this case.
The basic characteristic of an absolutely simulated or fictitious contract is that the apparent
contract is not really desired or intended to produce legal effects or alter the juridical
situation of the parties in any way.30 However, in this case, the parties already undertook
certain acts which were directed towards fulfillment of their respective covenants under the
second deed, indicating that they intended to give effect to their agreement.
In particular, as early as August 8, 1988, after execution of the first deed, Severino
authorized petitioner to bring an action for ejectment against the overstaying tenant and
allowed petitioner to pursue the ejectment case to its final conclusion, presumably to secure
possession of the property in petitioner's favor. Petitioner also applied for a loan, which
was approved by Philam Life, to complete payment of the stipulated price. After making
extensive repairs with the knowledge of Severino, petitioner moved into the premises and
actually occupied the same for three years before this action was brought. Moreover,
simultaneous with the execution of the second deed, petitioner gave Severino P300,000.00
in earnest money, which under Article 148231 of the New Civil Code, is part of the purchase
price and proof of perfection of the contract.
What may have led the lower courts into incorrectly believing that the second deed was
simulated is Exhibit D — a document in which petitioner declared that the deed was
executed only for the purpose of helping Severino eject the tenant. However, a perusal of
this document reveals that it made reference to the first deed and not the second deed,
which was executed only after Exhibit D. So that while the first deed was qualified by
stipulations contained in Exhibit D, the same cannot be said of the second deed which was
signed by both parties.
Further, the fact that Severino executed the two deeds in question, primarily so that
petitioner could eject the tenant and enter into a loan/mortgage contract with Philam Life,
is to our mind, a strong indication that he intended to transfer ownership of the property to
petitioner. For why else would he authorize the latter to sue the tenant for ejectment under
a claim of ownership, if he truly did not intend to sell the property to petitioner in the first
place? Needless to state, it does not make sense for Severino to allow petitioner to pursue
the ejectment case, in petitioner's own name, with petitioner arguing that he had bought the
property from Severino and thus entitled to possession thereof, if petitioner did not have
any right to the property.
Also worth noting is the fact that in the case filed by Severino's tenant against Severino and
petitioner in 1989, assailing the validity of the sale made to petitioner, Severino explicitly
asserted in his sworn answer to the complaint that the sale was a legitimate transaction. He
further alleged that the ejectment case filed by petitioner against the tenant was a legitimate
action by an owner against one who refuses to turn over possession of his property. 32
Our attention is also drawn to the fact that the genuineness and due execution of the second
deed was not denied by Severino. Except to allege that he was not physically present when
the second deed was notarized before the notary public, Severino did not assail the truth of
its contents nor deny that he ever signed the same. As a matter of fact, he even admitted
that he affixed his signature on the second deed to help petitioner acquire a loan. This can
only signify that he consented to the manner proposed by petitioner for payment of the
balance and that he accepted the stipulated price of P2,000,000.00 as consideration for the
sale.
Since the genuineness and due execution of the second deed was not seriously put in issue,
it should be upheld as the best evidence of the intent and true agreement of the parties. Oral
testimony, depending as it does exclusively on human memory, is not as reliable as written
or documentary evidence.33
It should be emphasized that the non-appearance of the parties before the notary public
who notarized the deed does not necessarily nullify nor render the parties' transaction
void ab initio. We have held previously that the provision of Article 135834 of the New
Civil Code on the necessity of a public document is only for convenience, not for validity
or enforceability. Failure to follow the proper form does not invalidate a contract. Where a
contract is not in the form prescribed by law, the parties can merely compel each other to
observe that form, once the contract has been perfected. 35 This is consistent with the basic
principle that contracts are obligatory in whatever form they may have been entered into,
provided all essential requisites are present.36
The elements of a valid contract of sale under Art. 1458 of the Civil Code are: (1) consent
or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or
its equivalent.37 In the instant case, the second deed reflects the presence of all these
elements and as such, there is already a perfected contract of sale.
Respondent's contention that the second deed was correctly nullified by the lower court
because Severino's wife, Adela, in whose name the property was titled, did not sign the
same, is unavailing. The records are replete with admissions made by Adela that she had
agreed with her husband to sell the property38 which is conjugal in nature39 and that she was
aware of this particular transaction with petitioner. She also said that it was Severino who
actually administered their properties with her consent, because she did not consider this as
her responsibility.40
We also observe that Severino's testimony in court contained (1) admissions that he indeed
agreed to sell the property and (2) references to petitioner's failure to pay the purchase
price.41 He did not mention that he did not intend at all to sell the property to petitioner and
instead, stressed the fact that the purchase price had not yet been paid. Why would
Severino stress non-payment if there was no sale at all?
However, it is well-settled that non-payment of the purchase price is not among the
instances where the law declares a contract to be null and void. It should be pointed out that
the second deed specifically provides:
That for and in consideration of' the sum of TWO MILLION PESOS
(P2,000,000.00), Philippine Currency paid in full by HENRY R. PEÑALOSA,
receipt of which is hereby acknowledged by me to my full satisfaction, I hereby
by these presents, sells (sic), cede, convey and otherwise dispose of the above
described parcel of land, unto HENRY R. PEÑALOSA, his heirs, successors and
assigns, free from all liens and encumbrances.
xxx           xxx           xxx
(SGD.)
SEVERINO C.
SANTOS
 SO ORDERED.
            VENDOR
G.R. No. 137290               July 31, 2000
42
xxx           xxx           xxx
SAN MIGUEL PROPERTIES PHILIPPINES, INC., petitioner,
As can be seen from above, the contract in this case is absolute in nature and is devoid of vs.
any proviso that title to the property is reserved in the seller until full payment of the SPOUSES ALFREDO HUANG and GRACE HUANG, respondents.
purchase price. Neither does the second deed give Severino a unilateral right to resolve the
contract the moment the buyer fails to pay within a fixed period.43 At most, the non- DECISION
payment of the contract price merely results in a breach of contract for non-performance
and warrants an action for rescission or specific performance under Article 1191 of the MENDOZA, J.:
Civil Code.44
This is a petition for review of the decision,1 dated April 8, 1997, of the Court of Appeals
Be that as it may, we agree with petitioner that although the law allows rescission as a which reversed the decision of the Regional Trial Court, Branch 153, Pasig City dismissing
remedy for breach of contract, the same may not be availed of by respondents in this case. the complaint brought by respondents against petitioner for enforcement of a contract of
To begin with, it was Severino who prevented full payment of the stipulated price when he sale.
refused to deliver the owner's original duplicate title to Philam Life. His refusal to
cooperate was unjustified, because as Severino himself admitted, he signed the deed The facts are not in dispute.
precisely to enable petitioner to acquire the loan. He also knew that the property was to be
given as security therefor. Thus, it cannot be said that petitioner breached his obligation
Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation engaged in the
towards Severino since the former has always been willing to and could comply with what purchase and sale of real properties. Part of its inventory are two parcels of land totalling 1,
was incumbent upon him.
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
In sum, the only conclusion which can be deduced from the aforesaid circumstances is that Register of Deeds of Pasig City.
ownership of the property has been transferred to petitioner. Article 1477 of the Civil Code
states that ownership of the thing sold shall be transferred to the vendee upon the actual or
On February 21, 1994, the properties were offered for sale for ₱52,140,000.00 in cash. The
constructive delivery thereof. It is undisputed that the property was placed in the control
offer was made to Atty. Helena M. Dauz who was acting for respondent spouses as
and possession of petitioner45 when he came into material possession thereof after judgment
undisclosed principals. In a letter2 dated March 24, 1994, Atty. Dauz signified her clients’
in the ejectment case. Not only was the contract of sale perfected, but also actual delivery
interest in purchasing the properties for the amount for which they were offered by
of the property effectively consummated the sale.
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
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated December, 1994. However, petitioner refused the counter-offer.
December 29, 1997 and its resolution dated April 15, 1998 in CA-G.R. CV No. 45206
which had affirmed the judgment of the Regional Trial Court of Quezon City, Branch 78,
On March 29, 1994, Atty. Dauz wrote another letter3 proposing the following terms for the
are REVERSED and SET ASIDE. A new judgment is hereby rendered UPHOLDING the
purchase of the properties, viz:
validity of Exhibit B, the Deed of Absolute Sale dated September 12, 1988, entered into
between the parties. The Landbank of the Philippines is further ordered to RELEASE to
respondents the amount of P1,700,000.00 held in escrow, representing the balance of the This is to express our interest to buy your-above-mentioned property with an area of 1, 738
purchase price agreed upon by the parties under the deed of absolute sale. Finally, the sq. meters. For this purpose, we are enclosing herewith the sum of ₱1,000,000.00
respondents are ordered to DELIVER to petitioner the owner's duplicate copy of TCT No. representing earnest-deposit money, subject to the following conditions.
PT-23458 after said release, with the corresponding payment of taxes due. Costs against
respondents. 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.
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 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’ NATIONAL HOUSING AUTHORITY, petitioner,
complaint is DISMISSED. vs.
GRACE BAPTIST CHURCH and the COURT OF APPEALS, respondents.
SO ORDERED.
DECISION

YNARES-SANTIAGO, J.:

This is a petition for review under Rule 45 of the Rules of Court, seeking to reverse the
Decision of the Court of Appeals dated February 26, 2001,1 and its Resolution dated
November 8, 2002,2 which modified the decision of the Regional Trial Court of Quezon
City, Branch 90, dated February 25, 1997.3

On June 13, 1986, respondent Grace Baptist Church (hereinafter, the Church) wrote a letter
to petitioner National Housing Authority (NHA), manifesting its interest in acquiring Lots
4 and 17 of the General Mariano Alvarez Resettlement Project in Cavite. 4 In its letter-reply
dated July 9, 1986, petitioner informed respondent:

In reference to your request letter dated 13 June 1986, regarding your application
for Lots 4 and 17, Block C-3-CL, we are glad to inform you that your request was
granted and you may now visit our Project Office at General Mariano Alvarez for
processing of your application to purchase said lots.

We hereby advise you also that prior to approval of such application and in accordance
with our existing policies and guidelines, your other accounts with us shall be maintained
in good standing.5

Respondent entered into possession of the lots and introduced improvements thereon. 6

On February 22, 1991, the NHA’s Board of Directors passed Resolution No. 2126,
approving the sale of the subject lots to respondent Church at the price of P700.00 per
square meter, or a total price of P430,500.00.7 The Church was duly informed of this
Resolution through a letter sent by the NHA.8

G.R. No. 156437             March 1, 2004
On April 8, 1991, the Church tendered to the NHA a manager’s check in the amount of
P55,350.00, purportedly in full payment of the subject properties.9 The Church insisted that
this was the price quoted to them by the NHA Field Office, as shown by an unsigned piece
of paper with a handwritten computation scribbled thereon.10 Petitioner NHA returned the
check, stating that the amount was insufficient considering that the price of the properties
have changed. The Church made several demands on the NHA to accept their tender of
payment, but the latter refused. Thus, the Church instituted a complaint for specific
performance and damages against the NHA with the Regional Trial Court of Quezon
City,11 where it was docketed as Civil Case No. Q-91-9148.
On February 25, 1997, the trial court rendered its decision, the dispositive portion of which
reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering the defendant to reimburse to the plaintiff the amount of
P4,290.00 representing the overpayment made for Lots 1, 2, 3, 18, 19 and
20;
2. Declaring that there was no perfected contract of sale with respect to
Lots 4 and 17 and ordering the plaintiff to return possession of the
property to the defendant and to pay the latter reasonable rental for the
use of the property at P200.00 per month computed from the time it took
possession thereof until finally vacated. Costs against defendant.
SO ORDERED.12
On appeal, the Court of Appeals, affirmed the trial court’s finding that there was indeed no
contract of sale between the parties. However, petitioner was ordered to execute the sale of
the lots to Grace Baptist Church at the price of P700.00 per square meter, with 6%
interest per annum from March 1991. The dispositive portion of the Court of Appeals’
decision, dated February 26, 2001, reads:
WHEREFORE, the appealed Decision is hereby AFFIRMED with the
MODIFICATION that defendant-appellee NHA is hereby ordered to sell to
plaintiff-appellant Grace Baptist Church Lots 4 and 17 at the price of P700.00 per
square meter, or a total cost P430,000.00 with 6% interest per annum from March,
1991 until full payment in cash.
SO ORDERED.13
The appellate court ruled that the NHA’s Resolution No. 2126, which earlier approved the
sale of the subject lots to Grace Baptist Church at the price of P700.00 per square meter,
has not been revoked at any time and was therefore still in effect. As a result, the NHA was
estopped from fixing a different price for the subject properties. Considering further that
the Church had been occupying the subject lots and even introduced improvements
thereon, the Court of Appeals ruled that, in the interest of equity, it should be allowed to
purchase the subject properties.14
Petitioner NHA filed a Motion for Reconsideration which was denied in a Resolution dated
November 8, 2002. Hence, the instant petition for review on the sole issue of: Can the
NHA be compelled to sell the subject lots to Grace Baptist Church in the absence of any
perfected contract of sale between the parties?
Petitioner submits that the Court cannot compel it to sell the subject property to Grace
Baptist Church without violating its freedom to contract.15 Moreover, it contends that
equity should be applied only in the absence of any law governing the relationship between
the parties, and that the law on sales and the law on contracts in general apply to the
present case.16
We find merit in petitioner’s submission.
Petitioner NHA is not estopped from selling the subject lots at a price equal to their fair
market value, even if it failed to expressly revoke Resolution No. 2126. It is, after all,
hornbook law that the principle of estoppel does not operate against the Government for the
act of its agents,17 or, as in this case, their inaction.
On the application of equity, it appears that the crux of the controversy involves the
characterization of equity in the context of contract law. Preliminarily, we reiterate that this
Court, while aware of its equity jurisdiction, is first and foremost, a court of law. While
equity might tilt on the side of one party, the same cannot be enforced so as to overrule
positive provisions of law in favor of the other.18 Thus, before we can pass upon the
propriety of an application of equitable principles in the case at bar, we must first
determine whether or not positive provisions of law govern.
It is a fundamental rule that contracts, once perfected, bind both contracting parties, and
obligations arising therefrom have the force of law between the parties and should be
complied with in good faith.19 However, it must be understood that contracts are not
the only source of law that govern the rights and obligations between the parties. More
specifically, no contractual stipulation may contradict law, morals, good customs, public
order or public policy.20 Verily, the mere inexistence of a contract, which would ordinarily
serve as the law between the parties, does not automatically authorize disposing of a
controversy based on equitable principles alone. Notwithstanding the absence of a
perfected contract between the parties, their relationship may be governed by other existing
laws which provide for their reciprocal rights and obligations.
It must be remembered that contracts in which the Government is a party are subject to the
same rules of contract law which govern the validity and sufficiency of contract between
individuals. All the essential elements and characteristics of a contract in general must be
present in order to create a binding and enforceable Government contract.21
It appearing that there is no dispute that this case involves an unperfected contract, the
Civil Law principles governing contracts should apply. In Vda. de Urbano v. Government
Service Insurance System,22 it was ruled that a qualified acceptance constitutes a counter-
offer as expressly stated by Article 1319 of the Civil Code. In said case, petitioners offered
to redeem mortgaged property and requested for an extension of the period of redemption.
However, the offer was not accepted by the GSIS. Instead, it made a counter-offer, which
petitioners did not accept. Petitioners again offer to pay the redemption price on staggered
basis. In deciding said case, it was held that when there is absolutely no acceptance of an Regional Trial Court of Quezon City, Branch 90, for further proceedings consistent with
offer or if the offer is expressly rejected, there is no meeting of the minds. Since Articles 448 and 546 of the Civil Code.
petitioners’ offer was denied twice by GSIS, it was held that there was clearly no meeting
of the minds and, thus, no perfected contract. All that is established was a counter-offer. 23 No costs.

In the case at bar, the offer of the NHA to sell the subject property, as embodied in SO ORDERED.
Resolution No. 2126, was similarly not accepted by the respondent.24 Thus, the alleged
contract involved in this case should be more accurately denominated as inexistent. There
being no concurrence of the offer and acceptance, it did not pass the stage of generation to
the point of perfection.25 As such, it is without force and effect from the very beginning or
from its incipiency, as if it had never been entered into, and hence, cannot be validated
either by lapse of time or ratification.26 Equity can not give validity to a void contract,27 and
this rule should apply with equal force to inexistent contracts.

We note from the records, however, that the Church, despite knowledge that its intended
contract of sale with the NHA had not been perfected, proceeded to introduce
improvements on the disputed land. On the other hand, the NHA knowingly granted the
Church temporary use of the subject properties and did not prevent the Church from
making improvements thereon. Thus, the Church and the NHA, who both acted in bad
faith, shall be treated as if they were both in good faith.28 In this connection, Article 448 of
the Civil Code provides:

The owner of the land on which anything has been built, sown or planted in good
faith, shall have the right to appropriate as his own the works, sowing or planting,
after payment of the indemnity provided for in articles 546 and 548, or to oblige
the one who built or planted to pay the price of the land, and the one who sowed,
the proper rent. However, the builder or planter cannot be obliged to buy the land
and if its value is considerably more than that of the building or trees. In such
case, he shall pay reasonable rent, if the owner of the land does not choose to
appropriate the building or trees after proper indemnity. The parties shall agree
upon the terms of the lease and in case of disagreement, the court shall fix the
terms thereof.

Pursuant to our ruling in Depra v. Dumlao,29 there is a need to remand this case to the trial
court, which shall conduct the appropriate proceedings to assess the respective values of
the improvements and of the land, as well as the amounts of reasonable rentals and
indemnity, fix the terms of the lease if the parties so agree, and to determine other matters
necessary for the proper application of Article 448, in relation to Articles 546 and 548, of
the Civil Code.

WHEREFORE, in view of the foregoing, the petition is GRANTED. The Court of

Appeals’ Decision dated February 26, 2001 and Resolution dated November 8, 2002 are
REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Quezon City-
Branch 90, dated February 25, 1997, is REINSTATED. This case is REMANDED to the