PRICE

CASE #1: Swedish Match v. CA

TINGA, J.:

Petitioners seek a reversal of the twin Orders1 of the Court of Appeals dated 15 November 19962 and 31 January 1997,3 in CA-G.R.
CV No. 35886, entitled "ALS Management et al., v. Swedish Match, AB et al." The appellate court overturned the trial court’s Order4
dismissing the respondents’ complaint for specific performance and remanded the case to the trial court for further proceedings.

Swedish Match AB (hereinafter SMAB) is a corporation organized under the laws of Sweden not doing business in the Philippines.
SMAB, however, had three subsidiary corporations in the Philippines, all organized under Philippine laws, to wit: Phimco Industries,
Inc. (Phimco), Provident Tree Farms, Inc., and OTT/Louie (Phils.), Inc.

Sometime in 1988, STORA, the then parent company of SMAB, decided to sell SMAB of Sweden and the latter’s worldwide match,
lighter and shaving products operation to Eemland Management Services, now known as Swedish Match NV of Netherlands,
(SMNV), a corporation organized and existing under the laws of Netherlands. STORA, however, retained for itself the packaging
business.

SMNV initiated steps to sell the worldwide match and lighter businesses while retaining for itself the shaving business. SMNV
adopted a two-pronged strategy, the first being to sell its shares in Phimco Industries, Inc. and a match company in Brazil, which
proposed sale would stave-off defaults in the loan covenants of SMNV with its syndicate of lenders. The other move was to sell at
once or in one package all the SMNV companies worldwide which were engaged in match and lighter operations thru a global deal
(hereinafter, global deal).

Ed Enriquez (Enriquez), Vice-President of Swedish Match Sociedad Anonimas (SMSA)—the management company of the Swedish
Match group—was commissioned and granted full powers to negotiate by SMNV, with the resulting transaction, however, made
subject to final approval by the board. Enriquez was held under strict instructions that the sale of Phimco shares should be
executed on or before 30 June 1990, in view of the tight loan covenants of SMNV. Enriquez came to the Philippines in November
1989 and informed the Philippine financial and business circles that the Phimco shares were for sale.

Several interested parties tendered offers to acquire the Phimco shares, among whom were the AFP Retirement and Separation
Benefits System, herein respondent ALS Management & Development Corporation and respondent Antonio Litonjua (Litonjua), the
president and general manager of ALS.

In his letter dated 3 November 1989, Litonjua submitted to SMAB a firm offer to buy all of the latter’s shares in Phimco and all of
Phimco’s shares in Provident Tree Farm, Inc. and OTT/Louie (Phils.), Inc. for the sum of ₱750,000,000.00.5

Through its Chief Executive Officer, Massimo Rossi (Rossi), SMAB, in its letter dated 1 December 1989, thanked respondents for
their interest in the Phimco shares. Rossi informed respondents that their price offer was below their expectations but urged them to
undertake a comprehensive review and analysis of the value and profit potentials of the Phimco shares, with the assurance that
respondents would enjoy a certain priority although several parties had indicated their interest to buy the shares.6

Thereafter, an exchange of correspondence ensued between petitioners and respondents regarding the projected sale of the
Phimco shares. In his letter dated 21 May 1990, Litonjua offered to buy the disputed shares, excluding the lighter division for
US$30.6 million, which per another letter of the same date was increased to US$36 million.7 Litonjua stressed that the bid amount
could be adjusted subject to availability of additional information and audit verification of the company finances.

Responding to Litonjua’s offer, Rossi sent his letter dated 11 June 1990, informing the former that ALS should undertake a due
diligence process or pre-acquisition audit and review of the draft contract for the Match and Forestry activities of Phimco at ALS’
convenience. However, Rossi made it clear that at the completion of the due diligence process, ALS should submit its final offer in
US dollar terms not later than 30 June 1990, for the shares of SMAB corresponding to ninety-six percent (96%) of the Match and
Forestry activities of Phimco. Rossi added that in case the "global deal" presently under negotiation for the Swedish Match Lights
Group would materialize, SMAB would reimburse up to US$20,000.00 of ALS’ costs related to the due diligence process.8

Litonjua in a letter dated 18 June 1990, expressed disappointment at the apparent change in SMAB’s approach to the bidding
process. He pointed out that in their 4 June 1990 meeting, he was advised that one final bidder would be selected from among the
four contending groups as of that date and that the decision would be made by 6 June 1990. He criticized SMAB’s decision to
accept a new bidder who was not among those who participated in the 25 May 1990 bidding. He informed Rossi that it may not be
possible for them to submit their final bid on 30 June 1990, citing the advice to him of the auditing firm that the financial statements
would not be completed until the end of July. Litonjua added that he would indicate in their final offer more specific details of the
payment mechanics and consider the possibility of signing a conditional sale at that time.9

Two days prior to the deadline for submission of the final bid, Litonjua again advised Rossi that they would be unable to submit the
final offer by 30 June 1990, considering that the acquisition audit of Phimco and the review of the draft agreements had not yet
been completed. He said, however, that they would be able to finalize their bid on 17 July 1990 and that in case their bid would turn
out better than any other proponent, they would remit payment within ten (10) days from the execution of the contracts.10

Enriquez sent notice to Litonjua that they would be constrained to entertain bids from other parties in view of Litonjua’s failure to
make a firm commitment for the shares of Swedish Match in Phimco by 30 June 1990.11

In a letter dated 3 July 1990, Rossi informed Litonjua that on 2 July 1990, they signed a conditional contract with a local group for
the disposal of Phimco. He told Litonjua that his bid would no longer be considered unless the local group would fail to consummate
the transaction on or before 15 September1990.12

Apparently irked by SMAB’s decision to junk his bid, Litonjua promptly responded by letter dated 4 July 1990. Contrary to his prior
manifestations, he asserted that, for all intents and purposes, the US$36 million bid which he submitted on 21 May 1990 was their
final bid based on the financial statements for the year 1989. He pointed out that they submitted the best bid and they were already
finalizing the terms of the sale. He stressed that they were firmly committed to their bid of US$36 million and if ever there would be
adjustments in the bid amount, the adjustments were brought about by SMAB’s subsequent disclosures and validated accounts,
such as the aspect that only ninety-six percent (96%) of Phimco shares was actually being sold and not one-hundred percent
(100%).13

More than two months from receipt of Litonjua’s last letter, Enriquez sent a fax communication to the former, advising him that the
proposed sale of SMAB’s shares in Phimco with local buyers did not materialize. Enriquez then invited Litonjua to resume
negotiations with SMAB for the sale of Phimco shares. He indicated that SMAB would be prepared to negotiate with ALS on an
exclusive basis for a period of fifteen (15) days from 26 September 1990 subject to the terms contained in the letter. Additionally,
Enriquez clarified that if the sale would not be completed at the end of the fifteen (15)-day period, SMAB would enter into
negotiations with other buyers.14

Shortly thereafter, Litonjua sent a letter expressing his objections to the totally new set of terms and conditions for the sale of the
Phimco shares. He emphasized that the new offer constituted an attempt to reopen the already perfected contract of sale of the
shares in his favor. He intimated that he could not accept the new terms and conditions contained therein.15

On 14 December 1990, respondents, as plaintiffs, filed before the Regional Trial Court (RTC) of Pasig a complaint for specific
performance with damages, with a prayer for the issuance of a writ of preliminary injunction, against defendants, now petitioners.
The individual defendants were sued in their respective capacities as officers of the corporations or entities involved in the aborted
transaction.

Aside from the averments related to their principal cause of action for specific performance, respondents alleged that the Phimco
management, in utter bad faith, induced SMAB to violate its contract with respondents. They contended that the Phimco
management took an interest in acquiring for itself the Phimco shares and that petitioners conspired to thwart the closing of such
sale by interposing various obstacles to the completion of the acquisition audit.16 Respondents claimed that the Phimco
management maliciously and deliberately delayed the delivery of documents to Laya Manabat Salgado & Co. which prevented
them from completing the acquisition audit in time for the deadline on 30 June 1990 set by petitioners.17 Respondents added that
SMAB’s refusal to consummate the perfected sale of the Phimco shares amounted to an abuse of right and constituted conduct
which is contrary to law, morals, good customs and public policy.18

Respondents prayed that petitioners be enjoined from selling or transferring the Phimco shares, or otherwise implementing the sale
or transfer thereof, in favor of any person or entity other than respondents, and that any such sale to third parties be annulled and
set aside. Respondents also asked that petitioners be ordered to execute all documents or instruments and perform all acts
necessary to consummate the sales agreement in their favor.

Traversing the complaint, petitioners alleged that respondents have no cause of action, contending that no perfected contract,
whether verbal or written, existed between them. Petitioners added that respondents’ cause of action, if any, was barred by the
Statute of Frauds since there was no written instrument or document evidencing the alleged sale of the Phimco shares to
respondents.

Petitioners filed a motion for a preliminary hearing of their defense of bar by the Statute of Frauds, which the trial court granted.
Both parties agreed to adopt as their evidence in support of or against the motion to dismiss, as the case may be, the evidence
which they adduced in support of their respective positions on the writ of preliminary injunction incident.

In its Order dated 17 April 1991, the RTC dismissed respondents’ complaint.19 It ruled that there was no perfected contract of sale
between petitioners and respondents. The court a quo said that the letter dated 11 June 1990, relied upon by respondents, showed
that petitioners did not accept the bid offer of respondents as the letter was a mere invitation for respondents to conduct a due
diligence process or pre-acquisition audit of Phimco’s match and forestry operations to enable them to submit their final offer on 30
June 1990. Assuming that respondent’s bid was favored by an oral acceptance made in private by officers of SMAB, the trial court
noted, such acceptance was merely preparatory to a formal acceptance by the SMAB—the acceptance that would eventually lead
to the execution and signing of the contract of sale. Moreover, the court noted that respondents failed to submit their final bid on the
deadline set by petitioners.
Respondents appealed to the Court of Appeals, assigning the following errors:

A. THE TRIAL COURT EXCEEDED ITS AUTHORITY AND JURISDICTION WHEN IT ERRED PROCEDURALLY IN MOTU
PROPIO (sic) DISMISSING THE COMPLAINT IN ITS ENTIRETY FOR "LACK OF A VALID CAUSE OF ACTION" WITHOUT THE
BENEFIT OF A FULL-BLOWN TRIAL AND ON THE MERE MOTION TO DISMISS.

B. THE TRIAL COURT ERRED IN IGNORING PLAINTIFF-APPELLANTS’ CAUSE OF ACTION BASED ON TORT WHICH,
HAVING BEEN SUFFICIENTLY PLEADED, INDEPENDENTLY WARRANTED A FULL-BLOWN TRIAL.

C. THE TRIAL COURT ERRED IN IGNORING PLAINTIFFS-APPELLANTS’ CAUSE OF ACTION BASED ON PROMISSORY
ESTOPPEL WHICH, HAVING BEEN SUFFICIENTLY PLEADED, WARRANTED A FULL-BLOWN TRIAL, INDEPENDENTLY FOR
THE OTHER CAUSES OF ACTION.

D. THE TRIAL COURT JUDGE ERRED IN FORSWEARING JUDICIAL OBJECTIVITY TO FAVOR DEFENDANTS-APPELLEES
BY MAKING UNFOUNDED FINDINGS, ALL IN VIOLATION OF PLAINTIFFS-APPELLANTS’ RIGHT TO DUE PROCESS.20

After assessing the respective arguments of the parties, the Court of Appeals reversed the trial court’s decision. It ruled that the
series of written communications between petitioners and respondents collectively constitute a sufficient memorandum of their
agreement under Article 1403 of the Civil Code; thus, respondents’ complaint should not have been dismissed on the ground that it
was unenforceable under the Statute of Frauds. The appellate court opined that any document or writing, whether formal or
informal, written either for the purpose of furnishing evidence of the contract or for another purpose which satisfies all the Statute’s
requirements as to contents and signature would be

sufficient; and, that two or more writings properly connected could be considered together. The appellate court concluded that the
letters exchanged by and between the parties, taken together, were sufficient to establish that an agreement to sell the disputed
shares to respondents was reached.

The Court of Appeals clarified, however, that by reversing the appealed decision it was not thereby declaring that respondents are
entitled to the reliefs prayed for in their complaint, but only that the case should not have been dismissed on the ground of
unenforceability under the Statute of Frauds. It ordered the remand of the case to the trial court for further proceedings.

Hence, this petition.

Petitioners argue that the Court of Appeals erred in failing to consider that the Statute of Frauds requires not just the existence of
any note or memorandum but that such note or memorandum should evidence an agreement to sell; and, that in this case, there
was no word, phrase, or statement in the letters exchanged between the two parties to show or even imply that an agreement had
been reached for the sale of the shares to respondent.

Petitioners stress that respondent Litonjua made it clear in his letters that the quoted prices were merely tentative and still subject to
further negotiations between him and the seller. They point out that there was no meeting of the minds on the essential terms and
conditions of the sale because SMAB did not accept respondents’ offer that consideration would be paid in Philippine pesos.
Moreover, Litonjua signified their inability to submit their final bid on 30 June 1990, at the same time stating that the broad terms
and conditions described in their meeting were inadequate for them to make a response at that time so much so that he would have
to await the corresponding specifics. Petitioners argue that the foregoing circumstances prove that they failed to reach an
agreement on the sale of the Phimco shares.

In their Comment, respondents maintain that the Court of Appeals correctly ruled that the Statute of Frauds does not apply to the
instant case. Respondents assert that the sale of the subject shares to them was perfected as shown by the following
circumstances, namely: petitioners assured them that should they increase their bid, the sale would be awarded to them and that
they did in fact increase their previous bid of US$30.6 million to US$36 million; petitioners orally accepted their revised offer and the
acceptance was relayed to them by Rene Dizon; petitioners directed them to proceed with the acquisition audit and to submit a
comfort letter from the United Coconut Planters’ Bank (UCPB); petitioner corporation confirmed its previous verbal acceptance of
their offer in a letter dated 11 June 1990; with the prior approval of petitioners, respondents engaged the services of Laya, Manabat,
Salgado & Co., an independent auditing firm, to immediately proceed with the acquisition audit; and, petitioner corporation
reiterated its commitment to be bound by the result of the acquisition audit and

promised to reimburse respondents’ cost to the extent of US$20,000.00. All these incidents, according to respondents,
overwhelmingly prove that the contract of sale of the Phimco shares was perfected.

Further, respondents argued that there was partial performance of the perfected contract on their part. They alleged that with the
prior approval of petitioners, they engaged the services of Laya, Manabat, Salgado & Co. to conduct the acquisition audit. They
averred that petitioners agreed to be bound by the results of the audit and offered to reimburse the costs thereof to the extent of
US$20,000.00. Respondents added that in compliance with their obligations under the contract, they have submitted a comfort
letter from UCPB to show petitioners that the bank was willing to finance the acquisition of the Phimco shares.21
The basic issues to be resolved are: (1) whether the appellate court erred in reversing the trial court’s decision dismissing the
complaint for being unenforceable under the Statute of Frauds; and (2) whether there was a perfected contract of sale between
petitioners and respondents with respect to the Phimco shares.

The Statute of Frauds embodied in Article 1403, paragraph (2), of the Civil Code22 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.23 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.24 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.25 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.26

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.27

However, for a note or memorandum to satisfy the Statute, it must be complete in itself and cannot rest partly in writing and partly in
parol. The note or memorandum must contain the names of the parties, the terms and conditions of the contract, and a description
of the property sufficient to render it capable of identification.28 Such note or memorandum must contain the essential elements of
the contract expressed with certainty that may be ascertained from the note or memorandum itself, or some other writing to which it
refers or within which it is connected, without resorting to parol evidence.29

Contrary to the Court of Appeals’ conclusion, the exchange of correspondence between the parties hardly constitutes the note or
memorandum within the context of Article 1403 of the Civil Code. Rossi’s letter dated 11 June 1990, heavily relied upon by
respondents, is not complete in itself. First, it does not indicate at what price the shares were being sold. In paragraph (5) of the
letter, respondents were supposed to submit their final offer in U.S. dollar terms, at that after the completion of the due diligence
process. The paragraph undoubtedly proves that there was as yet no definite agreement as to the price. Second, the letter does not
state the mode of payment of the price. In fact, Litonjua was supposed to indicate in his final offer how and where payment for the
shares was planned to be made.30

Evidently, the trial court’s dismissal of the complaint on the ground of unenforceability under the Statute of Frauds is warranted.31

Even if we were to consider the letters between the parties as a sufficient memorandum for purposes of taking the case out of the
operation of the Statute the action for specific performance would still fail.

A contract is defined as a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in
favor of another, or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do.32 There can be no contract
unless the following requisites concur: (a) consent of the contracting parties; (b) object certain which is the subject matter of the
contract; (c) cause of the obligation which is established.33 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.34

Specifically, in the case of a contract of sale, required is the concurrence of three elements, to wit: (a) consent or meeting of the
minds, that is, consent to transfer ownership in exchange for the price; (b) determinate subject matter, and (c) price certain in
money or its equivalent.35 Such contract is born from the moment there is a meeting of minds upon the thing which is the object of
the contract and upon the price.36

In general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and consummation. Negotiation begins
from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the
parties. Perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract.
Consummation occurs when the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment
thereof.37

A negotiation is formally initiated by an offer. A perfected promise merely tends to insure and pave the way for the celebration of a
future contract. An imperfect promise (policitacion), on the other hand, is a mere unaccepted offer.38 Public advertisements or
solicitations and the like are ordinarily construed as mere invitations to make offers or only as proposals. At any time prior to the
perfection of the contract, either negotiating party may stop the negotiation.39 The offer, at this stage, may be withdrawn; the
withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the
withdrawal.40
An offer would require, among other things, a clear certainty on both the object and the cause or consideration of the envisioned
contract. Consent in a contract of sale should be 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.41

Quite obviously, Litonjua’s letter dated 21 May 1990, proposing the acquisition of the Phimco shares for US$36 million was merely
an offer. This offer, however, in Litonjua’s own words, "is understood to be subject to adjustment on the basis of an audit of the
assets, liabilities and net worth of Phimco and its subsidiaries and on the final negotiation between ourselves."42

Was the offer certain enough to satisfy the requirements of the Statute of Frauds? Definitely not.

Litonjua repeatedly stressed in his letters that they would not be able to submit their final bid by 30 June 1990.43 With indubitable
inconsistency, respondents later claimed that for all intents and purposes, the US$36 million was their final bid. If this were so, it
would be inane for Litonjua to state, as he did, in his letter dated 28 June 1990 that they would be in a position to submit their final
bid only on 17 July 1990. The lack of a definite offer on the part of respondents could not possibly serve as the basis of their claim
that the sale of the Phimco shares in their favor was perfected, for one essential element of a contract of sale was obviously
wanting—the price certain in money or its equivalent. The price must be certain, otherwise there is no true consent between the
parties.44 There can be no sale without a price.45 Quite recently, this Court reiterated the long-standing doctrine that the manner of
payment of the purchase price is an essential element before a valid and binding contract of sale can exist since the agreement on
the manner of payment goes into the price such that a

disagreement on the manner of payment is tantamount to a failure to agree on the price.46

Granting arguendo, that the amount of US$36 million was a definite offer, it would remain as a mere offer in the absence of
evidence of its acceptance. To produce a contract, there must be acceptance, which may be express or implied, but it must not
qualify the terms of the offer.47 The acceptance of an offer must be unqualified and absolute to perfect the contract.48 In other words,
it must be identical in all respects with that of the offer so as to produce consent or meeting of the minds.49

Respondents’ attempt to prove the alleged verbal acceptance of their US$36 million bid becomes futile in the face of the
overwhelming evidence on record that there was in the first place no meeting of the minds with respect to the price. It is
dramatically clear that the US$36 million was not the actual price agreed upon but merely a preliminary offer which was subject to
adjustment after the conclusion of the audit of the company finances. Respondents’ failure to submit their final bid on the deadline
set by petitioners prevented the perfection of the contract of sale. It was not perfected due to the absence of one essential element
which was the price certain in money or its equivalent.

At any rate, from the procedural stand point, the continuing objections raised by petitioners to the admission of parol evidence50 on
the alleged verbal acceptance of the offer rendered any evidence of acceptance inadmissible.

Respondents’ plea of partial performance should likewise fail. The acquisition audit and submission of a comfort letter, even if
considered together, failed to prove the perfection of the contract. Quite the contrary, they indicated that the sale was far from
concluded. Respondents conducted the audit as part of the due diligence process to help them arrive at and make their final offer.
On the other hand, the submission of the comfort letter was merely a guarantee that respondents had the financial capacity to pay
the price in the event that their bid was accepted by petitioners.

The Statute of Frauds is applicable only to contracts which are executory and not to those which have been consummated either
totally or partially.51 If a contract has been totally or partially performed, the exclusion of parol evidence would promote fraud or bad
faith, for it would enable the defendant to keep the benefits already derived by him from the transaction in litigation, and at the same
time, evade the obligations, responsibilities or liabilities assumed or contracted by him thereby.52 This rule, however, is predicated
on the fact of ratification of the contract within the meaning of Article 1405 of the Civil Code either (1) by failure to object to the
presentation of oral evidence to prove the same, or (2) by the acceptance of benefits under them. In the instant case, respondents
failed to prove that there was partial performance of the contract within the purview of the Statute.

Respondents insist that even on the assumption that the Statute of Frauds is applicable in this case, the trial court erred in
dismissing the complaint altogether. They point out that the complaint presents several causes of action.

A close examination of the complaint reveals that it alleges two distinct causes of action, the first is for specific performance53
premised on the existence of the contract of sale, while the other is solely for damages, predicated on the purported dilatory
maneuvers executed by the Phimco management.54

With respect to the first cause of action for specific performance, apart from petitioners’ alleged refusal to honor the contract of
sale—which has never been perfected in the first place—respondents made a number of averments in their complaint all in support
of said cause of action. Respondents

claimed that petitioners were guilty of promissory estoppel,55 warranty breaches56 and tortious conduct57 in refusing to honor the
alleged contract of sale. These averments are predicated on or at least interwoven with the existence or perfection of the contract of
sale. As there was no such perfected contract, the trial court properly rejected the averments in conjunction with the dismissal of the
complaint for specific performance.

However, respondents’ second cause of action due to the alleged malicious and deliberate delay of the Phimco management in the
delivery of documents necessary for the completion of the audit on time, not being based on the existence of the contract of sale,
could stand independently of the action for specific performance and should not be deemed barred by the dismissal of the cause of
action predicated on the failed contract. If substantiated, this cause of action would entitle respondents to the recovery of damages
against the officers of the corporation responsible for the acts complained of.

Thus, the Court cannot forthwith order dismissal of the complaint without affording respondents an opportunity to substantiate their
allegations with respect to its cause of action for damages against the officers of Phimco based on the latter’s alleged self-serving
dilatory maneuvers.

WHEREFORE, the petition is in part GRANTED. The appealed Decision is hereby MODIFIED insofar as it declared the agreement
between the parties enforceable under the

Statute of Frauds. The complaint before the trial court is ordered DISMISSED insofar as the cause of action for specific

performance is concerned. The case is ordered REMANDED to the trial court for further proceedings with respect to the cause of
action for damages as above specified.

SO ORDERED.
 FORMATION/PERFECTION OF CONTRACT OF SALE

CASE #2: Limson v. CA

BELLOSILLO, J.:

Filed under Rule 45 of the Rules of Court this Petition for Review on Certiorari seeks to review, reverse and set aside the Decision1
of the Court of Appeals dated 18 May 1998 reversing that of the Regional Trial Court dated 30 June 1993. The petitioner likewise
assails the Resolution2 of the appellate court of 19 October 1998 denying petitioner’s Motion for Reconsideration.

Petitioner Lourdes Ong Limson, in her 14 may 1979 Complaint filed before the trial court,3 alleged that in July 1978 respondent
spouses Lorenzo de Vera and Asuncion Santos-de Vera, through their agent Marcosa Sanchez, offered to sell to petitioner a parcel
of land consisting of 48, 260 square meters, more or less, situated in Barrio San Dionisio, Parañaque, Metro Manila; that
respondent spouses informed her that they were the owners of the subject property; that on 31 July 1978 she agreed to buy the
property at the price of P34.00 per square meter and gave the sum of P20,000.00 to respondent spouses as "earnest money;" that
respondent spouses signed a receipt therefor and gave her a 10-day option period to purchase the property; that respondent
Lorenzo de Vera then informed her that the subject property was mortgaged to Emilio Ramos and Isidro Ramos; that respondent
Lorenzo de Vera asked her to pay the balance of the purchase price to enable him and his wife to settle their obligation with the
Ramoses.1âwphi1.nêt

Petitioner also averred that she agreed to meet respondent spouses and the Ramoses on 5 August 1978 at the Office of the
Registry of deeds of Makati, Metro Manila, to consummate the transaction but due to the failure of respondent Asuncion Santos-de
Vera and the Ramoses to appear, no transaction was formalized. In a second meeting scheduled on 11 August 1978 she claimed
that she was willing and ready to pay the balance of the purchase price but the transaction again did not materialize as respondent
spouses failed to pay the back taxes of subject property. Subsequently, on 23 August 1978 petitioner allegedly gave respondent
Lorenzo de Vera three (3) checks in the total amount of P36, 170.00 for the settlement of the back taxes of the property and for the
payment of the quitclaims of the three (3) tenants of subject land. The amount was purportedly considered part of purchase price
and respondent Lorenzo de Vera signed the receipts therefor.

Petitioner alleged that on 5 September 1978 she was surprised to learn from the agent of respondent spouses that the property
was the subject of a negotiation for the sale to respondent Sunvar Realty Development Corporation (SUNVAR) represented by
respondent Tomas Cuenca, Jr. On 15 September 1978 petitioner discovered that although respondent spouses purchased the
property from the Ramoses on 20 March 1970 it was only on 15 September 1978 that TCT No. S-72946 covering the property was
issued to respondent spouses. As a consequence, she file on the same day an affidavit of Adverse Claim with the Office of the
Registry of Deeds of Makati, Metro, which was annotated on TCT No. S-72946. She also claimed that on the same day she
informed respondent Cuenca of her "contract" to purchase the property.

The Deed of Sale between respondent spouses and respondent SUNVAR was executed on 15 September 1978 and TCT N0.
S-72377 was issued in favor of the latter on 26 September 1978 with the adverse Claim of petitioner annotated thereon. Petitioner
claimed that when respondent spouses sold the property in dispute to SUNVAR, her valid and legal right to purchase it was ignored
if not violated. Moreover, she maintained that SUNVAR was in bad faith, as it knew of her "contract" to purchase the subject
property fro respondent spouse.

Finally, for the alleged unlawful and unjust acts of respondent spouses, which caused her damage, prejudice and injury, petitioner
claimed that the Deed of Sale, should be annuled and TCT No. S-72377 in the name of respondent SUNVAR canceled and TCT
No. S-72946 restored. She also insisted that a Deed of Sale between her an respondent spouses be now executed upon her
payment of the balance of the purchase price agreed upon, plus damages and attorney’s fees.

In their Answer4 respondent spouses maintained that petitioner had no sufficient cause of action against them; that she was not the
real party in interest; that the option to buy the property had long expired; that there was no perfected contract to sell between them;
and, that petitioner had no legal capacity to sue. Additionally, respondent spouses claimed actual, moral and exemplary damages,
and attorney’s fees against petitioner.

On the other hand, respondents SUNVAR and Cuenca, in their Answer5 alleged that petitioner was not the proper party in interest
and/or had no cause of action against them. But, even assuming that petitioner was the proper party in interest, they claimed that
she could only be entitled to the return of any amount received by respondent spouses. In the alternative, they argued that
petitioner had lost her option to buy the property for failure to comply with the terms and conditions of the agreement as embodied
in the receipt issued therefor. Moreover, they contended that at the time of the execution of the Deed of Sale and the payment of
consideration to respondent spouses, they "did not know nor was informed" of petitioner’s interest or claim over the subject
property. They claimed furthermore that it was only after the signing of the Deed of Sale and the payment of the corresponding
amounts to respondent spouses that they came to know of the claim of petitioner as it was only then that they were furnished copy
to the title to the properly where the Adverse Claim of petitioner was annotated. Consequently, they also instituted a Cross-Claim
against respondent spouses for bad faith in encouraging the negotiations between them without telling them of the claim of
petitioner. The same respondents maintained that had they known of the claim of petitioner, they would not have initiated
negotiations with respondent spouses for the purchase of the property. Thus, they prayed for reimbursement of all amounts and
monies received from them by respondent spouses, attorney’s fees and expenses for litigation in the event that the trial court
should annul the Deed of Sale and deprive them of their ownership and possessio of the subject land.

In their Answer to the Cross-Claim6 of respondents SUNVAR and Cuenca, respondent spouses insisted that they negotiated with
the former only after expiration of the option period given to petitioner and her failure with her commitments thereunder.
Respondent spouses contended that they acted legally and validly, in all honesty and good faith. According to them, respondent
SUNVAR made a verification of the title with the office of the register of Deeds of Metro Manila District IV before the execution of
the Deed of Absolute Sale. Also, they claimed that the Cross-Claim was written executed by respondent SUNVAR in their favor.
Thus, respondent spouses prayed for actual damages for the unjustified filling of the Cross-Claim, moral damages for the mental
anguish and similar injuries they suffered by reason thereof, exemplary damages "to prevent others from emulation the bad
example" of respondents SUNVAR and Cuenca, plus attorney’s fees.

After a protracted trial and reconstitution of the court records due to the fire that razed the Pasay City Hall on 18 January 1992, the
Regional Trial Court rendered its 30 June 1993 Decision7 in favor of petitioner. It ordered (a) the annulment and rescission of the
Deed of Absolute Sale executed on 15 September 1978 by respondent spouses in favor of respondent SUNVAR; (b) the
cancellation and revocation of TCT No. S-75377 of the Registry of Deeds, Makati, Metro Manila, issued in the name of respondent
Sunvar Realty Development Corporation, and the restoration or reinstatement of TCT No. S-72946 of the same Registry issued in
the name of respondent spouses; (c) respondent spouses to execute a deed of sale conveying ownership of the property covered
by TCT No. S-72946 in favor of petitioner upon her payment of the balance of the purchase price agreed upon; and, (d) respondent
spouses to pay petitioner P50,000.00 as and for attorney’s fees, and to pay the costs.

On appeal, the Court of Appeals completely reversed the decision of the trial court. It ordered (a) the Register of Deeds of Makati
City to lift the Adverse Claim and such other encumbrances petitioner might have filed or caused to be annotated on TCT No.
S-75377; and, (b) petitioner to pay (1) respondent SUNVAR P50,000.00 as nominal damages, P30,000.00 as exemplary damages
and P20,000 as attorney’s fees; (2) respondent spouses, P15,000.00 as nominal damages, P10,000.00 as exemplary damages
and P10,000.00 as attorney’s fees; and, (3) the costs.

Petitioner timely filed a Motion for Reconsideration which was denied by the Court of Appeals on 19 October 1998. Hence, this
petition.

At issue for resolution by the Court is the nature of the contract entered into between petitioner Lourdes Ong Limson on one hand,
and respondent spouses Lorenzo de Vera and Asuncion Santos-de Vera on the other.

The main argument of petitioner is that there was a perfected contract to sell between her and respondent spouses. On the other
hand, respondent spouses and respondents SUNVAR and Cuenca argue that what was perfected between petitioner and
respondent spouses was a mere option.

A scrutiny of the facts as well as the evidence of the parties overwhelmingly leads to the conclusion that the agreement between
the parties was a contract of option and not a contract to sell.

An option, as used in the law of sales, is a continuing offer or contract by which the owner sitpulates with another that the latter
shall have the right to buy the property at a fixed price within a time certain, or under, or in compliance with, certain terms and
conditions, or which gives to the owner of the property the right to sell or demand a sale. It is also sometimes called an "unaccepted
offer." An option is not itself a purchase, but merely secures the privilege to buy.8 It is not a sale of property but a sale of right to
purchase.9 It is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his
property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does not sell
something, i.e., the right or privilege to buy at the election or option of the other party.10 Its distinguishing characteristic is that it
imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until acceptance, it is not,
properly speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in the subject
matter, but is merely a contract by which the owner of the property gives the optionee the right or privilege of accepting the offer
and buying the property on certain terms.11

On the other hand, a contract, like a contract to sell, involves the meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some service.12 Contracts, in general, are perfected by mere
consent,13 which 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.14

The Receipt15 that contains the contract between petitioner and respondent spouses provides –

Received from Lourdes Limson the sum of Twenty Thousand Peso (P20,000.00) under Check No. 22391 dated July 31, 1978 as
earnest money with option to purchase a parcel of land owned by Lorenzo de Vera located at Barrio San Dionisio, Municipality of
Parañaque, Province of Rizal with an area of forty eight thousand two hundred sixty square meters more or less at the price of
Thirty Four Pesos (34.00)16 cash subject to the condition and stipulation that have been agreed upon by the buyer and me which will
form part of the receipt. Should the transaction of the property not materialize not on the fault of the buyer, I obligate myself to
return the full amount of P20,000.00 earnest money with option to buy or forfeit on the fault of the buyer. I guarantee to notify the
buyer Lourdes Limson or her representative and get her conformity should I sell or encumber this property to a third person. This
option to buy is good within ten (10) days until the absolute deed of sale is finally signed by the parties or the failure of the buyer to
comply with the terms of the option to buy as herein attached.

In the interpretation of contracts, the ascertainment of the intention of the contracting parties is to be discharged by looking to the
words they used to project that intention in their contracts, all the words standing alone.17 The above Receipt readily shows that
respondent spouses and petitioner only entered into a contract of option; a contract by which respondent spouses agreed with
petitioner that the latter shall have the right to buy the former's property at a fixed price of P34.00 per square meter within ten (10)
days from 31 July 1978. Respondent spouses did not sell their property; they did not also agree to sell it; but they sold something,
i.e., the privilege to buy at the election or option of petitioner. The agreement imposed no binding obligation on petitioner, aside from
the consideration for the offer.

The consideration of P20,000.00 paid by petitioner to respondent spouses was referred to as "earnest money." However, a careful
examination of the words used indicated that the money is not earnest money but option money. "Earnest money" and "option
money" are not the same but distinguished thus; (a) earnest money is part of the purchase price, while option money is the money
given as a distinct consideration for an option contract; (b) earnest money given only where there is already a sale, while option
money applies to a sale not yet perfected; and, (c) when earnest money is given, the buyer is bound to pay the balance, while when
the would-be buyer gives option money, he is not required to buy,18 but may even forfeit it depending on the terms of the option.

There is nothing in the Receipt which indicates that the P20,000.00 was part of the purchase price. Moreover, it was not shown that
there was a perfected sale between the parties where earnest money was given. Finally, when petitioner gave the "earnest money"
the Receipt did not reveal that she was bound to pay the balance of the purchase price. In fact, she could even forfeit the money
given if the terms of the option were not met. Thus, the P20,000.00 could only be money given as consideration for the option
contract. That the contract between the parties is one of option is buttressed by the provision therein that should the transaction of
the provision therein that should the transaction of the property not materialize without fault of petitioner as buyer, respondent
Lorenzo de Vera obligates himself to return the full amount of P20,000.00 "earnest money" with option to buy or forfeit the same on
the fault of petitioner. It is further bolstered by the provision therein that guarantees petitioner that she or her representative would
be notified in case the subject property was sold or encumbered to a third person. Finally, the Receipt provided for a period within
which the option to buy was to be exercised, i.e., "within ten (10) days" from 31 July 1978.

Doubtless, the agreement between respondent spouses and petitioner was an "option contract" or what is sometimes called an
"unaccepted offer." During the option period the agreement was not converted into a bilateral promise to sell and to buy where both
respondent spouses and petitioner were then reciprocally bound to comply with their respective undertakings as petitioner did not
timely, affirmatively and clearly accept the offer of respondent spouses.

The rule is that except where a formal acceptance is not required, although the acceptance must be affirmatively and clearly made
and 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 by the accepting party that clearly manifest a present intention or determination to accept
the offer to buy the property of respondent spouses within the 10-day option period. The only occasion within the option period
when petitioner could have demonstrated her acceptance was on 5 August 1978 when, according to her, she agreed to meet
respondent spouses and the Ramoses at the Office of the Registrar of Deeds of Makati. Petitioner’s agreement to meet with
respondent spouses presupposes an invitation from the latter, which only emphasizes their persistence in offering the property to
the former. But whether that showed acceptance by petitioner of the offer is hazy and dubious.

On or before 10 August 1978, the last day of the option period, no affirmative or clear manifestation was made by petitioner to
accept the offer. Certainly, there was no concurrence of private respondent spouses’ offer and petitioner’s acceptance thereof within
the option period. Consequently, there was no perfected contract to sell between the parties.

On 11 August 1978 the option period expired and the exclusive right of petitioner to buy the property of respondent spouses
ceased. The subsequent meetings and negotiations, specifically on 11 and 23 August 1978, between the parties only showed the
desire of respondent spouses to sell their property to petitioner. Also, on 14 September 1978 when respondent spouses sent a
telegram to petitioner demanding full payment of the purchase price on even date simply demonstrated an inclination to give her
preference to buy subject property. Collectively, these instances did not indicate that petitioner still had the exclusive right to
purchase subject property. Verily, the commencement of negotiations between respondent spouses and respondent SUNVAR
clearly manifested that their offer to sell subject property to petitioner was no longer exclusive to her.

We cannot subscribe to the argument of petitioner that respondent spouses extended the option period when they extended the
authority of their until 31 August 1978. The extension of the contract of agency could not operate to extend the option period
between the parties in the instant case. The extension must not be implied but categorical and must show the clear intention of the
parties.1âwphi1.nêt

As to whether respondent spouses were at fault for the non-consummation of their contract with petitioner, we agree with the
appellate court that they were not to be blammed. First, within the option period, or on 4 August 1978, it was respondent spouses
and not petitioner who initiated the meeting at the Office of The Register of Deeds of Makati. Second, that the Ramoses filed to
appear on 4 August 1978 was beyond the control of respondent spouses. Third, the succeeding meetings that transpired to
consummate the contract were all beyond the option period and, as declared by the Court of Appeals, the question of who was at
fault was already immaterial. Fourth, even assuming that the meetings were within the option period, the presence of petitioner was
not enough as she was not even prepared to pay the purchase price in cash as agreed upon. Finally, even without the presence of
the Ramoses, petitioner could have easily made the necessary payment in cash as the price of the property was already set at
P34.00 per square meter and payment of the mortgage could every well be left to respondent spouses.

Petitioner further claims that when respondent spouses sent her a telegram demanding full payment of the purchase price on 14
September 1978 it was an acknowledgment of their contract to sell, thus denying them the right to claim otherwise.

We do not agree. As explained above, there was no contract to sell between petitioner and respondent spouses to speak of. Verily,
the telegram could not operate to estop them from claiming that there was such contract between them and petitioner. Neither could
it mean that respondent spouses extended the option period. The telegram only showed that respondent spouses were willing to
give petitioner a chance to buy subject property even if it no longer exclusive.

The option period having expired and acceptance was not effectively made by petitioner, the purchase of subject property by
respondent SUNVAR was perfectly valid and entered into in good faith. Petitioner claims that in August 1978 Hermigildo Sanchez,
the son of respondent spouses’ agent, Marcosa Snachez, informed Marixi Prieto, a member of the Board of Directors of respondent
SUNVAR, that the property was already sold to petitioner. Also, petitioner maintains that on 5 September 1978 respondent Cuenca
met with her and offered to buy the property from her at P45.00 per square meter. Petitioner contends that these incidents,
including the annotation of her Adverse Claim on the title of subject property on 15 September 1978 show that respondent
SUNVAR was aware of the perfected sale between her and respondent spouses, thus making respondent SUNVAR a buyer in bad
faith.

Petitioner is not correct. The dates mentioned, at least 5 and 15 September 1978, are immaterial as they were beyond the option
period given to petitioner. On the other hand, the referral to sometime in August 1978 in the testimony of Hermigildo Sanchez as
emphasized by petitioner in her petition is very vague. It could be within or beyond the option period. Clearly then, even assuming
that the meeting with Marixi Prieto actually transpired, it could not necessarily mean that she knew of the agreement between
petitioner and respondent spouses for the purchase of subject property as the meeting could have occurred beyond the option
period. In which case, no bad faith could be attributed to respondent SUNVAR. If, on the other hand, the meeting was within the
option period, petitioner was remiss in her duty to prove so. Necessarily, we are left with the conclusion that respondent SUNVAR
bought subject property from respondent spouses in good faith, for value and without knowledge of any flaw or defect in its title.

The appellate court awarded nominal and exemplary damages plus attorney’s fees to respondent spouses and respondent
SUNVAR. But nominal damages are adjudicated to vindicate or recognize the right of the plaintiff that has been violated or invaded
by the defendant.19 In the instant case, the Court recognizes the rights of all the parties and finds no violation or invasion of the
rights of respondents by petitioner. Petitioner, in filing her complaint, only seeks relief, in good faith, for what she believes she was
entitled to and should not be awarded to respondents as they are imposed only by way of example or correction for the public good
and only in addition to the moral, temperate, liquidated or compensatory damages.20 No such kinds of damages were awarded by
the Court of Appeals, only nominal, which was not justified in this case. Finally, attorney’s fees could not also be recovered as the
Court does not deem it just and equitable under the circumtances.

WHEREFORE, the petition is DENIED. The decision of the Court of Appeals ordering the Register of Deeds of Makati City to lift the
adverse claim and such other encumbrances petitioners Lourdes Ong Limson may have filed or caused to be annotated on TCT
No. S-75377 is AFFIRMED, with the MODIFICATION that the award of nominal and exemplary damages as well as attorney’s fees
is DELETED.

SO ORDERED.
CASE #3: San Miguel Properties v. Huang

MENDOZA, J.:

This is a petition for review of the decision,1 dated April 8, 1997, of the Court of Appeals which reversed the decision of the Regional
Trial Court, Branch 153, Pasig City dismissing the complaint brought by respondents against petitioner for enforcement of a
contract of sale.

The facts are not in dispute.

Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation engaged in the purchase and sale of real properties.
Part of its inventory are two parcels of land totalling 1, 738 square meters at the corner of Meralco Avenue and General Capinpin
Street, Barrio Oranbo, Pasig City, which are covered by TCT Nos. PT-82395 and PT-82396 of the Register of Deeds of Pasig City.

On February 21, 1994, the properties were offered for sale for ₱52,140,000.00 in cash. The offer was made to Atty. Helena M. Dauz
who was acting for respondent spouses as undisclosed principals. In a letter2 dated March 24, 1994, Atty. Dauz signified her clients’
interest in purchasing the properties for the amount for which they were offered by petitioner, under the following terms: the sum of
₱500,000.00 would be given as earnest money and the balance would be paid in eight equal monthly installments from May to
December, 1994. However, petitioner refused the counter-offer.

On March 29, 1994, Atty. Dauz wrote another letter3 proposing the following terms for the purchase of the properties, viz:

This is to express our interest to buy your-above-mentioned property with an area of 1, 738 sq. meters. For this purpose, we are
enclosing herewith the sum of ₱1,000,000.00 representing earnest-deposit money, subject to the following conditions.

1. We will be given the exclusive option to purchase the property within the 30 days from date of your acceptance of this offer.

2. During said period, we will negotiate on the terms and conditions of the purchase; SMPPI will secure the necessary Management
and Board approvals; and we initiate the documentation if there is mutual agreement between us.

3. In the event that we do not come to an agreement on this transaction, the said amount of ₱1,000,000.00 shall be refundable to
us in full upon demand. . . .

Isidro A. Sobrecarey, petitioner’s vice-president and operations manager for corporate real estate, indicated his conformity to the
offer by affixing his signature to the letter and accepted the "earnest-deposit" of ₱1 million. Upon request of respondent spouses,
Sobrecarey ordered the removal of the "FOR SALE" sign from the properties.

Atty. Dauz and Sobrecarey then commenced negotiations. During their meeting on April 8, 1994, Sobrecarey informed Atty. Dauz
that petitioner was willing to sell the subject properties on a 90-day term. Atty. Dauz countered with an offer of six months within
which to pay.

On April 14, 1994, the parties again met during which Sobrecarey informed Atty. Dauz that petitioner had not yet acted on her
counter-offer. This prompted Atty. Dauz to propose a four-month period of amortization.

On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April 29, 1994 to June 13, 1994 within which to exercise her
option to purchase the property, adding that within that period, "[we] hope to finalize [our] agreement on the matter."4 Her request
was granted.

On July 7, 1994, petitioner, through its president and chief executive officer, Federico Gonzales, wrote Atty. Dauz informing her that
because the parties failed to agree on the terms and conditions of the sale despite the extension granted by petitioner, the latter
was returning the amount of ₱1 million given as "earnest-deposit."5

On July 20, 1994, respondent spouses, through counsel, wrote petitioner demanding the execution within five days of a deed of
sale covering the properties. Respondents attempted to return the "earnest-deposit" but petitioner refused on the ground that
respondents’ option to purchase had already expired.

On August 16, 1994, respondent spouses filed a complaint for specific performance against petitioner before the Regional Trial
Court, Branch 133, Pasig City where it was docketed as Civil Case No. 64660.

Within the period for filing a responsive pleading, petitioner filed a motion to dismiss the complaint alleging that (1) the alleged
"exclusive option" of respondent spouses lacked a consideration separate and distinct from the purchase price and was thus
unenforceable and (2) the complaint did not allege a cause of action because there was no "meeting of the minds" between the
parties and, therefore, no perfected contract of sale. The motion was opposed by respondents.
On December 12, 1994, the trial court granted petitioner’s motion and dismissed the action. Respondents filed a motion for
reconsideration, but it was denied by the trial court. They then appealed to the Court of Appeals which, on April 8, 1997, rendered a
decision6 reversing the judgment of the trial court. The appellate court held that all the requisites of a perfected contract of sale had
been complied with as the offer made on March 29, 1994, in connection with which the earnest money in the amount of ₱1 million
was tendered by respondents, had already been accepted by petitioner. The court cited Art. 1482 of the Civil Code which provides
that "[w]henever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the
perfection of the contract." The fact the parties had not agreed on the mode of payment did not affect the contract as such is not an
essential element for its validity. In addition, the court found that Sobrecarey had authority to act in behalf of petitioner for the sale of
the properties.7

Petitioner moved for reconsideration of the trial court’s decision, but its motion was denied. Hence, this petition.

Petitioner contends that the Court of Appeals erred in finding that there was a perfected contract of sale between the parties
because the March 29, 1994 letter of respondents, which petitioner accepted, merely resulted in an option contract, albeit it was
unenforceable for lack of a distinct consideration. Petitioner argues that the absence of agreement as to the mode of payment was
fatal to the perfection of the contract of sale. Petitioner also disputes the appellate court’s ruling that Isidro A. Sobrecarey had
authority to sell the subject real properties.8

Respondents were required to comment within ten (10) days from notice. However, despite 13 extensions totalling 142 days which
the Court had given to them, respondents failed to file their comment. They were thus considered to have waived the filing of a
comment.

The petition is meritorious.

In holding that there is a perfected contract of sale, the Court of Appeals relied on the following findings: (1) earnest money was
allegedly given by respondents and accepted by petitioner through its vice-president and operations manager, Isidro A. Sobrecarey;
and (2) the documentary evidence in the records show that there was a perfected contract of sale.

With regard to the alleged payment and acceptance of earnest money, the Court holds that respondents did not give the ₱1 million
as "earnest money" as provided by Art. 1482 of the Civil Code. They presented the amount merely as a deposit of what would
eventually become the earnest money or downpayment should a contract of sale be made by them. The amount was thus given not
as a part of the purchase price and as proof of the perfection of the contract of sale but only as a guarantee that respondents would
not back out of the sale. Respondents in fact described the amount as an "earnest-deposit." In Spouses Doromal, Sr. v. Court of
Appeals,9 it was held:

. . . While the ₱5,000 might have indeed been paid to Carlos in October, 1967, there is nothing to show that the same was in the
concept of the earnest money contemplated in Art. 1482 of the Civil Code, invoked by petitioner, as signifying perfection of the sale.
Viewed in the backdrop of the factual milieu thereof extant in the record, We are more inclined to believe that the said ₱5,000.00
were paid in the concept of earnest money as the term was understood under the Old Civil Code, that is, as a guarantee that the
buyer would not back out, considering that it is not clear that there was already a definite agreement as to the price then and that
petitioners were decided to buy 6/7 only of the property should respondent Javellana refuse to agree to part with her 1/7 share.10

In the present case, the ₱1 million "earnest-deposit" could not have been given as earnest money as contemplated in Art. 1482
because, at the time when petitioner accepted the terms of respondents’ offer of March 29, 1994, their contract had not yet been
perfected. This is evident from the following conditions attached by respondents to their letter, to wit: (1) that they be given the
exclusive option to purchase the property within 30 days from acceptance of the offer; (2) that during the option period, the parties
would negotiate the terms and conditions of the purchase; and (3) petitioner would secure the necessary approvals while
respondents would handle the documentation.

The first condition for an option period of 30 days sufficiently shows that a sale was never perfected.1âwphi1 As petitioner correctly
points out, acceptance of this condition did not give rise to a perfected sale but merely to an option or an accepted unilateral
promise on the part of respondents to buy the subject properties within 30 days from the date of acceptance of the offer. Such
option giving respondents the exclusive right to buy the properties within the period agreed upon is separate and distinct from the
contract of sale which the parties may enter.11 All that respondents had was just the option to buy the properties which privilege was
not, however, exercised by them because there was a failure to agree on the terms of payment. No contract of sale may thus be
enforced by respondents.

Furthermore, even the option secured by respondents from petitioner was fatally defective. Under the second paragraph of Art.
1479, an accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promisor only if the
promise is supported by a distinct consideration. Consideration in an option contract may be anything of value, unlike in sale where
it must be the price certain in money or its equivalent. There is no showing here of any consideration for the option. Lacking any
proof of such consideration, the option is unenforceable.

Equally compelling as proof of the absence of a perfected sale is the second condition that, during the option period, the parties
would negotiate the terms and conditions of the purchase. The stages of a contract of sale are as follows: (1) negotiation, covering
the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected; (2)
perfection, which takes place upon the concurrence of the essential elements of the sale which are the meeting of the minds of the
parties as to the object of the contract and upon the price; and (3) consummation, which begins when the parties perform their
respective undertakings under the contract of sale, culminating in the extinguishment thereof.12 In the present case, the parties
never got past the negotiation stage. The alleged "indubitable evidence"13 of a perfected sale cited by the appellate court was
nothing more than offers and counter-offers which did not amount to any final arrangement containing the essential elements of a
contract of sale. While the parties already agreed on the real properties which were the objects of the sale and on the purchase
price, the fact remains that they failed to arrive at mutually acceptable terms of payment, despite the 45-day extension given by
petitioner.

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

. . . Such being the situation, it can not, therefore, be said that a definite and firm sales agreement between the parties had been
perfected over the lot in question. Indeed, this Court has already ruled before that a definite agreement on the manner of payment
of the purchase price is an essential element in the formation of a binding and enforceable contract of sale. The fact, therefore, that
the petitioners delivered to the respondent the sum of P10,000 as part of the down-payment that they had to pay cannot be
considered as sufficient proof of the perfection of any purchase and sale agreement between the parties herein under Art. 1482 of
the new Civil Code, as the petitioners themselves admit that some essential matter - the terms of the payment - still had to be
mutually covenanted.18

Thus, it is not the giving of earnest money, but the proof of the concurrence of all the essential elements of the contract of sale
which establishes the existence of a perfected sale.

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

WHEREFORE, the decision of the Court of Appeals is REVERSED and respondents’ complaint is DISMISSED.

SO ORDERED.
CASE #4: Ang Yu Asuncion v. CA

VITUG, J.:

Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December 1991, in CA-G.R. SP No. 26345
setting aside and declaring without force and effect the orders of execution of the trial court, dated 30 August 1991 and 27
September 1991, in Civil Case No. 87-41058.

The antecedents are recited in good detail by the appellate court thusly:

On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang Yu Asuncion and Keh Tiong, et al.,
against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the Regional Trial Court, Branch 31, Manila in Civil Case No.
87-41058, alleging, among others, that plaintiffs are tenants or lessees of residential and commercial spaces owned by defendants
described as Nos. 630-638 Ongpin Street, Binondo, Manila; that they have occupied said spaces since 1935 and have been
religiously paying the rental and complying with all the conditions of the lease contract; that on several occasions before October 9,
1986, defendants informed plaintiffs that they are offering to sell the premises and are giving them priority to acquire the same; that
during the negotiations, Bobby Cu Unjieng offered a price of P6-million while plaintiffs made a counter offer of P5-million; that
plaintiffs thereafter asked the defendants to put their offer in writing to which request defendants acceded; that in reply to
defendant's letter, plaintiffs wrote them on October 24, 1986 asking that they specify the terms and conditions of the offer to sell;
that when plaintiffs did not receive any reply, they sent another letter dated January 28, 1987 with the same request; that since
defendants failed to specify the terms and conditions of the offer to sell and because of information received that defendants were
about to sell the property, plaintiffs were compelled to file the complaint to compel defendants to sell the property to them.

Defendants filed their answer denying the material allegations of the complaint and interposing a special defense of lack of cause of
action.

After the issues were joined, defendants filed a motion for summary judgment which was granted by the lower court. The trial court
found that defendants' offer to sell was never accepted by the plaintiffs for the reason that the parties did not agree upon the terms
and conditions of the proposed sale, hence, there was no contract of sale at all. Nonetheless, the lower court ruled that should the
defendants subsequently offer their property for sale at a price of P11-million or below, plaintiffs will have the right of first refusal.
Thus the dispositive portion of the decision states:

WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiffs summarily dismissing the
complaint subject to the aforementioned condition that if the defendants subsequently decide to offer their property for sale for a
purchase price of Eleven Million Pesos or lower, then the plaintiffs has the option to purchase the property or of first refusal,
otherwise, defendants need not offer the property to the plaintiffs if the purchase price is higher than Eleven Million Pesos.

SO ORDERED.

Aggrieved by the decision, plaintiffs appealed to this Court in

CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by Justice Segundino G. Chua and concurred
in by Justices Vicente V. Mendoza and Fernando A. Santiago), this Court affirmed with modification the lower court's judgment,
holding:

In resume, there was no meeting of the minds between the parties concerning the sale of the property. Absent such requirement,
the claim for specific performance will not lie. Appellants' demand for actual, moral and exemplary damages will likewise fail as
there exists no justifiable ground for its award. Summary judgment for defendants was properly granted. Courts may render
summary judgment when there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a
matter of law (Garcia vs. Court of Appeals, 176 SCRA 815). All requisites obtaining, the decision of the court a quo is legally
justifiable.

WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby AFFIRMED, but subject to the following
modification: The court a quo in the aforestated decision gave the plaintiffs-appellants the right of first refusal only if the property is
sold for a purchase price of Eleven Million pesos or lower; however, considering the mercurial and uncertain forces in our market
economy today. We find no reason not to grant the same right of first refusal to herein appellants in the event that the subject
property is sold for a price in excess of Eleven Million pesos. No pronouncement as to costs.

SO ORDERED.

The decision of this Court was brought to the Supreme Court by petition for review on certiorari. The Supreme Court denied the
appeal on May 6, 1991 "for insufficiency in form and substances" (Annex H, Petition).

On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the Cu Unjieng spouses executed a
Deed of Sale (Annex D, Petition) transferring the property in question to herein petitioner Buen Realty and Development
Corporation, subject to the following terms and conditions:
1. That for and in consideration of the sum of FIFTEEN MILLION PESOS (P15,000,000.00), receipt of which in full is hereby
acknowledged, the VENDORS hereby sells, transfers and conveys for and in favor of the VENDEE, his heirs, executors,
administrators or assigns, the above-described property with all the improvements found therein including all the rights and interest
in the said property free from all liens and encumbrances of whatever nature, except the pending ejectment proceeding;

2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees for the transfer of title in his favor and other expenses
incidental to the sale of above-described property including capital gains tax and accrued real estate taxes.

As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses was cancelled and, in lieu thereof,
TCT No. 195816 was issued in the name of petitioner on December 3, 1990.

On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees demanding that the latter vacate
the premises.

On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the property subject to the notice of lis
pendens regarding Civil Case No. 87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs.

The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case No. 87-41058 as modified by the
Court of Appeals in CA-G.R. CV No. 21123.

On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows:

Presented before the Court is a Motion for Execution filed by plaintiff represented by Atty. Antonio Albano. Both defendants Bobby
Cu Unjieng and Rose Cu Unjieng represented by Atty. Vicente Sison and Atty. Anacleto Magno respectively were duly notified in
today's consideration of the motion as evidenced by the rubber stamp and signatures upon the copy of the Motion for Execution.

The gist of the motion is that the Decision of the Court dated September 21, 1990 as modified by the Court of Appeals in its
decision in CA G.R. CV-21123, and elevated to the Supreme Court upon the petition for review and that the same was denied by
the highest tribunal in its resolution dated May 6, 1991 in G.R. No.
L-97276, had now become final and executory. As a consequence, there was an Entry of Judgment by the Supreme Court as of
June 6, 1991, stating that the aforesaid modified decision had already become final and executory.

It is the observation of the Court that this property in dispute was the subject of the Notice of Lis Pendens and that the modified
decision of this Court promulgated by the Court of Appeals which had become final to the effect that should the defendants decide
to offer the property for sale for a price of P11 Million or lower, and considering the mercurial and uncertain forces in our market
economy today, the same right of first refusal to herein plaintiffs/appellants in the event that the subject property is sold for a price in
excess of Eleven Million pesos or more.

WHEREFORE, defendants are hereby ordered to execute the necessary Deed of Sale of the property in litigation in favor of
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million pesos in recognition of plaintiffs' right of
first refusal and that a new Transfer Certificate of Title be issued in favor of the buyer.

All previous transactions involving the same property notwithstanding the issuance of another title to Buen Realty Corporation, is
hereby set aside as having been executed in bad faith.

SO ORDERED.

On September 22, 1991 respondent Judge issued another order, the dispositive portion of which reads:

WHEREFORE, let there be Writ of Execution issue in the above-entitled case directing the Deputy Sheriff Ramon Enriquez of this
Court to implement said Writ of Execution ordering the defendants among others to comply with the aforesaid Order of this Court
within a period of one (1) week from receipt of this Order and for defendants to execute the necessary Deed of Sale of the property
in litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15,000,000.00 and ordering
the Register of Deeds of the City of Manila, to cancel and set aside the title already issued in favor of Buen Realty Corporation
which was previously executed between the latter and defendants and to register the new title in favor of the aforesaid plaintiffs Ang
Yu Asuncion, Keh Tiong and Arthur Go.

SO ORDERED.

On the same day, September 27, 1991 the corresponding writ of execution (Annex C, Petition) was issued.1

On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared without force and effect
the above questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound by the writ of execution by virtue of
the notice of lis pendens, carried over on TCT No. 195816 issued in the name of Buen Realty, at the time of the latter's purchase of
the property on 15 November 1991 from the Cu Unjiengs.

We affirm the decision of the appellate court.

A not too recent development in real estate transactions is the adoption of such arrangements as the right of first refusal, a
purchase option and a contract to sell. For ready reference, we might point out some fundamental precepts that may find some
relevance to this discussion.

An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is constituted upon the
concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical tie which is the efficient cause established by
the various sources of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is the prestation or
conduct; required to be observed (to give, to do or not to do); and (c) the subject-persons who, viewed from the demandability of
the obligation, are the active (obligee) and the passive (obligor) subjects.

Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or to render some service (Art. 1305, Civil Code). A contract
undergoes various stages that include its negotiation or preparation, its perfection and, finally, its consummation. Negotiation covers
the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded
(perfected). The perfection of the contract takes place upon the concurrence of the essential elements thereof. A contract which is
consensual as to perfection is so established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the
object and on the cause thereof. A contract which requires, in addition to the above, the delivery of the object of the agreement, as
in a pledge or commodatum, is commonly referred to as a real contract. In a solemn contract, compliance with certain formalities
prescribed by law, such as in a donation of real property, is essential in order to make the act valid, the prescribed form being
thereby an essential element thereof. The stage of consummation begins when the parties perform their respective undertakings
under the contract culminating in the extinguishment thereof.

Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation. In sales,
particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected when a person, called the
seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over
which the latter agrees. Article 1458 of the Civil Code provides:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of the thing sold is
retained until the fulfillment of a positive suspensive condition (normally, the full payment of the purchase price), the breach of the
condition will prevent the obligation to convey title from acquiring an obligatory force.2 In Dignos vs. Court of Appeals (158 SCRA
375), we have said that, although denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is devoid of
any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will
then be transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a public document) of the property
sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such
perfection.3 If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the
condition or refuse to proceed with the sale (Art. 1545, Civil Code).4

An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed, can be obligatory
on the parties, and compliance therewith may accordingly be exacted.5

An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a valuable
consideration distinct and separate from the price, is what may properly be termed a perfected contract of option. This contract is
legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil Code, viz:

Art. 1479. . . .

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. (1451a)6

Observe, however, that the option is not the contract of sale itself.7 The optionee has the right, but not the obligation, to buy. Once
the option is exercised timely, i.e., the offer is accepted before a breach of the option, a bilateral promise to sell and to buy ensues
and both parties are then reciprocally bound to comply with their respective undertakings.8

Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is merely an offer. Public
advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as proposals. These
relations, until a contract is perfected, are not considered binding commitments. Thus, at any time prior to the perfection of the
contract, either negotiating party may stop the negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective
immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal (Laudico
vs. Arias, 43 Phil. 270). Where a period is given to the offeree within which to accept the offer, the following rules generally govern:

(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to withdraw the
offer before its acceptance, or, if an acceptance has been made, before the offeror's coming to know of such fact, by
communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding
that this rule is applicable to a unilateral promise to sell under Art. 1479, modifying the previous decision in South Western Sugar
vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Parañaque, Inc., vs. Remolado, 135 SCRA 409;
Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it
could give rise to a damage claim under Article 19 of the Civil Code which ordains that "every person must, in the exercise of his
rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith."

(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would be a breach of that contract
to withdraw the offer during the agreed period. The option, however, is an independent contract by itself, and it is to be
distinguished from the projected main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the
optioner-offeror withdraws the offer before its acceptance (exercise of the option) by the optionee-offeree, the latter may not sue for
specific performance on the proposed contract ("object" of the option) since it has failed to reach its own stage of perfection. The
optioner-offeror, however, renders himself liable for damages for breach of the option. In these cases, care should be taken of the
real nature of the consideration given, for if, in fact, it has been intended to be part of the consideration for the main contract with a
right of withdrawal on the part of the optionee, the main contract could be deemed perfected; a similar instance would be an
"earnest money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code).

In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point out, it cannot be deemed
a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first refusal, understood in its normal
concept, per se be brought within the purview of an option under the second paragraph of Article 1479, aforequoted, or possibly of
an offer under Article 13199 of the same Code. An option or an offer would require, among other things,10 a clear certainty on both
the object and the cause or consideration of the envisioned contract. In a right of first refusal, while the object might be made
determinate, the exercise of the right, however, would be dependent not only on the grantor's eventual intention to enter into a
binding juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior
thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts
(since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of
general application, the pertinent scattered provisions of the Civil Code on human conduct.

Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach cannot justify
correspondingly an issuance of a writ of execution under a judgment that merely recognizes its existence, nor would it sanction an
action for specific performance without thereby negating the indispensable element of consensuality in the perfection of contracts.11
It is not to say, however, that the right of first refusal would be inconsequential for, such as already intimated above, an unjustified
disregard thereof, given, for instance, the circumstances expressed in Article 1912 of the Civil Code, can warrant a recovery for
damages. The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first refusal" in favor
of petitioners. The consequence of such a declaration entails no more than what has heretofore been said. In fine, if, as it is here so
conveyed to us, petitioners are aggrieved by the failure of private respondents to honor the right of first refusal, the remedy is not a
writ of execution on the judgment, since there is none to execute, but an action for damages in a proper forum for the purpose.

Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser of the property, has acted
in good faith or bad faith and whether or not it should, in any case, be considered bound to respect the registration of the lis
pendens in Civil Case No. 87-41058 are matters that must be independently addressed in appropriate proceedings. Buen Realty,
not having been impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of execution issued by respondent Judge,
let alone ousted from the ownership and possession of the property, without first being duly afforded its day in court.

We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the writ of execution varies the
terms of the judgment in Civil Case No. 87-41058, later affirmed in CA-G.R. CV-21123. The Court of Appeals, in this regard, has
observed:

Finally, the questioned writ of execution is in variance with the decision of the trial court as modified by this Court. As already
stated, there was nothing in said decision 13 that decreed the execution of a deed of sale between the Cu Unjiengs and respondent
lessees, or the fixing of the price of the sale, or the cancellation of title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516;
Pamantasan ng Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA 885).
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have decreed at the time the execution of
any deed of sale between the Cu Unjiengs and petitioners.

WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned Orders, dated 30 August 1991 and 27
September 1991, of the court a quo. Costs against petitioners. SO ORDERED.
CASE #5: Bible Baptist Church v. CA

AZCUNA, J.:

This petition for review on certiorari seeks to annul the Decision1 dated August 7, 1996, of the Court of Appeals in CA-G.R. CV No.
45956, and its Resolution2 dated September 12, 1996, denying reconsideration of the decision. In the questioned issuances, the
Court of Appeals affirmed the Decision3 dated June 8, 1993, of the Regional Trial Court of Manila, Branch 3, in Civil Case No.
90-55437.

The antecedents are:

On June 7, 1985, the Bible Baptist Church (petitioner Baptist Church) entered into a contract of lease4 with Mr. & Mrs. Elmer Tito
Medina Villanueva (respondent spouses Villanueva). The latter are the registered owners of a property located at No. 2436
(formerly 2424) Leon Guinto St., Malate, Manila. The pertinent stipulations in the lease contract were:

1. That the LESSOR lets and leases to the LESSEE a store space known as 2424 Leon Guinto Sr. St., Malate, Manila, of which
property the LESSOR is the registered owner in accordance with the Land Registration Act.

2. That the lease shall take effect on June 7, 1985 and shall be for the period of Fifteen (15) years.

3. That LESSEE shall pay the LESSOR within five (5) days of each calendar month, beginning Twelve (12) months from the date of
this agreement, a monthly rental of Ten Thousand Pesos (P10,000.00) Philippine Currency, plus 10% escalation clause per year
starting on June 7, 1988.

4. That upon signing of the LEASE AGREEMENT, the LESSEE shall pay the sum of Eighty Four Thousand Pesos (P84,000.00)
Philippine Currency. Said sum is to be paid directly to the Rural Bank, Valenzuela, Bulacan for the purpose of redemption of said
property which is mortgaged by the LESSOR.

5. That the title will remain in the safe keeping of the Bible Baptist Church, Malate, Metro Manila until the expiration of the lease
agreement or the leased premises be purchased by the LESSEE, whichever comes first. In the event that the said title will be lost
or destroyed while in the possession of the LESSEE, the LESSEE agrees to pay all costs involved for the re-issuance of the title.

6. That the leased premises may be renovated by the LESSEE, to the satisfaction of the LESSEE to be fit and usable as a Church.

7. That the LESSOR will remove all other tenants from the leased premises no later than March 15, 1986. It is further agreed that if
those tenants are not vacated by June 1, 1986, the rental will be lowered by the sum of Three Thousand Pesos (P3,000.00) per
month until said tenants have left the leased premises.

8. That the LESSEE has the option to buy the leased premises during the Fifteen (15) years of the lease. If the LESSEE decides to
purchase the premises the terms will be: A) A selling Price of One Million Eight Hundred Thousand Pesos (P1.8 million), Philippine
Currency. B) A down payment agreed upon by both parties. C) The balance of the selling price may be paid at the rate of One
Hundred Twenty Thousand Pesos (P120,000.00), Philippine Currency, per year.

x x x.5

The foregoing stipulations of the lease contract are the subject of the present controversy.

Although the same lease contract resulted in several cases6 filed between the same parties herein, petitioner submits, for this
Court's review, only the following errors allegedly committed by the Court of Appeals:

a) Respondent Court of Appeals erred in finding that the option to buy granted the petitioner Baptist Church under its contract of
lease with the Villanuevas did not have a consideration and, therefore, did not bind the latter;

b) [R]espondent court again also erred in finding that the option to buy did not have a fixed price agreed upon by the parties for the
purchase of the property; and

c) [F]inally, respondent court erred in not awarding petitioners Baptist Church and its pastor attorney's fees.7

In sum, this Court has three issues to resolve: 1) Whether or not the option to buy given to the Baptist Church is founded upon a
consideration; 2) Whether or not by the terms of the lease agreement, a price certain for the purchase of the land had been fixed;
and 3) Whether or not the Baptist Church is entitled to an award for attorney's fees.

The stipulation in the lease contract which purportedly gives the lessee an option to buy the leased premises at any time within the
duration of the lease, is found in paragraph 8 of the lease contract, viz:
8. That the LESSEE has the option to buy the leased premises during the Fifteen (15) years of the lease. If the LESSEE decides to
purchase the premises the terms will be: A) A selling Price of One Million Eight Hundred Thousand Pesos (P1.8 million), Philippine
Currency. B) A down payment agreed upon by both parties. C) The balance of the selling price may be paid at the rate of One
Hundred Twenty Thousand Pesos (P120,000.00), Philippine Currency, per year.

Under Article 1479 of the Civil Code, it is provided:

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise
is supported by a consideration distinct from the price.

The second paragraph of Article 1479 provides for the definition and consequent rights and obligations under an option contract.
For an option contract to be valid and enforceable against the promissor, there must be a separate and distinct consideration that
supports it.

In this case, petitioner Baptist Church seeks to buy the leased premises from the spouses Villanueva, under the option given to
them. Petitioners claim that the Baptist Church "agreed to advance the large amount needed for the rescue of the property but, in
exchange, it asked the Villanuevas to grant it a long term lease and an option to buy the property for P1.8 million."8 They argue that
the consideration supporting the option was their agreement to pay off the Villanueva's P84,000 loan with the bank, thereby freeing
the subject property from the mortgage encumbrance. They state further that the Baptist Church would not have agreed to advance
such a large amount as it did to rescue the property from bank foreclosure had it not been given an enforceable option to buy that
went with the lease agreement.

In the petition, the Baptist Church states that "[t]rue, the Baptist Church did not pay a separate and specific sum of money to cover
the option alone. But the P84,000 it paid the Villanuevas in advance should be deemed consideration for the one contract they
entered into – the lease with option to buy."9 They rely on the case of Teodoro v. Court of Appeals10 to support their stand.

This Court finds no merit in these contentions.

First, petitioners cannot insist that the P84,000 they paid in order to release the Villanuevas' property from the mortgage should be
deemed the separate consideration to support the contract of option. It must be pointed out that said amount was in fact
apportioned into monthly rentals spread over a period of one year, at P7,000 per month. Thus, for the entire period of June 1985 to
May 1986, petitioner Baptist Church's monthly rent had already been paid for, such that it only again commenced paying the rentals
in June 1986. This is shown by the testimony of petitioner Pastor Belmonte where he states that the P84,000 was advance rental
equivalent to monthly rent of P7,000 for one year, such that for the entire year from 1985 to 1986 the Baptist Church did not pay
monthly rent.11

This Court agrees with respondents that the amount of P84,000 has been fully exhausted and utilized by their occupation of the
premises and there is no separate consideration to speak of which could support the option.12

Second, petitioners' reliance on the case of Teodoro v. Court of Appeals13 is misplaced. The facts of the Teodoro case reveal that
therein respondent Ariola was the registered lessee of a property owned by the Manila Railroad Co. She entered into an agreement
whereby she allowed Teodoro to occupy a portion of the rented property and gave Teodoro an option to buy the same, should
Manila Railroad Co. decide to sell the property to Ariola. In addition, Teodoro, who was occupying only a portion of the subject
rented property, also undertook to pay the Manila Railroad Co., the full amount of the rent supposed to be paid by the registered
lessor Ariola. Consequently, unlike this case, Teodoro paid over and above the amount due for her own occupation of a portion of
the property. That amount, which should have been paid by Ariola as lessor, and for her own occupation of the property, was
deemed by the Court as sufficient consideration for the option to buy which Ariola gave to Teodoro upon Ariola's acquiring the
property.

Hence, in Teodoro, this Court was able to find that a separate consideration supported the option contract and thus, its enforcement
may be demanded. Petitioners, therefore, cannot rely on Teodoro, for the case even supports the respondents' stand that a
consideration that is separate and distinct from the purchase price is required to support an option contract.

Petitioners further insist that a consideration need not be a separate sum of money. They posit that their act of advancing the
money to "rescue" the property from mortgage and impending foreclosure, should be enough consideration to support the option.

In Villamor v. Court of Appeals,14 this Court defined consideration as "the why of the contracts, the essential reason which moves
the contracting parties to enter into the contract."15 This definition illustrates that the consideration contemplated to support an
option contract need not be monetary. Actual cash need not be exchanged for the option. However, by the very nature of an option
contract, as defined in Article 1479, the same is an onerous contract for which the consideration must be something of value,
although its kind may vary.

Specifically, in Villamor v. Court of Appeals,16 half of a parcel of land was sold to the spouses Villamor for P70 per square meter, an
amount much higher than the reasonable prevailing price. Thereafter, a deed of option was executed whereby the sellers undertook
to sell the other half to the same spouses. It was stated in the deed that the only reason the spouses bought the first half of the
parcel of land at a much higher price, was the undertaking of the sellers to sell the second half of the land, also at the same price.
This Court held that the cause or consideration for the option, on the part of the spouses-buyers, was the undertaking of the sellers
to sell the other half of the property. On the part of the sellers, the consideration supporting the option was the much higher amount
at which the buyers agreed to buy the property. It was explicit from the deed therein that for the parties, this was the consideration
for their entering into the contract.

It can be seen that the Court found that the buyer/optionee had parted with something of value, which was the amount he paid over
and above the actual prevailing price of the land. Such amount, different from the price of the land subject of the option, was
deemed sufficient and distinct consideration supporting the option contract. Moreover, the parties stated the same in their contract.

Villamor is distinct from the present case because, First, this Court cannot find that petitioner Baptist Church parted with anything of
value, aside from the amount of P84,000 which was in fact eventually utilized as rental payments. Second, there is no document
that contains an agreement between the parties that petitioner Baptist Church's supposed rescue of the mortgaged property was
the consideration which the parties contemplated in support of the option clause in the contract. As previously stated, the amount
advanced had been fully utilized as rental payments over a period of one year. While the Villanuevas may have them to thank for
extending the payment at a time of need, this is not the separate consideration contemplated by law.

Noting that the option clause was part of a lease contract, this Court looked into its previous ruling in the early case of Vda. De
Quirino v. Palarca,17 where the Court did say that "in reciprocal contracts, like the one in question,18 the obligation or promise of
each party is the consideration for that of the other."19 However, it must be noted that in that case, it was also expressly stated in the
deed that should there be failure to exercise the option to buy the property, the optionee undertakes to sell the building and/or
improvements he has made on the premises. In addition, the optionee had also been paying an amount of rent that was quite high
and in fact turned out to be too burdensome that there was a subsequent agreement to reduce said rentals. The Court found that
"the amount of rentals agreed upon x x x – which amount turned out to be so burdensome upon the lessee, that the lessor agreed,
five years later, to reduce it – as well as the building and/or improvements contemplated to be constructed and/or introduced by the
lessee, were, undoubtedly, part of the consideration for his option to purchase the leased premises."20

Again, this Court notes that the parties therein clearly stipulated in their contract that there was an undertaking on the part of the
optionee to sell the improvements made on the property if the option was not exercised. Such is a valuable consideration that could
support the option contract. Moreover, there was the excessive rental payments that the optionee paid for five years, which the
Court also took into account in deciding that there was a separate consideration supporting the option.

To summarize the rules, an option contract needs to be supported by a separate consideration. The consideration need not be
monetary but could consist of other things or undertakings. However, if the consideration is not monetary, these must be things or
undertakings of value, in view of the onerous nature of the contract of option. Furthermore, when a consideration for an option
contract is not monetary, said consideration must be clearly specified as such in the option contract or clause.

This Court also notes that in the present case both the Regional Trial Court and the Court of Appeals agree that the option was not
founded upon a separate and distinct consideration and that, hence, respondents Villanuevas cannot be compelled to sell their
property to petitioner Baptist Church.

The Regional Trial Court found that "[a]ll payments made under the contract of lease were for rentals. No money [was] ever
exchanged for and in consideration of the option." Hence, the Regional Trial Court found the action of the Baptist Church to be
"premature and without basis to compel the defendant to sell the leased premises." The Regional Trial Court consequently ruled:

WHEREFORE, judgment is rendered:

1) Denying plaintiffs' application for writ of injunction;

2) That defendant cannot be compelled to sell to plaintiffs the leased premises in accordance with par. 8 of the contract of lease;

3) Defendant is hereby ordered to reimburse plaintiffs the sum of P15, 919.75 plus 12% interest representing real estate taxes,
plaintiffs paid the City Treasurer's Office of Manila;

4) Declaring that plaintiff made a valid and legal consignation to the Court of the initial amount of P18,634.00 for the month of
November and December 1990 and every month thereafter.

All other claims of the plaintiffs are hereby dismissed for lack of merit.

No pronouncement as to costs.

SO ORDERED. 21

On appeal, the Court of Appeals agreed with the Regional Trial Court and found that the option to buy the leased premises was not
binding upon the Villanuevas for non-compliance with Article 1479. It found that said option was not supported by a consideration
as "no money was ever really exchanged for and in consideration of the option." In addition, the appellate court determined that in
the instant case, "the price for the object is not yet certain." Thus, the Court of Appeals affirmed the Regional Trial Court decision
and dismissed the appeal for lack of merit.22

Having found that the option to buy granted to the petitioner Baptist Church was not founded upon a separate consideration, and
hence, not enforceable against respondents, this Court finds no need to discuss whether a price certain had been fixed as the
purchase price.

Anent the claim for attorney's fees, it is stipulated in paragraph 13 of the lease agreement that in the event of failure of either of the
parties to comply with any of the conditions of the agreement, the aggrieved party can collect reasonable attorney's fees.23

In view of this Court's finding that the option contract is not enforceable for being without consideration, the respondents Villanueva
spouses' refusal to comply with it cannot be the basis of a claim for attorney's fees.

Hence, this Court agrees with as the Court of Appeals, which affirmed the findings of the Regional Trial Court, that such claim is to
be dismissed for lack of factual and legal basis.

WHEREFORE, the Decision and Resolution of the Court of Appeals subject of the petition are hereby AFFIRMED.

No costs.

SO ORDERED.
 PARTIES TO A CONTRACT OF SALE

CASE #6: Fullido v. Grilli

MENDOZA, J.:

This is a petition for review on certiorari seeking to reverse and set aside the May 31, 2013 Decision1 and the September 24, 20142
Resolution of the Court of Appeals (CA) in CA-G.R. CEB-SP No. 06946, which affirmed the April 26, 2012 Decision3 of the Regional
Trial Court, Branch 47, Tagbilaran City (RTC) in Civil Case No. 7895, reversing the March 31, 2011 Decision4 of the Municipal
Circuit Trial Court, Dauis, Bohol (MCTC) in Civil Case No. 244, a case for unlawful detainer filed by Gino Grilli (Grilli) against
Rebecca Fullido (Fullido).

The Facts

Sometime in 1994, Grilli, an Italian national, met Fullido in Bohol and courted her. In 1995, Grilli decided to build a residential house
where he and Fullido would to stay whenever he would be vacationing in the country. Grilli financially assisted Fullido in procuring a
lot located in Biking I, Dauis, Bohol, from her parents which was registered in her name under Transfer Certificate of Title (TCT) No.
30626.5 On the said property, they constructed a house, which was funded by Grilli. Upon completion, they maintained a
common-law relationship and lived there whenever Grilli was on vacation in the Philippines twice a year.

In 1998, Grilli and Fullido executed a contract of lease, 6 a memorandum of agreement7 (MOA) and a special power of attorney8
(SPA), to define their respective rights over the house and lot.

The lease contract stipulated, among others, that Grilli as the lessee, would rent the lot, registered in the name of Fullido, for a
period of fifty (50) years, to be automatically renewed for another fifty (50) years upon its expiration in the amount of P10,000.00 for
the whole term of the lease contract; and that Fullido as the lessor, was prohibited from selling, donating, or encumbering the said
lot without the written consent of Grilli. The pertinent provisions of the lease contract over the house and lot are as follows:

That for and in consideration of the total amount of rental in the amount of TEN THOUSAND (P10,000.00) PESOS, Philippine
Currency, paid by the LESSEE to the LESSOR, receipt of which is hereby acknowledged, the latter hereby leases to the LESSEE a
house and lot, and all the furnishings found therein, land situated at Biking I, Dauis, Bohol, Philippines, absolutely owned and
belonging to the LESSOR and particularly described as follows, to wit:

xxxx

That the LESSOR and the LESSEE hereby agree as they have agreed to be bound by the following terms and conditions, to wit:

1. That the term of the lease shall be FIFTY (50) YEARS from August 16, 1998 to August 15, 2048, automatically renewed for the
same term upon the expiration thereof;

xxx

7. That the LESSOR is strictly prohibited to sell, donate, encumber, or in any manner convey the property subject of this lease to
any third person, without the written consent of the LESSEE.9

The said lease contract was duly registered in the Register of Deeds of Bohol.

The MOA, on the other hand, stated, among others, that Grilli paid for the purchase price of the house and lot; that ownership of the
house and lot was to reside with him; and that should the common-law relationship be terminated, Fullido could only sell the house
and lot to whomever Grilli so desired. Specifically, the pertinent terms of the MOA read:

NOW WHEREFORE, FOR AND IN CONSIDERATION of the foregoing premises, the parties hereto agree as they hereby covenant
to agree that the FIRST PARTY (Grilli) shall permanently reside on the property as above-mentioned, subject to the following terms
and conditions:

1. That ownership over the above-mentioned properties shall reside absolutely with herein FIRST PARTY, and the SECOND
PARTY (Fullido) hereby acknowledges the same;

2. That the SECOND PARTY is expressly prohibited to sell the above-stated property, except if said sale is with the conformity of
the FIRST PARTY;

3. That the SECOND PARTY hereby grants the FIRST PARTY, the absolute and irrevocable right, to reside in the residential
building so constructed during his lifetime, or any time said FIRST PARTY may so desire;

4. That in the event the common-law relationship terminates, or when the SECOND PARTY marries another, or enters into another
common-law relationship with another, said SECOND PARTY shall be obliged to execute a DEED OF ABSOLUTE SALE over the
above-stated parcel of land and residential building, in favor of whomsoever the FIRST PARTY may so desire, and be further
obliged to turn over the entire consideration of the said sale to the FIRST PARTY , or if the law shall allow, the FIRST PARTY shall
retain ownership of the said land, as provided for in paragraph 7 below;

xxx

7. That if the cases referred to in paragraph 4 shall occur and in the event that a future law shall be passed allowing foreigners to
own real properties in the Philippines, the ownership of the above-described real properties shall pertain to the FIRST PARTY, and
the herein undersigned SECOND PARTY undertakes to execute all the necessary deeds, documents, and contracts to effect the
transfer of title in favor of the FIRST PARTY;

x x x .10

Lastly, the SPA allowed Grilli to administer, manage, and transfer the house and lot on behalf of Fullido. Initially, their relationship
was harmonious, but it turned sour after 16 years of living together. Both charged each other with infidelity. They could not agree
who should leave the common property, and Grilli sent formal letters to Fullido demanding that she vacate the property, but these
were unheeded. On September 8, 2010, Grilli filed a complaint for unlawful detainer with prayer for issuance of preliminary
injunction against Fullido before the MCTC, docketed as Civil Case No. 244.

Grilli’s Position

The complaint stated that the common-law relationship between Grilli and Fullido began smoothly, until Grilli discovered that Fullido
was pregnant when he arrived in the Philippines in 2002. At first, she told him that the child she was carrying was his. After the
delivery of the child, however, it became apparent that the child was not his because of the discrepancy between the child’s date of
birth and his physical presence in the Philippines and the difference between the baby’s physical features and those of Grilli. Later
on, she admitted that the child was indeed sired by another man.

Grilli further claimed that he was so devastated that he decided to end their common-law relationship. Nevertheless, he allowed
Fullido to live in his house out of liberality and generosity, but this time, using another room. He did not demand any rent from
Fullido over the use of his property.

After a year, Fullido became more hostile and difficult to handle. Grilli had to make repairs with his house every time he arrived in
the Philippines because she was not maintaining it in good condition. Fullido also let her two children, siblings and parents stay in
his house, which caused damage to the property. He even lost his personal belongings inside his house on several occasions. Grilli
verbally asked Fullido to move out of his house because they were not getting along anymore, but she refused. He could no longer
tolerate the hostile attitude shown to him by Fullido and her family, thus, he filed the instant complaint.

Fullido’s Position

Fullido countered that she met Grilli sometime in 1993 when she was still 17 years old working as a cashier in Alturas Supermarket.
Grilli was then a tourist in Bohol who persistently courted her.

At first, Fullido was hesitant to the advances of Grilli because she could not yet enter into a valid marriage. When he assured her
and her parents that they would eventually be married in three years, she eventually agreed to have a relationship with him and to
live as common-law spouses. Sometime in 1995, Grilli offered to build a house for her on a parcel of land she exclusively owned
which would become their conjugal abode. Fullido claimed that their relationship as common-law spouses lasted for more than 18
years until she discovered that Grilli had found a new and younger woman in his life. Grilli began to threaten and physically hurt her
by knocking her head and choking her.

When Fullido refused to leave their house even after the unlawful detainer case was filed, Grilli again harassed, intimidated and
threatened to hurt her and her children. Thus, she filed a petition for Temporary Protection Order (TPO) and Permanent Protection
Order (PPO) against Grilli under Republic Act (R.A.) No. 9262 before the Regional Trial Court, Branch 3, Bohol (RTC-Branch 3). In
an Order,11 dated February 23, 2011, the RTC-Branch 3 granted the TPO in favor of Fullido and directed that Grilli must be
excluded from their home.

Fullido finally asserted that, although it was Grilli who funded the construction of the house, she exclusively owned the lot and she
contributed to the value of the house by supervising its construction and maintaining their household.

The MCTC Ruling

In its decision, dated March 31, 2011, the MCTC dismissed the case after finding that Fullido could not be ejected from their house
and lot. The MCTC opined that she was a co-owner of the house as she contributed to it by supervising its construction. Moreover,
the MCTC respected the TPO issued by RTC-Branch 3 which directed that Grilli be removed from Fullido’s residence. The
dispositive portion of the MCTC decision reads:

WHEREFORE, judgment is hereby rendered:

1. Dismissing the instant case;

2. Ordering the Plaintiff to pay to Defendant the amount of Fifty Thousand Pesos (P50,000.00) as moral damages, and Twenty
Thousand Pesos (P20,000.00) as exemplary damages, and Twenty Thousand Pesos (P20,000.00) as Attorney’s Fees; and

3. Denying the prayer for the issuance of Preliminary Mandatory Injunction.

SO ORDERED.12

Not in conformity, Grilli elevated the matter before the RTC.

The RTC Ruling

In its decision, dated April 26, 2012, the RTC reversed and set aside the MCTC decision. The RTC was of the view that Grilli had
the exclusive right to use and possess the house and lot by virtue of the contract of lease executed by the parties. Since the period
of lease had not yet expired, Fullido, as lessor, had the obligation to respect the peaceful and adequate enjoyment of the leased
premises by Grilli as lessee. The RTC opined that absent a judicial declaration of nullity of the contract of lease, its terms and
conditions were valid and binding. As to the TPO, the RTC held that the same had no bearing in the present case which merely
involved the possession of the leased property.

Aggrieved, Fullido instituted an appeal before the CA alleging that her land was unlawfully transferred by Grilli to a certain
Jacqueline Guibone (Guibone), his new girlfriend, by virtue of the SPA earlier executed by Fullido.

The CA Ruling

In its assailed decision, dated May 31, 2013, the CA upheld the decision of the RTC emphasizing that in an ejectment case, the
only issue to be resolved would be the physical possession of the property. The CA was also of the view that as Fullido executed
both the MOA and the contract of lease, which gave Grilli the possession and use of the house and lot, the same constituted as a
judicial admission that it was Grilli who had the better right of physical possession. The CA stressed that, if Fullido would insist that
the said documents were voidable as her consent was vitiated, then she must institute a separate action for annulment of contracts.
Lastly, the CA stated that the TPO issued by the RTC-Branch 3 under Section 21 of R.A. No. 9262 was without prejudice to any
other action that might be filed by the parties.

Fullido filed a motion for reconsideration,13 but she failed to attach the proofs of service of her motion. For said reason, it was
denied by the CA in its assailed resolution, dated September 24, 2014.

Hence, this present petition raising the following:

ISSUES

THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND DEPARTED FROM ESTABLISHED LAW AND
JURISPRUDENCE IN DENYING THE PETITION FOR REVIEW AND IN AFFIRMING THE DECISION OF RTC BOHOL BRANCH
47 EJECTING PETITIONER FROM THE SUBJECT PROPERTIES, WHICH EJECTMENT ORDER IS ANCHORED ON
PATENTLY NULL AND VOID CONTRACTS.

II

THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND DEPARTED FROM ESTABLISHED LAW IN AFFIRMING
THE DECISION OF THE RTC BOHOL BRANCH 47 EJECTING PETITIONER FROM THEIR CONJUGAL ABODE WHERE
RESPONDENT HAS BEEN EARLIER ORDERED TO VACATE BY VIRTUE OF A PERMANENT PROTECTION ORDER THUS
EFFECTIVELY SETTING ASIDE, NEGATING AND/OR VIOLATING AN ORDER ISSUED BY A COURT OF CO-EQUAL
JURISDICTION.

III

THE HONORABLE COURT OF APPEALS LIKEWISE ERRED AND DEPARTED FROM ESTABLISHED LAW AND
JURISPRUDENCE IN DENYING THE PETITIONER’S MOTION FOR RECONSIDERATION, AMONG OTHERS, FOR
NONCOMPLIANCE WITH SECTION 1 RULE 52 VIS-À-VIS SECTION 13, RULE 13 OF THE 1997 RULES OF CIVIL
PROCEDURE.14

Fullido argues that she could not be ejected from her own lot based on the contract of lease and the MOA because those
documents were null and void for being contrary to the Constitution, the law, public policy, morals and customs; that the MOA
prevented her from disposing or selling her own land, while the contract of lease favoring Grilli, a foreigner, was contrary to the
Constitution as it was a for a period of fifty (50) years, and, upon termination, was automatically renewable for another fifty (50)
years; that the TPO, which became a PPO by virtue of the July 5, 2011 Decision15 of RTC-Branch 3, should not be defeated by the
ejectment suit; and that the CA should have liberally applied its procedural rules and allowed her motion for reconsideration.

In his Comment,16 Grilli countered that he was the rightful owner of the house because a foreigner was not prohibited from owning
residential buildings; that the lot was no longer registered in the name of Fullido as it was transferred to Guibone, covered by TCT
No. 101-2011000335; that if Fullido wanted to assail the lease contract, she should have first filed a separate action for annulment
of the said contract, which she did in Civil Case No. 8094, pending before the Regional Trial Court of Bohol; and that by signing the
contracts, Fullido fully agreed with their terms and must abide by the same.

In her Reply,17 Fullido insisted that the contract of lease and the MOA were null and void, thus, these could not be the source of
Grilli’s de facto possession.

The Court’s Ruling

The Court finds the petition meritorious.

Unlawful detainer is an action to recover possession of real property from one who unlawfully withholds possession thereof after the
expiration or termination of his right to hold possession under any contract, express or implied. The possession of the defendant in
unlawful detainer is originally legal but became illegal due to the expiration or termination of the right to possess. The only issue to
be resolved in an unlawful detainer case is the physical or material possession of the property involved, independent of any claim of
ownership by any of the parties.18

In this case, Fullido chiefly asserts that Grilli had no right to institute the action for unlawful detainer because the lease contract and
the MOA, which allegedly gave him the right of possession over the lot, were null and void for violating the Constitution. Contrary to
the findings of the CA, Fullido was not only asserting that the said contracts were merely voidable, but she was consistently
invoking that the same were completely void.19 Grilli, on the other hand, contends that Fullido could not question the validity of
the said contracts in the present ejectment suit unless she instituted a separate action for annulment of contracts. Thus, the Court is
confronted with the issue of whether a contract could be declared void in a summary action of unlawful detainer.

Under the circumstances of the case, the Court answers in the affirmative.

A void contract cannot be the

source of any right; it cannot

be utilized in an ejectment suit

A void or inexistent contract may be defined as one which lacks, absolutely either in fact or in law, one or some of the elements
which are essential for its validity.20 It is one which has no force and effect from the very beginning, as if it had never been entered
into; it produces no effect whatsoever either against or in favor of anyone.21 Quod nullum est nullum producit effectum. Article 1409
of the New Civil Code explicitly states that void contracts also cannot be ratified; neither can the right to set up the defense of
illegality be waived.22 Accordingly, there is no need for an action to set aside a void or inexistent contract.23

A review of the relevant jurisprudence reveals that the Court did not hesitate to set aside a void contract even in an action for
unlawful detainer. In Spouses Alcantara v. Nido,24 which involves an action for unlawful detainer, the petitioners therein raised a
defense that the subject land was already sold to them by the agent of the owner. The Court rejected their defense and held that
the contract of sale was void because the agent did not have the written authority of the owner to sell the subject land.

Similarly, in Roberts v. Papio,25 a case of unlawful detainer, the Court declared that the defense of ownership by the respondent
therein was untenable. The contract of sale invoked by the latter was void because the agent did not have the written authority of
the owner. A void contract produces no effect either against or in favor of anyone.

In Ballesteros v. Abion,26 which also involves an action for unlawful detainer, the Court disallowed the defense of ownership of the
respondent therein because the seller in their contract of sale was not the owner of the subject property. For lacking an object, the
said contract of sale was void ab initio.

Clearly, contracts may be declared void even in a summary action for unlawful detainer because, precisely, void contracts do not
produce legal effect and cannot be the source of any rights. To emphasize, void contracts may not be invoked as a valid action or
defense in any court proceeding, including an ejectment suit. The next issue that must be resolved by the Court is whether the
assailed lease contract and MOA are null and void.

<>The lease contract and the

MOA circumvent the
constitutional restraint against
foreign ownership of lands.
Under Section 1 of Article XIII of the 1935 Constitution, natural resources shall not be alienated, except with respect to public
agricultural lands and in such cases, the alienation is limited to Filipino citizens. Concomitantly, Section 5 thereof states that,
save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except to individuals,
corporations, or associations qualified to acquire or hold lands of the public domain in the Philippines. The prohibition on the
transfer of lands to aliens was adopted in the present 1987 Constitution, under Sections 2, 3 and 7 of Article XII thereof. Agricultural
lands, whether public or private, include residential, commercial and industrial lands. The purpose of prohibiting the transfer of
lands to foreigners is to uphold the conservation of our national patrimony and ensure that agricultural resources remain in the
hands of Filipino citizens.27

The prohibition, however, is not limited to the sale of lands to foreigners. It also covers leases of lands amounting to the transfer of
all or substantially all the rights of dominion. In the landmark case of Philippine Banking Corporation v. Lui She,28 the Court struck
down a lease contract of a parcel of land in favor of a foreigner for a period of ninety-nine (99) years with an option to buy the land
for fifty (50) years. Where a scheme to circumvent the Constitutional prohibition against the transfer of lands to aliens is readily
revealed as the purpose for the contracts, then the illicit purpose becomes the illegal cause rendering the contracts void. Thus, if an
alien is given not only a lease of, but also an option to buy, a piece of land by virtue of which the Filipino owner cannot
sell or otherwise dispose of his property, this to last for 50 years, then it becomes clear that the arrangement is a virtual
transfer of ownership whereby the owner divests himself in stages not only of the right to enjoy the land but also of the right to
dispose of it — rights which constitute ownership. If this can be done, then the Constitutional ban against alien landholding in the
Philippines, is indeed in grave peril.29

In Llantino v. Co Liong Chong,30 however, the Court clarified that a lease contract in favor of aliens for a reasonable period was
valid as long as it did not have any scheme to circumvent the constitutional prohibition, such as depriving the lessors of their right to
dispose of the land. The Court explained that "[a]liens are not completely excluded by the Constitution from use of lands for
residential purposes. Since their residence in the Philippines is temporary, they may be granted temporary rights such as a lease
contract which is not forbidden by the Constitution. Should they desire to remain here forever and share our fortune and misfortune,
Filipino citizenship is not impossible to acquire." 31 The lessee-foreigner therein eventually acquired Filipino citizenship.

Consequently, Presidential Decree (P.D.) No. 471 was enacted to regulate the lease of lands to aliens.1avvphi1 It provides that the
maximum period allowable for the duration of leases of private lands to aliens or alien-owned corporations, associations, or entities
not qualified to acquire private lands in the Philippines shall be twenty-five (25) years, renewable for another period of twenty-five
(25) years upon mutual agreement of both lessor and lessee.32 It also provides that any contract or agreement made or
executed in violation thereof shall be null and void ab initio.33

Based on the above-cited constitutional, legal and jurisprudential limitations, the Court finds that the lease contract and the MOA in
the present case are null and void for virtually transferring the reigns of the land to a foreigner.

As can be gleaned from the contract, the lease in favor of Grilli was for a period of fifty (50) years, automatically extended for
another fifty (50) years upon the expiration of the original period. Moreover, it strictly prohibited Fullido from selling, donating, or
encumbering her land to anyone without the written consent of Grilli. For a measly consideration of P10,000.00, Grilli would be able
to absolutely occupy the land of Fullido for 100 years, and she is powerless to dispose the same. The terms of lease practically
deprived Fullido of her property rights and effectively transferred the same to Grilli.

Worse, the dominion of Grilli over the land had been firmly cemented by the terms of the MOA as it reinforced Grilli’s property rights
over the land because, first, it brazenly dictated that ownership of the land and the residential building resided with him. Second,
Fullido was expressly prohibited from transferring the same without Grilli’s conformity. Third, Grilli would permanently reside in the
residential building. Fourth, Grilli may capriciously dispose Fullido’s property once their common-law relationship is terminated. This
right was recently exercised when the land was transferred to Guibone. Lastly, Fullido shall be compelled to transfer the land to
Grilli if a law would be passed allowing foreigners to own real properties in the Philippines.

Evidently, the lease contract and the MOA operated hand-in-hand to strip Fullido of any dignified right over her own property. The
term of lease for 100 years was obviously in excess of the allowable periods under P.D. No. 471. Even Grilli admitted that "this is a
case of an otherwise valid contract of lease that went beyond the period of what is legally permissible."34 Grilli had been
empowered to deprive Fullido of her land’s possession, control, disposition and even its ownership. The jus possidendi, jus utendi,
jus fruendi, jus abutendi and, more importantly, the jus disponendi – the sum of rights which composes ownership – of the property
were effectively transferred to Grilli who would safely enjoy the same for over a century. The title of Fullido over the land became an
empty and useless vessel, visible only in paper, and was only meant as a dummy to fulfill a foreigner’s desire to own land within our
soils. It is disturbing how these documents were methodically formulated to circumvent the constitutional prohibition against land
ownership by foreigners. The said contracts attempted to guise themselves as a lease, but a closer scrutiny of the same revealed
that they were intended to transfer the dominion of a land to a foreigner in violation of Section 7, Article XII of the 1987 Constitution.
Even if Fullido voluntary executed the same, no amount of consent from the parties could legalize an unconstitutional agreement.
The lease contract and the MOA do not deserve an iota of validity and must be rightfully struck down as null and void for being
repugnant to the fundamental law. These void documents cannot be the source of rights and must be treated as mere scraps of
paper.

Grilli does not have a

cause of action for

unlawful detainer

Ultimately, the complaint filed by Grilli was an action for unlawful detainer. Section 1 of Rule 70 of the Rules of Court lays down the
requirements for filing a complaint for unlawful detainer, to wit:

Who may institute proceedings, and when. – Subject to the provision of the next succeeding section, a person deprived of the
possession of any land or building by force, intimidation, threat, strategy, or stealth, or a lessor, vendor, vendee, or other person
against whom the possession of any land or building is unlawfully withheld after the expiration or termination of the right to
hold possession, by virtue of any contract, express or implied, or the legal representatives or assigns of any such lessor, vendor,
vendee, or other person, may, at any time within one (1) year after such unlawful deprivation or withholding of possession, bring an
action in the proper Municipal Trial Court against the person or persons unlawfully withholding or depriving of possession, or any
person or persons claiming under them, for the restitution of such possession, together with damages and costs.

[Emphasis Supplied]

A complaint sufficiently alleges a cause of action for unlawful detainer if it recites the following: (1) initially, possession of property
by the defendant was by contract with or by tolerance of the plaintiff; (2) eventually, such possession became illegal upon notice by
plaintiff to defendant of the termination of the latter’s right of possession; (3) thereafter, the defendant remained in possession of the
property and deprived the plaintiff of the enjoyment thereof; and (4) within one year from the last demand on defendant to vacate
the property, the plaintiff instituted the complaint for ejectment.35

The Court rules that Grilli has no cause of action for unlawful detainer against Fullido. As can be gleaned from the discussion
above, the complainant must either be a lessor, vendor, vendee, or other person against whom the possession of any land or
building is unlawfully withheld. In other words, the complainant in an unlawful detainer case must have some right of possession
over the property.

In the case at bench, the lease contract and the MOA, from which Grilli purportedly drew his right of possession, were found to be
null and void for being unconstitutional. A contract that violates the Constitution and the law is null and void ab initio and vests no
rights and creates no obligations. It produces no legal effect at all.36 Hence, as void contracts could not be the source of rights, Grilli
had no possessory right over the subject land. A person who does not have any right over a property from the beginning cannot
eject another person possessing the same. Consequently, Grilli’s complaint for unlawful detainer must be dismissed for failure to
prove his cause of action.

In Pari Delicto Doctrine

is not applicable

On a final note, the Court deems it proper to discuss the doctrine of in pari delicto. Latin for "in equal fault," in pari delicto connotes
that two or more people are at fault or are guilty of a crime. Neither courts of law nor equity will interpose to grant relief to the
parties, when an illegal agreement has been made, and both parties stand in pari delicto.37

The application of the doctrine of in pari delicto is not always rigid. An accepted exception arises when its application contravenes
well-established public policy. In this jurisdiction, public policy has been defined as that principle of the law which holds that no
subject or citizen can lawfully do that which has a tendency to be injurious to the public or against the public good.38 Thus,
whenever public policy is advanced by either party, they may be allowed to sue for relief against the transaction.39

In the present case, both Grilli and Fullido were undoubtedly parties to a void contract. Fullido, however, was not barred from filing
the present petition before the Court because the matters at hand involved an issue of public policy, specifically the Constitutional
prohibition against land ownership by aliens. As pronounced in Philippine Banking Corporation v. Lui She, the said constitutional
provision would be defeated and its continued violation sanctioned if the lands continue to remain in the hands of a foreigner.40
Thus, the doctrine of in pari delicto shall not be applicable in this case.

WHEREFORE, the petition is GRANTED. The May 31, 2013 Decision of the Court of Appeals and its September 24, 2014
Resolution in CA-G.R. CEB-SP No. 06946 are hereby REVERSED and SET ASIDE. The complaint filed by Gino Grilli before the
Municipal Circuit Trial Court, Dauis-Panglao, Dauis, Bohol, docketed as Civil Case No. 244, is DISMISSED for lack of cause of
action.

SO ORDERED.
 OBLIGATIONS OF THE SELLER

CASE #7: Edu v. Gomez

RELOVA, J.:

Subject matter of this case is a 1968 model Volkswagen, bantam car, Engine No. H-5254416, Chassis No. 118673654, allegedly
owned by Lt. Walter A. Bala of Clark Airbase, Angeles City, under whose name the car was allegedly registered on May 19, 1970 at
the Angeles City Land Transportation Commission Agency, under File No. 2B-7281.

The Office of the Commission on Land Transportation received a report on August 25, 1970 from the Manila Adjustment Company
that the abovementioned car was stolen on June 29, 1970 from the residence of Lt. Bala, at 63 Makiling Street, Plaridel
Subdivision, Angeles City. Petitioners Eduardo Domingo, Carlos Rodriguez, and Patricio Yambao, agents of Anti-Carnapping Unit
(ANCAR) of the Philippine Constabulary, on detail with the Land Transportation Commission, on February 2, 1971, recognized
subject car in the possession of herein private respondent Lucila Abello and immediately seized and impounded the car as stolen
property. Likewise, herein petitioner Romeo F. Edu, then Commissioner of Land Transportation, seized the car pursuant to Section
60 of Republic Act 4136 which empowers him to seize the motor vehicle for delinquent registration aside from his implicit power
deducible from Sec. 4(5), Sec. 5 and 31 of said Code, "to seize motor vehicles fraudulently or otherwise not properly registered."

On February 15, 1971, herein private respondent Lucila Abello filed a complaint for replevin with damages in respondent court,
docketed as Civil Case No. 82215, impleading herein petitioners, praying for judgment, among others, to order the sheriff or other
proper officer of the court to take the said property (motor vehicle) into his custody and to dispose of it in accordance with law.

On February 18, 1971, respondent judge of the then Court of First Instance of Manila issued the order for the seizure of the
personal property. Solicitor Vicente Torres, appearing for the herein petitioners, submits that the car in question legally belongs to
Lt. Walter A. Bala under whose name it is originally registered at Angeles City Land Transportation Commission Agency; that it was
stolen from him and, upon receipt by the Land Transportation Commissioner of the report on the theft case and that the car upon
being recognized by the agents of the ANCAR in the possession of private respondent Lucila Abello, said agents seized the car and
impounded it as stolen vehicle. With respect to the replevin filed by private respondent Lucila Abello, respondent Court of First
Instance Judge found that the car in question was acquired by Lucila Abello by purchase from its registered owner, Marcelino
Guansing, for the valuable consideration of P9,000.00, under the notarial deed of absolute sale, dated August 11, 1970; that she
has been in possession thereof since then until February 3, 1971 when the car was seized from her by the petitioners who acted in
the belief that it is the car which was originally registered in the name of Lt. Walter A. Bala and from whom it was allegedly stolen
sometime in June 1970.

Finding for the private respondent, respondent judge held that —

The complaint at bar is for replevin, or for the delivery of personal property, based on the provisions of Rule 60, Sections 1 and 2 of
the Rules of Court. All the requirements of the law are present in the verified averments in the complaint, viz:

1. That plaintiff is the owner of the automobile in question.- petition.

2. That the aforesaid property was seized from her against her will not for a tax assessment or fine pursuant to law, not under a writ
of execution or attachment against her properties;

3. That the property is wrongfully detained by the defendants, who allegedly seized it from her on February 3, 1971, "allegedly for
the purpose of verifying the same" (see par. 3, Complaint), but have refused since then until now to return the same to the plaintiff.

4. That plaintiff was ready to put up a bond in double the value of the car, and has in fact already put up an P18,000.00 bond to the
defendants for the return thereof to the latter, if that shall be the ultimate judgment of the court, and to pay defendants damages that
they may incur.

The issuance therefore, by this Court of the order of seizure of the said chattel by the sheriff and for the latter to take it into his
custody, is precisely pursuant to the existing law, governing the subject.

If defendants object to the seizure, the remedy provided for by law is set out in Section 5 of Rule 60 and that is for them to put up a
counter-bond for the same amount of P18,000.00, which is double the value of the car in question. Defendants may not ignore the
law under the claim that, on complaint of a certain party, the Manila Adjustment Company, they have a right to seize the same as it
appears to be the property that was stolen from Lt. Walter A. Bala several months ago. (p. 19, Rollo)

There is no merit in the petition considering that the acquirer or the purchaser in good faith of a chattel of movable property is
entitled to be respected and protected in his possession as if he were the true owner thereof until a competent court rules
otherwise. In the meantime, as the true owner, the possessor in good faith cannot be compelled to surrender possession nor to be
required to institute an action for the recovery of the chattel, whether or not an indemnity bond is issued in his favor. The filing of an
information charging that the chattel was illegally obtained through estafa from its true owner by the transferor of the bona fide
possessor does not warrant disturbing the possession of the chattel against the will of the possessor.
Finally, the claim of petitioners that the Commission has the right to seize and impound the car under Section 60 of Republic Act
4136 which reads:

Sec. 60. The lien upon motor vehicles. Any balance of fees for registration, re-registration or delinquent registration of a motor
vehicle, remaining unpaid and all fines imposed upon any vehicle owner, shall constitute a first lien upon the motor vehicle
concerned.

is untenable. it is clear from the provision of said Section 60 of Republic Act 4136 that the Commissioner's right to seize and
impound subject property is only good for the proper enforcement of lien upon motor vehicles. The Land Transportation
Commission may issue a warrant of constructive or actual distraint against motor vehicle for collection of unpaid fees for
registration, re-registration or delinquent registration of vehicles.

ACCORDINGLY, the petition is hereby DENIED.

SO ORDERED.
CASE # 8: Duran v. IAC

RELOVA, J.:

The respondent then Court of Appeals rendered judgment, modifying the decision of the then Court of First Instance of Rizal, which
reads as follows:

(1) the complaint of the plaintiffs (herein petitioners) is hereby DISMISSED;

(2) the defendants-appellants spouses Erlinda B. Marcelo Tiangco and Restituto Tiangco (herein private respondents) are hereby
declared the lawful owners of the two (2) parcels of land and all the improvements thereon including the 12-door apartment thereon
described in the complaint, in the counterclaim, in the cross-claim, and in the Sheriff's Certificate of Sale;

(3) the plaintiffs-appellants and the defendant-appellee Fe S. Duran are hereby ordered to deliver to (the Tiangcos) the two parcels
of land and all the improvements thereon including the 12-door apartment thereon, subject matter of the complaint, counterclaim,
and cross-claim, and in the Sheriff's Certificate of Sale;

(4) the plaintiffs-appellants and the defendant-appellee Fe S. Duran are hereby ordered to pay solidarily to the Tiangcos the sum of
Two Thousand Four Hundred Pesos (P2,400) a month from May 16, 1972 until delivery of possession of the properties in question
to said Tiangco spouses, representing rentals collected by plaintiffs-appellants and defendant- appellee Fe S. Duran;

(5) the plaintiffs-appellants and defendant-appellee Fe S. Duran are hereby ordered to pay solidarily to the spouses Tiangco the
sum of Twenty Thousand Pesos (P20,000) as damages for attorney's fees, and the sum of Twenty-Five Thousand Pesos (P25,000)
for moral damages, and the costs. (pp. 149-150, Rollo)

The antecedent facts showed that petitioner Circe S. Duran owned two (2) parcels of land (Lots 5 and 6, Block A, Psd 32780)
covered by Transfer Certificate of Title No. 1647 of the Register of Deeds of Caloocan City which she had purchased from the Moja
Estate. She left the Philippines in June 1954 and returned in May 1966.

On May 13, 1963, a Deed of Sale of the two lots mentioned above was made in favor of Circe's mother, Fe S. Duran who, on
December 3, 1965, mortgaged the same property to private respondent Erlinda B. Marcelo-Tiangco. When petitioner Circe S.
Duran came to know about the mortgage made by her mother, she wrote the Register of Deeds of Caloocan City informing the
latter that she had not given her mother any authority to sell or mortgage any of her properties in the Philippines. Failing to get an
answer from the registrar, she returned to the Philippines. Meanwhile, when her mother, Fe S. Duran, failed to redeem the
mortgage properties, foreclosure proceedings were initiated by private respondent Erlinda B. Marcelo Tiangco and, ultimately, the
sale by the sheriff and the issuance of Certificate of Sale in favor of the latter.

Petitioner Circe S. Duran claims that the Deed of Sale in favor of her mother Fe S. Duran is a forgery, saying that at the time of its
execution in 1963 she was in the United States. On the other hand, the adverse party alleges that the signatures of Circe S. Duran
in the said Deed are genuine and, consequently, the mortgage made by Fe S. Duran in favor of private respondent is valid.

With respect to the issue as to whether the signature of petitioner Circe S. Duran in the Deed of Sale is a forgery or not, respondent
appellate court held the same to be genuine because there is the presumption of regularity in the case of a public document and
"the fact that Circe has not been able to satisfactorily prove that she was in the United States at the time the deed was executed in
1963. Her return in 1966 does not prove she was not here also in 1963, and that she did not leave shortly after 1963. She should
have presented her old passport, not her new one. But even if the signatures were a forgery, and the sale would be regarded as
void, still it is Our opinion that the Deed of Mortgage is VALID, with respect to the mortgagees, the defendants-appellants. While it is
true that under Art. 2085 of the Civil Code, it is essential that the mortgagor be the absolute owner of the property mortgaged, and
while as between the daughter and the mother, it was the daughter who still owned the lots, STILL insofar as innocent third persons
are concerned the owner was already the mother (Fe S. Duran) inasmuch as she had already become the registered owner
(Transfer Certificates of Title Nos. 2418 and 2419). The mortgagee had the right to rely upon what appeared in the certificate of
title, and did not have to inquire further. If the rule were otherwise, the efficacy and conclusiveness of Torrens Certificate of Titles
would be futile and nugatory. Thus the rule is simple: the fraudulent and forged document of sale may become the root of a valid
title if the certificate has already been transferred from the name of the true owner to the name indicated by the forger (See De la
Cruz v. Fable, 35 Phil. 144; Blondeau et al. v. Nano et al., 61 Phil. 625; Fule et al. v. Legare et al., 7 SCRA 351; see also Sec. 55 of
Act No. 496, the Land Registration Act). The fact that at the time of the foreclosure sale proceedings (1970-72) the mortgagees
may have already known of the plaintiffs' claim is immaterial. What is important is that at the time the mortgage was executed, the
mortgagees in good faith actually believed Fe S. Duran to be the owner, as evidenced by the registration of the property in the
name of said Fe S. Duran (pp. 146-147, Rollo)."

In elevating the judgment of the respondent appellate court to Us for review, petitioners discussed questions of law which, in effect
and substance, raised only one issue and that is whether private respondent Erlinda B. Marcelo-Tiangco was a buyer in good faith
and for value.

Guided by previous decisions of this Court, good faith consists in the possessor's belief that the person from whom he received the
thing was the owner of the same and could convey his title (Arriola vs. Gomez dela Serna, 14 Phil. 627). Good faith, while it is
always to be presumed in the absence of proof to the contrary, requires a well-founded belief that the person from whom title was
received was himself the owner of the land, with the right to convey it (Santiago vs. Cruz, 19 Phil. 148). There is good faith where
there is an honest intention to abstain from taking any unconscientious advantage from another (Fule vs. Legare, 7 SCRA 351).
Otherwise stated, good faith is the opposite of fraud and it refers to the state of mind which is manifested by the acts of the
individual concerned. In the case at bar, private respondents, in good faith relied on the certificate of title in the name of Fe S.
Duran and as aptly stated by respondent appellate court "[e]ven on the supposition that the sale was void, the general rule that the
direct result of a previous illegal contract cannot be valid (on the theory that the spring cannot rise higher than its source) cannot
apply here for We are confronted with the functionings of the Torrens System of Registration. The doctrine to follow is simple
enough: a fraudulent or forged document of sale may become the ROOT of a valid title if the certificate of title has already been
transferred from the name of the true owner to the name of the forger or the name indicated by the forger." (p. 147, Rollo)

Thus, where innocent third persons relying on the correctness of the certificate of title issued, acquire rights over the property, the
court cannot disregard such rights and order the total cancellation of the certificate for that would impair public confidence in the
certificate of title; otherwise everyone dealing with property registered under the torrens system would have to inquire in every
instance as to whether the title had been regularly or irregularly issued by the court. Indeed, this is contrary to the evident purpose
of the law. Every person dealing with registered land may safely rely on the correctness of the certificate of title issued therefor and
the law will in no way oblige him to go behind the certificate to determine the condition of the property. Stated differently, an
innocent purchaser for value relying on a torrens title issued is protected. A mortgagee has the right to rely on what appears in the
certificate of title and, in the absence of anything to excite suspicion, he is under no obligation to look beyond the certificate and
investigate the title of the mortgagor appearing on the face of said certificate.

Likewise, We take note of the finding and observation of respondent appellate court in that petitioners were guilty of estoppel by
laches "in not bringing the case to court within a reasonable period. Antero Gaspar, husband of Circe, was in the Philippines in
1964 to construct the apartment on the disputed lots. This was testified to by Circe herself (tsn., p. 41, Nov. 27, 1973). In the
process of construction, specifically in the matter of obtaining a building permit, he could have discovered that the deed of sale
sought to be set aside had been executed on May 13, 1963 (the building permit needed an application by the apparent owner of the
land, namely, Circe's mother, Fe S. Duran). And then again both plaintiffs could have intervened in the foreclosure suit but they did
not. They kept silent until almost the last moment when they finally decided, shortly before the sheriff's sale, to file a third-party
claim. Clearly, the plaintiffs can be faulted for their estoppel by laches." (p. 148, Rollo)

IN VIEW OF THE FOREGOING, We find the petition without merit and hereby AFFIRMED in toto the decision of respondent
appellate court promulgated on August 12, 1981.

SO ORDERED.
 WHEN THE OBLIGATION TO DELIVER ARISES

CASE #9: EDCA Publishing v. Spouses Santos

CRUZ, J.:

The case before us calls for the interpretation of Article 559 of the Civil Code and raises the particular question of when a person
may be deemed to have been "unlawfully deprived" of movable property in the hands of another. The article runs in full as follows:

Art. 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any
movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same.

If the possessor of a movable lost or of which the owner has been unlawfully deprived has acquired it in good faith at a public sale,
the owner cannot obtain its return without reimbursing the price paid therefor.

The movable property in this case consists of books, which were bought from the petitioner by an impostor who sold it to the private
respondents. Ownership of the books was recognized in the private respondents by the Municipal Trial Court, 1 which was
sustained by the Regional Trial Court, 2 which was in turn sustained by the Court of Appeals. 3 The petitioner asks us to declare that
all these courts have erred and should be reversed.

This case arose when on October 5, 1981, a person identifying himself as Professor Jose Cruz placed an order by telephone with
the petitioner company for 406 books, payable on delivery. 4 EDCA prepared the corresponding invoice and delivered the books as
ordered, for which Cruz issued a personal check covering the purchase price of P8,995.65. 5 On October 7, 1981, Cruz sold 120 of
the books to private respondent Leonor Santos who, after verifying the seller's ownership from the invoice he showed her, paid him
P1,700.00. 6

Meanwhile, EDCA having become suspicious over a second order placed by Cruz even before clearing of his first check, made
inquiries with the De la Salle College where he had claimed to be a dean and was informed that there was no such person in its
employ. Further verification revealed that Cruz had no more account or deposit with the Philippine Amanah Bank, against which he
had drawn the payment check. 7 EDCA then went to the police, which set a trap and arrested Cruz on October 7, 1981.
Investigation disclosed his real name as Tomas de la Peña and his sale of 120 of the books he had ordered from EDCA to the
private respondents. 8

On the night of the same date, EDCA sought the assistance of the police in Precinct 5 at the UN Avenue, which forced their way
into the store of the private respondents and threatened Leonor Santos with prosecution for buying stolen property. They seized the
120 books without warrant, loading them in a van belonging to EDCA, and thereafter turned them over to the petitioner. 9

Protesting this high-handed action, the private respondents sued for recovery of the books after demand for their return was
rejected by EDCA. A writ of preliminary attachment was issued and the petitioner, after initial refusal, finally surrendered the books
to the private respondents. 10 As previously stated, the petitioner was successively rebuffed in the three courts below and now
hopes to secure relief from us.

To begin with, the Court expresses its disapproval of the arbitrary action of the petitioner in taking the law into its own hands and
forcibly recovering the disputed books from the private respondents. The circumstance that it did so with the assistance of the
police, which should have been the first to uphold legal and peaceful processes, has compounded the wrong even more deplorably.
Questions like the one at bar are decided not by policemen but by judges and with the use not of brute force but of lawful writs.

Now to the merits

It is the contention of the petitioner that the private respondents have not established their ownership of the disputed books
because they have not even produced a receipt to prove they had bought the stock. This is unacceptable. Precisely, the first
sentence of Article 559 provides that "the possession of movable property acquired in good faith is equivalent to a title," thus
dispensing with further proof.

The argument that the private respondents did not acquire the books in good faith has been dismissed by the lower courts, and we
agree. Leonor Santos first ascertained the ownership of the books from the EDCA invoice showing that they had been sold to Cruz,
who said he was selling them for a discount because he was in financial need. Private respondents are in the business of buying
and selling books and often deal with hard-up sellers who urgently have to part with their books at reduced prices. To Leonor
Santos, Cruz must have been only one of the many such sellers she was accustomed to dealing with. It is hardly bad faith for any
one in the business of buying and selling books to buy them at a discount and resell them for a profit.

But the real issue here is whether the petitioner has been unlawfully deprived of the books because the check issued by the
impostor in payment therefor was dishonored.

In its extended memorandum, EDCA cites numerous cases holding that the owner who has been unlawfully deprived of personal
property is entitled to its recovery except only where the property was purchased at a public sale, in which event its return is subject
to reimbursement of the purchase price. The petitioner is begging the question. It is putting the cart before the horse. Unlike in the
cases invoked, it has yet to be established in the case at bar that EDCA has been unlawfully deprived of the books.

The petitioner argues that it was, because the impostor acquired no title to the books that he could have validly transferred to the
private respondents. Its reason is that as the payment check bounced for lack of funds, there was a failure of consideration that
nullified the contract of sale between it and Cruz.

The contract of sale is consensual and is perfected once agreement is reached between the parties on the subject matter and the
consideration. According to the Civil Code:

Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the
contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of
contracts.

xxx xxx xxx

Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof.

Art. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price.

It is clear from the above provisions, particularly the last one quoted, that ownership in the thing sold shall not pass to the buyer
until full payment of the purchase only if there is a stipulation to that effect. Otherwise, the rule is that such ownership shall pass
from the vendor to the vendee upon the actual or constructive delivery of the thing sold even if the purchase price has not yet been
paid.

Non-payment only creates a right to demand payment or to rescind the contract, or to criminal prosecution in the case of bouncing
checks. But absent the stipulation above noted, delivery of the thing sold will effectively transfer ownership to the buyer who can in
turn transfer it to another.

In Asiatic Commercial Corporation v. Ang,11 the plaintiff sold some cosmetics to Francisco Ang, who in turn sold them to Tan Sit Bin.
Asiatic not having been paid by Ang, it sued for the recovery of the articles from Tan, who claimed he had validly bought them from
Ang, paying for the same in cash. Finding that there was no conspiracy between Tan and Ang to deceive Asiatic the Court of
Appeals declared:

Yet the defendant invoked Article 464 12 of the Civil Code providing, among other things that "one who has been unlawfully deprived
of personal property may recover it from any person possessing it." We do not believe that the plaintiff has been unlawfully deprived
of the cartons of Gloco Tonic within the scope of this legal provision. It has voluntarily parted with them pursuant to a contract of
purchase and sale. The circumstance that the price was not subsequently paid did not render illegal a transaction which was valid
and legal at the beginning.

In Tagatac v. Jimenez,13 the plaintiff sold her car to Feist, who sold it to Sanchez, who sold it to Jimenez. When the payment check
issued to Tagatac by Feist was dishonored, the plaintiff sued to recover the vehicle from Jimenez on the ground that she had been
unlawfully deprived of it by reason of Feist's deception. In ruling for Jimenez, the Court of Appeals held:

The point of inquiry is whether plaintiff-appellant Trinidad C. Tagatac has been unlawfully deprived of her car. At first blush, it would
seem that she was unlawfully deprived thereof, considering that she was induced to part with it by reason of the chicanery practiced
on her by Warner L. Feist. Certainly, swindling, like robbery, is an illegal method of deprivation of property. In a manner of speaking,
plaintiff-appellant was "illegally deprived" of her car, for the way by which Warner L. Feist induced her to part with it is illegal and is
punished by law. But does this "unlawful deprivation" come within the scope of Article 559 of the New Civil Code?

xxx xxx xxx

. . . The fraud and deceit practiced by Warner L. Feist earmarks this sale as a voidable contract (Article 1390 N.C.C.). Being a
voidable contract, it is susceptible of either ratification or annulment. If the contract is ratified, the action to annul it is extinguished
(Article 1392, N.C.C.) and the contract is cleansed from all its defects (Article 1396, N.C.C.); if the contract is annulled, the
contracting parties are restored to their respective situations before the contract and mutual restitution follows as a consequence
(Article 1398, N.C.C.).

However, as long as no action is taken by the party entitled, either that of annulment or of ratification, the contract of sale remains
valid and binding. When plaintiff-appellant Trinidad C. Tagatac delivered the car to Feist by virtue of said voidable contract of sale,
the title to the car passed to Feist. Of course, the title that Feist acquired was defective and voidable. Nevertheless, at the time he
sold the car to Felix Sanchez, his title thereto had not been avoided and he therefore conferred a good title on the latter, provided
he bought the car in good faith, for value and without notice of the defect in Feist's title (Article 1506, N.C.C.). There being no proof
on record that Felix Sanchez acted in bad faith, it is safe to assume that he acted in good faith.
The above rulings are sound doctrine and reflect our own interpretation of Article 559 as applied to the case before us.

Actual delivery of the books having been made, Cruz acquired ownership over the books which he could then validly transfer to the
private respondents. The fact that he had not yet paid for them to EDCA was a matter between him and EDCA and did not impair
the title acquired by the private respondents to the books.

One may well imagine the adverse consequences if the phrase "unlawfully deprived" were to be interpreted in the manner
suggested by the petitioner. A person relying on the seller's title who buys a movable property from him would have to surrender it
to another person claiming to be the original owner who had not yet been paid the purchase price therefor. The buyer in the second
sale would be left holding the bag, so to speak, and would be compelled to return the thing bought by him in good faith without even
the right to reimbursement of the amount he had paid for it.

It bears repeating that in the case before us, Leonor Santos took care to ascertain first that the books belonged to Cruz before she
agreed to purchase them. The EDCA invoice Cruz showed her assured her that the books had been paid for on delivery. By
contrast, EDCA was less than cautious — in fact, too trusting in dealing with the impostor. Although it had never transacted with him
before, it readily delivered the books he had ordered (by telephone) and as readily accepted his personal check in payment. It did
not verify his identity although it was easy enough to do this. It did not wait to clear the check of this unknown drawer. Worse, it
indicated in the sales invoice issued to him, by the printed terms thereon, that the books had been paid for on delivery, thereby
vesting ownership in the buyer.

Surely, the private respondent did not have to go beyond that invoice to satisfy herself that the books being offered for sale by Cruz
belonged to him; yet she did. Although the title of Cruz was presumed under Article 559 by his mere possession of the books, these
being movable property, Leonor Santos nevertheless demanded more proof before deciding to buy them.

It would certainly be unfair now to make the private respondents bear the prejudice sustained by EDCA as a result of its own
negligence.1âwphi1 We cannot see the justice in transferring EDCA's loss to the Santoses who had acted in good faith, and with
proper care, when they bought the books from Cruz.

While we sympathize with the petitioner for its plight, it is clear that its remedy is not against the private respondents but against
Tomas de la Peña, who has apparently caused all this trouble. The private respondents have themselves been unduly
inconvenienced, and for merely transacting a customary deal not really unusual in their kind of business. It is they and not EDCA
who have a right to complain.

WHEREFORE, the challenged decision is AFFIRMED and the petition is DENIED, with costs against the petitioner.

Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.