19 March 2021 Cases

THIRD DIVISION
G.R. No. 231053, April 04, 2018

DESIDERIO DALISAY INVESTMENTS, INC., Petitioner, v. SOCIAL SECURITY
SYSTEM, Respondent.
DECISION
VELASCO JR., J.:
The Case
This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks the
reversal and setting aside of the August 12, 2016 Decision1 and March 10, 2017
Resolution of the Court of Appeals (CA) in CA-G.R. CV No. 03233-MIN.
The Facts
Involved is a parcel of land covered by Transfer Certificate of Title (TCT) Nos. T-18203,
T-18204, T-255986, and T-255985, with an aggregate area of 2,450 sq.m., including the
building erected thereon, situated in Agdao, Davao City.
Sometime in the year 1976, respondent Social Security System (SSS) filed a case before
the Social Security Commission (SSC) against the Dalisay Group of Companies (DGC) for
the collection of unremitted SSS premium contributions of the latter's employees. The
said cases are: (1) SSS v. Desiderio Dalisay Investments, Inc. (SSC Case No. 6414); (2)
SSS v. Desidal Fruits Corporation (SSC Case No. 6415); and (3) SSS v. Davao Stevedore
Terminal Co., Inc. (SSC Case No. 6416).2
On March 11, 1977, Desiderio Dalisay, then President of petitioner Desiderio Dalisay
Investments, Inc. (DDII), sent a Letter to SSS offering the subject land and building to
offset DGC's liabilities subject of the aforementioned cases at P3,500,000.3 The
parties, however, failed to arrive at an agreement as to the appraised value thereof.
Thus, no negotiation took place.
Later, or on December 15, 1981, Desiderio Dalisay sent another Letter seeking further
negotiation with SSS by recommending that the appraisal be done by Asian Appraisal, Co.
Inc.4 SSC agreed, but it later turned out that Asian Appraisal, Inc. did not respond to
Dalisay's request. Thus, Atty. Honesto Cabarroguis, DGC's lawyer, suggested that the
appraisal be done by Joson, Capili and Associates instead. The suggestion was later
approved.5
On July 24, 1982, DDII's Special Board of Directors issued a Resolution stating that the
properties covered by TCT Nos. T-18204 and T-82276 together with all improvements
thereon be sold to SSS in order to settle the unremitted premiums and penalty
obligations of DDII, Davao Stevedore Terminal Co., and Desidal Fruits, Inc. In the same
Board Resolution, Desiderio Dalisay, or in his absence, Veronica Dalisay-Tirol (Dalisay-
Tirol), was authorized to sign in behalf of the corporation any and all papers pertinent to
effect full and absolute transfer of said properties to the SSS.7
On May 21, 1982, the real estate appraisers Joson, Capili and Associates, whose services
Dalisay engaged for the purpose of appraising the value of the properties being offered
to SSS, sent a letter8 to him informing him that the total value of the lots is One Million
Nine Hundred Fifty Four Thousand Seven Hundred Seventy-Seven & 78/100
(P1,954,777.78), rounded to P1,955,000.9 This Appraisal Report was then indorsed to the
SSC.10
On May 27, 1982, during a meeting (1982 Meeting) of the SSS' Committee on Buildings,
Supplies and Equipment (Committee) attended by Atty. Cabarroguis, the latter,
representing DGC, explained that the DGC is in financial distress and is in no way capable
of settling its obligation in cash.11 When asked what the DGC's offer is, he stated that
he has "the authority to offer [the properties] in the amount of 2 million pesos."12 He
also assured them that that they will turn the properties over to SSS free of liens and
encumbrances.13 The offer for dacion was accepted at the appraised value of
P2,000,000. As regards the implementation of the dacion, Atty. Cabarroguis stated that
"[t)]he Legal Department of the SSS can prepare the Deed of Sale or whatever
documents that have to be prepared. My clients are ready to vacate the premises and you
can have it occupied anytime."14 During the same Meeting, Atty. Cabarroguis likewise
relayed to SSS that they are requesting that the P2,000,000 amount be applied first to
the unpaid premiums and the excess be used to settle part of the penalties due.15
On May 28, 1982, DDII's total liabilities with SSS covering unpaid premium
contributions, inclusive of penalties and salary/calamity loan amortizations, amounted to
P4,421,321.62.16
On June 9, 1982, the SSC issued Resolution No. 849 - s. 82.17 In said Resolution, it
accepted DDII's proposed dacion en pago pegged at the appraised value of P2,000,000.
Said Resolution reads:
On motion duly seconded,
RESOLVED, that the acceptance of the offer of the Dalisay Group of Companies to
offset their outstanding liabilities with the SSS with their lot and building at Davao City
valued at 2M, as recommended by the SSC Committee on Building, Supplies and
Equipment, be, as it is hereby, approved and confirmed, subject to the terms and
conditions contained in the Memorandum, dated June 8, 1982, of the Executive Officer
of the said Committee.
RESOLVED FURTHER, That the following additional conditions be, as they are hereby,
imposed:
1. That part of tge (sic) 2M is to be applied to its outstanding educational/salary loans
obligations;
2.
3. That the criminal cases against the Dalisay Group of companies shall not be
withdrawn as the penalties are not being paid in full and it is up to them to make the
necessary representations with the Fiscal's Office.18
The SSC then informed DDII of its acceptance of the proposed dacion in payment,
including its specified terms and conditions, via a Letter dated June 17, 1982.19 Said
Letter20 reads:
We are pleased to inform you that pursuant to Resolution No. 849 dated June 9, 1982,
the Social Security Commission approved and confirmed the acceptance of the offer of
your client, the Dalisay Group of Companies, that they be allowed to offset their
outstanding liabilities with the SSS with their property (lot and building), as described in
the offer, at Davao City valued at P2 million, subject to the following terms and
conditions:
1. The P2 million consideration in this transaction shall be applied first to the premium
contribution in arrears which amounts to P1.5 million, more or less, and whatever
amount in excess of the P2 million after premium contribution shall then be applied
to the payment of penalties.
2.
3. Part of the P2 million shall also be applied to its outstanding education/salary loan
obligations.
4.
5. The criminal cases against the Dalisay Group of Companies shall not be withdrawn as
the penalties have not as yet been valid (sic) in full and it is up to them to make the
necessary representations with the Fiscal's Office.
May we invite you, therefore, to sit down with us for the preparation of the documents
preparatory to the final transfer of the titles of the properties to the SSS.
On July 8, 1982, Dalisay-Tirol, then Acting President and General Manager of Dalisay
Investment, informed SSS that the company is preparing the subject property, especially
the building, for its turnover on August 15, 1982.21 Said Letter reads:
We are pleased to advise you that by August 15, 1982, we will already transfer to the
next building. Desidal Building will already be available for you to prepare for you own
transfer. The delay is caused by the preparation we have to make for the transfer of our
office equipment and records.
Kindly, send somebody on August 15th, so we can effect the proper turnover of the
building to you.22
Later, or on July 31, 1982, An Affidavit of Consent for the Sale of Real Property was
executed by the surviving heirs of the late Regina L. Dalisay, stating that in order to
settle the companies' obligations to SSS, they expressly agree to the sale thereof to the
SSS for its partial settlement.23
On September 18, 1989, Desiderio Dalisay passed away.
As of November 30, 1995, the company's total obligations allegedly amounted to

P15,689,684.93.24

Later, or on December 29, 1995, the Philippine National Bank (PNB) executed a Deed of
Confirmatory Sale in favor of DDII for properties that it reacquired, including the
property subject of the present dispute.
On March 20, 1998, Eddie A. Jara (Jara), Assistant Vice-President of the SSS - Davao I
Branch, executed an Affidavit of Adverse Claim25 over the properties subject of the
instant case because of the companies' failure to turn over the certificates of title to
SSS.
Then, on April 2, 1998, Jara sent a letter to Dalisay-Tirol, formally demanding the
certificates of title over the properties subject of the dacion.26 In said letter, Jara
stated that "[t]he mortgage with PNB has already been settled by Desiderio Dalisay
Investments, Inc. last January 20, 1994, but the titles were not delivered to the SSS in
violation of the express terms in the dacion in payment that the Dalisay group should
deliver the titles after the release of the mortgage with the PNB."27
In her reply dated May 5, 1998 to the April 2, 1998 Letter, Dalisay-Tirol, who was then
the President of DDII, stated that the corporation could not at that time give due
course to and act on the matter because of several issues that need to be resolved first,
including two cases involving the subject properties, to wit: (1) the properties are being
claimed by the estate of Desiderio F. Dalisay, Sr. and included in the inventory already
filed by the executrix, where the corporation's stockholders are contesting said
inclusion; and (2) the SSS' pending petition covering the properties where the accuracy
and propriety of the amount of PI5,605,079.25 contained therein has yet to be
substantiated and verified.28 She likewise pointed out that the "Board Resolution covers
only two (2) parcels of land which were proposed and submitted for the purpose of a
negotiated sale to settle unremitted premiums and penalties."29
On November 18, 1999, DDII, through its Managing Director Edith L. Dalisay-Valenzuela
(Dalisay-Valenzuela), wrote a letter addressed to SSS President and Chief Executive
Officer Carlos A. Arellano, requesting the reevaluation and reconsideration of their
problem.30 In said Letter, DDII requested the following:
1 Condonation of penalties and interest or accrual of rentals for off-

) setting against the penalties, interest and principal;
2 Payment of original liabilities for unpaid premiums of

) P4,421,321.62;
3 Return of the property to DDII; and
)
4 Withdrawal of claim against the Estate of Desiderio F. Dalisay, Sr.31
)
On January 18, 2000, DDII issued a Letter to SSS proposing the "offset of SSS
obligations with back rentals on occupied land and building of the obligor." It alleged that
SSS is bound to pay back rentals totaling P34,217,988.1932 for its use of the subject
property from July 1982 up to the present. It likewise demanded for the return of the
said property.33
Meanwhile, despite repeated written and verbal demands made by SSS for DDII to
deliver the titles of the subject property, free from all liens and encumbrances, DDII
still failed to comply.
On October 8, 2002, DDII filed a complaint for Quieting of Title, Recovery of Possession
and Damages against SSS with the Regional Trial Court (RTC), Branch 14, in Davao City,
docketed as Civil Case No. 29, 353-02.
In said complaint, DDII asserted that it is the owner of the subject property. It averred
that when SSS filed the abovementioned cases, the late Desiderio Dalisay, during his
lifetime and as president of the company, offered the property appraised at P3,500,000
to SSS for the offsetting of said amount against DGC's total liability to SSS. SSS
accepted such but only in the amount of P2,000,000 and subject to certain conditions. It
also insists that while negotiations with SSS were still ongoing, it decided to vacate the
subject property in favor of SSS to show goodwill on its part. Unfortunately, the
negotiations were not fruitful as they failed to agree on the terms and conditions set
forth by SSS. Furthermore, DDII insists that Atty. Cabarroguis' alleged acceptance of
the proposals of SSS was not covered by any Board Resolution or Affidavit of Consent by
the corporate and individual owners of the properties. Thus, according to DDII, there
was no meeting of the minds between the parties. Consequently, there was no dation in
payment to speak of, contrary to the claim of SSS. With these, DDII asserted that SSS

owes it P43,208,270.99 as back rentals for its use of the property from 1982 onwards.
It also prayed for attorney's fees and costs of litigation.34
In its Answer, SSS argued that the offer for dacion was categorically accepted by SSS,
thereby perfecting such.35
RTC Judgment
On July 22, 2010, the RTC resolved the case in favor of DDII, holding that there was no
perfected dacion in payment between the parties. Consequently, SSS has no legal
personality to own, possess, and occupy the property. The dispositive portion thereof
reads:
WHEREFORE, judgment is hereby rendered as follows:
a Declaring [DDII] as the true and absolute owner of the properties

) covered by TCT Nos. T-18203, T-18204, T-255986 and T-255985,
free from all liens and encumbrances, and that [SSS] has no right
or interest over the same whatsoever;
b Ordering the Registrar, Registry of Deeds, Davao City, to cancel
) the adverse claims caused by [SSS] to be annotated on the
foregoing [TCTs];
c Ordering [SSS] to pay [DDII] the reasonable amount of
) P50,000.00 a month for the use and continued occupation by
[SSS] of the subject properties reckoned from the date of [DDII's]
demand to vacate on June 6, 2002 until [SSS] vacates the subject
properties;
d Ordering [SSS] to turn over the possession and occupation of the
) properties to [DDII] in peace, there being no perfected dacion in
payment or dacion en pago;
e Ordering [SSS] to reimburse [DDII] the sum of P100,000.00 as
) attorney's fees; and
f To pay the cost.
)
SO ORDERED.36
Ruling in favor of DDII, the RTC found that the June 8, 1982 Memorandum is not an
acceptance of DDII's offer for the reason that it contained terms and conditions—a
qualified acceptance which amounts to a counter-offer.37 The RTC further noted that
there is no iota of proof that said counter-offer was accepted by DDII.38
As to the contention of SSS that the turnover of the properties in its favor shows that
there was, indeed, a perfected dacion in payment, the RTC ruled that said transfer of
possession was not tantamount to delivery as an element of a contract of sale which
transmits ownership of the thing from the vendor to the vendee. The RTC likewise noted
that the June 8, 1982 Memorandum included a provision on automatic cancellation of its
supposed acceptance of Dalisay's offer if, for any reason, the offsetting cannot be
implemented. Correlating this with SSS' non-receipt of the certificates of title to the
property, the RTC ruled that SSS' supposed acceptance was thereby automatically
cancelled effective June 8, 1982—the date of the Memorandum containing the provision
on automatic cancellation. This being the case, the trial court held, SSS' occupation of
the property on July 24, 1982, a month after its acceptance was automatically cancelled,
has no leg to stand on.39 It was, therefore, only by mere tolerance which tolerance
ended when DDII made a demand for SSS to vacate the premises on June 6, 2002.40
Its motion for reconsideration having been denied by the RTC in its September 20, 2010
Order,41 SSS appealed the case to the CA.
CA Ruling
Finding merit in the appeal, the CA reversed the RTC's ruling, disposing of the appeal in
this wise:
WHEREFORE, the appealed Decision of the [RTC], Branch 14, Davao City, in Civil Case No.
29,353-02 is REVERSED and SET ASIDE insofar as it granted the complaint for quieting
of title, recovery of possession and damages in favor of [DDII], and the said complaint is
hereby DISMISSED for lack of merit. No pronouncement as to costs.
SO ORDERED.42
According to the CA, the pivotal issue in the appeal is whether there was a perfected
dation in payment, in which it ruled in the affirmative.
The CA held that the records establish that DGC has an outstanding obligation in favor
of SSS that it proposed to pay the amount via dacion en pago, said offer was
categorically accepted by SSS, and the agreement was consummated by DDII's delivery
of the property to SSS.43
As to DDII's argument that the acceptance by SSS included certain conditions, this,
according to the appellate court, is inconsequential because its acceptance was
unequivocal and absolute. In this respect, it held that dacion in payment being in the
nature of a contract of sale, the principle that a deed of sale is considered absolute
where there is neither a stipulation in the deed that title to the property sold is
reserved in the seller until full payment thereof, nor one giving the vendor the right to
unilaterally resolve the contract the moment the buyer fails to pay within a fixed period,
applies to the instant dispute. The CA, thus, concluded that applying said principle, the
contract of sale or dacion between the parties is absolute, not conditional. To be sure,
the CA said, there is no reservation of ownership of the subject property or a stipulation
providing for unilateral rescission by either party. In fact, according to the CA, the sale
was consummated upon the delivery of the subject property to SSS.44
Anent the stipulations in the June 17, 1982 letter of the SSS according to the CA, the
conditions were not of a nature that would affect the efficacy of the contract of sale.
It, the CA said, merely provided the manner by which the full consideration is to be
applied to DDII's liability and the implication of the payment vis-a-vis the pending
criminal cases filed against DDII.45
The CA, thus, ruled that all the requisites for a valid dation are present. The sale and
transfer of the subject property in favor of SSS are valid and binding against DDII.
The CA went on to state that even assuming that the dation is defective, said defect is
immaterial due to DDII's inaction which lasted for 20, years.46 Applying the principle of
laches, DDII's failure to assert its rights over the property against SSS for 20 years
since its consummation bars it from recovering the subject property.47
With respect to the award of attorney's fees, the CA held that such is improper,48
there being no factual, legal, or equitable justification for the award of attorney's fees

in favor of DDII. As regards the award of litigation expenses, the CA likewise deleted
such for lack of factual or legal justification therefor.49
Its Motion for Reconsideration having been denied by the CA in its March 10,2017
Resolution,50 DDII now comes before this Court for relief.
The Issues
• Whether or not there was a perfected "Dacion en Pago"
•
• Whether or not the fact that the Transfer Certificates of Title over the subject
properties remained in the name of the petitioner is a strong indicium that the
parties remained in the preparatory stage of contract-making
•
• Whether or not the prescriptive period to file the action had already prescribed
•
• Whether or not petitioner slept on its rights that would warrant the imposition of
laches.
The pivotal issue in the instant case is whether or not there was a perfected dacion en
pago; and if answered in the affirmative, whether or not SSS validly acquired title or
interest over the subject properties. This is so since if there was a perfected dacion and
if title or interest over the property was transferred to SSS, then an action for quieting
of title filed by DDII would not prosper since SSS has a legitimate interest and claim
over the properties subject of the case.
In the present petition, DDII argues that its offer to SSS contained in the December
15, 1981 letter was never categorically accepted by the latter.51 For DDII, the seemingly
unambiguous language of the SSS' Memorandum is, in truth, a rejection of its offer, it
being a qualified acceptance thereof. It maintains that for there to be an acceptance of
the offer, it should be identical in all respects and must not contain any modification or
variation from the terms of the offer.52
Furthermore, petitioner claims, no document or instrument proving that it accepted SSS'

counter-offer exists, as it, in fact, remains unaddressed.53
Moreover, DDII points out that in SSS' Brief, it admitted that it indeed made a counter-
offer to DDII, although it insists that DDII accepted said counter-offer.54 In this
respect, DDII maintains that contrary to SSS' position that it impliedly accepted the
counter-offer by turning over to SSS the possession and occupation of the property, said
turnover was done not because it is accepting the counter-offer but to show goodwill in
the negotiations.55
To further bolster its claim, DDII argues that the fact that the TCTs over the property
remain in the name of the original owner clearly indicates that no dation in payment ever
occurred.56
As to the CA's ruling that DDII's claim is barred by laches, it posits that the cause of
action did not arise when the possession of the property was transferred to SSS.57
According to it, the transfer being a show of goodwill, there was, at that time, no threat
against its title over the property that would prompt DDII to seek redress from the
courts and commence the running of the prescriptive period. DDII maintains that the
reason why it took a long time before it sought the removal of a cloud in its title is
because it was under the impression that no offsetting took place and that SSS was
merely in physical possession thereof.58
In our January 31, 2018 Resolution, We required SSS to file its Comment on the petition
within a non-extendible period of 10 days. But as of this date, the SSS has yet to file
said Comment. In view of the fact that the previous pleadings of the SSS sufficiently
allow Us to decide the instant dispute, We resolve to dispense with the SSS' Comment
and decide the case based on the records.
Our Ruling
We resolve to deny the petition.
Article 476 of the Civil Code provides:

Art. 476. Whenever there is a cloud on title to real property or any interest therein, by
reason of any instrument, record, claim, encumbrance or proceeding which is apparently
valid or effective but is in truth and in fact invalid, ineffective, voidable, or
unenforceable, and may be prejudicial to said title, an action may be brought to remove
such cloud or to quiet the title.
An action may also be brought to prevent a cloud from being cast upon title to real
property or any interest therein.
For an action to quiet title to prosper, two indispensable requisites must concur, namely:
(1) the plaintiff or complainant has a legal or an equitable title to or interest in the real
property subject of the action; and (2) the deed, claim, encumbrance, or proceeding
claimed to be casting cloud on his title must be shown to be in fact invalid or inoperative
despite its prima facie appearance of validity or legal efficacy.59
Here, the presence or absence of these two requisites is hinged on the question of
whether or not the proposed dacion en pago was indeed perfected, thereby vesting unto
SSS a legitimate title and interest over the properties in question. In other words, if it
can be proved that the proposed dacion was perfected, or even consummated, then SSS'
claim which allegedly casts a cloud on DDII's title is valid and operative, and
consequently, the action for quieting of title filed by DDII will not prosper.
Dacion en pago
Among other modes, an obligation is extinguished by payment or performance.60 There is

payment when there is delivery of money or performance of an obligation.61 Corollary
thereto, Article 1245 of the Civil Code provides for a special mode of payment called
dacion in payment (dacion en pago).
In dacion en pago, property is alienated to the creditor in satisfaction of a debt in

money.62 The debtor delivers and transmits to the creditor the former's ownership over
a thing as an accepted equivalent of the payment or performance of an outstanding
debt.63 In such cases, Article 1245 provides that the law on sales shall apply, since the
undertaking really partakes—in one sense—of the nature of sale; that is, the creditor is
really buying the thing or property of the debtor, the payment for which is to be charged
against the debtor's obligation.64
As a mode of payment, dacion en pago extinguishes the obligation to the extent of the
value of the thing delivered, either as agreed upon by the parties or as may be proved,

unless the parties by agreement—express or implied, or by their silence—consider the

thing as equivalent to the obligation, in which case the obligation is totally
extinguished.65 It requires delivery and transmission of ownership of a thing owned by
the debtor to the creditor as an accepted equivalent of the performance of the
obligation. There is no dacion in payment when there is no transfer of ownership in the
creditor's favor, as when the possession of the thing is merely given to the creditor by
way of security.66
In the case at hand, in order to determine whether or not there was indeed a perfected,
or even consummated, dacion in payment, it is necessary to review and assess the
evidence and events that transpired and see whether these correspond to the three
stages of a contract of sale. This is so since, as previously mentioned, dacion en pago
agreements are governed, among others, by the law on sales.
Stages of a contract of sale
Briefly, the stages of a contract of sale are: (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 is 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.67 Each shall hereinafter be discussed in seriatim.
First Stage: Negotiation Offer validly reduced
To recall, the negotiation stage covers the period from the time the prospective
contracting parties indicate interest in the contract to the time the contract is
perfected. This then includes the making of an offer by one party to another and ends
when both parties agree on the object and the price.
In the instant case, the late Desiderio Dalisay, on March 11, 1977, offered to SSS that
they partially settle their obligations to the latter via dacion. Dalisay offered several
properties for P3,500,000 in favor of SSS to partially extinguish petitioner's obligation
which amounted to P4,421,321.62.68

Then, years later or on May 27, 1982, the SSS' Committee met with the corporation,
represented by Atty. Cabarroguis. During said meeting, Atty. Cabarroguis explained that
he has "the authority to offer [the properties] in the amount of 2 million pesos."69 He
also gave them an assurance that that they will turn the properties over to SSS free of
liens and encumbrances,70 and that his clients are ready to vacate the premises and you
can have it occupied anytime.71
In this respect, petitioner argues that Atty. Cabarroguis did not have the requisite
authority to make said representations and thereby bind the corporation. DDII thus
maintains that the offer to SSS remained at P3,500,000. We beg to disagree.
While petitioner is correct that there is no evidence of Atty. Cabarroguis' authority to

represent the company in said meeting, this however is outweighed by the fact that no
one questioned Atty. Cabarroguis' representations and authority after the conclusion of
the negotiations; and that a few days after the said meeting, the company immediately
arranged for the property's turnover through Dalisay-Tirol, Acting President and General
Manager, and eventually delivered possession thereof to SSS.
What makes matters worse for petitioner is that it was well aware of what transpired
during the meeting and the agreements reached. In fact, after the SSC issued Resolution
No. 849 - s. 82 where it accepted DDII's proposed dacion en pago at P2,000,000,72 it
sent a Letter dated June 17, 1982, communicating that:
conditions:
2.

obligations.
4.
preparatory to the final transfer of the titles of the properties to the SSS.73
We emphasize that it is only now, in this action for quieting of title filed decades after
the conclusion of the 1982 Meeting, that DDII questioned Atty. Cabarroguis' authority
to represent the corporation. If it were true that Atty. Cabarroguis did not possess the
requisite authority to represent the company in said Meeting, then it could have opposed
such, contested his presence thereat, or even deny that the corporation is reducing its
offer to P2,000,000. Unfortunately for petitioner, despite knowledge thereof, there is
no evidence manifesting any opposition thereto.
This acquiescence to Atty. Cabarroguis' representations and authority to do so is

strengthened by the fact that a few days after the conclusion of the meeting, the
company's Vice-President at that time, Dalisay-Tirol, sent a Letter dated July 8, 1982,
informing the SSS that they will be vacating the premises offered and will turn over the
possession thereof to SSS, consistent with what was agreed upon during said meeting.
Thus:
We are pleased to advise you that by August 15, 1982, we will already transfer to the
next building. Desidal Building will already be available for you to prepare for your own
transfer. The delay is caused by the preparation we have to make for the transfer of our
office equipment and records.
Kindly, send somebody on August 15th, so we can effect the proper turnover of the
building to you.74
Without an iota of evidence of any opposition to the offered P2,000,000 price coming
from the company when it could have communicated such to the SSS after the conclusion
of the 1982 Meeting, plus the fact that its Vice-President even informed SSS that they
will be turning over the property to the latter, We are sufficiently convinced that,
contrary to petitioner's claim, Atty. Cabarroguis acted within the scope of the authority
given him, which includes offering the properties at P2,000,000.
It may be argued that the absence of the written document embodying Atty.
Cabarroguis' authority prevents the courts from unearthing what indeed the extent of
said authority is. Nevertheless, We are of the view that the aforementioned events that
transpired thereafter and the absence of opposition coming from the company are
sufficient proof that they tacitly ratified Atty. Cabarroguis' acts during the meeting,
assuming he went beyond his authority in so doing. Thus, Article 1910 of the Civil Code
provides:
Art. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not
bound except when he ratifies it expressly or tacitly. (emphasis ours)
These, plus the absence of any allegation or proof that the SSS relied upon Atty.
Cabarroguis' actions in bad faith, convince Us that the corporation bound itself to said
representations and agreements reached during the meeting via implied ratification.75
Accordingly, We conclude that DDII's offer was validly reduced from P3,500,000 to
P2,000,000.
We shall now discuss whether SSS' acceptance of the new offer perfects the agreement
on dation.
Second Stage: Perfection Acceptance absolute and unqualified
As regards the question whether the parties were able to perfect the agreement on
dacion en pago, the RTC ruled that they did not. According to the trial court, SSS'
"acceptance" was qualified which is tantamount to a counter-offer, and not an absolute
acceptance which perfects the contract. Thus, said the RTC, there being no evidence to
show that petitioner accepted SSS' counter-offer, there was no dation to speak of.
The CA was of a different view. According to the CA, SSC Resolution No. 849 — s. 82
constitutes an absolute and unequivocal acceptance which perfected the offered dacion.
Thus, when possession of the subject property was delivered to SSS, this signified a
transfer of ownership thereon, consistent with the supposedly perfected agreement.
We agree with the CA that there was perfected dation in payment.
Article 1319 of the New Civil Code reads:

Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon
the tiling and the cause which are to constitute the contract. The offer must be certain
and the acceptance absolute. A qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except from the time
it came to his knowledge. The contract, in such a case, is presumed to have been entered
into in the place where the offer was made.
Relevant thereto are the following principles, as summarized by the Court in Traders
Royal Bank v. Cuison Lumber Co., Inc.,76 thus:
Under the law, a contract is perfected by mere consent, that is, from the moment that
there is a meeting of the offer and the acceptance upon the thing and the cause that
constitutes the contract. The law requires that the offer must be certain and the
acceptance absolute and unqualified. An acceptance of an offer may be express and
implied; a qualified offer (sic) constitutes a counter-offer. Case law holds that an offer,
to be considered certain, must be definite, while an acceptance is considered absolute
and unqualified when it is identical in all respects with that of the offer so as to produce
consent or a meeting of the minds. We have also previously held that the ascertainment
of whether there is a meeting of minds on the offer and acceptance depends on the
circumstances surrounding the case.
The offer must be certain and definite with respect to the cause or consideration and
object of the proposed contract, while the acceptance of this offer - express or implied
- must be unmistakable, unqualified, and identical in all respects to the offer. x x x
(Italics supplied)
Also, in Manila Metal Container Corporation v. Philippine National Bank,77 the Court ruled:
A qualified acceptance or one that involves a new proposal constitutes a counter-offer
and a rejection of the original offer. A counte offer is considered in law, a rejection of
the original offer and an attempt to end the negotiation between the parties on a
different basis. Consequently, when something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to guarantee consent because
any modification or variation from the terms of the offer annuls the offer. The

r

acceptance must be identical in all respects with that of the offer so as to produce
consent or meeting of the minds. (Italics supplied)
Within the purview of the law on sales, a contract of sale is perfected by mere consent,
upon a meeting of the minds on the offer and the acceptance thereof based on subject
matter, price and terms of payment.78 It is perfected at the moment there is a meeting
of the minds uponi the thing which is the object of the contract and upon the price.79
Applying said principles to the case at bar convinces us that SSS' acceptance of the
offer at P2,000,000 resulted in a perfected dation. As discussed earlier, the offer was
validly reduced from P3,500,000 to P2,000,000. Consequently, SSS' agreement to the
P2,000,000 offer was not a counter-offer as petitioner would have it, but an acceptance
of the new reduced offer communicated by the company's representative, Atty.
Cabarroguis, which acceptance perfected the proposed dation in payment. DDII has the
onus of proving that the P2,000,000 offer made to SSS was invalid which would result in
SSS' acceptance at said amount to be different from the price offered. Petitioner,
however, failed to discharge said burden.
As regards petitioner's contention that the following conditions set forth in the SSS'
Letter dated June 17, 198280 make its acceptance a qualified one, We find otherwise. To
recall, said conditions are as follows:
conditions:
2.
obligations.
4.

preparatory to the final transfer of the titles of the properties to the SSS.81
A reading of the transcript of the 1982 Meeting reveals that the procedure in applying
the proceeds of the dacion en pago actually came from the company, through Atty.
Cabarroguis, and not from SSS. Thus:
Atty. Cabarroguis: We only pray that in order that the penalties will not continue to run,
on the unpaid remittance premiums, we only request tha the amount of 2 million be
applied first to the premiums, unremitted premiums, the excess would be part of the
penalty so that what will remain will be the penalties themselves.82
This to Us clearly shows that the SSS simply agreed to saicl proposal when it included
such in its Resolution. It is not a new condition imposed by the SSS as petitioner argues.
Having settled that the parties were in agreement as to the price and that the
acceptance by SSS was, in fact, unqualified, We are convinced that the parties indeed
have a perfected contract. We shall now determine whether said contract was
consummated, thereby solidifying SSS' title, interest, and claim over the properties.
Third Stage: Consummation Transfer of possession to SSS tantamount to "delivery"
Agreeing with SSS, the CA held that the agreement on dacion en pago was consummated
by DDII's delivery of the property to SSS.83 We agree.
The third stage of a contract of sale is consummation which begins when the parties
perform their respective undertakings under the contract of sale, culminating in the
extinguishment thereof.84
While a contract of sale is perfected by mere consent, ownership of the thing sold is
acquired only upon its delivery to the buyer. Upon the perfection of the sale, the seller
assumes the obligation to transfer ownership and to deliver the thing sold, but the real
right of ownership is transferred only "by tradition" or delivery thereof to the buyer.85
In this regard, reference must be made to Article 1496 of the Civil Code, which reads:

ARTICLE 1496. The ownership of the thing sold is acquired by the vendee from the
moment it is delivered to him in any of the ways specified in Articles 1497 to 1501, or in
any other manner signifying an agreement that the possession is transferred from the
vendor to the vendee. (n)
Material to the case at bar is tradition by real or actual delivery contemplated Article
1497 of the same Code. Thus:
ARTICLE 1497. The thing sold shall be understood as delivered, when it is placed in the
control and possession of the vendee. (1462a)
In Cebu Winland Development Corporation v. Ong Siao Hua, We explained that:
Under the Civil Code, ownership does not pass by mere stipulation but only by delivery.
Manresa explains, "the delivery of the thing . . . signifies that title has passed from the
seller to the buyer." According to Tolentino, the purpose of delivery is not only for the
enjoyment of the thing but also a mode of acquiring dominion and determines the
transmission of ownership, the birth of the real right. The delivery under any of the
forms provided by Articles 1497 to 1505 of the Civil Code signifies that the transmission
of ownership from vendor to vendee has taken place.86 (Citations omitted)
Here, petitioner DDII insists that its delivery of the property to SSS was only to show
its goodwill in the negotiations. The records, however, reveal otherwise.
It is well to emphasize that nowhere in their communications or during the discussions at

the meeting is it stated that the company will turn over possession of the property to
SSS to show its goodwill while the negotiations were pending.
Too, consider the following turn of events:

1. During the 1982 Meeting, the following discussions took place:
2.
3. Atty. Cabarroguis: Yes. Now it is the earnest desire of Mr. Dalisay somehow, to be
able to compensate for the benefits of the employees, that's why he is offering
this. And if this would be considered seriously by the System, Mrs. Tirol made
arrangements with the Philippine National Bank that this property be released
because x x x if a portion of the obligation will be paid to the PNB, then it will
release this particular property, so we will be turning this over to you clear of any
liens or encumbrances. Thank you very much.87
4.
5. x x x x
6.
7. Atty. Cabarroguis: The Legal Department of the SSS can prepare the Deed of Sale
or whatever documents that have to be prepared. My clients are ready to vacate
the premises and you can have it occupied anytime.88 x x x
8.
9. Thereafter, or on July 8, 1982, DDII, through Dalisay-Tirol, informed SSS that the
company is preparing the subject property, especially the building, for its turnover
on August 15, 1982.89 Guilty of reiteration, the said Letter reads, thusly:
10.
11.We are pleased to advise you that by August 15, 1982, we will already transfer to
the next building. Desidal Building will already be available for you to prepare for
your own transfer. The delay is caused by the preparation we have to make for the
transfer of our office equipment and records.
12.
13.Kindly, send somebody on August 15th, so we can effect the proper turnover of the
building to you.90
14.
15.Then, on January 4, 1983, the corporation arranged for the release or replacement
of the properties subject of the dacion from its mortgage with the PNB. Thus:
16.DESIDERIO DALISAY INVESTMENTS, INC.
17.Desidal Building, Agdao, Davao City
18.
January 4, 1983
19.
Mr. Julius L. Campo

Asst. Vice-President & Manager
Philippine National Bank
Davao Branch, Davao City
RE: DESIDAL INVESTMENTS COLLATERAL
Dear Mr. Campo:

  
  
 
 
 

 
 
 
 

This is to formally inform your good office that Desidal Investments, Inc. and the
Estate of Regina L. Dalisay would like to request for substitution of collaterals or
properties encumbered with your bank.
xxxx
This request for substitution of collaterals had been made primarily because Social
Security System, Regional Office of Davao, is very much interested to purchase our
Desidal office building. (emphasis ours)
xxxx
201.Truly yours,
22 23
241.(SGD)
261.DESIDERIO DALISAY
1.President Desidal Investments,
28
Inc.91
20.
21.As regards the obligation to deliver to SSS the certificates of title over the
properties, DDII failed to do so even after the PNB has already executed a Deed
of Confirmatory Sale in favor of DDII for properties that it reacquired, including
the property subject of the present dispute. This prompted Jara to execute an
Affidavit of Adverse Claim92 over the properties.
22.
23.Jara then sent a letter to Dalisay-Tirol, formally demanding the certificates of
title over the properties subject of the dacion, stating that "[t]he mortgage with
PNB has already been settled by Desiderio Dalisay Investments, Inc. last January
20, 1994, but the titles were not delivered to the SSS in violation of the express
terms in the dacion in payment that the Dalisay group should deliver the titles after
the release of the mortgage with the PNB."93
24.
 
 
 
 
 
 
 

25.In her reply, Dalisay-Tirol, now President of DDII, stated that the corporation
could not at that time give due course and act on the matter because of several
issues that need to be resolved first.
The aforementioned events that transpired convince Us that contrary to petitioner's
claim, the turnover of the properties to SSS was tantamount to delivery or "tradition"
which effectively transferred the real right of ownership over the properties from DDII
to SSS.94Even after a review of the records of the case, this Court is unable to find any
indication that when they turned over the properties to SSS, the company reserved its
ownership over the property and only transferred the jus possidendi thereon to SSS.
Too, if it indeed turned over the possession of the property to simply show goodwill in
the negotiations, then there would be no need for it to give SSS possession of the
subject property free from all liens and encumbrances.
Thus, contrary to petitioner's arguments, We are of the view that the turnover was in
fact tantamount to tradition and was not done simply to show goodwill on the part of the
company. What was only left to be done was for the corporation to surrender the
certificates of title over the properties, free from all liens and encumbrances as
promised during the 1982 meeting, so as to facilitate its transfer in SSS' name.
Indeed, as expounded by this Court in Equatorial Realty Development, Inc. v. Mayfair

Theater, Inc.:95
Delivery has been described as a composite act, a thing in which both parties must join
and the minds of both parties concur. It is an act by which one party parts with the title
to and the possession of the property, and the other acquires the right to and the
possession of the same. In its natural sense, delivery means something in addition to the
delivery of property or title; it means transfer of possession. In the Law on Sales,
delivery may be either actual or constructive, but both forms of delivery contemplate
"the absolute giving up of the control and custody of the property on the part of the
vendor, and the assumption of the same by the vendee."
This being the case, We find that SSS has validly and in good faith acquired title to the
property subject of the dispute, making the action to quiet title filed by DDII improper.
Additionally, it is well to emphasize that in order that an action for quieting of title may
prosper, it is essential that the plaintiff must have legal or equitable title to, or interest

in, the property which is the subject-matter of the action.96 Legal title denotes
registered ownership, while equitable title means beneficial ownership. In the absence of
such legal or equitable title, or interest, there is no cloud to be prevented or removed.97
Here, DDII having divested itself of any claim over the property in favor of SSS by
means of sale via dacion en pago, petitioner has lost its title over the property which
would give it legal personality to file said action.
Thus, the CA did not err in dismissing the complaint for lack of merit.
A necessary consequence of this ruling is the recomputation of DDII's obligations to

SSS as a result of the application of the P2,000,000 amount agreed upon in the dacion.
Thus, SSS shall recompute said outstanding obligations by deducting from the total
obligations as of June 17, 1982 the amount of P2,000,000, following the terms and
conditions agreed upon. Said date refers to SSS communication of its acceptance of the
offer, resulting in the perfection of the contract.98
At this point, it is well to remind DDII that it cannot escape its liability from SSS by
giving the latter possession over the property with the representation that it is doing so
as partial settlement of its unremitted SSS premiums and penalties due only to take the
property back decades thereafter, seek condonation of its obligations, and to make
matters worse, claim payment of back rentals from SSS. While it is true that the value
of the property has definitely significantly increased over the years compared to the
P2,000,000 amount for which it was offered to SSS, still, such is not sufficient
justification for DDII to turn its back on its obligations under the dacion en pago
agreement. In fact, the turn of events convinces Us that DDII's actions are tainted with
bad faith.
If We were to grant the reliefs prayed for by DDII, an injustice will definitely be caused
to SSS, which in good faith relied upon the company's representations. Too, We find it
proper to remind DDII that it would not have lost ownership over the property if, in the
first place, it diligently paid the SSS premiums due.
With these, We need not belabor the other assigned errors.
WHEREFORE, the instant petition is DENIED. The assailed August 12, 2016 Decision and
March 10, 2017 Resolution of the Court of Appeals in CA-G.R. CV No. 03233-MIN are
hereby AFFIRMED. The complaint for quieting of title, recovery of possession and
damages, docketed as Civil Case No. 29,353-02, is DISMISSED for lack of merit.
Petitioner Desiderio Dalisay Investments, Inc. is hereby ordered to:

1. Execute the Deed of Sale over the properties in favor of respondent Social
Security System, consistent with the terms and conditions of the dacion en pago
agreed upon by the parties as embodied in SSC Resolution No. 849 - s. 82 within ten
(10) days from finality of this Decision; and
2.
3. Surrender the Owner's Duplicate of Transfer Certificate of Title Nos. T-18203,
T-18204, T-255986, and T-255985, as well as the Tax Declarations over said
properties to respondent Social Security System within ten (10) days from finality
of this Decision.
Should petitioner Desiderio Dalisay Investments, Inc. refuse to execute said Deed of
Sale, the Clerk of Court shall execute such in favor of respondent Social Security
System.
The Register of Deeds of Davao City is directed to cancel the subject titles and issue
new ones in the name of respondent Social Security System.
Respondent Social Security System is ordered to re-compute petitioner's obligations

accordingly, reckoned from June 17, 1982, the date when respondent communicated its
acceptance of the offer.
SO ORDERED.
SECOND DIVISION
G.R. No. 202050, July 25, 2016
PHILIPPINE NATIONAL OIL COMPANY AND PNOC DOCKYARD & ENGINEERING

CORPORATION, Petitioners, v. KEPPEL PHILIPPINES HOLDINGS, INC., Respondent.
DECISION
BRION, J.:
Before the Court is a petition for review on certiorari filed under Rule 45 of the Rules of
Court, appealing the decision dated 19 December 20111 and resolution dated 14 May
20122 of the Court of Appeals (CA) in CA-G.R. CV No. 86830. These assailed CA rulings
affirmed in toto the decision dated 12 January 20063 of the Regional Trial Court (RTQ
of Batangas City, Branch 84, in Civil Case No. 7364.
THE FACTS
The 1976 Lease Agreement and Option to Purchase
Almost 40 years ago or on 6 August 1976, the respondent Keppel Philippines Holdings,
Inc.4 (Keppel) entered into a lease agreement5 (the agreement) with Luzon Stevedoring
Corporation (Lusteveco) covering 11 hectares of land located in Bauan, Batangas. The
lease was for a period of 25 years for a consideration of P2.1 million.6 At the option of
Lusteveco, the rental fee could be totally or partially converted into equity shares in
Keppel.7chanrobleslaw
At the end of the 25-year Jease period, Keppel was given the "firm and absolute option
to purchase8the land for P4.09 million, provided that it had acquired the necessary
qualification to own land under Philippine laws at the time the option is exercised.9
Apparently, when the lease agreement was executed, less than 60% of Keppel's
shareholding was Filipino-owned, hence, it was not constitutionally qualified to acquire
private lands in the country.10chanrobleslaw
If, at the end of the 25-year lease period (or in 2001), Keppel remained unqualified to
own private lands, the agreement provided that the lease would be automatically renewed
for another 25 years.11 Keppel was further allowed to exercise the option to purchase
the land up to the 30th year of the lease (or in 2006), also on the condition that, by then,
it would have acquired the requisite qualification to own land in the
Philippines.12chanrobleslaw

Together with Keppel's lease rights and option to purchase, Lusteveco warranted not to
sell the land or assign its rights to the land for the duration of the lease unless with the
prior written consent of Keppel.13 Accordingly, when the petitioner Philippine National Oil
Corporation14 (PNOC) acquired the land from Lusteveco and took over the rights and
obligations under the agreement, Keppel did not object to the assignment so long as the
agreement was annotated on PNOC's title.15 With PNOC's consent and cooperation, the
agreement was recorded as Entry No. 65340 on PNOC's Transfer of Certificate of Title
No. T-50724.16chanrobleslaw
The Case and the Lower Court Rulings
On 8 December 2000, Keppel wrote PNOC informing the latter that at least 60% of its
shares were now owned by Filipinos17 Consequently, Keppel expressed its readiness to
exercise its option to purchase the land. Keppel reiterated its demand to purchase the
land several times, but on every occasion, PNOC did not favourably
respond.18chanrobleslaw
To compel PNOC to comply with the Agreement, Keppel instituted a complaint for specific
performance with the RTC on 26 September 2003 against PNOC.19 PNOC countered
Keppel's claims by contending that the agreement was illegal for circumventing the
constitutional prohibition against aliens holding lands in the Philippines.20 It further
asserted that the option contract was void, as it was unsupported by a separate valuable
consideration.21 It also claimed that it was not privy to the agreement.22chanrobleslaw
After due proceedings, the RTC rendered a decision23in favour of Keppel and ordered
PNOC to execute a deed of absolute sale upon payment by Keppel of the purchase price
of P4.09 million.24chanrobleslaw
PNOC elevated the case to the CA to appeal the RTC decision.25cralawred Affirming the
RTC decision in toto, the CA upheld Keppel's right to acquire the land.26 It found that
since the option contract was embodied in the agreement - a reciprocal contract - the
consideration was the obligation that each of the contracting party assumed.27 Since
Keppel was already a Filipino-owned corporation, it satisfied the condition that entitled it
to purchase the land.28chanrobleslaw

Failing to secure a reconsideration of the CA decision,29 PNOC filed the present Rule 45
petition before this Court to assail the CA rulings.
THE PARTIES' ARGUMENTS and THE ISSUES
PNOC argues that the CA failed to resolve the constitutionality of the agreement. It
contends that the terms of the agreement amounted to a virtual sale of the land to
Keppel who, at the time of the agreement's enactment, was a foreign corporation and,
thus, violated the 1973 Constitution.
Specifically, PNOC refers to (a) the 25-year duration of the lease that was automatically
renewable for another 25 years30; (b) the option to purchase the land for a nominal
consideration of P100.00 if the option is exercised anytime between the 25th and the
30th year of the lease31; and (c) the prohibition imposed on Lusteveco to sell the land or
assign its rights therein during the lifetime of the lease.32 Taken together, PNOC
submits that these provisions amounted to a virtual transfer of ownership of the land to
an alien which act the 1973 Constitution prohibited.
PNOC claims that the agreement is no different from the lease contract in Philippine
Banking Corporation v. Lui She,33 which the Court struck down as unconstitutional. In Lui
She, the lease contract allowed the gradual divestment of ownership rights by the
Filipino owner-lessor in favour of the foreigner-lessee.34 The arrangement in Lui She was
declared as a scheme designed to enable the parties to circumvent the constitutional
prohibition.35 PNOC posits that a similar intent is apparent from the terms of the
agreement with Keppel and accordingly should also be nullified.36chanrobleslaw
PNOC additionally contends the illegality of the option contract for lack of a separate
consideration, as required by Article 1479 of the Civil Code.37 It claims that the option
contract is distinct from the main contract of lease and must be supported by a
consideration other than the rental fees provided in the agreement.38chanrobleslaw
On the other hand, Keppel maintains the validity of both the agreement and the option
contract it contains. It opposes the claim that there was "virtual sale" of the land, noting
that the option is subject to the condition that Keppel becomes qualified to own private

lands in the Philippines.39 This condition ripened in 2000, when at least 60% of Keppel's
equity became Filipino-owned.
Keppel contends that the agreement is not a scheme designed to circumvent the
constitutional prohibition. Lusteveco was not proscribed from alienating its ownership
rights over the land but was simply required to secure Keppel's prior written consent.40
Indeed, Lusteveco was able to transfer its interest to PNOC without any objection from
Keppel.41chanrobleslaw
Keppel also posits that the requirement of a separate consideration for an option to
purchase applies only when the option is granted in a separate contract.42 In the present
case, the option is embodied in a reciprocal contract and, following the Court's ruling in
Vda. De Quirino v. Palarca,43 the option is supported by the same consideration
supporting the main contract.
From the parties' arguments, the following ISSUES emerge:
chanRoblesvirtualLawlibraryFirst, the constitutionality of the Agreement, i.e., whether

the terms of the Agreement amounted to a virtual sale of the land to Keppel that was
designed to circumvent the constitutional prohibition on aliens owning lands in the
Philippines.
Second, the validity of the option contract, i.e., whether the option to purchase the land
given to Keppel is supported by a separate valuable consideration.
If these issues are resolved in favour of Keppel, a third issue emerges - one that was not
considered by the lower courts, but is critical in terms of determining Keppel's right to
own and acquire full title to the land, i.e., whether Keppel's equity ownership meets the
60% Filipino-owned capital requirement of trie Constitution, in accordance with the
Court's ruling in Gamboa v. Teves.44chanrobleslaw
THE COURT'S RULING
I. The constitutionality of the Agreement

The Court affirms the constitutionality of the Agreement.
Preserving the ownership of land, whether public or private, in Filipino hands is the policy
consistently adopted in all three of our constitutions.45 Under the 1935,46 1973,47 and
198748 Constitutions, no private land shall be transferred, assigned, or conveyed except
to individuals, corporations, or associations qualified to acquire or hold lands of the public
domain. Consequently, only Filipino citizens, or corporations or associations whose capital
is 60% owned by Filipinos citizens, are constitutionally qualified to own private lands.
Upholding this nationalization policy, the Court has voided not only outright conveyances
of land to foreigners,49: but also arrangements where the rights of ownership were
gradually transferred to foreigners.50 In Lui Shui,51 we considered a 99-year lease
agreement, which gave the foreigner-lessee the option to buy the land and prohibited the
Filipino owner-lessor from selling or otherwise disposing the land, amounted to -
a virtual transfer of ownership whereby the owner divests himself in stages not only of
the right to enjoy the land (Jus possidendi, jus utendi, jus fruendi, and jus abutendi) but
also of the right to dispose of it (jus disponendi) — rights the sum total of which make up
ownership.52 [Emphasis supplied]
In the present case, PNOC submits that a similar scheme is apparent from the
agreement's terms, but a review of the overall circumstances leads us to reject PNOC's
claim.
The agreement was executed to enable Keppel to use the land for its shipbuilding and
ship repair business.53 The industrial/commercial purpose behind the agreement
differentiates the present case from Lui She where the leased property was primarily
devoted to residential use.54 Undoubtedly, the establishment and operation of a shipyard
business involve significant investments. Keppel's uncontested testimony showed that it
incurred P60 million costs solely for preliminary activities to make the land suitable as a
shipyard, and subsequently introduced improvements worth P177 million.55 Taking these
investments into account and the nature of the business that Keppel conducts on the
land, we find it reasonable that the agreement's terms provided for an extended
duration of the lease and a restriction on the rights of Lusteveco.
We observe that, unlike in Lui She,56 Lusteveco was not completely denied its ownership
rights during the course of the lease. It could dispose of the lands or assign its rights
thereto, provided it secured Keppel's prior written consent.57 That Lusteveco was able
to convey the land in favour of PNOC during the pendency of the lease58 should negate a
finding that the agreement's terms amounted to a virtual transfer of ownership of the
land to Keppel.
II. The validity of the option contract
II. An option contract must be supported by a separate

A consideration that is either clearly specified as such in the
contract or duly proven by the offeree/promisee.
An option contract is defined in the second paragraph of Article 1479 of the Civil
Code:ChanRoblesVirtualawlibrary
Article 14791 x x x An accepted 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.
An option contract is a contract where one person (the offeror/promissor) grants to
another person (the offeree/promisee) the right or privilege to buy (or to sell) a
determinate thing at a fixed price, if he or she chooses to do so within an agreed
period.59chanrobleslaw
As a contract, it must necessarily have the essential elements of subject matter,

consent, and consideration.60 Although an option contract is deemed a preparatory
contract to the principal contract of sale,61 it is separate and distinct therefrom,62
thus, its essential elements should be distinguished from those of a sale.63chanrobleslaw
In an option contract, the subject matter is the right or privilege to buy (or to sell) a
determinate thing for a price certain,64 while in a sales contract, the subject matter is
the determinate thing itself.65 The consent in an option contract is the acceptance by
the offeree of the offerer's promise to sell (or to buy) the determinate thing, i.e., the
offeree agrees to hold the right or privilege to buy (or to sell) within a specified period.
This acceptance is different from the acceptance of the offer itself whereby the
offeree asserts his or her right or privilege to buy (or to sell), which constitutes as his or
her consent to the sales contract. The consideration in an option contract may be
anything of value, unlike in a sale where the purchase price must be in money or its
equivalent.66 There is sufficient consideration for a promise if there is any benefit to
the offeree or any detriment to the offeror.67chanrobleslaw

In the present case, PNOC claims the option contract is void for want of consideration
distinct from the purchase price for the land.68 The option is incorporated as paragraph
5 of the Agreement and reads as
5. If within the period of the first [25] years [Keppel] becomes qualified to own land
under the laws of the Philippines, it has the firm and absolute option to purchase the
above property for a total price of [P-4,090,000.00] at the end of the 25th year,
discounted at 16% annual for every year before the end of the 25th year, which amount
may be converted into equity of [Keppel] at book value prevailing at the time of sale, or
paid in cash at Lusteveco's option.
However, if after the first [25] years, [Keppel] is still not qualified to own land under the
laws of the Republic of the Philippines, [Keppel's] lease of the above stated property
shall be automatically renewed for another [25] years, under the same terms and
conditions save for the rental price which shall be for the sum of P4,090,000.00... and
which sum may be totally converted into equity of [Keppel] at book value prevailing at the
time of conversion, or paid in cash at Lusteveco's option.
If anytime within the second [25] years up to the [30th] year from the date of this
agreement, [Keppel] becomes qualified to own land under the laws of the Republic of the
Philippines, [Keppel] has the firm and absolute option to buy and Lusteveco hereby
undertakes to sell the above stated property for the nominal consideration of
[P100.00.00]...69
Keppel counters that a separate consideration is not necessary to support its option to
buy because the option is one of the stipulations of the lease contract. It claims that a
separate consideration is required only when an option to buy is embodied in an
independent contract.70 It relies on Vda. de Quirino v. Palarca,71 where the Court
declared that the option to buy the leased property is supported by the same
consideration as that of the lease itself: "in reciprocal contracts [such as lease], the
obligation or promise of each party is the consideration for that of the
other.72chanrobleslaw
In considering Keppel's submission, we note that the Court's ruling in 1969 in Vda. de
Quirino v. Palarca has been taken out of context and erroneously applied in subsequent
cases. In 2004, through Bible Baptist Church v. CA73 we revisited Vda. de Quirino v.

Palarca and observed that the option to buy given to the lessee Palarca by the lessor
Quirino was in fact supported by a separate consideration: Palarca paid a higher amount
of rent and, in the event that he does not exercise the option to buy the leased property,
gave Quirino the option to buy the improvements he introduced thereon. These additional
concessions were separate from the purchase price and deemed by the Court as
sufficient consideration to support the option contract.
Vda. de Quirino v. Palarca, therefore, should not be regarded as authority that the mere
inclusion of an option contract in a reciprocal lease contract provides it with the requisite
separate consideration for its validity. The reciprocal contract should be closely
scrutinized and assessed whether it contains additional concessions that the parties
intended to constitute as a consideration for the option contract, separate from that of
the purchase price.
In the present case, paragraph 5 of the agreement provided that should Keppel exercise
its option to buy, Lusteveco could opt to convert the purchase price into equity in Keppel.
May Lusteveco's option to convert the price for shares be deemed as a sufficient
separate consideration for Keppel's option to buy?
As earlier mentioned, the consideration for an option contract does not need to be
monetary and may be anything of value.74 However, when the consideration is not
monetary, the consideration must be clearly specified as such in the option contract or
clause.75chanrobleslaw
In Villamor v. CA,76 the parties executed a deed expressly acknowledging that the
purchase price of P70.00 per square meter "was greatly higher than the actual
reasonable prevailing value of lands in that place at that time."77 The difference
between the purchase price and the prevailing value constituted as the consideration for
the option contract. Although the actual amount of the consideration was not stated, it
was ascertainable from the contract whose terms evinced the parties' intent to
constitute this amount as consideration for the option contract.78 Thus, the Court
upheld the validity of the option contract.79 In the light of the offeree's acceptance of
the option, the Court further declared that a bilateral contract to sell and buy was
created and that the parties' respective obligations became reciprocally
demandable.80chanrobleslaw

When the written agreement itself does not state the consideration for the option
contract, the offeree or promisee bears the burden of proving the existence of a
separate consideration for the option.81 The offeree cannot rely on Article 1354 of the
Civil Code,82 which presumes the existence of consideration, since Article 1479 of the
Civil Code is a specific provision on option contracts that explicitly requires the existence
of a consideration distinct from the purchase price.83chanrobleslaw
In the present case, none of the above rules were observed. We find nothing in paragraph
5 of the Agreement indicating that the grant to Lusteveco of the option to convert the
purchase price for Keppel shares was intended by the parties as the consideration for
Keppel's option to buy the land; Keppel itself as the offeree presented no evidence to
support this finding. On the contrary, the option to convert the purchase price for shares
should be deemed part of the consideration for the contract of sale itself, since the
shares are merely an alternative to the actual cash price.
There are, however cases where, despite the absence of an express intent in the parties'
agreements, the Court considered the additional concessions stipulated in an agreement
to constitute a sufficient separate consideration for the option contract.
In Teodoro v. CA,84 the sub-lessee (Teodoro) who was given the option to buy the land
assumed .the obligation to pay not only her rent as sub-lessee, but also the rent of the
sub-lessor (Ariola) to the primary lessor (Manila Railroad Company).85 In other words,
Teodoro paid an amount over and above the amount due for her own occupation of the
property, and this amount was found by the Court as sufficient consideration for the
option contract.86chanrobleslaw
In Dijamco v. CA,87 the spouses Dijamco failed to pay their loan with the bank, allowing
the latter to foreclose the mortgage.88 Since the spouses Dijamco did not exercise their
right to redeem, the bank consolidated its ownership over the mortgaged property.89
The spouses Dijamco later proposed to purchase the same property by paying a purchase
price of P622,095.00 (equivalent to their principal loan) and a monthly amount of
P13,478.00 payable for 12 months (equivalent to the interest on their principal loan).
They further stated that should they fail to make a monthly payment, the proposal
should be automatically revoked and all payments be treated as rentals for their

continued use of the property.90 The Court treated the spouses Dijamco's proposal to
purchase the property as an option contract, and the consideration for which was the
monthly interest payments.91 Interestingly, this ruling was made despite the categorical
stipulation that the monthly interest payments should be treated as rent for the spouses
Dijamco's continued possession and use of the foreclosed property.
At the other end of the jurisprudential spectrum are cases where the Court refused to
consider the additional concessions stipulated in agreements as separate consideration
for the option contract.
In Bible Baptist Church v. CA,92 the lessee (Bible Baptist Church) paid in advance
P84,000.00 to the lessor in order to free the property from an encumbrance. The lessee
claimed that the advance payment constituted as the separate consideration for its
option to buy the property.93 The Court, however, disagreed noting that the P84,000.00
paid in advance was eventually offset against the rent due for the first year of the lease,
"such that for the entire year from 1985 to 1986 the [Bible Baptist Church] did not pay
monthly rent."94 Hence, the Court refused to recognize the existence of a valid option
contract.95chanrobleslaw
What Teodoro, Dijamco, and Bible Baptist Church show is that the determination of
whether the additional concessions in agreements are sufficient to support an option
contract, is fraught with danger; in ascertaining the parties' intent on this matter, a
court may read too much or too little from the facts before it.
For uniformity and consistency in contract interpretation, the better rule to follow is
that the consideration for the option contract should be clearly specified as such in the
option contract or clause. Otherwise, the offeree must bear the burden of proving that a
separate consideration for the option contract exists.
Given our finding that the Agreement did not categorically refer to any consideration to
support Keppel's option to buy and for Keppel's failure to present evidence in this regard,
we cannot uphold the existence of an option contract in this case.

II. A n o p t i o n , t h o u g h u n s u p p o r t e d b y a s e p a r a t e
B. consideration, remains an offer that, if duly accepted,
generates into a contract to sell where the parties'
respective obligations become reciprocally demandable
The absence of a consideration supporting the option contract, however, does not
invalidate an offer to buy (or to sell). An option unsupported by a separate consideration
stands as an unaccepted offer to buy (or to sell) which, when properly accepted, ripens
into a contract to sell. This is the rule established by the Court en banc as early as 1958
in Atkins v. Cua Hian Tek,96 and upheld in 1972 in Sanchez v. Rigos.97chanrobleslaw
Sanchez v. Rigos reconciled the apparent conflict between Articles 1324 and 1479 of the
Civil Code, which are quoted below:ChanRoblesVirtualawlibrary
Article 1324. When the offerer has allowed the offeree a certain period to accept, the
offer may be withdrawn at any time before acceptance by communicating such
withdrawal, except when the option is founded upon a consideration, as something paid or
promised.
Article 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, [emphases supplied]
The Court en banc declared that there is no distinction between these two provisions
because the scenario contemplated in the second paragraph of
Article 1479 is the same as that in the last clause of Article 1324.98 Instead of finding a
conflict, Sanchez v. Rigos harmonised the two provisions, consistent with the established
rules of statutory construction.99chanrobleslaw
Thus, when an offer is supported by a separate consideration, a valid option contract

exists, i.e., there is a contracted offer100 which the offerer cannot withdraw from
without incurring liability in damages.
On the other hand, when the offer is not supported by a separate consideration, the
offer stands but, in the absence of a binding contract, the offeror may withdraw it any
time.101 In either case, once the acceptance of the offer is duly communicated before
the withdrawal of the offer, a bilateral contract to buy and sell is generated which, in
accordance with the first paragraph of Article 1479 of the Civil Code, becomes
reciprocally demandable.102chanrobleslaw
Sanchez v. Rigos expressly overturned the 1955 case of Southwestern Sugar v. AGPC,103
which declared that
a unilateral promise to buy or to sell, even if accepted, is only binding if supported by a
consideration... In other words, an accepted unilateral promise can only have a binding
effect if supported by a consideration, which means that the option can still be
withdrawn, even if accepted, if the same is not supported by any consideration.104
[Emphasis supplied]
The Southwestern Sugar doctrine was based on the reasoning that Article 1479 of the
Civil Code is distinct from Article 1324 of the Civil Code and is a provision that
specifically governs options to buy (or to sell).105 As mentioned, Sanchez v. Rigos found
no conflict between these two provisions and accordingly abandoned the Southwestern
Sugar doctrine.
Unfortunately, without expressly overturning or abandoning the Sanchez ruling,

subsequent cases reverted back to the Southwestern Sugar doctrine.106 In 2009,
Eulogio v Apeles107 referred to Southwestern Sugar v. AGPC as the controlling
doctrine108 and, due to the lack of a separate consideration, refused to recognize the
option to buy as an offer that would have resulted in a sale given its timely acceptance by
the offeree. In 2010, Tuazon v. Del Rosario-Suarez109 referred to Sanchez v. Rigos but
erroneously cited as part of its ratio decidendi that portion of the Southwestern Sugar
doctrine that Sanchez had expressly abandoned.110chanrobleslaw
Given that! the issue raised in the present case involves the application of Article 1324
and 1479 of the Civil Code, it becomes imperative for the Court [en banc] to clarify and
declare here which between Sanchez and Southwestern Sugar is the controlling doctrine.
The Constitution itself declares that "no doctrine or principle of law laid down by the
court in a decision rendered en banc or in division may be modified or reversed except by
the court sitting en banc.111Sanchez v. Rigos was an en banc decision which was affirmed
in 1994 in Asuncion v. CA,112 also an en banc decision, while the decisions citing the

Southwestern Sugar doctrine are all division cases.113 Based on the constitutional rule
(as well as the inherent logic in reconciling Civil Code provisions), there should be no
doubt that Sanchez v. Rigos remains as the controlling doctrine.
Accordingly, when an option to buy or to sell is not supported by a consideration separate

from the purchase price, the option constitutes as an offer to buy or to sell, which may
be withdrawn by the offeror at any time prior to the communication of the offeree's
acceptance. When the offer is duly accepted, a mutual promise to buy and to sell under
the first paragraph of Article 1479 of the Civil Code ensues and the parties' respective
obligations become reciprocally demandable.
Applied to the present case, we find that the offer to buy the land was timely accepted
by Keppel.
As early as 1994, Keppel expressed its desire to exercise its option to buy the land.
Instead of rejecting outright Keppel's acceptance, PNOC referred the matter to the
Office of the Government Corporate Counsel (OGCC). In its Opinion No. 160, series of
1994, the OGCC opined that Keppel "did not yet have the right to purchase the Bauan
lands."114 On account of the OGCC opinion, the PNOC did not agree with Keppel's
attempt to buy the land;115 nonetheless, the PNOC made no categorical withdrawal of
the offer to sell provided under the Agreement.
By 2000, Keppel had met the required Filipino equity proportion and duly communicated
its acceptance of the offer to buy to PNOC.116 Keppel met with the board of directors
and officials of PNOC who interposed no objection to the sale.117 It was only when the
amount of purchase price was raised that the conflict between the parties arose,118 with
PNOC backtracking in its position and questioning the validity of the
option.119chanrobleslaw
Thus, when Keppel communicated its acceptance, the offer to purchase the Bauan land
stood, not having been withdrawn by PNOC. The offer having been duly accepted, a
contract to sell the land ensued which Keppel can rightfully demand PNOC to comply with.
III Keppel's constitutional right to acquire full title to the

. land
Filipinization is the spirit that pervades the constitutional provisions on national

patrimony and economy. The Constitution has reserved the ownership of public and
private lands,120 the ownership and operation of public utilities,121 and certain areas of
investment122 to Filipino citizens, associations, and corporations. To qualify, sixty per
cent (60%) of the association or corporation's capital must be owned by Filipino citizens.
Although the 60% Filipino equity proportion has been adopted in our Constitution since
1935, it was only in 2011 that the Court interpreted what the term capital constituted.
In Gamboa v. Teves,123 the Court declared that the "legal and beneficial ownership of 60
percent of the outstanding capital stock must rest in the hands of Filipino nationals." 124
Clarifying the ruling, the Court decreed that the 60% Filipino ownership requirement
applies separately to each class of shares, whether with or without voting rights,125
thus:ChanRoblesVirtualawlibrary
Applying uniformly the 60-40 ownership requirement in favour of Filipino citizens to each
class of shares, regardless of differences in voting rights, privileges and restrictions,
guarantees effective Filipino control of public utilities, as mandated by the
Constitution.126
Although the ruling was made in the context of ownership and operation of public
utilities, the same should be applied to the ownership of public and private lands, since
the same proportion of Filipino ownership is required and the same nationalist policy
pervades.
The uncontested fact is that, as of November 2000, Keppel's capital is 60% Filipino-
owned.127 However, there is nothing in the records showing the nature and composition
of Keppel's shareholdings, i.e., whether its shareholdings are divided into different
classes, and 60% of each share class is legally and beneficially owned by Filipinos -
understandably because when Keppel exercised its option to buy the land in 2000, the
Gamboa ruling had not yet been promulgated. The Court cannot deny Keppel its option to
buy the land by retroactively applying the Gamboa ruling without violating Keppel's vested
right. Thus, Keppel's failure to prove the nature and composition of its shareholdings in
2000 could not prevent it from validly exercising its option to buy the land.
Nonetheless, the Court cannot completely disregard the effect of the Gamboa ruling; the
60% Filipino equity proportion is a continuing requirement to hold land in the Philippines.
Even in Gamboa, the Court prospectively applied its ruling, thus enabling the public
utilities to meet the nationality requirement before the Securities and Exchange
Commission commences administrative investigation and cases, and imposes sanctions for
noncompliance on erring corporations.128 In this case, Keppel must be allowed to prove
whether it meets the required Filipino equity ownership and proportion in accordance with
the Gamboa ruling before it can acquire full title to the land.
In view of the foregoing, the Court AFFIRMS the decision dated 19 December 2011 and
the resolution dated 14 May 2012 of the CA in CA-G.R. CV No. 86830 insofar as these
rulings uphold the respondent Keppel Philippines Holdings, Inc.'s option to buy the land,
and REMANDS the case to the Regional Trial Court of Batangas City, Branch 84, for the
determination of whether the respondent Keppel Philippines Holdings, Inc. meets the
required Filipino equity ownership and proportion in accordance with the Court's ruling in
Gamboa v. Teves, to allow it to acquire full title to the land.
SO ORDERED.chanRoblesvirtualLawlibrary
THIRD DIVISION
[ G.R. No. 208845, February 03, 2020 ]
ALLAN MAÑAS, JOINED BY WIFE LENA ISABELLE Y. MAÑAS, PETITIONERS, V.
ROSALINA ROCA NICOLASORA, JANET NICOLASORA SALVA, ANTHONY
NICOLASORA, AND MA. THERESE ROSELLE UY-CUA, RESPONDENTS.
DECISION
LEONEN, J.:
Dizon v. Court of Appeals1 instructs us that a lease contract's implied renewal does not
mean that all the terms in the original contract are deemed revived. Only the terms that
affect the lessee's continued use and enjoyment of the property would be considered
part of the implied renewal. Indeed, the right of first refusal has nothing to do with the
use and enjoyment of property.2

Before this Court is a Petition for Review on Certiorari3 filed by Spouses Allan and Lena
Isabelle Y. Mañas (the Mañas Spouses). They assail the Court of Appeals Decision4 that
affirmed the Regional Trial Court's dismissal of their Complaint for Rescission of
Contract of Sale and Cancellation of the Certificates of Title and Enforcement of the
Right of First Refusal.5
On April 18, 2005, the Mañas Spouses entered into a Lease Contract with Rosalina Roca
Nicolasora (Rosalina) over a property in Tacloban City that was owned by Rosalina's
husband, Chy Tong Sy Yu (now deceased).6
The Lease Contract partly stated:
WHEREAS, the LESSEE is also interested in buying the same real property, during the
existence of the lease or thereafter, upon notice, from the LESSOR under mutually
acceptable terms and conditions;
WHEREOF, premises considered, the parties hereto have covenanted and agreed on the
following:
1 That the duration of this Agreement is for one (1) year from the date of execution
hereof, unless sooner revoked or cancelled by either party upon serious violation of any
of the terms and conditions hereof; Provided, that this lease may be renewed for like
period at the option of the LESSEE;
....
6 That parties agree also that in case of any conflict or dispute that may subsequently
arise out of this covenant, to refer the matter to the Philippine Mediation Center,
Bulwagan ng Katarungan, for Mediation and settlement, before any Accredited Mediator
who is a Lawyer; Provided, further, that in the remote event that no such settlement is
reached before the said Mediator, that the venue of any litigation that may arise, shall
be in a competent court in Tacloban City.
....
8 Finally, should the LESSOR desire to sell the subject real property, he shall notify
first the LESSEE about such intent, and the latter is given Thirty (30) days within which
to accept the offer, or make a [counter]-offer, in writing; Provided, that the LESSOR
may reject the Counter-offer in writing, within the same period of time, in which case, he
shall have the right to sell the same to any interested party.7
It appears that the Lease Contract lapsed in 2006, with no express renewal. However,
the Mañas Spouses continued using the premises and paying the rentals, without any
objections from Rosalina and her children, Janet and Anthony.8
On February 14, 2008, Chy Tong Sy Yu sold several parcels of land, including the property
being leased to the Mañas Spouses, to Ma. Therese Roselle Uy-Cua (Roselle). The sale was
made "with the conformity"9 of Rosalina, Janet, and Anthony. The titles to the
properties were subsequently transferred to Roselle.10
However, the Mañas Spouses claimed that they were neither informed of the sale nor
offered to purchase the property.11 They said that only upon receiving a letter12 dated
June 2, 2008 from RMC Trading did they learn of the sale of the property.13 The letter
from RMC Trading stated:
Dear Mr. Manias (sic):
Kindly be informed that we are now the new owners of the land where your business/
residence is situated, particularly Lot No. 546 B. In this connection we are going to
occupy and build something on said land, for our own use and benefit. May we therefore
request that you kindly relocate your business/residence to give way to our construction,
within 30 days from your receipt hereof Thank you for your compliance hereof.
I am
Very truly Yours,
(Sgd.) RUPERTO E. CUA, JR14
According to the Mañas Spouses, their right of first refusal embodied in the Lease
Contract was violated.15
Thus, before the trial court, the Mañas Spouses filed a Complaint praying that the
contract of sale be rescinded, the relevant title be canceled, and their right of first
refusal or option to buy be enforced.16
To this, Roselle filed a Motion to Dismiss17 on the ground that the Complaint stated no
cause of action18 and that the Mañas Spouses failed to comply with a condition
precedent, specifically, barangay conciliation.19 She also averred that because the
contract was only impliedly renewed, the spouses' right of first refusal was not renewed:
4 Defendant-movant [Roselle] submits that the plaintiffs [the Mañas Spouses] have no
right of first refusal or priority to buy the leased property for the following reasons:
a.) he never exercised the option to renew the lease contract as provided for under the
Contract of Lease. Due to the failure to exercise the option to renew the contract, the
same became a month-to-month contract since the manner of payment is made on a
monthly basis as shown by the contract itself, thus:
"2. [T]hat the monthly rental shall be SIX THOUSAND PESOS (P 6,000.00) which shall
be payable on or before the 15th of the succeeding month, . . ."
b.) Since the contract of lease was not renewed, there was an impliedly renewed contract
considering that despite of the same (sic), the lessee remained in possession for at least
a period of 15 days after expiration and that no prior demand to vacate the premises was
made by the lessor. . . .
....
c.) The implicit renewal of the contract of lease however, did not likewise renew the right
of first refusal or priority to buy as granted in the original contract of lease because the
only provisions of a contract of lease which are impliedly renewed are those that are
germane to possession. The priority to buy or right of first refusal is not germane to
possession, rather, it is strange to possession.20
Meanwhile, Rosalina, Janet, and Anthony filed an Answer with Counterclaim.21 Akin to
Roselle, they argued that the right of first refusal was "granted only during the original
term of the contract of lease,"22 and that the Complaint was prematurely filed.23
In their Opposition to the Motion to Dismiss, the Mañas Spouses claimed that the sale
was invalid owing to Roselle's alleged incapacity; that is, she was a minor when the sale
was made.24
On January 7, 2009,25 the Regional Trial Court granted Roselle's Motion to Dismiss,
effectively dismissing the Mañas Spouses' case. It discussed:
Defendant Uy-Cua argues that the plaintiffs never exercised the option to renew the
lease contract after its expiration, thus the condition thereof granting the latter the
right of first refusal (Priority to Buy), was never renewed. Although there was an implied
renewal of the contract of lease in (sic) a month-to-month basis, in accordance with
Article 1670 of the New Civil Code, the plaintiffs' right of first refusal was never
renewed for the reason that the said condition is not germane to possession.
Furthermore, defendant Uy-Cua asserted that the filing of the case is premature. The
case did not undergo the required Barangay Conciliation, pursuant to RA 7160, a condition
precedent before resort to the courts is initiated.
....
. . . Nothing in the questioned contract of lease provides for an extension of the life
after the term thereof had expired. Verily, the continued occupation by the plaintiffs of
th e leased premises after the term has expired, but with the consent of the defendants,
constitutes an implied renewal. . . .
....
It may be amiss to consider plaintiffs' reliance on the "whereases" narrated in the
contract of lease, of which one of them stated that: "whereas, the lessee is also
interested in buying the same real property during the existence of the lease or
thereafter." According to the plaintiffs, the word "THEREAFTER" bestowed upon them
to exercise the Right of First Refusal even after the term of the contract has expired.
This is absurd. To consider and to give effect to this contention is to create an infinite
contractual relationship between the parties. More so, the "whereases" mentioned in the
contract are only considered premises and/or introduction, and definitely does not form
part of the terms and conditions of the subject contract of lease.
Lastly, on the issue of barangay conciliation, clearly, Section 412 of RA 7160, is
controlling. Unless, it is shown that the subject legal process is being availed of in order
to pave way for a procedural shortcut.26 (Emphasis in the original)
The Mañas Spouses filed a Motion for Reconsideration, but this was denied in a March 16,
2009 Order.27 The trial court stated:
The issue that the subject Deed of Absolute Sale is a simulated contract and therefore
void was raised by the plaintiffs in their Opposition to the Motion to Dismiss. Although
this issue was not threshed out in the assailed Order, this Court believes that to attack
the validity of [the] Deed of Absolute Sale for being simulated should be made in an
action for Annulment of Contracts, not in an action for Rescission.
This Court had already ruled that the expiration of the subject Contract of Lease carries
with it the termination of the Plaintiffs' Right of First Refusal. Such being the case, to
notify the Plaintiffs of the defendants' intention to sell the property in question is no
longer necessary and has no legal effect; and a suit instituted in order to compel the
latter to allow the former to exercise the said right, states no cause of action.28
Hence, the Mañas Spouses filed a Notice of Appeal.29
In their Brief, they again alleged that Roselle was a minor at the time of sale; hence, the
Deed of Absolute Sale was void.30 They also faulted the trial court for ruling that their
Complaint stated no cause of action.31 They asserted that the trial court incorrectly
found that they had no right of first refusal because the contract was not expressly
renewed.32
In its April 17, 2013 Decision,33 the Court of Appeals affirmed the Regional Trial Court's
rulings, and also made the following findings:
A closer scrutiny of the records reveals that even on the face of the Complaint alone,
there is absent a cause of action. The Contract of Lease expressly provides for a term/
duration for its validity, that is, one (1) year from the date of execution of the said
Lease Contract on April 18, 2005. Likewise, provided in the said Contract was that the
renewal of the said lease at the option of the lessee. In this case, the continued

possession of plaintiffs-appellants as lessees of the leased premises is evidence of his

exercise of the option to extend the lease.
In such a case, their continued possession of the leased premises after the end or
expiration of the time fixed in the Contract of Lease, with the acquiescence of the
lessor, constitutes an implied renewal of the lease, not for the period of the original
contract, but for the time established in Articles 1682 and 1687 of the New Civil Code,
so that if rentals were stipulated to be paid monthly, the new lease is deemed to have
been renewed from month to month and may be terminated each month upon demand by
the lessor.34
The Mañas Spouses filed a Motion for Reconsideration, which was denied by the Court of
Appeals through its July 24, 2013 Resolution.35
Thus, the Mañas Spouses filed this Petition for Review on Certiorari,36 arguing that the
trial court erred in granting the Motion to Dismiss based on "respondent's defenses and
not on the ultimate facts alleged in the Complaint."37
On October 23, 2013, this Court required respondents to file their comment.38
In her Comment,39 respondent Roselle maintains that the Lease Contract was not
expressly renewed because petitioners had never notified the lessor that they intended
to renew the contract.40 Instead, she explains, the contract was only impliedly renewed,
the manner of payment having been made on a monthly basis.41
On the allegation that the sale is void due to her incapacity, respondent Roselle counters
that petitioners cannot assail its validity since they stopped being the real parties-in-
interest after failing to expressly renew the contract.42 In addition, she points out that
the action filed is for rescission of contract but what petitioners are asking for is the
annulment of contract.43
In an October 2, 2017 Resolution,44 this Court required respondents Rosalina, Janet, and
Anthony to show cause why they should not be cited in contempt for failing to comply
with this Court's April 26, 2017 Resolution requiring them to file their comment.
Respondents Rosalina, Janet, and Anthony later filed an Explanation with
Manifestation45 stating that after their counsel had withdrawn, they did not get the
services of another lawyer due to financial constraints.46 In any case, they stated that
they were adopting respondent Roselle's Comment.47 This Court accepted their
explanation and dispensed with the filing of their comment.48
On July 30, 2018, this Court required petitioners to file a reply.49
In their Reply,50 petitioners argue that the Lease Contract was expressly renewed, along
with all the terms in the original contract, including the right of first refusal.51

The issues for this Court's resolution are the following:

First, whether or not the Court of Appeals erred in affirming the Complaint's dismissal
on the ground that it stated no cause of action. Subsumed here are the issues of whether
or not the lease was impliedly renewed, and whether or not the renewal includes the right
of first refusal;
Second, whether or not the Court of Appeals erred in not ruling that the Deed of
Absolute Sale must be rescinded due to the incapacity of the vendee, respondent Ma.
Therese Roselle Uy-Cua, at the time of the sale; and
Finally, whether or not the Court of Appeals erred in affirming the Complaint's dismissal
for failure to comply with a condition precedent.
The Petition should be denied.
I
The issue on the failure to state a cause of action is premised on whether the Lease
Contract was expressly renewed, and if so, whether the renewal included the right of
first refusal. Thus, we first discuss the issue on the lease contract's renewal.
Based on the terms of the Lease Contract, renewal would be at the option of the
lessee.52 However, petitioners did not appear to have expressly informed the lessor of
their intent to renew. Instead, after the original Lease Contract had expired, they
continued to pay rentals to the lessor.53 This constitutes an implied lease contract
renewal, as the trial court and the Court of Appeals correctly found.54 Article 1670 of
the Civil Code states:
ARTICLE 1670. If at the end of the contract the lessee should continue enjoying the
thing leased for fifteen days with the acquiescence of the lessor, and unless a notice to
the contrary by either party has previously been given, it is understood that there is an
implied new lease, not for the period of the original contract, but for the time
established in Articles 1682 and 1687. The other terms of the original contract shall be
revived.
Dizon v. Court of Appeals55—a 1999 case that similarly delved into which terms in a lease
contract would be revived in implied renewals—is enlightening. In that case, Overland
Express Lines, Inc. (Overland) entered into a one-year Contract of Lease with Option to
Buy with the Dizons, the property owners. Per the agreement, Overland would pay a
monthly rental of P3,000.00, while the purchase price was pegged at P3,000.00 per
square meter.56
The lease contract was not expressly renewed after a year had lapsed, though Overland
continued to occupy the premises. However, when the monthly rental rate eventually rose
to P8,000.00, Overland was unable to pay. This prompted the Dizons to file an ejectment
suit, which resulted in the trial court ordering Overland to vacate the property and pay
reasonable compensation and attorney's fees. Overland went to the Court of Appeals and
subsequently to this Court, questioning the trial court's jurisdiction, but its petitions
were dismissed.57
Insisting on its option to buy, Overland filed a suit for specific performance seeking that
a deed of sale be executed, and later, another suit seeking to annul the judgment in the
ejectment case. These cases were consolidated and later dismissed. On appeal, the Court
of Appeals affirmed the trial court's jurisdiction, but it also ruled that Overland had
acquired the rights of a vendee upon a perfected contract of sale.58
Meanwhile, as the Dizons were already moving to have the judgment in the ejectment
case executed, Overland contested the enforceability of the judgment. Its effort
yielded much success: the trial court granted a writ of preliminary injunction, and later,
the Court of Appeals found that the Dizons' alleged right to eject Overland had no
basis.59
Hence, both parties came to this Court. Ruling on the consolidated petitions, this Court
discussed that the issue on whether the Dizons could eject Overland was based on
whether the option to buy in the lease contract was included in the contract's implied
renewal.
This Court ruled:
In this case, there was a contract of lease for one (1) year with option to purchase. The
contract of lease expired without the private respondent, as lessee, purchasing the
property but remained in possession thereof. Hence, there was an implicit renewal of the
contract of lease on a monthly basis. The other terms of the original contract of lease
which are revived in the implied new lease under Article 1670 of the New Civil Code are
only those terms which are germane to the lessee's right of continued enjoyment of the
property leased. Therefore, an implied new lease does not ipso facto carry with it any
implied revival of private respondent's option to purchase (as lessee thereof) the leased
premises. The provision entitling the lessee the option to purchase the leased premises is
not deemed incorporated in the impliedly renewed contract because it is alien to the
possession of the lessee. Private respondent's right to exercise the option to purchase
expired with the termination of the original contract of lease for one year. The rationale
of this Court is that:
. . . Necessarily, if the presumed will of the parties refers to the enjoyment of possession
the presumption covers the other terms of the contract related to such possession, such
as the amount of rental, the date when it must be paid, the care of the property, the
responsibility for repairs, etc. But no such presumption may be indulged in with respect
to special agreements which by nature are foreign to the right of occupancy or enjoyment
inherent in a contract of lease.60 (Citations omitted)
Simply put, this Court ruled that implied renewals do not include the option to buy, as it is
not germane to the lessee's continued use of the property. Moreover, since Overland
failed to avail of the option to buy within the stipulated period, it no longer had any right
to enforce this option after that period had lapsed.
Similarly, in this case, petitioners can only invoke the right to ask for the rescission of
the contract if their right to first refusal, as embodied in the original Lease Contract, is
included in the implied renewal.
Article 1643 of the Civil Code provides:
ARTICLE 1643. In the lease of things, one of the parties binds himself to give to another
the enjoyment of use of a thing for a price certain, and for a period which may be
definite or indefinite. However, no lease for more than ninety-nine years shall be valid.
Based on Article 1643, the lessee's main obligation is to allow the lessee to enjoy the use
of the thing leased. Other contract stipulations unrelated to this—or instance, the right
of first refusal—cannot be presumed included in the implied contract renewal. The law
itself limits the terms that are included in implied renewals. One cannot simply presume
that all conditions in the original contract are also revived; after all, a contract is based
on the meeting of the minds between parties.
In Arevalo Gomez Corporation v. Lao Hian Liong:61
Article 1670 applies only where, before the expiration of the lease, no negotiations are
held between the lessor and the lessee resulting in its renewal. Where no such talks take
place and the lessee is not asked to vacate before the lapse of fifteen days from the end
of the lease, the implication is that the lessor is amenable to its renewal.62
The concept of implied renewal is a matter of equity recognized by law. Technically, no
contract between a lessor and a lessee exists from the end date of a lease contract to
its renewal. But if there is no notice to vacate and the lessee remains in possession of the
property leased, it would only be proper that the lessor is still paid for the use and
enjoyment of the property.
Thus, implied renewal does not extend to all stipulations.1âшphi1 Without any express
contract renewal, this Court cannot presume that both parties agreed to revive all the
terms in the previous lease contract.

Dizon v. Court of Appeals finds support in Dizon v. Magsaysay,63 in which this Court also
resolved whether an implied renewal of a lease contract includes a renewal of the option
to purchase. It held:
But whatever doubt there may be on this point is dispelled by paragraph (2) of the
contract of lease, which states that it was renewable for the same period of two years
(upon its expiration on April 1, 1951), "con condiciones expresas y specificadas que seran
convenidas entre las partes." This stipulation embodied the agreement of the parties with
respect to renewal of the original contract, and while there was nothing in it which was
incompatible with the existence of an implied new lease from month to month under the
conditions laid down in Article 1670 of the Civil Code, such incompatibility existed with
respect to any implied revival of the lessee's preferential right to purchase, which
expired with the termination of the original contract. On this point the express
agreement of the parties should govern, not the legal provision relied upon by the
petitioner.64
Since the implied renewal of the Lease Contract did not include the renewal of the right
of first refusal, petitioners have no basis for their claim that the property should have
been offered to them before it was sold to respondent Roselle. The Court of Appeals did
not err in affirming the trial court's ruling that petitioners failed to state their cause of
action.
II
Additionally, petitioners made a claim on respondent Roselle's alleged incapacity65 due to
her age, as raised for the first time in their Opposition to her Motion to Dismiss.66 In
their appeal brief, they alleged:
14. Appellants [referring to petitioners] later found out, after appellee Ma. Therese
Roselle Uy-Cua filed a Motion to Dismiss and after the other appellees filed their
Answer, that the named vendee, Ma. Therese Roselle Uy-Cua, is the minor daughter of
Ruperta E. Cua, Jr. At the time of the sale, Ma. Therese Roselle Uy-Cua was a minor,
being only 14 years old, and even to this day, Ma. Therese Roselle Uy-Cua is still a
minor.67
Assuming that this allegation was true, petitioners are not the proper parties to raise it.
Article 1397 of the Civil Code provides that "persons who are capable cannot allege the
incapacity of those with whom they contracted[.]"68 Even if they were, they still filed
the wrong action. The contracting party's incapacity is a ground for annulment of
contract, not rescission. Article 1390 of the Civil Code states:
ARTICLE 1390. The following contracts are voidable or annullable, even though there may
have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence
or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They
are susceptible of ratification.
Petitioners pray for the rescission of the contract, but the ground they raised is one for
annulment of contract. Article 1397 of the Civil Code specifies who may institute such
action:
ARTICLE 1397. The action for the annulment of contracts may be instituted by all who
are thereby obliged principally or subsidiarily. However, persons who are capable cannot
allege the incapacity of those with whom they contracted; nor can those who exerted
intimidation, violence, or undue int1uence, or employed fraud, or caused mistake base
their action upon these flaws of the contract.
Thus, even if this Court were to consider petitioners' action as one for annulment of
contract, they are still not the proper parties to file such action. They are not parties to
the Deed of Absolute Sale, and neither are they obliged principally or subsidiarity with
regard to the Deed of Absolute Sale. Thus, the trial court's dismissal of their Complaint
would still be proper.
III
Finally, the Court of Appeals also correctly affirmed the trial court's ruling that
petitioners failed to comply with a condition precedent. Section 412 of Republic Act No.
7160 provides:
SECTION 412. Conciliation. — (a) Pre-condition to Filing of Complaint in Court. — No
complaint, petition, action, or proceeding involving any matter within the authority of the
lupon shall be filed or instituted directly in court or any other government office for
adjudication, unless there has been a confrontation between the parties before the !upon
chairman or the pangkat, and that no conciliation or settlement has been reached as
certified by the lupon secretary or pangkat secretary as attested to by the lupon or
pangkat chairman or unless the settlement has been repudiated by the parties thereto.
(b) Where Parties May Go Directly to Court. —The parties may go directly to court in the
following instances:
(1) Where the accused is under detention;
(2) Where a person has otherwise been deprived of personal liberty calling for habeas
corpus proceedings;
(3) Where actions are coupled with provisional remedies such as preliminary injunction,
attachment, delivery of personal property and support pendente lite; and
(4) Where the action may otherwise be barred by the statute of limitations.
Generally, all parties must first undergo barangay conciliation proceedings before filing a
complaint in court. None of the exceptions under the law are present in this case. Thus,
assuming that petitioners had stated a cause of action, their Complaint would still be
dismissed for their failure to comply with a condition precedent.
WHEREFORE, the Petition is DENIED. The April 17, 2013 Decision of the Court of
Appeals in CA G.R. CV No. 03402 is AFFIRMED.
SO ORDERED.
FIRST DIVISION
G.R. No. 177783 : January 23, 2013
HEIRS OF FAUSTO C. IGNACIO, namely MARFEL D. IGNACIO-MANALO, MILFA D.
IGNACIO-MANALO AND FAUSTINO D. IGNACIO, Petitioners, v. HOME BANKERS
SAVINGS AND TRUST COMPANY, SPOUSES PHILLIP AND THELMA RODRIGUEZ,
CATHERINE, REYNOLD & JEANETTE, all surnamed ZUNIGA, Respondent.
DECISION
VILLARAMA, JR., J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 assailing the
Decision1 dated July 18, 2006 and Resolution2 dated May 2, 2007 of the Court of
Appeals (CA) in CA-G.R. CV No. 73551. The CA reversed the Decision3 dated June 15,
1999 of the Regional Trial Court (RTC) of Pasig City, Branch 151 in Civil Case No. 58980.
The factual antecedents:cralawlibrary
In August 1981, petitioner Fausto C. Ignacio mortgaged two parcels of land to Home
Savings Bank and Trust Company, the predecessor of respondent Home Bankers Savings
and Trust Company, as security for the P500,000.00 loan extended to him by said bank.
These properties which are located in Cabuyao, Laguna are covered by Transfer

Certificate of Title Nos. (T-40380) T-8595 and (T-45804) T-8350 containing an area of
83,303 square meters and 120,110 square meters, respectively.4?r?l1
When petitioner defaulted in the payment of his loan obligation, respondent bank
proceeded to foreclose the real estate mortgage. At the foreclosure sale held on
January 26, 1983, respondent bank was the highest bidder for the sum of P764,984.67.
On February 8, 1983, the Certificate of Sale issued to respondent bank was registered
with the Registry of Deeds of Calamba, Laguna. With the failure of petitioner to redeem
the foreclosed properties within one year from such registration, title to the properties
were consolidated in favor of respondent bank. Consequently, TCT Nos. T-8595 and
T-8350 were cancelled and TCT Nos. 111058 and 111059 were issued in the name of
respondent bank.5?r?l1
Despite the lapse of the redemption period and consolidation of title in respondent bank,
petitioner offered to repurchase the properties. While the respondent bank considered
petitioner's offer to repurchase, there was no repurchase contract executed. The
present controversy was fuelled by petitioner's stance that a verbal repurchase/
compromise agreement was actually reached and implemented by the parties.
In the meantime, respondent bank made the following dispositions of the foreclosed
properties already titled in its name:cralawlibrary
TCT No. 111059 (Subdivided into six lots with individual titles - TCT Nos. 117771, 117772,
117773, 117774, 117775 and 117776)
A. TCT No. 117771 (16,350 sq.ms.) - Sold to Fermin Salvador and Bella Salvador under
Deed of Absolute Sale dated May 23, 1984 for the price of P150,000.00
B. TCT No. 11772 (82,569 sq.ms. subdivided into 2 portions
1) Lot 3-B-1 (35,447 sq.ms.) - Sold to Dr. Oscar Remulla and Natividad Pagtakhan, Dr.
Edilberto Torres and Dra. Rebecca Amores under Deed of Absolute Sale dated April 17,
1985 for the price of P150,000.00
2) Lot 3-B-2 covered by separate title TCT No. 124660 (Subdivided into 3 portions -
Lot 3-B-2-A (15,000 sq.ms.) - Sold to Dr. Myrna del Carmen Reyes under Deed of
Absolute Sale dated March 23, 1987 for the price of P150,000.00
Lot 3-B-2-B (15,000 sq.ms.) - Sold to Dr. Rodito Boquiren under Deed of Absolute Sale
dated March 23, 1987 for the price of P150,000.00
Lot 3-B-2-C (17,122 sq.ms.) covered by TCT No. T-154568 -
C. TCT No.117773 (17,232 sq.ms.) - Sold to Rizalina Pedrosa under Deed of Absolute Sale
dated June 4, 1984 for the price of P150,000.00 ???ñr?bl?š ??r†??l l?? l?br?rÿ

The expenses for the subdivision of lots covered by TCT No. 111059 and TCT No. 117772
were shouldered by petitioner who likewise negotiated the above-mentioned sale
transactions. The properties covered by TCT Nos. T-117774 to 117776 are still
registered in the name of respondent bank.6?r?l1
In a letter addressed to respondent bank dated July 25, 1989, petitioner expressed his
willingness to pay the amount of P600,000.00 in full, as balance of the repurchase price,
and requested respondent bank to release to him the remaining parcels of land covered
by TCT Nos. 111058 and T-154658 ("subject properties").7 Respondent bank however,
turned down his request. This prompted petitioner to cause the annotation of an adverse
claim on the said titles on September 18, 1989.8?r?l1
Prior to the annotation of the adverse claim, on August 24, 1989, the property covered
by TCT No. 154658 was sold by respondent bank to respondent spouses Phillip and Thelma
Rodriguez, without informing the petitioner. On October 6, 1989, again without
petitioner's knowledge, respondent bank sold the property covered by TCT No T-111058
to respondents Phillip and Thelma Rodriguez, Catherine M. Zuñiga, Reynold M. Zuñiga and
Jeannette M. Zuñiga.9?r?l1
On December 27, 1989, petitioner filed an action for specific performance and damages
in the RTC against the respondent bank. As principal relief, petitioner sought in his
original complaint the reconveyance of the subject properties after his payment of
P600,000.00.10 Respondent bank filed its Answer denying the allegations of petitioner
and asserting that it was merely exercising its right as owner of the subject properties
when the same were sold to third parties.
For failure of respondent bank to appear during the pre-trial conference, it was declared
as in default and petitioner was allowed to present his evidence ex parte on the same
date (September 3, 1990). Petitioner simultaneously filed an "Ex-Parte Consignation"
tendering the amount of P235,000.00 as balance of the repurchase price.11 On
September 7, 1990, the trial court rendered judgment in favor of petitioner. Said
decision, as well as the order of default, were subsequently set aside by the trial court
upon the filing of a motion for reconsideration by the respondent bank.12?r?l1
In its Order dated November 19, 1990, the trial court granted the motion for
intervention filed by respondents Phillip and Thelma Rodriguez, Catherine Zuñiga, Reynold
Zuñiga and Jeannette Zuñiga. Said intervenors asserted their status as innocent
purchasers for value who had no notice or knowledge of the claim or interest of
petitioner when they bought the properties already registered in the name of respondent
bank. Aside from a counterclaim for damages against the petitioner, intervenors also

prayed that in the event respondent bank is ordered to reconvey the properties,
respondent bank should be adjudged liable to the intervenors and return all amounts paid
to it.13?r?l1
On July 8, 1991, petitioner amended his complaint to include as alternative relief under
the prayer for reconveyance the payment by respondent bank of the prevailing market
value of the subject properties "less whatever remaining obligation due the bank by
reason of the mortgage under the terms of the compromise agreement.14?r?l1
On June 15, 1999, the trial court rendered its Decision, the dispositive portion of which
reads:cralawlibrary
WHEREFORE, findings [sic] the facts aver[r]ed in the complaint supported by
preponderance of evidences adduced, judgment is hereby rendered in favor of the
plaintiff and against the defendant and intervenors by:cralawlibrary
1. Declaring the two Deeds of Sale executed by the defendant in favor of the intervenors
as null and void and the Register of Deeds in Calamba, Laguna is ordered to cancel and/or
annul the two Transfer Certificate of Titles No. T-154658 and TCT No. T-111058 issued
to the intervenors.
2. Ordering the defendant to refund the amount of P1,004,250.00 to the intervenors as
the consideration of the sale of the two properties.
3. Ordering the defendant to execute the appropriate Deed of Reconveyance of the two
(2) properties in favor of the plaintiff after the plaintiff pays in full the amount of
P600,000.00 as balance of the repurchase price.
4. Ordering the defendant bank to pay plaintiff the sum of P50,000.00 as attorney's
fees.
5. Dismissing the counterclaim of the defendant and intervenors against the plaintiff. ???
ñr?bl?š ??r†??l l?? l?br?rÿ
Costs against the defendant.
SO ORDERED.15?r?l1
The trial court found that respondent bank deliberately disregarded petitioner's
substantial payments on the total repurchase consideration. Reference was made to the
letter dated March 22, 1984 (Exhibit "I")16 as the authority for petitioner in making the
installment payments directly to the Universal Properties, Inc. (UPI), respondent bank's
collecting agent. Said court concluded that the compromise agreement amounts to a valid
contract of sale between petitioner, as Buyer, and respondent bank, as Seller. Hence, in
entertaining other buyers for the same properties already sold to petitioner with
intention to increase its revenues, respondent bank acted in bad faith and is thus liable
for damages to the petitioner. Intervenors were likewise found liable for damages as
they failed to exercise due diligence before buying the subject properties.
Respondent bank appealed to the CA which reversed the trial court's ruling, as
follows:cralawlibrary
WHEREFORE, the foregoing premises considered, the instant appeal is hereby
GRANTED. Accordingly, the assailed decision is hereby REVERSED and SET ASIDE.
SO ORDERED.17?r?l1
The CA held that by modifying the terms of the offer contained in the March 22, 1984
letter of respondent bank, petitioner effectively rejected the original offer with his
counter-offer. There was also no written conformity by respondent bank's officers to
the amended conditions for repurchase which were unilaterally inserted by petitioner.
Consequently, no contract of repurchase was perfected and respondent bank acted well
within its rights when it sold the subject properties to herein respondents-intervenors.
As to the receipts presented by petitioner allegedly proving the installment payments he
had completed, the CA said that these were not payments of the repurchase price but
were actually remittances of the payments made by petitioner's buyers for the purchase
of the foreclosed properties already titled in the name of respondent bank. It was noted
that two of these receipts (Exhibits "K" and "K-1")18 were issued to Fermin Salvador and
Rizalina Pedrosa, the vendees of two subdivided lots under separate Deeds of Absolute
Sale executed in their favor by the respondent bank. In view of the attendant
circumstances, the CA concluded that petitioner acted merely as a broker or middleman
in the sales transactions involving the foreclosed properties. Lastly, the respondents-
intervenors were found to be purchasers who bought the properties in good faith without
notice of petitioner's interest or claim. Nonetheless, since there was no repurchase
contract perfected, the sale of the subject properties to respondents-intervenors
remains valid and binding, and the issue of whether the latter were innocent purchasers
for value would be of no consequence.
Petitioner's motion for reconsideration was likewise denied by the appellate court.
Hence, this petition alleging that:cralawlibrary
A.
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
IN REVERSING THE FINDING OF THE TRIAL COURT THAT THERE WAS A
PERFECTED CONTRACT TO REPURCHASE BETWEEN PETITIONER AND
RESPONDENT-BANK.
B.

IN REVERSING THE FINDING OF THE TRIAL COURT THAT PETITIONER DID NOT
ACT AS BROKER IN THE SALE OF THE FORECLOSED PROPERTIES AND THUS
FAILED TO CONSIDER THE EXISTENCE OF OFFICIAL RECEIPTS ISSUED IN THE
NAME OF THE PETITIONER THAT ARE DULY NOTED FOR HIS ACCOUNT.
C.
IN REVERSING THE FINDING OF THE TRIAL COURT THAT RESPONDENT-BANK DID
NOT HAVE THE RIGHT TO DISPOSE THE SUBJECT PROPERTIES.
D.
IN REVERSING THE FINDING OF THE TRIAL COURT THAT RESPONDENTS-
INTERVENORS ARE NOT INNOCENT PURCHASERS FOR VALUE IN GOOD FAITH.19?
r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ
It is to be noted that the above issues raised by petitioner alleged grave abuse of
discretion committed by the CA, which is proper in a petition for certiorari under Rule 65
of the 1997 Rules of Civil Procedure, as amended, but not in the present petition for
review on certiorari under Rule 45.
The core issue for resolution is whether a contract for the repurchase of the foreclosed
properties was perfected between petitioner and respondent bank.
The Court sustains the decision of the CA.
Contracts are perfected by mere consent, which is manifested by the meeting of the
offer and the acceptance upon the thing and the cause which are to constitute the
contract.20 The requisite acceptance of the offer is expressed in Article 1319 of the
Civil Code which states:cralawlibrary
ART. 1319. Consent is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. The offer must be certain
and the acceptance absolute. A qualified acceptance constitutes a counter-offer.
In Palattao v. Court of Appeals,21 this Court held that if the acceptance of the offer was
not absolute, such acceptance is insufficient to generate consent that would perfect a
contract. Thus:cralawlibrary
Contracts that are consensual in nature, like a contract of sale, are perfected upon mere
meeting of the minds. Once there is concurrence between the offer and the acceptance
upon the subject matter, consideration, and terms of payment, a contract is produced.
The offer must be certain. To convert the offer into a contract, the acceptance must be
absolute and must not qualify the terms of the offer; it must be plain, unequivocal,
unconditional, and without variance of any sort from the proposal. A qualified acceptance,
or one that involves a new proposal, constitutes a counter-offer and is a rejection of the
original offer. Consequently, when something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to generate consent because any
modification or variation from the terms of the offer annuls the offer.22?r?l1
The acceptance must be identical in all respects with that of the offer so as to produce
consent or meeting of the minds.23 Where a party sets a different purchase price than
the amount of the offer, such acceptance was qualified which can be at most considered
as a counter-offer; a perfected contract would have arisen only if the other party had
accepted this counter-offer.24 In Villanueva v. Philippine National Bank25 this Court
further elucidated on the meaning of unqualified acceptance, as follows:cralawlibrary
While it is impossible to expect the acceptance to echo every nuance of the offer, it is
imperative that it assents to those points in the offer which, under the operative facts
of each contract, are not only material but motivating as well. Anything short of that
level of mutuality produces not a contract but a mere counter-offer awaiting acceptance.
More particularly on the matter of the consideration of the contract, the offer and its
acceptance must be unanimous both on the rate of the payment and on its term. An
acceptance of an offer which agrees to the rate but varies the term is ineffective.26
(Emphasis supplied)
Petitioner submitted as evidence of a perfected contract of repurchase the March 22,
1984 letter (Exhibit "I")27 from Rita B. Manuel, then President of UPI, a corporation
formed by respondent bank to dispose of its acquired assets, with notations handwritten
by petitioner himself. Said letter reads:cralawlibrary
March 22, 1984
Honorable Judge Fausto Ignacio
412 Bagumbayan Street, Pateros
Metro Manila
Dear Judge Ignacio:cralawlibrary
Your proposal to repurchase your foreclosed properties located at Cabuyao, Laguna
consisting of a total area of 203,413 square meters has been favorably considered
subject to the following terms and conditions:cralawlibrary
1) Total Selling Price shall be P950,000.00
2) Downpayment of P150,00000 with the balance
Payable in Three (3) equal installments

as follows:cralawlibrary
1st Installment - P 266,667 - on or before May 31, '84
2nd Installment - P 266,667 - on or before Sept. 31, '84
3rd Installment - P 266,666 - on or before Jan. 30, '85
TOTAL - P 800,000.00 ???ñr?bl?š ??r†??l l?? l?br?rÿ
3) All expenses pertinent to the subdivision of the parcel of land consisting of 120,110
square meters shall be for your account. ???ñr?bl?š ??r†??l l?? l?br?rÿ
Thank you,
Very truly yours,
RITA B. MANUEL
President ???ñr?bl?š ??r†??l l?? l?br?rÿ
According to petitioner, he wrote the notations in the presence of a certain Mr. Lazaro,
the representative of Mrs. Manuel (President), and a certain Mr. Fajardo, which notations
supposedly represent their "compromise agreement."28 These notations indicate that the
repurchase price would be P900,000.00 which shall be paid as follows: P150,000 - end of
May '84; P150,000 - end of June '84; Balance - "Depending on financial position".
Petitioner further alleged the following conditions of the verbal agreement: (1)
respondent bank shall release the equivalent land area for payments made by petitioner
who shall shoulder the expenses for subdivision of the land; (2) in case any portion of the
subdivided land is sold by petitioner, a separate document of sale would be executed
directly to the buyer; (3) the remaining portion of the properties shall not be subject of
respondent bank's transaction without the consent and authority of petitioner; (4) the
petitioner shall continue in possession of the properties and whatever portion still
remaining, and attending to the needs of its tenants; and (5) payments shall be made
directly to UPI.29?r?l1
The foregoing clearly shows that petitioner's acceptance of the respondent bank's terms
and conditions for the repurchase of the foreclosed properties was not absolute.
Petitioner set a different repurchase price and also modified the terms of payment,
which even contained a unilateral condition for payment of the balance (P600,000), that
is, depending on petitioner's "financial position." The CA thus considered the qualified
acceptance by petitioner as a counter-proposal which must be accepted by respondent
bank. However, there was no evidence of any document or writing showing the conformity
of respondent bank's officers to this counter-proposal.
Petitioner contends that the receipts issued by UPI on his installment payments are
concrete proof -- despite denials to the contrary by respondent bank -- that there was

an implied acceptance of his counter-proposal and that he did not merely act as a broker
for the sale of the subdivided portions of the foreclosed properties to third parties.
Since all these receipts, except for two receipts issued in the name of Fermin Salvador
and Rizalina Pedrosa, were issued in the name of petitioner instead of the buyers
themselves, petitioner emphasizes that the payments were made for his account.
Moreover, petitioner asserts that the execution of the separate deeds of sale directly to
the buyers was in pursuance of the perfected repurchase agreement with respondent
bank, such an arrangement being "an accepted practice to save on taxes and shortcut
paper works."???ñr?bl?š ??r†??l l?? l?br?rÿ
The Court is unconvinced.
In Adelfa Properties, Inc. v. CA,30 the Court ruled that:cralawlibrary
x x x The rule is that except where a formal acceptance is so required, although the
acceptance must be affirmatively and clearly made and must be evidenced by some acts
or conduct communicated to the offeror, it may be made either in a formal or an informal
manner, and may be shown by acts, conduct, or words of the accepting party that clearly
manifest a present intention or determination to accept the offer to buy or sell. Thus,
acceptance may be shown by the acts, conduct, or words of a party recognizing the
existence of the contract of sale.31?r?l1
Even assuming that the bank officer or employee whom petitioner claimed he had talked
to regarding the March 22, 1984 letter had acceded to his own modified terms for the
repurchase, their supposed verbal exchange did not bind respondent bank in view of its
corporate nature. There was no evidence that said Mr. Lazaro or Mr. Fajardo was
authorized by respondent bank's Board of Directors to accept petitioner's counter-
proposal to repurchase the foreclosed properties at the price and terms other than
those communicated in the March 22, 1984 letter. As this Court ruled in AF Realty &
Development, Inc. v. Dieselman Freight Services, Co.32?r?l1
Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporations shall be exercised by the board of directors. Just as a natural person may
authorize another to do certain acts in his behalf, so may the board of directors of a
corporation validly
delegate some of its functions to individual officers or agents appointed by it. Thus,
contracts or acts of a corporation must be made either by the board of directors or by a
corporate agent duly authorized by the board. Absent such valid delegation/
authorization, the rule is that the declarations of an individual director relating to the

affairs of the corporation, but not in the course of, or connected with, the performance
of authorized duties of such director, are held not binding on the corporation.33?r?l1
Thus, a corporation can only execute its powers and transact its business through its
Board of Directors and through its officers and agents when authorized by a board
resolution or its by-laws.34?r?l1
In the absence of conformity or acceptance by properly authorized bank officers of
petitioner's counter-proposal, no perfected repurchase contract was born out of the
talks or negotiations between petitioner and Mr. Lazaro and Mr. Fajardo. Petitioner
therefore had no legal right to compel respondent bank to accept the P600,000 being
tendered by him as payment for the supposed balance of repurchase price.
A contract of sale is consensual in nature and is perfected upon mere meeting of the
minds. When there is merely an offer by one party without acceptance of the other,
there is no contract.35 When the contract of sale is not perfected, it cannot, as an
independent source of obligation, serve as a binding juridical relation between the
parties.36?r?l1
In sum, we find the ruling of the CA more in accord with the established facts and
applicable law and jurisprudence. Petitioner's claim of utmost accommodation by
respondent bank of his own terms for the repurchase of his foreclosed properties are
simply contrary to normal business practice. As aptly observed by the appellate
court:cralawlibrary
The submission of the plaintiff-appellee is unimpressive.
First, if the counter-proposal was mutually agreed upon by both the plaintiff-appellee and
defendant-appellant, how come not a single signature of the representative of the
defendant-appellant was affixed thereto. Second, it is inconceivable that an agreement
of such great importance, involving two personalities who are both aware and familiar of
the practical and legal necessity of reducing agreements into writing, the plaintiff-
appellee, being a lawyer and the defendant-appellant, a banking institution, not to
formalize their repurchase agreement. Third, it is quite absurd and unusual that the
defendant-appellant could have acceded to the condition that the balance of the payment
of the repurchase price would depend upon the financial position of the plaintiff-appellee.
Such open[-]ended and indefinite period for payment is hardly acceptable to a banking
institution like the defendant-appellant whose core existence fundamentally depends
upon its financial arrangements and transactions which, most, if not all the times are
intended to bear favorable outcome to its business. Last, had there been a repurchase
agreement, then, there should have been titles or deeds of conveyance issued in favor of

the plaintiff-appellee. But as it turned out, the plaintiff-appellee never had any land
deeded or titled in his name as a result of the alleged repurchase agreement. All these,
reinforce the conclusion that the counter-proposal was unilaterally made and inserted by
the plaintiff-appellee in Exhibit "I" and could not have been accepted by the defendant-
appellant, and that a different agreement other than a repurchase agreement was
perfected between them.37?r?l1
Petitioner Fausto C. Ignacio passed away on November 11, 2008 and was substituted by
his heirs, namely: Marfel D. Ignacio-Manalo, Milfa D. Ignacio-Manalo and Faustino D.
Ignacio.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated July
18, 2006 and Resolution dated May 2, 2007 of the Court of Appeals in CA-G.R. CV No.
73551 are hereby AFFIRMED.
With costs against the petitioners.
SO ORDERED.
SECOND DIVISION
G.R. No. 226065, July 29, 2019
HEIRS OF SOLEDAD ALIDO, PETITIONERS, v. FLORA CAMPANO, OR HER
REPRESENTATIVES AND THE REGISTER OF DEEDS, PROVINCE OF ILOILO,
RESPONDENTS.
DECISION
REYES, J. JR., J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court seeking to reverse and set aside the January 20, 2016 Decision1 and the May 31,
2016 Resolution2 of the Court of Appeals-Cebu City (CA) in CA-G.R. CV No. 04983, which
reversed the September 24, 2012 Decision3 of the Regional Trial Court, Branch 33, Iloilo
City (RTC).
The present controversy revolves around a parcel of land in Barangay Abang-Abang,*

Alimondian, Iloilo covered by Original Certificate of Title (OCT) No. F-16558 and
registered under the name of Soledad Alido (Alido).
Factual background
On March 17, 1975, Alido was able to register the said parcel of land under her name. In
1978, Flora Campano (respondent) was able to take possession of the land and the
owner's duplicate of OCT No. F-16558, and paid its realty taxes. Allegedly, Alido had sold
the property to her.4
On September 18, 1996, Alido died leaving behind her children, namely Reynaldo
Almendral, Maggie Almendral-Sencil and Rodrigo Almendral. On September 8, 2009, the
heirs of Alido (petitioners) executed a Deed of Adjudication of the above-mentioned
property and sought to register the property in their names. As such, they needed to
retrieve OCT No. F-16558, but respondent refused to do so. Thus, they were constrained
to file a verified petition before the RTC for respondent to surrender the owner's
duplicate of the title.5
RTC Decision
In its September 24, 2012 Decision, the RTC granted petitioners' petition and ordered
respondent to surrender the owner's duplicate of OCT No. F-16558. The trial court ruled
that since Alido is the registered owner of the property, respondent cannot assert any
right over the same and that the payment of realty taxes does not prove ownership over
the property. It explained that as registered owner of the land, Alido's right cannot be
defeated by prescription. The RTC also expounded that the purported sale between Alido
and respondent was not valid because it was an oral sale. The trial court posited that the
law requires that the sale of real property must appear in a public instrument. It
expounded that the delivery of the certificate of title did not create a valid sale. Thus, it
disposed:
IN VIEW THEREOF, judgment is hereby rendered in favor of the petitioners and against
the respondent, whereby respondent Flora Campano is ordered to surrender the owner's
duplicate certificate of Original Certificate of Title No. F-16558 with the Register of
Deeds for the Province of Iloilo. In the event that the said respondent is not amenable to
the process of this Court, the Register of Deeds is directed to annul the owner's
duplicate certificate of Original Certificate of Title No. F-16558 in the possession of the
latter and to issue new owner's duplicate certificate of Original Certificate of Title No.
F-16558 in lieu thereof which shall contain a memorandum of the annulment of the
outstanding duplicate copy and to carry whatever entries or annotations made thereat
before its annulment but shall, in all respects, be entitled to like faith and credence as
the original owner's duplicate certificate of title, upon payment of the required fees
thereof.
SO ORDERED.6
Aggrieved, respondent moved for reconsideration, but it was denied by the RTC in its
January 23, 2013 Resolution.7
Undeterred, respondent appealed to the CA.
CA Decision
In its January 20, 2016 Decision, the CA granted respondent's appeal and dismissed the
verified petition of petitioners. The appellate court explained that an oral sale of real
property is not void, but only unenforceable under the Statute of Frauds. Nevertheless,
it elucidated that it was only applicable to executory contracts and not to partially or
completely executed contracts. The CA highlighted that the oral sale of the subject
parcel of land between respondent and Alido had been executed. The appellate court
noted that respondent possessed the owner's duplicate of title, she had paid the realty
taxes, and was in peaceful possession of the land since 1978.
However, the CA observed that the sale between Alido and respondent was void because
it violated the terms of the former's free patent application. The appellate court noted
that the free patent was issued on March 17, 1975 while the sale took place in 1978 —
violating the five-year restriction of alienating lands subject of a free patent.
Nonetheless, the CA postulated that petitioners cannot seek redress because their
action had been barred by laches. The appellate court pointed out that respondent had
possessed the property and had custody of OCT No. F-16558 since 1978 without Alido
ever questioning her occupation over the property. In addition, it noted that petitioners
waited for 14 more years before they filed their verified petition against respondents.
Thus, it disposed:
IN LIGHT OF THE FOREGOING, the instant appeal is GRANTED. The Decision dated
September 24, 2012 of the RTC, Branch 33, Iloilo City in Cad. Case No. Free Patent, is
REVERSED and SET ASIDE. The complaint filed by the heirs of Soledad Alido is
DISMISSED.
SO ORDERED.8
Unsatisfied, petitioners moved for reconsideration, but it was denied by the CA in its
May 31, 2016 Resolution.
Hence, this present petition, raising:
The Issues
WHETHER THERE WAS A VALID SALE OF REAL PROPERTY BETWEEN ALIDO AND
RESPONDENT; and
II
WHETHER PETITIONERS' ACTION HAD BEEN BARRED BY LACHES.
Petitioners argue that a Torrens Title is indefeasible, incontrovertible and

imprescriptible. As such, they believe that Alido's title cannot be defeated by
respondent's adverse possession. In addition, petitioners lament that respondent had no
document to prove that Alido really sold the parcel of land to her. They insist that as
legal owners of the parcel of land, they are entitled to recover the owner's duplicate of
OCT No. F-16558 from respondent.
Further, petitioners aver that in the interest of higher justice, laches should not be
applied as injustice would be perpetrated should the owner's duplicate of the title be not
returned to them. They reiterate that a certificate of title is proof of ownership that
cannot be defeated even by adverse possession or acquisitive prescription.
In its Comment9 dated March 9, 2017, respondent countered that laches barred
petitioners from instituting their verified petition before the RTC because for more than
three decades, she had possessed the land in the concept of an owner with the explicit
knowledge of Alido and her heirs. She manifested that it took 32 years before
petitioners had acted on their rights.
Likewise, respondent pointed out that petitioners failed to show proof to dispute the sale
between her and Alido. She highlighted that Alido and her heirs had stopped paying the
realty taxes over the property after it was sold to her. Also, respondent explained that
the fact the sale was not reflected in a public document did not render it void. She
expounded that petitioners' argument that a Torrens Title cannot be defeated by
prescription is misplaced because Alido had already sold the property to her.
In their Reply10 dated September 14, 2017, petitioners reiterated the arguments they
had raised in their Petition for Review on Certiorari.
The Court's Ruling
The petition is meritorious.
A Torrens Title is indefeasible in that it could not be assailed collaterally and it cannot
be altered, modified or cancelled except in a direct proceeding in accordance with law.11
In addition, ownership supported by a certificate of title can neither be defeated by
adverse, open and notorious possession nor prescription.12 As such, prescription and
laches do not apply to registered land covered by the Torrens System.13
Acting on this premise, petitioners believe that respondent cannot defeat their claim of
ownership because it is supported by a certificate of title issued in the name of their
predecessor. A circumspect analysis of respondent's position, however, shows that the

validity of OCT No. F-16558 was never assailed in any way. Respondent never challenged
the certificate of title based on an independent and adverse possession. Rather, she
claims ownership over the property by virtue of an oral sale between her and Alido. Thus,
it can be readily seen that respondent never contested petitioners' rights based on
acquisitive prescription. She simply asserts that petitioners no longer derived any right
over the property upon Alido's death because it was already sold to her prior to the
demise of their mother.
Thus, petitioners err in harping on the indefeasibility of title in asserting their right to
possess OCT No. F-16558. The validity of OCT No. F-16558 was never questioned.
Respondent anchors her claim on a transmission of rights by virtue of an oral sale
between her and Alido.
Oral Sale of real property
The RTC granted petitioners' verified petition as it ruled that they were the legal owners
of the land covered by OCT No. F-16558. The trial court postulated that there was no
valid sale between Alido and respondent because Article 1358 of the Civil Code expressly
requires that the sale of real property must appear in a public document and that the
delivery of OCT No. F-16558 did not validate the transaction. On the other hand, the CA
explained that an executed oral sale of real property is valid and binding among the
parties.
Contracts which have all essential requisites for their validity are obligatory regardless
of the form they are entered into, except when the law requires that a contract be in
some form to be valid or enforceable.14 Article 1358 of the Civil Code provides that the
following must appear in a public instrument:
(1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest
therein are governed by articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of

those of the conjugal partnership of gains;
(3) The power to administer property, or any other power which has
for its object an act appearing or which should appear in a public
document, or should prejudice a third person;
(4) The cession of actions or rights proceeding from an act appearing

in a public document. (Emphasis supplied)
Article 1403(2) of the Civil Code, or otherwise known as the Statute of Frauds, requires
that covered transactions must be reduced in writing, otherwise the same would be
unenforceable by action. In other words, sale of real property must be evidenced by a
written document as an oral sale of immovable property is unenforceable.
Nevertheless, it is erroneous to conclude that contracts of sale of real property without

its term being reduced in writing are void or invalid. In The Estate of Pedro C. Gonzales v.
The Heirs of Marcos Perez,15 the Court explained that failure to observe the prescribed
form of contracts do not invalidate the transaction, to wit:
Nonetheless, it is a settled rule that the failure to observe the proper form prescribed
by Article 1358 does not render the acts or contracts enumerated therein invalid. It has
been uniformly held that the form required under the said Article is not essential to the
validity or enforceability of the transaction, but merely for convenience. The Court
agrees with the CA in holding that a sale of real property, though not consigned in a
public instrument or formal writing, is, nevertheless, valid and binding among the parties,
for the time-honored rule is that even a verbal contract of sale of real estate produces
legal effects between the parties. Stated differently, although a conveyance of land is
not made in a public document, it does not affect the validity of such conveyance. Article
1358 does not require the accomplishment of the acts or contracts in a public instrument
in order to validate the act or contract but only to insure its efficacy.

Further, the Statute of Frauds applies only to executory contracts and not to those
which have been executed either fully or partially.16 In Swedish Match, AB v. Court of
Appeals,17 the Court expounded on the purpose behind the requirement that certain
contracts be reduced in writing, viz.:
The Statute Frauds embodied in Article 1403, paragraph (2), of the Civil Code requires
certain contracts enumerated therein to be evidenced by some note or memorandum in
order to be enforceable. The term "Statute of Frauds" is descriptive of statutes which
require certain classes of contracts to be in writing. The Statute does not deprive the
parties of the right to contract with respect to the matters therein involved, but merely
regulates the formalities of the contract necessary to render it enforceable. Evidence of
the agreement cannot be received without the writing or a secondary evidence of its
contents.
The Statute, however, simply provides the method by which the contracts enumerated
therein may be proved but does not declare them invalid because they are not reduced to
writing. By law, contracts are obligatory in whatever form they may have been entered
into, provided all the essential requisites for their validity are present. However, when
the law requires that a contract be in some form in order that it may be valid or
enforceable, or that a contract be proved in a certain way, that requirement is absolute
and indispensable. Consequently, the effect of non-compliance with the requirement of
the Statute is simply that no action can be enforced unless the requirement is complied
with. Clearly, the form required is for evidentiary purposes only. Hence, if the parties
permit a contract to be proved, without any objection, it is then just as binding as if the
Statute has been complied with.
The purpose of the Statute is to prevent fraud and perjury in the enforcement of
obligations depending for their evidence on the unassisted memory of witnesses, by
requiring certain enumerated contracts and transactions to be evidenced by a writing
signed by the party to be charged. (Emphases supplied)
While the Statute of Frauds aim to safeguard the parties to a contract from fraud or
perjury, its non-observance does not adversely affect the intrinsic validity of their
agreement. The form prescribed by law is for evidentiary purposes, non-compliance of
which does not make the contract void or voidable, but only renders the contract
unenforceable by any action. In fact, contracts which do not comply with the Statute of
Frauds are ratified by the failure of the parties to object to the presentation of oral
evidence to prove the same, or by an acceptance of benefits under them.18
Further, the Statute of Frauds is limited to executory contracts where there is a wide
field for fraud as there is no palpable evidence of the intention of the contracting
parties.19 It has no application to executed contracts because the exclusion of parol
evidence would promote fraud or bad faith as it would allow parties to keep the benefits
derived from the transaction and at the same time evade the obligations imposed
therefrom.20
The RTC errs in summarily dismissing respondent's claim of ownership simply because the
sale between her and Alido was not supported by a written deed. As above-mentioned, an
oral sale of real property is not void and even enforceable and binding between the
parties if it had been totally or partially executed.
The Court agrees with the observations of the CA that the Statute of Frauds is
inapplicable in the present case as the verbal sale between respondent and Alido had been
executed. From the time of the purported sale in 1978, respondent peacefully possessed
the property and had in her custody OCT No. F-16558. Further, she had been the one
paying the real property taxes and not Alido. Possession of the property, making
improvements therein and paying its real property taxes may serve as indicators that an
oral sale of a piece of land had been performed or executed.21
In addition, while tax declarations are not conclusive proof of ownership, they may serve
as indicia that the person paying the realty taxes possesses the property in concept of an
owner. In Heirs of Simplicio Santiago v. Heirs of Mariano E. Santiago22 the Court, thus,
explained:
In the instant case, it was established that Lot 2344 is a private property of the
Santiago clan since time immemorial, and that they have declared the same for taxation.
Although tax declarations or realty tax payment of property are not conclusive evidence
of ownership, nevertheless, they are good indicia of possession in the concept of owner,
for no one in his right mind would be paying taxes for a property that is not in his actual
or constructive possession. They constitute at least proof that the holder has a claim of
title over the property. The voluntary declaration of a piece of property for taxation
purposes manifests not only one's sincere and honest desire to obtain title to the
property and announces his adverse claim against the State and all other interested
parties, but also the intention to contribute needed revenues to the Government. Such an
act strengthens one's bona fide claim of acquisition of ownership. (Emphases supplied)
From 1978 until her death, Alido never questioned respondent's continued possession of
the property, as well as of OCT No. F-16558. Neither did she stop respondent from
paying realty taxes under the latter's name. Alido allowed respondent to exercise all the
rights and responsibilities of an owner over the subject parcel of land. Even after her
death, neither her heirs disturbed respondent's possession of the property nor started
paying for the real property taxes on the said lot. Further, it is noteworthy that
petitioners do not assail that respondent had acquired the property fraudulently or
illegally as they merely rely on the fact that there was no deed of sale to support the
said transaction. However, as manifested by the actions or inactions of Alido and
respondent, it can be reasonably concluded that Alido had sold the property to
respondent and that the said transaction had been consummated.
Having settled that a sale had indeed occurred between respondent and Alido, a
determination of its validity and whether petitioners can still assail the same is
necessary.
By virtue of a free patent application, Alido secured OCT No. F-16558 on March 17, 1975.
Thereafter, she sold the property covered by OCT No. F-16558 to respondent in 1978. It
is settled that lands acquired through free patent cannot be alienated or encumbered
within five years from the date of issuance of the patent.23 This is so considering that
the grant of free patent is done out of the benevolence of the State to provide lots for
land-destitute citizens for their home and cultivation.24 As such, any sale in violation of
the five-year prohibition on alienation is void and produces no effect whatsoever.25 As a
result, the law still regards the original owner as the rightful owner subject to escheat
proceedings by the State.26
In the present case, Alido had already sold the property to respondent within three
years from the time she had acquired title thereto pursuant to her free patent
application. Clearly, the said transaction is void because it transgresses the five-year
prohibition on alienation of lands acquired through free patent.
Under Article 1412(1) of the Civil Code,27 parties in a void contract who are of equal
fault cannot demand recovery, enforcement or performance from the other. The said
provision embodies the doctrine of in pari delicto which "is a universal doctrine that holds
that no action arises, in equity or at law, from an illegal contract; no suit can be
maintained for its specific performance, or to recover the property agreed to be sold or
delivered, or the money agreed to be paid, or damages for its violation; and where the
parties are in pari delicto, no affirmative relief of any kind will be given to one against
the other."28
Nevertheless, Article 1416 of the Civil Code provides that when the agreement is not
illegal per se, but is merely prohibited, and the prohibition by the law is designed for the
protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he
has paid or delivered. In other words, the doctrine of in pari delicto cannot apply when it
contravenes well-established public policy as whenever public policy is advanced by either
party, they may be allowed to sue for relief against the transaction.29
The doctrine of in pari delicto does not apply in the sale of a homestead which has been
illegally sold, in violation of the homestead law.30 In Spouses Maltos v. Heirs of Eusebio
Borromeo,31 the Court explained that the doctrine of in pari delicto cannot preclude a
grantee from recovering a parcel of land sold in violation of the five-year prohibition on
alienation of land acquired through free patent, to wit:
Santos involved the sale of a parcel of land within the five-year prohibitory period. The
Roman Catholic Church raised the defense of in pari delicto. It was also argued by the
Roman Catholic Church that the effect of the sale would be the reversion of the
property to the state. This court held that:
Section 124 of the Public Land Act indeed provides that any acquisition, conveyance or
transfer executed in violation of any of its provisions shall be null and void and shall
produce the effect of annulling and cancelling the grant or patent and cause the

reversion of the property to the State, and the principle of pari delicto has been applied
by this Court in a number of cases wherein the parties to a transaction have proven to be
guilty of effected the transaction with knowledge of the cause of its invalidity. But we
doubt if these principles can now be invoked considering the philosophy and the policy
behind the approval of the Public Land Act. The principle underlying pari delicto as known
here and in the United States is not absolute in its application. It recognizes certain
exceptions one of them being when its enforcement or application runs counter to an
avowed fundamental policy or to public interest. As stated by us in the [Rellosa] case,
"This doctrine is subject to one important limitation, namely, [']whenever public policy is
considered advanced by allowing either party to sue for relief against the transaction.
[']"
The case under consideration comes within the exception above adverted to. Here
appellee desires to nullify a transaction which was done in violation of the law. Ordinarily
the principle of pari delicto would apply to her because her predecessor-in-interest has
carried out the sale with the presumed knowledge of its illegality, but because the
subject of the transaction is a piece of public land, public policy requires that she, as
heir, be not prevented from re-acquiring it because it was given by law to her family for
her home and cultivation. This is the policy on which our homestead law is predicated.
This right cannot be waived. "It is not within the competence of any citizen to barter
away what public policy by law seeks to preserve." We are, therefore, constrained to hold
that appellee can maintain the present action it being in furtherance of this fundamental
aim of our homestead law.
x x x x
As the in pari delicto rule is not applicable, the question now arises as to who between the
parties have a better right to possess the subject parcel of land. x x x
xxxx
In Binayug v. Ugaddan, which involved the sale of two properties covered by a homestead
patent, this court cited jurisprudence showing that in cases involving the sale of a
property covered by the five-year prohibitory period, the property should be returned to
the grantee.
Applying the ruling in Santos and Binayug, this court makes it clear that petitioners have
no better right to remain in possession of the property against respondents.
Hence, the Court of Appeals did not err in ruling that while there is yet no action for
reversion filed by the Office of the Solicitor General, the property should be conveyed
by petitioners to respondents. (Emphases supplied, citation in the original omitted)
The doctrine of in pari delicto is inapplicable in the present case because to do so would
contravene public policy of preserving the grantee's right to the land under the
homestead law. As explained above, in sales of land in violation of the five-year
prohibition, the land should revert to the grantee in the absence of any reversion
proceedings instituted by the State. Thus, respondent has no better right to remain in
possession of the property against petitioners.
The CA, however, found that petitioners can no longer assail the sale between Alido and
respondent on account of laches. The appellate court highlighted that respondent had
possessed the property since 1978 and was never disturbed either by Alido or petitioners
until the latter had filed the present complaint only in 2010.
Laches is the failure or neglect for an unreasonable and unexplained length of time to do
that which, by exercising due diligence, could or should have been done earlier — it is
negligence or omission to assert a right within a reasonable time warranting a
presumption that the party entitled to assert it either has abandoned it or declined to
assert it.32 It is a creation of equity which seeks to avoid the assertion or enforcement
of a right which has become inequitable or unfair to permit by virtue of one's negligence,
folly or inattention.33
Laches, however, do not apply if the assailed contract is void ab initio.34 In Heirs of
Ingjug-Tiro v. Spouses Casals,35 the Court expounded that laches cannot prevail over the
law that actions to assail a void contract are imprescriptible it being based on equity, to
wit:
In actions for reconveyance of property predicated on the fact that the conveyance
complained of was null and void ab initio, a claim of prescription of action would be
unavailing. "The action or defense for the declaration of the inexistence of a contract
does not prescribe." Neither could laches be invoked in the case at bar. Laches is a
doctrine in equity and our courts are basically courts of law and not courts of equity.
Equity, which has been aptly described as "justice outside legality," should be applied only
in the absence of, and never against, statutory law. Aequetas [nunquam] contravenit legis.
The positive mandate of Art. 1410 of the New Civil Code conferring imprescriptibility to
actions for declaration of the inexistence of a contract should pr empt and prevail over
all abstract arguments based only on equity. Certainly, laches cannot be set up to resist
the enforcement of an imprescriptible legal right, and petitioners can validly vindicate
their inheritance despite the lapse of time. (Emphasis and underscoring supplied)
As above-mentioned, a sale of a parcel of land in violation of the five-year prohibition on

the alienation of land acquired via a free patent application is void and produces no legal
effect. As successors-in-interest of Alido, petitioners' right to challenge the sale
between Alido and respondent cannot be barred by laches as it was in violation of the
restriction on the sale of land acquired through free patent.
Consequently, petitioners may recover the parcel of land Alido had sold to respondent.
However, as a result of the annulment of the sale between Alido and respondent, the
latter may claim the purchase price and interest. In Tingalan v. Spouses Melliza,36 the
Court explained that while property sold in violation of the five-year prohibition on
alienation may be recovered, the purchaser is entitled to recover the purchase price and
interest, to wit:
Following the declaration that the contract of sale over the subject property is void for
being in violation of Section 118 of the Public Land Act, as amended, jurisprudence
dictates that the subject land be returned to the heirs of petitioner Anastacio. x x x
xxxx
The Court made the same ruling on the issue of ownership in the earlier cited case of
Manzano in 1961, including a disposition that the buyer therein is entitled to a
reimbursement of the purchase price plus interest, viz.:
e

xxx Being void from its inception, the approval thereof by the Undersecretary of
Agriculture and Natural Resources after the lapse of five years from Manzano's patent
did not legalize the sale x x x The result is that the homestead in question must be
returned to Manzano's heirs, petitioners herein, who are, in turn, bound to restore to
appellee Ocampo the sum of P3,000.00 received by Manzano as the price thereof x x x
The fruits of the land should equitably compensate the interest on the price.
Prior to Manzano, we made a similar ruling in the case of De los Santos v. Roman Catholic
Church of Midsayap that "[u]pon annulment of the sale, the purchaser's claim is reduced
to the purchase price and its interest."
We shall apply the same rule in the case at bar. However, since the trial court ruled that
petitioners were barred by laches in asserting any claim to the subject property, it did
not make a factual determination of the total purchase price paid by respondent-spouses
to petitioner Anastacio which must be returned to the heirs of respondents, including
interest on such amount. The trial court also did not make a ruling on the amount of
interest to be paid by petitioners to respondent-spouses, and if the fruits realized by
respondent-spouses from their long possession of the subject land since 1977 would
"equitably compensate the interest on the price." This Court is not a trier of facts and
we remand the instant case for the trial court to make a factual determination of the
aforesaid amounts.
In the present case, the RTC simply invalidated the sale between Alido and respondent
due to it being an oral sale of land. The trial court deemed the case submitted for
decision after the parties were required to file their respective position papers without
proceeding to trial on the merits. On appeal, the CA then brushed aside petitioners'
complaint on the ground of laches. Similar to Tingalan, no factual determination was made
with regard to the purchase price respondent had paid to Alido in exchange of the
subject land. Thus, the case should be remanded to determine the amount of purchase
price respondent may recover and whether the fruits she had enjoyed from the long
possession of the subject land would equitably compensate the interest on the price.
WHEREFORE, the January 20, 2016 Decision and the May 31, 2016 Resolution of the
Court of Appeals-Cebu City in CA-G.R. CV No. 04983 are REVERSED and SET ASIDE. The

present case is REMANDED to the Regional Trial Court, Branch 33, Iloilo City to
determine the purchase price and interest respondent Flora Campano may recover.
This is without prejudice to any appropriate action the Government may take against the
heirs of Soledad Alido.
SO ORDERED.
THIRD DIVISION
G.R. No. 164482, November 08, 2017
LOURDES J. ESTRELLADO; THE HEIRS OF EUGENIO ESTRELLADO, REPRESENTED
BY LOURDES J. ESTRELLADO; NARCISA T. ESTRELLADO; THE HEIRS OF NICOLAS
ESTRELLADO, REPRESENTED BY CLARITA E. MAINAR; PILAR E. BARREDO-FUENTES;
AND THE HEIRS OF VIVINA ESTRELLADO-BARREDO AND ALIPIO BARREDO,
REPRESENTED BY PILAR E. BARREDO-FUENTES, Petitioners, v. THE PRESIDING
JUDGE OF THE MUNICIPAL TRIAL COURT IN CITIES, 11TH JUDICIAL REGION,
BRANCH 3, DAVAO CITY; J.S. FRANCISCO, AND SONS, INC., REPRESENTED BY ITS
PRESIDENT, JOSELITO C. FRANCISCO; AND THE HEIRS OF DR. JOVITO S.
FRANCISCO, REPRESENTED BY JOSELITO C. FRANCISCO, Respondents.
G.R. No. 211320
LOURDES C. FRANCISCO MADRAZO; ROMEO C. FRANCISCO; CONCEPCION C.

FRANCISCO-GATCHALIAN; AND RENE JOSE C. FRANCISCO, Petitioners, v. PILAR
BARREDO-FUENTES; JORGE BARREDO; OSCAR BARREDO; RODOLFO BARREDO;
ERNESTO BARREDO; ARMANDO BARREDO; DANILO BARREDO; TERESITA BARREDO-
MCMAHON; LETICIA BARREDO-CUARIO; AND ESPERANZA BARREDO-TUL-ID,
Respondents.
DECISION
BERSAMIN, J.:
 
 

-

A petition for the annulment of a judgment is a remedy in equity so exceptional in nature

that it may be availed of only when other remedies are wanting, and only if the judgment,
final order or final resolution sought to be annulled was rendered without jurisdiction or
through extrinsic fraud. The remedy is not available as a recourse to obtain relief from a
judgment that has long attained finality after having been passed upon and affirmed by
the higher court on appeal taken in due course.
The Case
For consideration and resolution are the consolidated appeals by petition for review on
certiorari, namely:
(a) G.R. No. 164482, the petitioners, namely: Lourdes J. Estrellado; the Heirs of Eugenio
Estrellado, represented by Lourdes J. Estrellado; Narcisa T. Estrellado; the Heirs of
Nicolas Estrellado, represented by Clarita E. Mainar; Pilar E. Barredo-Fuentes; and the
Heirs of Vivina Estrellad Barredo; and Alipio Barredo, represented by Pilar E. Barredo-
Fuentes, assail the adverse decision rendered by the Regional Trial Court (RTC), Branch
13, in Davao City dismissing their petition for annulment of judgment;1 and
(b) G.R. No. 211320, the petitioners, namely: Lourdes C. Francisc -Madrazo, Romeo C.
Francisco, Concepcion C. Francisco-Gatchalian, and Rene Jose C. Francisco, challenge the
decision promulgated on March 14, 2013,2 whereby the Court of Appeals (CA), in CA-G.R.
CV No. 01727-MIN, reversed the decision of the Regional Trial Court (RTC), Branch 16, in
Davao City rendered on October 20, 2008, and declared respondents Heirs of the late
Vivina Estrellado-Barredo and Alipio Barredo (namely: Pilar Barredo-Fuentes, Jorge
Barredo, Oscar Barredo, Rodolfo Barredo, Ernesto Barredo, Armando Barredo, Danilo
Barredo, Teresita Barredo-Mcmahon, Leticia Barredo-Cuario, and Esperanza Barredo-Tul-
Id) the lawful owners and possessors of the property covered by Transfer Certificate of
Title (TCT) No. T-19930 of the Registry of Deeds of Davao City.
Antecedents
These consolidated appeals originated from special civil actions for forcible entry
involving three adjacent parcels of land.
o

o

The Spouses Eugenio and Lourdes Estrellado were the former owners of the parcel of
land with an area of 15,465 square meters located in Barangay Matina-Aplaya, Davao City
and covered by TCT No. T-19351 of the Registry ofDeeds ofDavao City. The Spouses and
Nicolas and Narcisa Estrellado were the former owners of the parcel of land also located
in Barangay Matina-Aplaya, Davao City with an area of 15,466 square meters and covered
by TCT No. 19350 of the Registry of Deeds of Davao City. The late Spouses Alipio and
Vivina Barredo were the former owners of the parcel of land containing an area of 15,465
square meters located in the same area and covered by TCT No. 19348 of the Registry of
Deeds of Davao City. The landowners herein mentioned were related to one another
either by consanguinity or by affinity.3
The petitioners in G.R. No. 164482 are the successors-in-interest and heirs of the above-
named landowners. The respondents in G.R. No. 211320 are the heirs of the late Spouses
Alipio and Vivina Barredo. For ease of reference, they are collectively referred herein as
the Estrellados unless otherwise indicated.
Each of the three parcels of land herein mentioned was subdivided into two portions - the
smaller portion containing 5,000 square meters, and the bigger portion with an area of
about 10,465 square meters.
In September 1967, the Spouses Eugene and Lourdes Estrellado sold their 5,000-square
meter lot for P10,000.00 to Dr. Jovito S. Francisco, the owner of J.S. Francisco & Sons,
Inc. and the predecessor-in-interest of the respondents in G.R. No. 164482 and
petitioners in G.R. No. 211320. The sale was evidenced by a deed of absolute sale dated
September 25, 1967.4
The Spouses Nicolas and Narcisa Estrellado also sold their 5,000-square meter property
to Dr. Francisco for P10,000.00 through the deed of absolute sale dated September 25,
1967.5
The late Spouses Alipio and Vivina Barreda likewise sold their 5,000-square meter lot to
Dr. Francisco for P10,000.00 under the deed of absolute sale dated September 25,
1967.6
After selling the smaller lots to Dr. Francisco, the Estrellados separately sold the bigger
portions of their respective lots to the latter on the following dates: the Spouses Eugene
and Lourdes Estrellado on August 2, 1969; the Spouses Nicolas and Narcisa Estrellado on
October 29, 1969; and the late Spouses Alipio and Vivina Barreda on June 10, 1970. Dr.
Francisco and his successors-in-interest (collectively referred to as the Franciscos)
immediately started their uninterrupted possession of the entire landholdings of the
Estrellados in 1967. However, the Franciscos could not produce the formal deeds of sale
relevant to the subsequent sales. They only had a book of accounts evidencing their
installments to the Estrellados.7
The three bigger lots covered by TCT No. 19932, TCT No. 19930, and TCT No. 19928 of
the Register of Deeds of Davao City became the subject of the three forcible entry
cases commenced in the Municipal Trial Court in Cities in Davao City (MTCC) by J.S.
Francisco & Sons, Inc. against the Estrellados on October 21, 19988 (Civil Case No.
6,296-C-98, Civil Case No. 6,297-C-98, and Civil Case No. 6,298-C-98). The Estrellados,
as the defendants in the three cases, denied selling the bigger lots to Dr. Francisco.
On April 26, 1999, the MTCC rendered judgment in favor of the Franciscos, and ordered
the Estrellados, their successors-in-interest and other persons acting on their behalf to
vacate the properties; to pay the Franciscos the fruits of the properties appropriated by
the Estrellados; and to further pay the rent for the use of the properties, as well as
attorney's fees, litigation expenses, and the costs of suit.9
On appeal, the RTC, Branch 12, in Davao City affirmed the MTCC's judgment on August
27, 1999.10
The Estrellados appealed to the CA.
By decision dated June 28, 2000,11 and another decision dated January 24, 2003,12 the
CA dismissed the appeals and affirmed the decision of the RTC.13 Considering that the
Estrellados did not thereafter appeal, the decisions of the CA became final and
executory.14 On October 7, 2003, upon motion, the MTCC issued the writ of execution to
enforce the judgment.15
G.R. No. 164482

The petitioners were some of the defendants and successors-in-interest in the already
concluded forcible entry cases filed by J.S. Francisco & Sons, Inc. On December 15,
2003, they filed a petition for annulment of the judgments of the MTCC in the RTC in
Davao City (docketed as Civil Case No. 30,111-03) alleging that they were victims of
extrinsic fraud that had deprived them of the opportunity to fully present their defense
in the MTCC that eventually cost them the case;16 that the MTCC had no jurisdiction
over the forcible entry cases filed against them;17 and that they had valid, clear and
current possessory rights over the disputed parcels of land.18
The respondents moved to dismiss the petition for annulment, submitting that the
decisions of the MTCC were not the proper subjects of the petition for annulment due to
their having been affirmed by the RTC and the CA; that the annulment of the decisions
would be tantamount to vesting in the RTC the power to annul the decision of a co-equal
branch, as well as the decision of a superior court like the CA;19 that the petition for
annulment was barred by res judicata, litis pendentia and the rules prohibiting foru
shopping; that the MTCC had jurisdiction over the forcible entry cases because the issue
involved prior de facto possession; and that not all of the petitioners for annulment had
executed the certificate of non-forum shopping in violation of the Rules of Court.20
On June 11, 2004, the RTC rendered judgment in Civil Case No. 30,111-03 dismissing the
petition for annulment of judgment. It held that it had no jurisdiction over the petition
for annulment inasmuch as the decision sought to be annulled had been affirmed on appeal
by the RTC and the CA; that the petition for annulment was already barred by res
judicata; and that the petitioners were guilty of forum-shopping. It disposed:
WHEREFORE, in view of the foregoing, this case is hereby DISMISSED.
The Motion of Private Respondents to cite counsels for petitioners have (sic) direct
contempt, however, is GRANTED.
Petitioners' counsel is summarily found GUILTY of Direct Contempt and fined Five
Hundred Pesos (P500.00).
SO ORDERED.21
Hence, this appeal directly filed in this Court.

m
The main issue raised is whether an independent action for the annulment of the
judgment of the MTCC filed in the RTC should be given due course. The ancillary issues
are whether or not the remedy of annulment of judgment is available; and whether or not
non-parties could file an action for the annulment of a final and executory judgment.
The petitioners submit that the judgment rendered in the forcible entry cases did not
bind them because they had not been impleaded as parties therein; and that for the same
reason the judgment could not be enforced against them without violating their rights as
co-owners of the properties subject thereof.
G.R. No. 211320
The respondents were the children of the late Spouses Alipio and Vivina Barredo. They
alleged their ownership of the parcel of land covered by TCT No. 19930 that had been
the subject of one of the forcible entry cases decided against the Estrellados.
The respondents contended that the execution of the judgment rendered in the forcible
entry case would violate their rights as the owners of the property; that they sought to
recover all the attributes of their ownership and to erase the cloud over their title; and
that, accordingly, they had brought the accion reinvindicatoria and action for quieting of
title in the RTC (Branch 16) in Davao City (Civil Case No. 29,759-03).22
On October 20, 2008, the RTC (Branch 16), through Judge Emmanuel Carpio, rendered
its decision against the respondents, viz.:
PREMISES CONSIDERED, judgment is hereby rendered:
1. Dismissing the complaints filed by plaintiff and plaintiffs-intervenors;
2. Ordering the Register of Deeds to:
A. REINSTATE TCT No. T-19930; and
B. CANCEL all derivative titles of TCT No. T-19930; and

3. Ordering the plaintiff and plaintiffs-intervenors solidarily to pay defendants

collectively:
A. Nominal damages in the amount of P50,000.00;
B. Exemplary damages in the amount of P50,000.00; and
C. P100,000.00 as attorney's fees and expenses of litigation.
SO ORDERED.23
The respondents appealed to the CA (C.A.-G.R. CV No. 01727-MIN), which, on March 14,
2013, reversed and set aside the decision of the RTC, and declared the respondents as
the rightful owners and possessors of the property,24 decreeing:
WHEREFORE, the appeal is hereby GRANTED and the Decision dated October 20, 2008
of the RTC, 11th Judicial Region, Branch 16, Davao City is REVERSED AND SET ASIDE. A
new judgment is hereby entered DECLARING plaintiff-appellant and plaintiffs--
intervenors, as the heirs of Vivina Estrellado and Alipio Barredo, to be the lawful and
rightful owners and possessors of the property covered by TCT No. T-19930. The
issuance of the new transfer certificate of titles to plaintiff-appellant and plaintiffs-
intervenors derived from TCT No. T-19930 is therefore respected.
SO ORDERED.25
The CA opined that the adjudication of the issue of ownership in ejectment cases was
merely provisional and did not bar an action between the same parties involving title to
the same property; that the RTC had only referred to the decision of the CA in CA-G.R.
SP No. 55727 regarding the forcible entry case as well as the petitions to cancel the
adverse claims of Dr. Francisco annotated on the TCTs of the disputed properties; and
that the RTC did not thereby determine who among the parties owned the parcels of
land, and relied primordially on the principle of conclusiveness of judgment.
The petitioners assert that the CA erred in holding that the RTC did not make its own
determination on who owned the property; that the CA did not consider that the case for
the cancellation of adverse claim was conclusive between the parties; and that the
complaint for quieting of title was already barred by prescription.26

Ruling of the Court
We deny the petition for review on certiorari in G.R. No. 164482 but grant the petition
for review on certiorari in G.R. No. 211320.
G.R. No. 164482
I.
At the heart of the arguments of the Estrellados was the ownership of the bigger
parcels of land and their contention that the final and executory decisions promulgated in
CA-G.R. SP No. 55727, CA-G.R. SP No. 55732 and CA-G.R. SP No. 55734 did not bind
them because they had not been impleaded as parties therein. Accordingly, they have
adamantly opposed the execution of the judgment against them, and have sued to recover
the parcels of land.
There ought to be no dispute that once the judgment of the MTCC in the forcible entry
cases attained finality, the Estrellados as well as their heirs and successors-in-interest
became bound thereby. The judgment of the MTCC, even if it was in personam, could be
enforced against the petitioners in G.R. No. 164482 notwithstanding that they had not
been expressly impleaded in the complaint. Their being bound by the judgment was by
virtue of their privity with their predecessors-in-interest. They were not strangers as to
such judgment. The enforceability of the judgment against them was explained thuswise:
A judgment directing a party to deliver possession of a property to another is in
personam. x x x Any judgment therein is binding only upon the parties properly impleaded
and duly heard or given an opportunity to be heard. However, this rule admits of the
exception, such that even a non-party may be bound by the judgment in an ejectment suit
where he is any of the following: (a) trespasser, squatter; or agent of the defendant
fraudulently occupying the property to frustrate the judgment; (b) guest or occupant of
the premises with the permission of the defendant; (c) transferee pendente lite; (d)
sublessee; (e) co lessee; or (f) member of the family, relative or privy of the
defendant.27 (Bold underscoring supplied for emphasis)
II.
-

The RTC correctly dismissed the petition for annulment of the judgment of the MTCC
considering that the RTC and the CA had already affirmed the judgment in due course.
The grounds for the remedy annulment of judgment under Rule 47 of the Rules of Court
were limited to extrinsic fraud and lack of jurisdiction. The limitation was stringent;
otherwise, there would be interminable litigations because the objective of the
proceedings for annulment was to return the petitioners to a situation as if the judgment
had not been rendered.
The Court has expounded on the nature and scope of the remedy annulment of judgment
in Dare Adventure Farm Corporation v. Court of Appeals,28 to wit:
A petition for annulment of judgment is a remedy in equity so exceptional in nature that
it may be availed of only when other remedies are wanting, and only if the judgment, final
order or final resolution sought to be annulled was rendered by a court lacking
jurisdiction or through extrinsic fraud. Yet, the remedy, being exceptional in character,
is not allowed to be so easily and readily abused by parties aggrieved by the final
judgments, orders or resolutions. The Court has thus instituted safeguards by limiting
the grounds for the annulment to lack of jurisdiction and extrinsic fraud, and by
prescribing in Section 1 of Rule 47 of the Rules of Court that the petitioner should show
that the ordinary remedies of new trial, appeal, petition for relief or other appropriate
remedies are no longer available through no fault of the petitioner. A petition for
annulment that ignores or disregards any of the safeguards cannot prosper.29
It is worthy to emphasize that the petition for annulment of judgment is available only
when the ordinary remedies of new trial, appeal, petition for relief or other appropriate
remedies are no longer available through no fault of the petitioner. Given that the
petitioners herein (or their predecessors-in-interest) had earlier availed themselves of
the remedy of appeal, they could no longer resort to the remedy of annulment of
judgment.
Moreover, the petitioners alleged extrinsic fraud, claiming that their counsel had failed
to submit important documents to support their defense. However, the allegation could
not justify the relief of annulment being sought. For purposes of Rule 47 of the Rules of
Court, only extrinsic fraud is recognized as a ground. Fraud is extrinsic when it prevents
a party from having a trial or from presenting his entire case to the court, or where it
operates upon matters pertaining not to the judgment itself, but to the manner in which
the judgment is procured. The overriding consideration is that the fraudulent scheme of
the prevailing litigant prevented the petitioner from having his day in court.30 In this
case, however, the Franciscos as the prevailing parties had no part in the commission of
the fraud committed by the petitioners' counsel.
The petitioners' contention that the MTCC had no jurisdiction over the subject matter
was similarly unwarranted. It is noteworthy that the averments of the Franciscos as
plaintiffs in the forcible entry cases were resolved by the MTCC, and such resolution was
affirmed on appeal by the RTC and later on by the CA.
At any rate, the challenge mounted against the. decision of the RTC dismissing the
petition for annulment of judgment implicates the determination of questions of fact
centering on the issues and the conduct of the trial. If there is the need for re-
evaluation of the averments in the forcible entry case, the Court cannot involve itself in
the determination because it is not a trier of facts. In addition, the Court will not engage
in another review of the same facts that were already the subject of the common
findings among the MTCC, RTC and the CA.
G.R. No. 211320
The RTC and the CA differed on the outcome for the accion reinvindicatoria initiated by
the respondents. The CA concluded that the RTC did not make any further examination
and determination of the ownership of the parcel of land in question; and gave premium to
the owner's duplicate copy of the TCT the respondents had obtained in 1998 over the
petitioners' evidence showing the sale to Dr. Francisco, their father, by the late Vivina
Barredo, the predecessor in interest of the respondents, of the parcel of land in
question.
The CA's conclusion cannot be upheld.
The sole issue for resolution in ejectment cases relates to the physical or material
possession of the property involved, independent of any claim of ownership by any of the
parties. Where the issue of ownership is raised by any of the parties, the courts may
pass upon the same only in order to determine who has the better right to possess the
property. The adjudication of ownership, being merely provisional, does not bar or
prejudice an action between the same parties involving title to the same property.31 As
such, the resolutions of the CA in CA-G.R. SP No. 55727, CA-G.R. SP No. 55732 and CA-
G.R. SP No. 55734 sustaining the ownership of the Franciscos over the disputed parcels
of land did not prevent the Estrellados from initiating the present action in court.
Under Article 1475 of the Civil Code, the contract of sale is perfected at the moment
there is a meeting of minds not only upon the thing that is the object of the contract but
also upon the price. From that moment, the parties may reciprocally demand performance,
subject to the provisions of the law governing the form of contracts. The elements of a
contract of sale are consent, object and price in money or its equivalent. The absence of
any of these essential elements negates the existence of a perfected contract of sale.
Sale is a consensual contract, and the party who alleges the sale must show its existence
by competent proof.32
Issue: Whether or not the certification presented by Franciscos is valid in the absence of the deeds of sale
The Franciscos could not produce the deeds of sale between them and the Estrellados.
Nonetheless, they presented the certification dated June 10, 1970 signed in Davao City
by the late Spouses Alipio and Vivina Barredo,33 to wit:
This is to certify that we have sold to Dr. JOVITO S. FRANCISCO 15,465 sq. m. of our
land in Barrio Sangay, Matina Aplaya for (P30,930.00) THIRTY THOUSAND NINE
HUNDRED THIRTY PESOS; and that to date we have received a total of TWENTY NINE
THOUSAND SIX HUNDRED EIGHTY NINE AND 50/100 (P29,689.50) PESOS duly
receipted and TWO HUNDRED SIXTY EIGHT and 35/100 (P268.35) PESOS for
medicine, survey fee and miscellaneous expenses giving a total of TWENTY NINE
THOUSAND NINE HUNDRED FIFTY SEVEN and 85/100 PESOS leaving a balance of
NINE HUNDRED SEVENTY TWO and 15/100 (P972.15) PESOS.
The Franciscos also presented the receipt signed on June 13, 1970 by the late Spouses
Alipio and Vivina Barredo to the effect that they had received from Dr. Francisco the
balance of P972.15 as the "final instalment and full payment of the sale of 15,465 sq. m.
of our land in Barrio Sangay, Matina Aplaya, Davao City x x x."34
These documents pointed to nothing else but that the late Spouses Alipio and Vivina
Barredo had sold their parcel of land of 15,465 square meters to Dr. Francisco.
It is required under Article 1403(2) of the Civil Code that the sale of real property, to
be enforceable, should be in a writing subscribed by the party charged for it. This

requirement was met herein by the Franciscos even in the absence of any formal deed of
sale. Considering that the agreement between the parties on the sale was reduced in
writing: and signed by the late Spouses Alipio and Vivina Barredo as the sellers, the sale
was enforceable under the Statute of Frauds. Despite the document embodying the
agreement on the sale not being acknowledged before a notary public, the no observance
of the form prescribed by Article 1358(1)35 of the Civil Code did not render the sale
invalid. Indeed, the form required by Article 1358 was only for convenience of the
parties, and was not essential to the validity or enforceability of the sale.36
Lastly, the respondents' possession of the owner's duplicate copy of the TCT obtained in
1998 did not justify the conclusion of the CA that they were the owners of the parcel of
land. Indeed, possession of the owner's duplicate copy of the TCT was not necessarily
equivalent to ownership of the land therein described. For one, the TCT was merely
evidence of title.37 And, moreover, registration of real property under the Torrens
System does not create or vest title because it is not a mode of acquiring ownership.
WHEREFORE, the Court DISPOSES of the consolidated appeals as follows:
1. In G.R. No. 164482, the Court AFFIRMS the decision rendered by the Regional Trial
Court, Branch 13, in Davao City DISMISSING the petition for annulment of judgment in
Civil Case No. 30,111-03; and
2. In G.R. No. 211320, the Court REVERSES and SETS ASIDE the decision promulgated
by the Court of Appeals in CA-G.R. CV No. 01727-MIN, and REINSTATES the decision
rendered in Civil Case No. 29,759-03 by the Regional Trial Court, Branch 16, in Davao
City.
The Court ORDERS the petitioners in G.R. No. 164482 and the respondents in G.R. No.
211320 to pay the costs of suit.
SO ORDERED.
n

THIRD DIVISION
[G.R. No. 140479. March 8, 2001.]
ROSENCOR DEVELOPMENT CORPORATION and RENE JOAQUIN, Petitioners, v.

PATERNO INQUING, IRENE GUILLERMO, FEDERICO BANTUGAN, FERNANDO
MAGBANUA and LIZZA TIANGCO, Respondents.
DECISION
GONZAGA-REYES, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking
reversal of the Decision 1 of the Court of Appeals dated June 25, 1999 in CA-G.R. CV No.
53963. The Court of Appeals decision reversed and set aside the Decision 2 dated May
13, 1996 of Branch 217 of the Regional Trial Court of Quezon City in Civil Case No.
Q-93-18582.chanrob1es virtua1 1aw 1ibrary
The case was originally filed on December 10, 1993 by Paterno Inquing, Irene Guillermo
and Federico Bantugan, herein respondents, against Rosencor Development Corporation
(hereinafter "Rosencor"), Rene Joaquin, and Eufrocina de Leon. Originally, the complaint
was one for annulment of absolute deed of sale but was later amended to one for
rescission of absolute deed of sale. A complaint for intervention was thereafter filed by
respondents Fernando Magbanua and Danna Liza Tiangco. The complaint-in-intervention
was admitted by the trial court in an Order dated May 4, 1994. 3

The facts of the case, as stated by the trial court and adopted by the appellate court,
are as follows:jgc:chanrobles.com.ph
"This action was originally for the annulment of the Deed of Absolute Sale dated
September 4, 1990 between defendants Rosencor and Eufrocina de Leon but later
amended (sic) praying for the rescission of the deed of sale.
Plaintiffs and plaintiffs-intervenors averred that they are the lessees since 1971 of a
two-story residential apartment located at No. 150 Tomas Morato Ave., Quezon City
covered by TCT No. 96161 and owned by spouses Faustino and Cresencia Tiangco. The
lease was not covered by any contract. The lessees were renting the premises then for
P150.00 a month and were allegedly verbally granted by the lessors the pre-emptive right
to purchase the property if ever they decide to sell the same.
Upon the death of the spouses Tiangcos in 1975, the management of the property was
adjudicated to their heirs who were represented by Eufrocina de Leon. The lessees were
allegedly promised the same pre-emptive right by the heirs of Tiangcos since the latter
had knowledge that this right was extended to the former by the late spouses Tiangcos.
The lessees continued to stay in the premises and allegedly spent their own money
amounting from P50,000.00 to P100,000.00 for its upkeep. These expenses were never
deducted from the rentals which already increased to P1,000.00.
In June 1990, the lessees received a letter from Atty. Erlinda Aguila demanding that
they vacate the premises so that the demolition of the building be undertaken. They
refused to leave the premises. In that same month, de Leon refused to accept the
lessees’ rental payment claiming that they have run out of receipts and that a new
collector has been assigned to receive the payments. Thereafter, they received a letter
from Eufrocina de Leon offering to sell to them the property they were leasing for
P2,000,000.00. . . .

The lessees offered to buy the property from de Leon for the amount of P1,000,000.00.
De Leon told them that she will be submitting the offer to the other heirs. Since then, no
answer was given by de Leon as to their offer to buy the property. However, in November
1990, Rene Joaquin came to the leased premises introducing himself as its new owner.
In January 1991, the lessees again received another letter from Atty. Aguila demanding
that they vacate the premises. A month thereafter, the lessees received a letter from
de Leon advising them that the heirs of the late spouses Tiangcos have already sold the
property to Rosencor. The following month Atty. Aguila wrote them another letter
demanding the rental payment and introducing herself as counsel for Rosencor/Rene
Joaquin, the new owners of the premises.
The lessees requested from de Leon why she had disregarded the pre-emptive right she
and the late Tiangcos have promised them. They also asked for a copy of the deed of sale
between her and the new owners thereof but she refused to heed their request. In the
same manner, when they asked Rene Joaquin a copy of the deed of sale, the latter turned
down their request and instead Atty. Aguila wrote them several letters demanding that
they vacate the premises. The lessees offered to tender their rental payment to de Leon
but she refused to accept the same.
In April 1992 before the demolition can be undertaken by the Building Official, the
barangay interceded between the parties herein after which Rosencor raised the issue as
to the rental payment of the premises. It was also at this instance that the lessees were
furnished with a copy of the Deed of Sale and discovered that they were deceived by de
Leon since the sale between her and Rene Joaquin/Rosencor took place in September 4,
1990 while de Leon made the offer to them only in October 1990 or after the sale with
Rosencor had been consummated. The lessees also noted that the property was sold only
for P726,000.00.
The lessees offered to reimburse de Leon the selling price of P726,000.00 plus an
additional P274,000.00 to complete their P1,000,000.00 earlier offer. When their offer
was refused, they filed the present action praying for the following: a) rescission of the
Deed of Absolute Sale between de Leon and Rosencor dated September 4, 1990; b) the

defendants Rosencor/Rene Joaquin be ordered to reconvey the property to de Leon; and

c) de Leon be ordered to reimburse the plaintiffs for the repairs of the property, or
apply the said amount as part of the price for the purchase of the property in the sum of
P100,000.00. 4
After trial on the merits, the Regional Trial Court rendered a Decision 5 dated May 13,
1996 dismissing the complaint. The trial court held that the right of redemption on which
the complaint was based was merely an oral one and as such, is unenforceable under the
law. The dispositive portion of the May 13, 1996 Decision is as
follows:jgc:chanrobles.com.ph
"WHEREFORE, in view of the foregoing, the Court DISMISSES the instant action.
Plaintiffs and plaintiffs-intervenors are hereby ordered to pay their respective monthly
rental of P1,000.00 per month reckoned from May 1990 up to the time they leave the
premises. No costs.chanrob1es virtua1 1aw 1ibrary
SO ORDERED." 6
Not satisfied with the decision of the trial court, respondents herein filed a Notice of
Appeal dated June 3, 1996. On the same date, the trial court issued an Order for the
elevation of the records of the case to the Court of Appeals. On August 8, 1997,
respondents filed their appellate brief before the Court of Appeals.
On June 25, 1999, the Court of Appeals rendered its decision 7 reversing the decision of
the trial court. The dispositive portion of the June 25, 1999 decision is as
follows:jgc:chanrobles.com.ph
"WHEREFORE, premises considered, the appealed decision (dated May 13, 1996) of the
Regional Trial Court (Branch 217) in Quezon City in Case No. Q-93-18582 is hereby
REVERSED and SET ASIDE. In its stead, a new one is rendered ordering:chanrob1es
virtual 1aw library

(1) The rescission of the Deed of Absolute Sale executed between the appellees on
September 4, 1990;
(2) The reconveyance of the subject premises to appellee Eufrocina de Leon;
(3) The heirs of Faustino and Crescencia Tiangco, thru appellee Eufrocina de Leon, to
afford the appellants thirty days within which to exercise their right of first refusal by
paying the amount of ONE MILLION PESOS (P1,000,000.00) for the subject property;
and
(4) The appellants to, in turn, pay the appellees back rentals from May 1990 up to the
time this decision is promulgated.
No pronouncement as to costs.
SO ORDERED." 8
Petitioners herein filed a Motion for Reconsideration of the decision of the Court of
Appeals but the same was denied in a Resolution dated October 15, 1999. 9
Hence, this petition for review on certiorari where petitioners Rosencor Development
Corporation and Rene Joaquin raise the following assignment of errors 10 :chanrob1es
virtual 1aw library
I.
THE COURT OF APPEALS GRAVELY ERRED WHEN IT ORDERED THE RESCISSION OF

THE ABSOLUTE DEED OF SALE BETWEEN EUFROCINA DE LEON AND PETITIONER
ROSENCOR.
II.
THE COURT OF APPEALS COMMITTED MANIFEST ERROR IN MANDATING THAT

EUFROCINA DE LEON AFFORD RESPONDENTS THE OPPORTUNITY TO EXERCISE
THEIR RIGHT OF FIRST REFUSAL.
III.
THE COURT OF APPEALS GRIEVOUSLY ERRED IN CONCLUDING THAT

RESPONDENTS HAVE ESTABLISHED THEIR RIGHT OF FIRST REFUSAL DESPITE
PETITIONERS’ RELIANCE ON THEIR DEFENSE BASED ON THE STATUTE OF
FRAUDS.
Eufrocina de Leon, for herself and for the heirs of the spouses Faustino and Crescencia
Tiangco, did not appeal the decision of the Court of Appeals.
At the onset, we note that both the Court of Appeals and the Regional Trial Court relied
on Article 1403 of the New Civil Code, more specifically the provisions on the statute of
frauds, in coming out with their respective decisions. The trial court, in denying the
petition for reconveyance, held that right of first refusal relied upon by petitioners was
not reduced to writing and as such, is unenforceable by virtue of the said article. The
Court of Appeals, on the other hand, also held that the statute of frauds governs the
"right of first refusal" claimed by respondents. However, the appellate court ruled that
respondents had duly proven the same by reason of petitioners’ waiver of the protection
of the statute by reason of their failure to object to the presentation of oral evidence
of the said right.
Both the appellate court and the trial court failed to discuss, however, the threshold
issue of whether or not a right of first refusal is indeed covered by the provisions of the
New Civil Code on the statute of frauds. The resolution of the issue on the applicability
of the statute of frauds is important as it will determine the type of evidence which may
be considered by the trial court as proof of the alleged right of first refusal.chanrob1es
virtua1 1aw 1ibrary
The term "statute of frauds" is descriptive of statutes which require certain classes of
contracts to be in writing. This statute does not deprive the parties of the right to
contract with respect to the matters therein involved, but merely regulates the
formalities of the contract necessary to render it enforceable. Thus, they are included in
the provisions of the New Civil Code regarding unenforceable contracts, more particularly
Art. 1403, paragraph 2. Said article provides, as follows:jgc:chanrobles.com.ph
"ARTICLE 1403. The following contracts are unenforceable, unless they are
ratified:chanrob1es virtual 1aw library
x x x
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In
the following cases an agreement hereafter made shall be unenforceable by action, unless
the same, or some note or memorandum thereof, be in writing, and subscribed by the
party charged, or by his agent; evidence, therefore, of the agreement cannot be received
without the writing, or a secondary evidence of its contents:chanrob1es virtual 1aw
library
a) An agreement that by its terms is not to be performed within a year from the making
thereof;
b) A special promise to answer for the debt, default, or miscarriage of another;
c) An agreement made in consideration of marriage, other than a mutual promise to

marry;
d) An agreement for the sale of goods, chattels or things in action, at a price not less
than five hundred pesos, unless the buyer accept and receive part of such goods and
chattels, or the evidences, or some of them, of such things in action, or pay at the time
some part of the purchase money; but when a sale is made by auction and entry is made
by the auctioneer in his sales book, at the time of the sale, of the amount and kind of
property sold, terms of sale, price, names of purchasers and person on whose account the
sale is made, it is a sufficient memorandum;
e) An agreement for the leasing of a longer period than one year, or for the sale of real
property or of an interest therein;
f) A representation to the credit of a third person."cralaw virtua1aw library
The purpose of the statute is to prevent fraud and perjury in the enforcement of
obligations depending for their evidence on the unassisted memory of witnesses by
requiring certain enumerated contracts and transactions to be evidenced by a writing
signed by the party to be charged. 11 Moreover, the statute of frauds refers to specific
kinds of transactions and cannot apply to any other transaction that is not enumerated
therein. 12 The application of such statute presupposes the existence of a perfected
contract. 13
The question now is whether a "right of first refusal" is among those enumerated in the
list of contracts covered by the Statute of Frauds. More specifically, is a right of first
refusal akin to "an agreement for the leasing of a longer period than one year, or for the
sale of real property or of an interest therein" as contemplated by Article 1403, par. 2(e)
of the New Civil Code.
We have previously held that not all agreements "affecting land" must be put into writing
to attain enforceability 14 . Thus, we have held that the setting up of boundaries 15 , the
oral partition of real property 16 , and an agreement creating a right of way 17 are not
covered by the provisions of the statute of frauds. The reason simply is that these
agreements are not among those enumerated in Article 1403 of the New Civil Code.
A right of first refusal is not among those listed as unenforceable under the statute of
frauds. Furthermore, the application of Article 1403, par. 2(e) of the New Civil Code
presupposes the existence of a perfected, albeit unwritten, contract of sale. 18 A right
of first refusal, such as the one involved in the instant case, is not by any means a
perfected contract of sale of real property. At best, it is a contractual grant, not of the
sale of the real property involved, but of the right of first refusal over the property
sought to be sold 19 .

It is thus evident that the statute of frauds does not contemplate cases involving a right
of first refusal. As such, a right of first refusal need not be written to be enforceable
and may be proven by oral evidence.
The next question to be ascertained is whether or not respondents have satisfactorily

proven their right of first refusal over the property subject of the Deed of Absolute
Sale dated September 4, 1990 between petitioner Rosencor and Eufrocina de Leon.
On this point, we agree with the factual findings of the Court of Appeals that
respondents have adequately proven the existence of their right of first refusal.
Federico Bantugan, Irene Guillermo, and Paterno Inquing uniformly testified that they
were promised by the late spouses Faustino and Crescencia Tiangco and, later on, by their
heirs a right of first refusal over the property they were currently leasing should they
decide to sell the same. Moreover, respondents presented a letter 20 dated October 9,
1990 where Eufrocina de Leon, the representative of the heirs of the spouses Tiangco,
informed them that they had received an offer to buy the disputed property for
P2,000,000.00 and offered to sell the same to the respondents at the same price if they
were interested. Verily, if Eufrocina de Leon did not recognize respondents’ right of first
refusal over the property they were leasing, then she would not have bothered to offer
the property for sale to the respondents.
It must be noted that petitioners did not present evidence before the trial court
contradicting the existence of the right of first refusal of respondents over the
disputed property. They only presented petitioner Rene Joaquin, the vice president of
petitioner Rosencor, who admitted having no personal knowledge of the details of the
sales transaction between Rosencor and the heirs of the spouses Tiangco 21 . They also
dispensed with the testimony of Eufrocina de Leon 22 who could have denied the
existence or knowledge of the right of first refusal. As such, there being no evidence to
the contrary, the right of first refusal claimed by respondents was substantially proven
by respondents before the lower court.chanrob1es virtua1 1aw 1ibrary
Having ruled upon the question as to the existence of respondents’ right of first refusal,
the next issue to be answered is whether or not the Court of Appeals erred in ordering
the rescission of the Deed of Absolute Sale dated September 4, 1990 between Rosencor

and Eufrocina de Leon and in decreeing that the heirs of the spouses Tiangco should
afford respondents the exercise of their right of first refusal. In other words, may a
contract of sale entered into in violation of a third party’s right of first refusal be
rescinded in order that such third party can exercise said right?
The issue is not one of first impression.
In Guzman, Bocaling and Co, Inc. v. Bonnevie 23 , the Court upheld the decision of a lower
court ordering the rescission of a deed of sale which violated a right of first refusal
granted to one of the parties therein. The Court held:jgc:chanrobles.com.ph
". . . Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381 (3) of
the Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by
reason of injury to third persons, like creditors. The status of creditors could be validly
accorded the Bonnevies for they had substantial interests that were prejudiced by the
sale of the subject property to the petitioner without recognizing their right of first
priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the contracting parties

and even to third persons, to secure reparations for damages caused to them by a
contract, even if this should be valid, by means of the restoration of things to their
condition at the moment prior to the celebration of said contract. It is a relief allowed
for the protection of one of the contracting parties and even third persons from all
injury and damage the contract may cause, or to protect some incompatible and preferent
right created by the contract. Rescission implies a contract which, even if initially valid,
produces a lesion or pecuniary damage to someone that justifies its invalidation for
reasons of equity.
It is true that the acquisition by a third person of the property subject of the contract
is an obstacle to the action for its rescission where it is shown that such third person is
in lawful possession of the subject of the contract and that he did not act in bad faith.
However, this rule is not applicable in the case before us because the petitioner is not
considered a third party in relation to the Contract of Sale nor may its possession of the
subject property be regarded as acquired lawfully and in good faith.

Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the
petitioner cannot be deemed a purchaser in good faith for the record shows that it
categorically admitted that it was aware of the lease in favor of the Bonnevies, who were
actually occupying the subject property at the time it was sold to it. Although the
Contract of Lease was not annotated on the transfer certificate of title in the name of
the late Jose Reynoso and Africa Reynoso, the petitioner cannot deny actual knowledge
of such lease which was equivalent to and indeed more binding than presumed notice by
registration.
A purchaser in good faith and for value is one who buys the property of another without
notice that some other person has a right to or interest in such property without and
pays a full and fair price for the same at the time of such purchase or before he has
notice of the claim or interest of some other person in the property. Good faith connotes
an honest intention to abstain from taking unconscientious advantage of another. Tested
by these principles, the petitioner cannot tenably claim to be a buyer in good faith as it
had notice of the lease of the property by the Bonnevies and such knowledge should have
cautioned it to look deeper into the agreement to determine if it involved stipulations
that would prejudice its own interests."cralaw virtua1aw library
Subsequently 24 in Equatorial Realty and Development, Inc. v. Mayfair Theater, Inc. 25 ,

the Court, en banc, with three justices dissenting, 26 ordered the rescission of a
contract entered into in violation of a right of first refusal. Using the ruling in Guzman
Bocaling & Co., Inc. v. Bonnevie as basis, the Court decreed that since respondent therein
had a right of first refusal over the said property, it could only exercise the said right if
the fraudulent sale is first set aside or rescinded. Thus:jgc:chanrobles.com.ph
"What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that
Mayfair will have the right of first refusal in the event Carmelo sells the leased
premises. It is undisputed that Carmelo did recognize this right of Mayfair, for it
informed the latter of its intention to sell the said property in 1974. There was an
exchange of letters evidencing the offer and counter-offers made by both parties.
Carmelo, however, did not pursue the exercise to its logical end. While it initially
recognized Mayfair’s right of first refusal, Carmelo violated such right when without
affording its negotiations with Mayfair the full process to ripen to at least an interface
of a definite offer and a possible corresponding acceptance within the "30-day exclusive

option" time granted Mayfair, Carmelo abandoned negotiations, kept a low profile for
some time, and then sold, without prior notice to Mayfair, the entire Claro M. Recto
property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the
property in question, rescissible. We agree with respondent Appellate Court that the
records bear out the fact that Equatorial was aware of the lease contracts because its
lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot
tenably claim that to be a purchaser in good faith, and, therefore, rescission
lies.chanrob1es virtua1 1aw 1ibrary
x x x
As also earlier emphasized, the contract of sale between Equatorial and Carmelo is
characterized by bad faith, since it was knowingly entered into in violation of the rights
of and to the prejudice of Mayfair. In fact, as correctly observed by the Court of
Appeals, Equatorial admitted that its lawyers had studied the contract of lease prior to
the sale. Equatorial’s knowledge of the stipulations therein should have cautioned it to
look further into the agreement to determine if it involved stipulations that would
prejudice its own interests.
Since Mayfair had a right of first refusal, it can exercise the right only if the fraudulent
sale is first set aside or rescinded. All of these matters are now before us and so there
should be no piecemeal determination of this case and leave festering sores to
deteriorate into endless litigation. The facts of the case and considerations of justice
and equity require that we order rescission here and now. Rescission is a relief allowed
for the protection of one of the contracting parties and even third persons from all
injury and damage the contract may cause or to protect some incompatible and preferred
right by the contract. The sale of the subject real property should now be rescinded
considering that Mayfair, which had substantial interest over the subject property, was
prejudiced by the sale of the subject property to Equatorial without Carmelo conferring
to Mayfair every opportunity to negotiate within the 30-day stipulate period." 27

In Parañaque Kings Enterprises, Inc. v. Court of Appeals, 28 the Court held that the
allegations in a complaint showing violation of a contractual right of "first option or
priority to buy the properties subject of the lease" constitute a valid cause of action
enforceable by an action for specific performance. Summarizing the rulings in the two
previously cited cases, the Court affirmed the nature of and concomitant rights and
obligations of parties under a right of first refusal. Thus:jgc:chanrobles.com.ph
"We hold however, that in order to have full compliance with the contractual right
granting petitioner the first option to purchase, the sale of the properties for the
amount of P9,000,000.00, the price for which they were finally sold to respondent
Raymundo, should have likewise been offered to petitioner.
The Court has made an extensive and lengthy discourse on the concept of, and obligations
under, a right of first refusal in the case of Guzman, Bocaling & Co. v. Bonnevie. In that
case, under a contract of lease, the lessees (Raul and Christopher Bonnevie) were given a
"right of first priority" to purchase the leased property in case the lessor (Reynoso)
decided to sell. The selling price quoted to the Bonnevies was 600,000.00 to be fully paid
in cash, less a mortgage lien of P100,000.00. On the other hand, the selling price offered
by Reynoso to and accepted by Guzman was only P400,000.00 of which P137,500.00 was
to be paid in cash while the balance was to be paid only when the property was cleared of
occupants. We held that even if the Bonnevies could not buy it at the price quoted
(P600,000.00), nonetheless, Reynoso could not sell it to another for a lower price and
under more favorable terms and conditions without first offering said favorable terms
and price to the Bonnevies as well. Only if the Bonnevies failed to exercise their right of
first priority could Reynoso thereafter lawfully sell the subject property to others, and
only under the same terms and conditions previously offered to the Bonnevies.
x x x
This principle was reiterated in the very recent case of Equatorial Realty v. Mayfair
Theater, Inc. which was decided en banc. This Court upheld the right of first refusal of
the lessee Mayfair, and rescinded the sale of the property by the lessor Carmelo to
Equatorial Realty "considering that Mayfair, which had substantial interest over the

subject property, was prejudiced by its sale to Equatorial without Carmelo conferring to
Mayfair every opportunity to negotiate within the 30-day stipulated period"
In that case, two contracts of lease between Carmelo and Mayfair provided "that if the
LESSOR should desire to sell the leased premises, the LESSEE shall be given 30 days
exclusive option to purchase the same." Carmelo initially offered to sell the leased
property to Mayfair for six to seven million pesos. Mayfair indicated interest in
purchasing the property though it invoked the 30-day period. Nothing was heard
thereafter from Carmelo. Four years later, the latter sold its entire Recto Avenue
property, including the leased premises, to Equatorial for P11,300,000.00 without priorly
informing Mayfair. The Court held that both Carmelo and Equatorial acted in bad faith:
Carmelo for knowingly violating the right of first option of Mayfair, and Equatorial for
purchasing the property despite being aware of the contract stipulation. In addition to
rescission of the contract of sale, the Court ordered Carmelo to allow Mayfair to buy the
subject property at the same price of P11,300,000.00.
In the recent case of Litonjua v. L&R Corporation, 29 the Court, also citing the case of
Guzman, Bocaling & Co. v. Bonnevie, held that the sale made therein in violation of a right
of first refusal embodied in a mortgage contract, was rescissible.
Thus:jgc:chanrobles.com.ph
"While petitioners question the validity of paragraph 8 of their mortgage contract, they
appear to be silent insofar as paragraph 9 thereof is concerned. Said paragraph 9 grants
upon L & R Corporation the right of first refusal over the mortgaged property in the
event the mortgagor decides to sell the same. We see nothing wrong in this provision. The
right of first refusal has long been recognized as valid in our jurisdiction. The
consideration for the loan mortgage includes the consideration for the right of first
refusal. L & R Corporation is in effect stating that it consents to lend out money to the
spouses Litonjua provided that in case they decide to sell the property mortgaged to it,
then L & R Corporation shall be given the right to match the offered purchase price and
to buy the property at that price. Thus, while the spouses Litonjua had every right to sell
their mortgaged property to PWHAS without securing the prior written consent of L & R
Corporation, they had the obligation under paragraph 9, which is a perfectly valid
provision, to notify the latter of their intention to sell the property and give it priority
over other buyers. It is only upon the failure of L & R Corporation to exercise its right of

first refusal could the spouses Litonjua validly sell the subject properties to the others,
under the same terms and conditions offered to L & R Corporation.
What then is the status of the sale made to PWHAS in violation of L&R Corporation’s
contractual right of first refusal? On this score, we agree with the Amended Decision of
the Court of Appeals that the sale made to PWHAS is rescissible. The case of Guzman,
Bocaling & Co. v. Bonnevie is instructive on this point.chanrob1es virtua1 1aw 1ibrary
x x x
It was then held that the Contract of Sale there, which violated the right of first
refusal, was rescissible.
In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted
to L & R Corporation over the subject properties since the Deed of Real Estate Mortgage
containing such a provision was duly registered with the Register of Deeds. As such,
PWHAS is presumed to have been notified thereof by registration, which equates to
notice to the whole world.
x x x
All things considered, what then are the relative rights and obligations of the parties? To
recapitulate: the sale between the spouses Litonjua and PWHAS is valid, notwithstanding
the absence of L & R Corporation’s prior written consent thereto. Inasmuch as the sale to
PWHAS was valid, its offer to redeem and its tender of the redemption price, as
successor-in-interest of the spouses Litonjua, within the one-year period should have
been accepted as valid by the L & R Corporation. However, while the sale is, indeed, valid,
the same is rescissible because it ignored L & R Corporation’s right of first
refusal."cralaw virtua1aw library
Thus, the prevailing doctrine, as enunciated in the cited cases, is that a contract of sale
entered into in violation of a right of first refusal of another person, while valid, is
rescissible.

There is, however, a circumstance which prevents the application of this doctrine in the
case at bench. In the cases cited above, the Court ordered the rescission of sales made
in violation of a right of first refusal precisely because the vendees therein could not
have acted in good faith as they were aware or should have been aware of the right of
first refusal granted to another person by the vendors therein. The rationale for this is
found in the provisions of the New Civil Code on rescissible contracts. Under Article 1381
of the New Civil Code, paragraph 3, a contract validly agreed upon may be rescinded if it
is "undertaken in fraud of creditors when the latter cannot in any manner collect the
claim due them." Moreover, under Article 1385, rescission shall not take place "when the
things which are the object of the contract are legally in the possession of third persons
who did not act in bad faith." 30
It must be borne in mind that, unlike the cases cited above, the right of first refusal
involved in the instant case was an oral one given to respondents by the deceased spouses
Tiangco and subsequently recognized by their heirs. As such, in order to hold that
petitioners were in bad faith, there must be clear and convincing proof that petitioners
were made aware of the said right of first refusal either by the respondents or by the
heirs of the spouses Tiangco.
It is axiomatic that good faith is always presumed unless contrary evidence is adduced.
31 A purchaser in good faith is one who buys the property of another without notice that
some other person has a right or interest in such a property and pays a full and fair price
at the time of the purchase or before he has notice of the claim or interest of some
other person in the property. 32 In this regard, the rule on constructive notice would be
inapplicable as it is undisputed that the right of first refusal was an oral one and that the
same was never reduced to writing, much less registered with the Registry of Deeds. In
fact, even the lease contract by which respondents derive their right to possess the
property involved was an oral one.
On this point, we hold that the evidence on record fails to show that petitioners acted in
bad faith in entering into the deed of sale over the disputed property with the heirs of
the spouses Tiangco. Respondents failed to present any evidence that prior to the sale of
the property on September 4, 1990, petitioners were aware or had notice of the oral
right of first refusal.

Respondents point to the letter dated June 1, 1990 33 as indicative of petitioners’

knowledge of the said right. In this letter, a certain Atty. Erlinda Aguila demanded that
respondent Irene Guillermo vacate the structure they were occupying to make way for its
demolition.
We fail to see how the letter could give rise to bad faith on the part of the petitioner.
No mention is made of the right of first refusal granted to respondents. The name of
petitioner Rosencor or any of it officers did not appear on the letter and the letter did
not state that Atty. Aguila was writing in behalf of petitioner. In fact, Atty. Aguila
stated during trial that she wrote the letter in behalf of the heirs of the spouses
Tiangco. Moreover, even assuming that Atty. Aguila was indeed writing in behalf of
petitioner Rosencor, there is no showing that Rosencor was aware at that time that such
a right of first refusal existed.chanrob1es virtua1 1aw 1ibrary
Neither was there any showing that after receipt of this June 1, 1990 letter,
respondents notified Rosencor or Atty. Aguila of their right of first refusal over the
property. Respondents did not try to communicate with Atty. Aguila and inform her about
their preferential right over the disputed property. There is even no showing that they
contacted the heirs of the spouses Tiangco after they received this letter to remind
them of their right over the property.
Respondents likewise point to the letter dated October 9, 1990 of Eufrocina de Leon,
where she recognized the right of first refusal of respondents, as indicative of the bad
faith of petitioners. We do not agree. Eufrocina de Leon wrote the letter on her own
behalf and not on behalf of petitioners and, as such, it only shows that Eufrocina de Leon
was aware of the existence of the oral right of first refusal. It does not show that
petitioners were likewise aware of the existence of the said right. Moreover, the letter
was made a month after the execution of the Deed of Absolute Sale on September 4,
1990 between petitioner Rosencor and the heirs of the spouses Tiangco. There is no
showing that prior to the date of the execution of the said Deed, petitioners were put on
notice of the existence of the right of first refusal.
Clearly, if there was any indication of bad faith based on respondents’ evidence, it would
only be on the part of Eufrocina de Leon as she was aware of the right of first refusal of

respondents yet she still sold the disputed property to Rosencor. However, bad faith on
the part of Eufrocina de Leon does not mean that petitioner Rosencor likewise acted in
bad faith. There is no showing that prior to the execution of the Deed of Absolute Sale,
petitioners were made aware or put on notice of the existence of the oral right of first
refusal. Thus, absent clear and convincing evidence to the contrary, petitioner Rosencor
will be presumed to have acted in good faith in entering into the Deed of Absolute Sale
over the disputed property.
Considering that there is no showing of bad faith on the part of the petitioners, the
Court of Appeals thus erred in ordering the rescission of the Deed of Absolute Sale
dated September 4, 1990 between petitioner Rosencor and the heirs of the spouses
Tiangco. The acquisition by Rosencor of the property subject of the right of first refusal
is an obstacle to the action for its rescission where, as in this case, it was shown that
Rosencor is in lawful possession of the subject of the contract and that it did not act in
bad faith. 34
This does not mean however that respondents are left without any remedy for the
unjustified violation of their right of first refusal. Their remedy however is not an action
for the rescission of the Deed of Absolute Sale but an action for damages against the
heirs of the spouses Tiangco for the unjustified disregard of their right of first refusal
35 .
WHEREFORE, premises considered, the decision of the Court of Appeals dated June 25,
1999 is REVERSED and SET ASIDE. The Decision dated May 13, 1996 of the Quezon City
Regional Trial Court, Branch 217 is hereby REINSTATED insofar as it dismisses the
action for rescission of the Deed of Absolute Sale dated September 4, 1990 and orders
the payment of monthly rentals of P1,000.00 per month reckoned from May 1990 up to
the time respondents leave the premises.
SO ORDERED.

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THIRD DIVISION

G.R. No. 231053, April 04, 2018

On September 18, 1989, Desiderio Dalisay passed away.

As of November 30, 1995, the company's total obligations allegedly amounted to

1 Condonation of penalties and interest or accrual of rentals for off-

2 Payment of original liabilities for unpaid premiums of

a Declaring [DDII] as the true and absolute owner of the properties

Furthermore, petitioner claims, no document or instrument proving that it accepted SSS'

We resolve to deny the petition.

Article 476 of the Civil Code provides:

Among other modes, an obligation is extinguished by payment or performance.60 There is

In dacion en pago, property is alienated to the creditor in satisfaction of a debt in

unless the parties by agreement—express or implied, or by their silence—consider the

Stages of a contract of sale

First Stage: Negotiation Offer validly reduced

While petitioner is correct that there is no evidence of Atty. Cabarroguis' authority to

This acquiescence to Atty. Cabarroguis' representations and authority to do so is

Second Stage: Perfection Acceptance absolute and unqualified

We agree with the CA that there was perfected dation in payment.

Article 1319 of the New Civil Code reads:

Third Stage: Consummation Transfer of possession to SSS tantamount to "delivery"

It is well to emphasize that nowhere in their communications or during the discussions at

Too, consider the following turn of events:

Mr. Julius L. Campo

RE: DESIDAL INVESTMENTS COLLATERAL

Dear Mr. Campo:

Indeed, as expounded by this Court in Equatorial Realty Development, Inc. v. Mayfair

A necessary consequence of this ruling is the recomputation of DDII's obligations to

With these, We need not belabor the other assigned errors.

Petitioner Desiderio Dalisay Investments, Inc. is hereby ordered to:

Respondent Social Security System is ordered to re-compute petitioner's obligations

PHILIPPINE NATIONAL OIL COMPANY AND PNOC DOCKYARD & ENGINEERING

The 1976 Lease Agreement and Option to Purchase

The Case and the Lower Court Rulings

THE PARTIES' ARGUMENTS and THE ISSUES

From the parties' arguments, the following ISSUES emerge:

chanRoblesvirtualLawlibraryFirst, the constitutionality of the Agreement, i.e., whether

THE COURT'S RULING

I. The constitutionality of the Agreement

The Court affirms the constitutionality of the Agreement.

II. The validity of the option contract

II. An option contract must be supported by a separate

As a contract, it must necessarily have the essential elements of subject matter,

Thus, when an offer is supported by a separate consideration, a valid option contract

Unfortunately, without expressly overturning or abandoning the Sanchez ruling,

Accordingly, when an option to buy or to sell is not supported by a consideration separate

III Keppel's constitutional right to acquire full title to the

Filipinization is the spirit that pervades the constitutional provisions on national

possession of plaintiffs-appellants as lessees of the leased premises is evidence of his

The issues for this Court's resolution are the following:

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION

The present controversy revolves around a parcel of land in Barangay Abang-Abang,*

Undeterred, respondent appealed to the CA.

Hence, this present petition, raising:

WHETHER PETITIONERS' ACTION HAD BEEN BARRED BY LACHES.

Petitioners argue that a Torrens Title is indefeasible, incontrovertible and

The Court's Ruling

The petition is meritorious.