Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 166862             December 20, 2006

MANILA METAL CONTAINER CORPORATION, petitioner, REYNALDO C. TOLENTINO, intervenor, vs.PHILIPPINE NATIONAL BANK, respondent,DMCI-PROJECT DEVELOPERS, INC., intervenor.

D E C I S I O N

CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. No. 46153 which affirmed the decision2 of the Regional Trial Court (RTC), Branch 71, Pasig City, in Civil Case No. 58551, and its Resolution3 denying the motion for reconsideration filed by petitioner Manila Metal Container Corporation (MMCC).

The Antecedents

Petitioner was the owner of a 8,015 square meter parcel of land located in Mandaluyong (now a City), Metro Manila. The property was covered by Transfer Certificate of Title (TCT) No. 332098 of the Registry of Deeds of Rizal. To secure a P900,000.00 loan it had obtained from respondent Philippine National Bank (PNB), petitioner executed a real estate mortgage over the lot. Respondent PNB later granted petitioner a new credit accommodation of P1,000,000.00; and, on November 16, 1973, petitioner executed an Amendment4 of Real Estate Mortgage over its property. On March 31, 1981, petitioner secured another loan

of P653,000.00 from respondent PNB, payable in quarterly installments of P32,650.00, plus interests and other charges.5

On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure of the real estate mortgage and sought to have the property sold at public auction for P911,532.21, petitioner's outstanding obligation to respondent PNB as of June 30, 1982,6 plus interests and attorney's fees.

After due notice and publication, the property was sold at public auction on September 28, 1982 where respondent PNB was declared the winning bidder for P1,000,000.00. The Certificate of Sale7 issued in its favor was registered with the Office of the Register of Deeds of Rizal, and was annotated at the dorsal portion of the title on February 17, 1983. Thus, the period to redeem the property was to expire on February 17, 1984.

Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that it be granted an extension of time to redeem/repurchase the property.8 In its reply dated August 30, 1983, respondent PNB informed petitioner that the request had been referred to its Pasay City Branch for appropriate action and recommendation.9

In a letter10 dated February 10, 1984, petitioner reiterated its request for a one year extension from February 17, 1984 within which to redeem/repurchase the property on installment basis. It reiterated its request to repurchase the property on installment.11 Meanwhile, some PNB Pasay City Branch personnel informed petitioner that as a matter of policy, the bank does not accept "partial redemption."12

Since petitioner failed to redeem the property, the Register of Deeds cancelled TCT No. 32098 on June 1, 1984, and issued a new title in favor of respondent PNB.13 Petitioner's offers had not yet been acted upon by respondent PNB.

Meanwhile, the Special Assets Management Department (SAMD) had prepared a statement of account, and as of June 25, 1984 petitioner's obligation amounted to P1,574,560.47. This included the bid price of P1,056,924.50, interest, advances of insurance premiums, advances on realty taxes, registration expenses, miscellaneous expenses and publication cost.14 When apprised of the statement of account, petitioner remitted P725,000.00 to respondent PNB as "deposit to repurchase," and Official Receipt No. 978191 was issued to it.15

In the meantime, the SAMD recommended to the management of respondent PNB that petitioner be allowed to repurchase the property for P1,574,560.00. In a letter dated November 14, 1984, the PNB management informed petitioner that it was rejecting the offer and the recommendation of the SAMD. It was suggested that petitioner purchase the property for P2,660,000.00, its minimum market value. Respondent PNB gave petitioner until December 15, 1984 to act on the proposal; otherwise, its P725,000.00 deposit would be returned and the property would be sold to other interested buyers.16

Petitioner, however, did not agree to respondent PNB's proposal. Instead, it wrote another letter dated December 12, 1984 requesting for a reconsideration. Respondent PNB replied in a letter dated December 28, 1984, wherein it reiterated its proposal that petitioner purchase the property for P2,660,000.00. PNB again informed petitioner that it would return the deposit should petitioner desire to withdraw its offer to purchase the property.17 On February 25, 1985, petitioner, through counsel, requested that PNB reconsider its letter dated December 28, 1984. Petitioner declared that it had already agreed to the SAMD's offer to purchase the property forP1,574,560.47, and that was why it had paid P725,000.00. Petitioner warned respondent PNB that it would seek judicial recourse should PNB insist on the position.18

On June 4, 1985, respondent PNB informed petitioner that the PNB Board of Directors had accepted petitioner's offer to purchase the property, but for P1,931,389.53 in cash less the P725,000.00

already deposited with it.19 On page two of the letter was a space above the typewritten name of petitioner's President, Pablo Gabriel, where he was to affix his signature. However, Pablo Gabriel did not conform to the letter but merely indicated therein that he had received it.20 Petitioner did not respond, so PNB requested petitioner in a letter dated June 30, 1988 to submit an amended offer to repurchase.

Petitioner rejected respondent's proposal in a letter dated July 14, 1988. It maintained that respondent PNB had agreed to sell the property for P1,574,560.47, and that since its P725,000.00 downpayment had been accepted, respondent PNB was proscribed from increasing the purchase price of the property.21 Petitioner averred that it had a net balance payable in the amount of P643,452.34. Respondent PNB, however, rejected petitioner's offer to pay the balance of P643,452.34 in a letter dated August 1, 1989.22

On August 28, 1989, petitioner filed a complaint against respondent PNB for "Annulment of Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific Performance with Damages." To support its cause of action for specific performance, it alleged the following:

34. As early as June 25, 1984, PNB had accepted the down payment from Manila Metal in the substantial amount of P725,000.00 for the redemption/repurchase price of P1,574,560.47 as approved by its SMAD and considering the reliance made by Manila Metal and the long time that has elapsed, the approval of the higher management of the Bank to confirm the agreement of its SMAD is clearly a potestative condition which cannot legally prejudice Manila Metal which has acted and relied on the approval of SMAD. The Bank cannot take advantage of a condition which is entirely dependent upon its own will after accepting and benefiting from the substantial payment made by Manila Metal.

35. PNB approved the repurchase price of P1,574,560.47 for which it accepted P725,000.00 from Manila Metal. PNB cannot take advantage of its own delay and long inaction in demanding a higher amount based on unilateral computation of interest rate without the consent of Manila Metal.

Petitioner later filed an amended complaint and supported its claim for damages with the following arguments:

36. That in order to protect itself against the wrongful and malicious acts of the defendant Bank, plaintiff is constrained to engage the services of counsel at an agreed fee of P50,000.00 and to incur litigation expenses of at least P30,000.00, which the defendant PNB should be condemned to pay the plaintiff Manila Metal.

37. That by reason of the wrongful and malicious actuations of defendant PNB, plaintiff Manila Metal suffered besmirched reputation for which defendant PNB is liable for moral damages of at leastP50,000.00.

38. That for the wrongful and malicious act of defendant PNB which are highly reprehensible, exemplary damages should be awarded in favor of the plaintiff by way of example or correction for the public good of at least P30,000.00.23

Petitioner prayed that, after due proceedings, judgment be rendered in its favor, thus:

a) Declaring the Amended Real Estate Mortgage (Annex "A") null and void and without any legal force and effect.

b) Declaring defendant's acts of extra-judicially foreclosing the mortgage over plaintiff's property and setting it for auction sale null and void.

c) Ordering the defendant Register of Deeds to cancel the new title issued in the name of PNB (TCT NO. 43792) covering the property

described in paragraph 4 of the Complaint, to reinstate TCT No. 37025 in the name of Manila Metal and to cancel the annotation of the mortgage in question at the back of the TCT No.37025 described in paragraph 4 of this Complaint.

d) Ordering the defendant PNB to return and/or deliver physical possession of the TCT No. 37025described in paragraph 4 of this Complaint to the plaintiff Manila Metal.

e) Ordering the defendant PNB to pay the plaintiff Manila Metal's actual damages, moral and exemplary damages in the aggregate amount of not less than P80,000.00 as may be warranted by the evidence and fixed by this Honorable Court in the exercise of its sound discretion, and attorney's fees of P50,000.00 and litigation expenses of at least P30,000.00 as may be proved during the trial, and costs of suit.

Plaintiff likewise prays for such further reliefs which may be deemed just and equitable in the premises.24

In its Answer to the complaint, respondent PNB averred, as a special and affirmative defense, that it had acquired ownership over the property after the period to redeem had elapsed. It claimed that no contract of sale was perfected between it and petitioner after the period to redeem the property had expired.

During pre-trial, the parties agreed to submit the case for decision, based on their stipulation of facts.25 The parties agreed to limit the issues to the following:

1. Whether or not the June 4, 1985 letter of the defendant approving/accepting plaintiff's offer to purchase the property is still valid and legally enforceable.

2. Whether or not the plaintiff has waived its right to purchase the property when it failed to conform with the conditions set forth by the defendant in its letter dated June 4, 1985.

3. Whether or not there is a perfected contract of sale between the parties.26

While the case was pending, respondent PNB demanded, on September 20, 1989, that petitioner vacate the property within 15 days from notice,27 but petitioners refused to do so.

On March 18, 1993, petitioner offered to repurchase the property for P3,500,000.00.28 The offer was however rejected by respondent PNB, in a letter dated April 13, 1993. According to it, the prevailing market value of the property was approximately P30,000,000.00, and as a matter of policy, it could not sell the property for less than its market value.29 On June 21, 1993, petitioner offered to purchase the property for P4,250,000.00 in cash.30The offer was again rejected by respondent PNB on September 13, 1993.31

On May 31, 1994, the trial court rendered judgment dismissing the amended complaint and respondent PNB's counterclaim. It ordered respondent PNB to refund the P725,000.00 deposit petitioner had made.32 The trial court ruled that there was no perfected contract of sale between the parties; hence, petitioner had no cause of action for specific performance against respondent. The trial court declared that respondent had rejected petitioner's offer to repurchase the property. Petitioner, in turn, rejected the terms and conditions contained in the June 4, 1985 letter of the SAMD. While petitioner had offered to repurchase the property per its letter of July 14, 1988, the amount of P643,422.34 was way below the P1,206,389.53 which respondent PNB had demanded. It further declared that the P725,000.00 remitted by petitioner to respondent PNB on June 4, 1985 was a "deposit," and not a downpayment or earnest money.

On appeal to the CA, petitioner made the following allegations:

I

THE LOWER COURT ERRED IN RULING THAT DEFENDANT-APPELLEE'S LETTER DATED 4 JUNE 1985 APPROVING/ACCEPTING PLAINTIFF-APPELLANT'S OFFER TO PURCHASE THE SUBJECT PROPERTY IS NOT VALID AND ENFORCEABLE.

II

THE LOWER COURT ERRED IN RULING THAT THERE WAS NO PERFECTED CONTRACT OF SALE BETWEEN PLAINTIFF-APPELLANT AND DEFENDANT-APPELLEE.

III

THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLLANT WAIVED ITS RIGHT TO PURCHASE THE SUBJECT PROPERTY WHEN IT FAILED TO CONFORM WITH CONDITIONS SET FORTH BY DEFENDANT-APPELLEE IN ITS LETTER DATED 4 JUNE 1985.

IV

THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT IT WAS THE DEFENDANT-APPELLEE WHICH RENDERED IT DIFFICULT IF NOT IMPOSSIBLE FOR PLAINTIFF-APPELLANT TO COMPLETE THE BALANCE OF THEIR PURCHASE PRICE.

V

THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT THERE WAS NO VALID RESCISSION OR CANCELLATION OF SUBJECT CONTRACT OF REPURCHASE.

VI

THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED AND REFUSED TO SUBMIT THE AMENDED REPURCHASE OFFER.

VII

THE LOWER COURT ERRED IN DISMISSING THE AMENDED COMPLAINT OF PLAINTIFF-APPELLANT.

VIII

THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-APPELLANT ACTUAL, MORAL AND EXEMPLARY DAMAGES, ATTOTRNEY'S FEES AND LITIGATION EXPENSES.33

Meanwhile, on June 17, 1993, petitioner's Board of Directors approved Resolution No. 3-004, where it waived, assigned and transferred its rights over the property covered by TCT No. 33099 and TCT No. 37025 in favor of Bayani Gabriel, one of its Directors.34 Thereafter, Bayani Gabriel executed a Deed of Assignment over 51% of the ownership and management of the property in favor of Reynaldo Tolentino, who later moved for leave to intervene as plaintiff-appellant. On July 14, 1993, the CA issued a resolution granting the motion,35 and likewise granted the motion of Reynaldo Tolentino substituting petitioner MMCC, as plaintiff-appellant, and his motion to withdraw as intervenor.36

The CA rendered judgment on May 11, 2000 affirming the decision of the RTC.37 It declared that petitioner obviously never agreed to the selling price proposed by respondent PNB (P1,931,389.53) since petitioner had kept on insisting that the selling price should be lowered to P1,574,560.47. Clearly therefore, there was no meeting of the minds between the parties as to the price or consideration of the sale.

The CA ratiocinated that petitioner's original offer to purchase the subject property had not been accepted by respondent PNB. In fact, it made a counter-offer through its June 4, 1985 letter specifically on the selling price; petitioner did not agree to the counter-offer; and the negotiations did not prosper. Moreover, petitioner did not pay the balance of the purchase price within the sixty-day period set in the June 4, 1985 letter of respondent PNB. Consequently, there was no perfected contract of sale, and as such, there was no contract to rescind.

According to the appellate court, the claim for damages and the counterclaim were correctly dismissed by the court a quo for no evidence was presented to support it. Respondent PNB's letter dated June 30, 1988 cannot revive the failed negotiations between the parties. Respondent PNB merely asked petitioner to submit an amended offer to repurchase. While petitioner reiterated its request for a lower selling price and that the balance of the repurchase be reduced, however, respondent rejected the proposal in a letter dated August 1, 1989.

Petitioner filed a motion for reconsideration, which the CA likewise denied.

Thus, petitioner filed the instant petition for review on certiorari, alleging that:

I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THERE IS NO PERFECTED CONTRACT OF SALE BETWEEN THE PETITIONER AND RESPONDENT.

II. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE AMOUNT OF PHP725,000.00 PAID BY THE PETITIONER IS NOT AN EARNEST MONEY.

III. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE FAILURE OF THE PETITIONER-APPELLANT TO SIGNIFY ITS CONFORMITY TO THE TERMS

CONTAINED IN PNB'S JUNE 4, 1985 LETTER MEANS THAT THERE WAS NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES.

IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT NON-PAYMENT OF THE PETITIONER-APPELLANT OF THE BALANCE OF THE OFFERED PRICE IN THE LETTER OF PNB DATED JUNE 4, 1985, WITHIN SIXTY (60) DAYS FROM NOTICE OF APPROVAL CONSTITUTES NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES.

V. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE LETTERS OF PETITIONER-APPELLANT DATED MARCH 18, 1993 AND JUNE 21, 1993, OFFERING TO BUY THE SUBJECT PROPERTY AT DIFFERENT AMOUNT WERE PROOF THAT THERE IS NO PERFECTED CONTRACT OF SALE.38

The threshold issue is whether or not petitioner and respondent PNB had entered into a perfected contract for petitioner to repurchase the property from respondent.

Petitioner maintains that it had accepted respondent's offer made through the SAMD, to sell the property forP1,574,560.00. When the acceptance was made in its letter dated June 25, 1984; it then deposited P725,000.00 with the SAMD as partial payment, evidenced by Receipt No. 978194 which respondent had issued. Petitioner avers that the SAMD's acceptance of the deposit amounted to an acceptance of its offer to repurchase. Moreover, as gleaned from the letter of SAMD dated June 4, 1985, the PNB Board of Directors had approved petitioner's offer to purchase the property. It claims that this was the suspensive condition, the fulfillment of which gave rise to the contract. Respondent could no longer unilaterally withdraw its offer to sell the property forP1,574,560.47, since the acceptance of the offer resulted in a perfected contract of sale; it was obliged to remit to respondent the balance of the original purchase price of P1,574,560.47, while

respondent was obliged to transfer ownership and deliver the property to petitioner, conformably with Article 1159 of the New Civil Code.

Petitioner posits that respondent was proscribed from increasing the interest rate after it had accepted respondent's offer to sell the property for P1,574,560.00. Consequently, respondent could no longer validly make a counter-offer of P1,931,789.88 for the purchase of the property. It likewise maintains that, although theP725,000.00 was considered as "deposit for the repurchase of the property" in the receipt issued by the SAMD, the amount constitutes earnest money as contemplated in Article 1482 of the New Civil Code. Petitioner cites the rulings of this Court in Villonco v. Bormaheco39 and Topacio v. Court of Appeals.40

Petitioner avers that its failure to append its conformity to the June 4, 1984 letter of respondent and its failure to pay the balance of the price as fixed by respondent within the 60-day period from notice was to protest respondent's breach of its obligation to petitioner. It did not amount to a rejection of respondent's offer to sell the property since respondent was merely seeking to enforce its right to pay the balance of P1,570,564.47. In any event, respondent had the option either to accept the balance of the offered price or to cause the rescission of the contract.

Petitioner's letters dated March 18, 1993 and June 21, 1993 to respondent during the pendency of the case in the RTC were merely to compromise the pending lawsuit, they did not constitute separate offers to repurchase the property. Such offer to compromise should not be taken against it, in accordance with Section 27, Rule 130 of the Revised Rules of Court.

For its part, respondent contends that the parties never graduated from the "negotiation stage" as they could not agree on the amount of the repurchase price of the property. All that transpired was an exchange of proposals and counter-proposals, nothing more. It insists that a definite agreement on the amount and manner of payment of the price are essential elements in the formation of a

binding and enforceable contract of sale. There was no such agreement in this case. Primarily, the concept of "suspensive condition" signifies a future and uncertain event upon the fulfillment of which the obligation becomes effective. It clearly presupposes the existence of a valid and binding agreement, the effectivity of which is subordinated to its fulfillment. Since there is no perfected contract in the first place, there is no basis for the application of the principles governing "suspensive conditions."

According to respondent, the Statement of Account prepared by SAMD as of June 25, 1984 cannot be classified as a counter-offer; it is simply a recital of its total monetary claims against petitioner. Moreover, the amount stated therein could not likewise be considered as the counter-offer since as admitted by petitioner, it was only recommendation which was subject to approval of the PNB Board of Directors.

Neither can the receipt by the SAMD of P725,000.00 be regarded as evidence of a perfected sale contract. As gleaned from the parties' Stipulation of Facts during the proceedings in the court a quo, the amount is merely an acknowledgment of the receipt of P725,000.00 as deposit to repurchase the property. The deposit ofP725,000.00 was accepted by respondent on the condition that the purchase price would still be approved by its Board of Directors. Respondent maintains that its acceptance of the amount was qualified by that condition, thus not absolute. Pending such approval, it cannot be legally claimed that respondent is already bound by any contract of sale with petitioner.

According to respondent, petitioner knew that the SAMD has no capacity to bind respondent and that its authority is limited to administering, managing and preserving the properties and other special assets of PNB. The SAMD does not have the power to sell, encumber, dispose of, or otherwise alienate the assets, since the power to do so must emanate from its Board of Directors. The SAMD was not authorized by respondent's Board to enter into contracts of sale with third persons involving corporate assets. There is absolutely nothing on record that respondent authorized

the SAMD, or made it appear to petitioner that it represented itself as having such authority.

Respondent reiterates that SAMD had informed petitioner that its offer to repurchase had been approved by the Board subject to the condition, among others, "that the selling price shall be the total bank's claim as of documentation date x x x payable in cash (P725,000.00 already deposited)

within 60 days from notice of approval." A new Statement of Account was attached therein indicating the total bank's claim to be P1,931,389.53 less deposit of P725,000.00, or P1,206,389.00. Furthermore, while respondent's Board of Directors accepted petitioner's offer to repurchase the property, the acceptance was qualified, in that it required a higher sale price and subject to specified terms and conditions enumerated therein. This qualified acceptance was in effect a counter-offer, necessitating petitioner's acceptance in return.

The Ruling of the Court

The ruling of the appellate court that there was no perfected contract of sale between the parties on June 4, 1985 is correct.

A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.41 Under Article 1318 of the New Civil Code, there is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

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.42 Once perfected, they bind other contracting parties and the obligations arising therefrom have the form of law between the parties and should be complied with in good faith. The parties are bound not only to the fulfillment of what has been expressly stipulated but also to the consequences which, according to their nature, may be in keeping with good faith, usage and law.43

By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.44 The absence of any of the essential elements will negate the existence of a perfected contract of sale. As the Court ruled in Boston Bank of the Philippines v. Manalo:45

A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a binding and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale.46

A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there is merely an offer by one party without acceptance of the other, there is no contract.47 When the contract of sale is not perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties.48

In San Miguel Properties Philippines, Inc. v. Huang,49 the Court ruled that 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.

A negotiation is formally initiated by an offer, which, however, must be certain.50 At any time prior to the perfection of the contract, either negotiating party may stop the negotiation. At this stage, the offer may be withdrawn; the withdrawal is effective immediately after its manifestation. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional and without variance of any sort from the proposal. In Adelfa Properties, Inc. v. Court of Appeals,51the Court ruled that:

x x x The rule is that except where a formal acceptance is so required, although the acceptance must be affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror, it may be shown by acts, conduct, or words of the accepting party that clearly manifest a present intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or words of a party recognizing the existence of the contract of sale.52

A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a rejection of the original offer. A counter-offer is considered in law, a rejection of the original offer and an attempt to end the negotiation between the parties on a different basis.53 Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to guarantee consent because any modification or variation from the terms of the offer annuls the offer.54 The acceptance must be identical in all respects with that of the offer so as to produce consent or meeting of the minds.

In this case, petitioner had until February 17, 1984 within which to redeem the property. However, since it lacked the resources, it requested for more time to redeem/repurchase the property under such terms and conditions agreed upon by the parties.55 The

request, which was made through a letter dated August 25, 1983, was referred to the respondent's main branch for appropriate action.56 Before respondent could act on the request, petitioner again wrote respondent as follows:

1. Upon approval of our request, we will pay your goodselves ONE HUNDRED & FIFTY THOUSAND PESOS (P150,000.00);

2. Within six months from date of approval of our request, we will pay another FOUR HUNDRED FIFTY THOUSAND PESOS (P450,000.00); and

3. The remaining balance together with the interest and other expenses that will be incurred will be paid within the last six months of the one year grave period requested for.57

When the petitioner was told that respondent did not allow "partial redemption,"58 it sent a letter to respondent's President reiterating its offer to purchase the property.59 There was no response to petitioner's letters dated February 10 and 15, 1984.

The statement of account prepared by the SAMD stating that the net claim of respondent as of June 25, 1984 was P1,574,560.47 cannot be considered an unqualified acceptance to petitioner's offer to purchase the property. The statement is but a computation of the amount which petitioner was obliged to pay in case respondent would later agree to sell the property, including interests, advances on insurance premium, advances on realty taxes, publication cost, registration expenses and miscellaneous expenses.

There is no evidence that the SAMD was authorized by respondent's Board of Directors to accept petitioner's offer and sell the property for P1,574,560.47. Any acceptance by the SAMD of petitioner's offer would not bind respondent. As this Court ruled in AF Realty Development, Inc. vs. Diesehuan Freight Services, Inc.:60

Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. Just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it. Thus, contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by the board. Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with the performance of authorized duties of such director, are held not binding on the corporation.

Thus, a corporation can only execute its powers and transact its business through its Board of Directors and through its officers and agents when authorized by a board resolution or its by-laws.61

It appears that the SAMD had prepared a recommendation for respondent to accept petitioner's offer to repurchase the property even beyond the one-year period; it recommended that petitioner be allowed to redeem the property and pay P1,574,560.00 as the purchase price. Respondent later approved the recommendation that the property be sold to petitioner. But instead of the P1,574,560.47 recommended by the SAMD and to which petitioner had previously conformed, respondent set the purchase price at P2,660,000.00. In fine, respondent's acceptance of petitioner's offer was qualified, hence can be at most considered as a counter-offer. If petitioner had accepted this counter-offer, a perfected contract of sale would have arisen; as it turns out, however, petitioner merely sought to have the counter-offer reconsidered. This request for reconsideration would later be rejected by respondent.

We do not agree with petitioner's contention that the P725,000.00 it had remitted to respondent was "earnest money" which could be considered as proof of the perfection of a contract of sale under Article 1482 of the New Civil Code. The provision reads:

ART. 1482. Whenever 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.

This contention is likewise negated by the stipulation of facts which the parties entered into in the trial court:

8. On June 8, 1984, the Special Assets Management Department (SAMD) of PNB prepared an updated Statement of Account showing MMCC's total liability to PNB as of June 25, 1984 to be P1,574,560.47 and recommended this amount as the repurchase price of the subject property.

9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to repurchase the property. The deposit of P725,000 was accepted by PNB on the condition that the purchase price is still subject to the approval of the PNB Board.62

Thus, the P725,000.00 was merely a deposit to be applied as part of the purchase price of the property, in the event that respondent would approve the recommendation of SAMD for respondent to accept petitioner's offer to purchase the property for P1,574,560.47. Unless and until the respondent accepted the offer on these terms, no perfected contract of sale would arise. Absent proof of the concurrence of all the essential elements of a contract of sale, the giving of earnest money cannot establish the existence of a perfected contract of sale.63

It appears that, per its letter to petitioner dated June 4, 1985, the respondent had decided to accept the offer to purchase the property for P1,931,389.53. However, this amounted to an amendment of respondent's qualified acceptance, or an amended counter-offer, because while the respondent lowered the purchase price, it still declared that its acceptance was subject to the following terms and conditions:

1. That the selling price shall be the total Bank's claim as of documentation date (pls. see attached statement of account as of 5-31-85), payable in cash (P725,000.00 already deposited) within sixty (60) days from notice of approval;

2. The Bank sells only whatever rights, interests and participation it may have in the property and you are charged with full knowledge of the nature and extent of said rights, interests and participation and waive your right to warranty against eviction.

3. All taxes and other government imposts due or to become due on the property, as well as expenses including costs of documents and science stamps, transfer fees, etc., to be incurred in connection with the execution and registration of all covering documents shall be borne by you;

4. That you shall undertake at your own expense and account the ejectment of the occupants of the property subject of the sale, if there are any;

5. That upon your failure to pay the balance of the purchase price within sixty (60) days from receipt of advice accepting your offer, your deposit shall be forfeited and the Bank is thenceforth authorized to sell the property to other interested parties.

6. That the sale shall be subject to such other terms and conditions that the Legal Department may impose to protect the interest of the Bank.64

It appears that although respondent requested petitioner to conform to its amended counter-offer, petitioner refused and instead requested respondent to reconsider its amended counter-offer. Petitioner's request was ultimately rejected and respondent offered to refund its P725,000.00 deposit.

In sum, then, there was no perfected contract of sale between petitioner and respondent over the subject property.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED.

The assailed decision is AFFIRMED. Costs against petitioner Manila Metal Container Corporation.

SO ORDERED.

Ynares-Santiago, J., Working Chairperson, Austria-Martinez, and Chico-Nazario, JJ., concur.Panganiban, C.J., retired as of December 7, 2006.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 124791 February 10, 1999

JOSE RAMON CARCELLER, petitioner, vs.COURT OF APPEALS and STATE INVESTMENT HOUSES, INC., respondents.

QUISUMBING, J.:

Before us is a petition for review of the Decision 1 dated September 21, 1995 of the Court of Appeals 2 in CA — G. R. CV No. 37520, as well as its Resolution 3 dated April 25, 1996, denying both parties' motion for partial reconsideration or clarification. The assailed decision affirmed with modification the judgment 4 of the Regional Trial Court of Cebu City, Branch 5, in Civil Case No. CEB 4700, and disposed of the controversy as follows:

However, We do not find it just that the appellee, in exercising his option to buy, should pay appellant SIHI only P1,800,000.00. In fairness to appellant SIHI, the purchase price must be based on the prevailing market price of real property in Bulacao, Cebu City. (Emphasis supplied)

The factual background of this case is quite simple.

Private respondent State Investment Houses, Inc. (SIHI) is the registered owner of two (2) parcels of land with a total area of 9,774 square meters, including all the improvements thereon, located at Bulacao, Cebu City, covered by Transfer Certificate of Titles Nos. T-89152 and T-89153 of the Registry of Deeds of Cebu

City.

On January 10, 1985, petitioner and SIHI entered into a lease contract with option to purchase 5 over said two parcels of land, at a monthly rental of Ten Thousand (P10,000.00) pesos for a period of eighteen (18) months, beginning on August 1, 1984 until January 30, 1986. The pertinent portion of the lease contract subject of the dispute reads in part:

4. As part of the consideration of this agreement, the LESSOR hereby grants unto the LESSEE the exclusive right, option and privilege to purchase, within the lease period, the leased premises thereon for the aggregate amount of P1,800,000.00 payable as follows:

a. Upon the signing of the Deed of Sale, the LESSEE shall immediately pay P360,000.00.

b. The balance of P1,440,000.00 shall be paid in equal installments of P41,425.87 over sixty (60) consecutive months computed with interest at 24% per annum on the diminishing balance; Provided, that the LESSEE shall have the right to accelerate payments at anytime in which event the stipulated interest for the remaining installments shall no longer be imposed.

x . . The option shall be exercised by a written notice to the LESSOR at anytime within the option period and the document of sale over the afore-described properties has to be consummated within the month immediately following the month when the LESSEE exercised his option under this contract. 6

On January 7, 1986, or approximately three (3) weeks before the expiration of the lease contract, SIHI notified petitioner of the impending termination of the lease agreement, and of the short period of time left within which he could still validly exercise the option. It likewise requested petitioner to advise them of his

decision on the option, on or before January 20, 1986. 7

In a letter dated January 15, 1986, which was received by SIHI on January 29, 1986, petitioner requested for a six-month extension of the lease contract, alleging that he needs ample time to raise sufficient funds in order to exercise the option. To support his request, petitioner averred that he had already made a substantial investment on the property, and had been punctual in paying his monthly rentals. 8

On February 14, 1986, SIHI notified petitioner that his request was disapproved. Nevertheless, it offered to lease the same property to petitioner at the rate of Thirty Thousand (P30,000.00) pesos a month, for a period of one (1) year. It further informed the petitioner of its decision to offer for sale said leased property to the general public. 9

On February 18, 1986, petitioner notified SIHI of his decision to exercise the option to purchase the property and at the same time he made arrangements for the payment of the downpayment thereon in the amount of Three Hundred Sixty Thousand (P360,000.00) pesos. 10

On February 20, 1986, SIHI sent another letter to petitioner, reiterating its previous stand on the latter's offer, stressing that the period within which the option should have been exercised had already lapsed. SIHI asked petitioner to vacate the property within ten (10) days from notice, and to pay rental and penalty due. 11

Hence, on February 28, 1986, a complaint for specific performance and damages 12 was filed by petitioner against SIHI before the Regional Trial Court of Cebu City, to compel the latter to honor its commitment and execute the corresponding deed of sale.

After trial, the court a quo promulgated its decision dated April 1, 1991, the dispositive portion of which reads:

In the light of the foregoing considerations, the Court hereby renders judgment in Civil Case No. CEB 4700, ordering the defendant to execute a deed of sale in favor of the plaintiff, covering the parcels of land together with all the improvements thereon, covered by Transfer Certificates of Title Nos. 89152 and 89153 of the Registry of Deeds of Cebu City, in accordance with the lease contract executed on January 10, 1984 between the plaintiff and the defendant, but the purchase price may be by "one shot payment" of P1,800,000.00; and the defendant to pay attorney's fee of P20,000.00.

No damages awarded. 13

Not satisfied with the judgment, SIHI elevated the case to the Court of Appeals by way of a petition for review.

On September 21, 1995, respondent court rendered its decision, affirming the trial court's judgment, but modified the basis for assessing the purchase price. While respondent court affirmed appellee's option to buy the property, it added that, "the purchase price must be based on the prevailing market price of real property in Bulacao, Cebu City." 14

Baffled by the modification made by respondent court, both parties filed a motion for reconsideration and/or clarification, with petitioner, on one hand, praying that the prevailing market price be the value of the property in February 1986, the time when the sale would have been consummated. SIHI, on the other hand, prayed that the market price of the property be based on the prevailing price index at least 10 years later, that is, 1996.

Respondent court conducted further hearing to clarify the matter, but no agreement was reached by the parties. Thus, on April 25,

1996, respondent court promulgated the assailed resolution, which denied both parties' motions, and directed the trial court to conduct further hearings to ascertain the prevailing market value of real properties in Bulacao, Cebu City and fix the value of the property subject of the controversy. 14a

Hence, the instant petition for review.

The fundamental issue to be resolved is, should petitioner be allowed to exercise the option to purchase the leased property, despite the alleged delay in giving the required notice to private respondent?

An option is a preparatory contract in which one party grants to the other, for a fixed period and under specified conditions, the power to decide, whether or not to enter into a principal contract. It binds the party who has given the option, not to enter into the principal contract with any other person during the period designated, and, within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the option. 15 It is a separate agreement distinct from the contract which the parties may enter into upon the consummation of the option. 16

Considering the circumstances in this case, we find no reason to disturb the findings of respondent court, that petitioner's letter to SIHI, dated January 15, 1986, was fair notice to the latter of the former's intent to exercise the option, despite the request for the extension of the lease contract. As stated in said letter to SIHI, petitioner was requesting for an extension (of the contract) for six months "to allow us to generate sufficient funds in order to exercise our option to buy the subject property". 17 The analysis by the Court of Appeals of the evidence on record and the process by which it arrived at its findings on the basis thereof, impel this Court's assent to said findings. They are consistent with the parties' primary intent, as hereafter discussed, when they executed the lease contract. As respondent court ruled:

We hold that the appellee [herein petitioner] acted with honesty and good faith. Verily, We are in accord with the trial court that he should be allowed to exercise his option to purchase the lease property. In fact, SIHI will not be prejudiced. A contrary ruling, however, will definitely cause damage to the appellee, it appearing that he has introduced considerable improvements on the property and has borrowed huge loan from the Technology Resources Center. 17a

The contracting parties' primary intent in entering into said lease contract with option to purchase confirms, in our view, the correctness of respondent court's ruling. Analysis and construction, however, should not be limited to the words used in the contract, as they may not accurately reflect the parties' true intent. The reasonableness of the result obtained, after said analysis, ought likewise to be carefully considered.

It is well-settled in both law and jurisprudence, that contracts are the law between the contracting parties and should be fulfilled, if their terms are clear and leave no room for doubt as to the intention of the contracting parties. 18 Further, it is well-settled that in construing a written agreement, the reason behind and the circumstances surrounding its execution are of paramount importance. Sound construction requires one to be placed mentally in the situation occupied by the parties concerned at the time the writing was executed. Thereby, the intention of the contracting parties could be made to prevail, because their agreement has the force of law between them. 19

Moreover, to ascertain the intent of the parties in a contractual relationship, it is imperative that the various stipulations provided for in the contract be construed together, consistent with the parties' contemporaneous and subsequent acts as regards the execution of the contract. 20 And once the intention of the parties has been ascertained, that element is deemed as an integral part of the contract as though it has been originally expressed in unequivocal terms.

As sufficiently established during the trial, SIHI, prior to its negotiation with petitioner, was already beset with financial problems. SIHI was experiencing difficulty in meeting the claims of its creditors. Thus, in order to reprogram the company's financial investment plan and facilitate its rehabilitation and viability, SIHI, being a quasi-banking financial institution, had been placed under the supervision and control of the Central Bank (CB). It was in dire need of liquidating its assets, so to speak, in order to stay afloat financially.

Thus, SIHI was compelled to dispose some of its assets, among which is the subject leased property, to generate sufficient funds to augment its badly-depleted financial resources. This then brought about the execution of the lease contract with option to purchase between SIHI and the petitioner.

The lease contract provided that to exercise the option, petitioner had to send a letter to SIHI, manifesting his intent to exercise said option within the lease period ending January 30, 1986. However, what petitioner did was to request on January 15, 1986, for a six-month extension of the lease contract, for the alleged purpose of raising funds intended to purchase the property subject of the option. It was only after the request was denied on February 14, 1986, that petitioner notified SIHI of his desire to exercise the option formally. This was by letter dated February 18, 1986. In private respondent's view, there was already a delay of 18 days, fatal to petitioner's cause. But respondent court found the delay neither "substantial" nor "fundamental" and did not amount to a breach that would defeat the intention of the parties when they executed the lease contract with option to purchase. 20a

In allowing petitioner to exercise the option, however, both lower courts are in accord in their decision, rationalizing that a contrary ruling would definitely cause damage to the petitioner, as he had the whole place renovated to make the same suitable and conducive for the business he established there. Moreover, judging from the subsequent acts of the parties, it is undeniable that SIHI

really intended to dispose of said leased property, which petitioner indubitably intended to buy.

SIHI's agreement to enter first into a lease contract with option to purchase with herein petitioner, is a clear proof of its intent to promptly dispose said property although the full financial returns may materialize only in a year's time. Furthermore, its letter dated January 7, 1986, reminding the petitioner of the short period of time left within which to consummate their agreement, clearly showed its desire to sell that property. Also, SIHI's letter dated February 14, 1986 supported the conclusion that it was bent on disposing said property. For this letter made mention of the fact that, "said property is now for sale to the general public".

Petitioner's determination to purchase said property is equally indubitable. He introduced permanent improvements on the leased property, demonstrating his intent to acquire dominion in a year's time. To increase his chances of acquiring the property, he secured an P8 Million loan from the Technology Resources Center (TRC), thereby augmenting his capital. He averred that he applied for a loan since he planned to pay the purchase price in one single payment, instead of paying in installment, which would entail the payment of additional interest at the rate of 24% per annum, compared to 73/4% per annum interest for the TRC loan. His letter earlier requesting extension was premised, in fact, on his need for time to secure the needed financing through a TRC loan.

In contractual relations, the law allows the parties reasonable leeway on the terms of their agreement, which is the law between them. 21 Note that by contract SIHI had given petitioner 4 periods: (a) the option to purchase the property for P1,800,000.00 within the lease period, that is, until January 30, 1986; (b) the option to be exercised within the option period by written notice at anytime; (c) the "document of sale . . . to be consummated within the month immediately following the month" when petitioner exercises the option; and (d) the payment in equal installments of the purchase price over a period of 60 months. In our view, petitioner's letter of

January 15, 1986 and his formal exercise of the option on February 18, 1986 were within a reasonable time-frame consistent with periods given and the known intent of the parties to the agreement dated January 10, 1985. A contrary view would be harsh and inequituous indeed.

In Tuason, Jr., etc. vs. De Asis, 22 this Court opined that "in a contract of lease, if the lessor makes an offer to the lessee to purchase the property on or before the termination of the lease, and the lessee fails to accept or make the purchase on time, the lessee losses the right to buy the property later on the terms and conditions set in the offer." Thus, on one hand, petitioner herein could not insist on buying the said property based on the price agreed upon in the lease agreement, even if his option to purchase it is recognized. On the other hand, SIHI could not take advantage of the situation to increase the selling price of said property by nearly 90% of the original price. Such leap in the price quoted would show an opportunistic intent to exploit the situation as SIHI knew for a fact that petitioner badly needed the property for his business and that he could afford to pay such higher amount after having secured an P8 Million loan from the TRC. If the courts were to allow SIHI to take advantage of the situation, the result would have been an injustice to petitioner, because SIHI would be unjustly enriched at his expense. Courts of law, being also courts of equity, may not countenance such grossly unfair results without doing violence to its solemn obligation to administer fair and equal justice for all.

WHEREFORE, the appealed decision of respondent court, insofar as it affirms the judgment of the trial court in granting petitioner the opportunity to exercise the option to purchase the subject property, is hereby AFFIRMED. However the purchase price should be based on the fair market value of real property in Bulacao, Cebu City, as of February 1986, when the contract would have been consummated. Further, petitioner is hereby ordered to pay private respondent SIHI legal interest on the said purchase price beginning February 1986 up to the time it is actually paid, as well as the taxes due on said property, considering that petitioner have enjoyed the

beneficial use of said property. The case is hereby remanded to Regional Trial Court of Cebu, Branch 5, for further proceedings to determine promptly the fair market value of said real property as of February 1986, in Bulacao, Cebu City.

Costs against private respondent.

SO ORDERED.

Bellosillo, Puno, Mendoza and Buena, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 134971             March 25, 2004

HERMINIO TAYAG, petitioner, vs.AMANCIA LACSON, ROSENDO LACSON, ANTONIO LACSON, JUAN LACSON, TEODISIA LACSON-ESPINOSA and THE COURT OF APPEALS, respondents.

D E C I S I O N

CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision1 and the Resolution2 of respondent Court of Appeals in CA-G.R. SP No. 44883.

The Case for the Petitioner

Respondents Angelica Tiotuyco Vda. de Lacson,3 and her children Amancia, Antonio, Juan, and Teodosia, all surnamed Lacson, were the registered owners of three parcels of land located in Mabalacat, Pampanga, covered by Transfer Certificates of Title (TCT) Nos. 35922-R, 35923-R, and 35925-R, registered in the Register of Deeds of San Fernando, Pampanga. The properties, which were tenanted agricultural lands,4 were administered by Renato Espinosa for the owner.

On March 17, 1996, a group of original farmers/tillers, namely, Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano Ramos, and another group, namely, Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Ricardo Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson, Augusto Tolentino, Sixto Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de Leon, Alberto Hernandez, Orlando Flores, and Aurelio Flores,5 individually executed in favor of the petitioner separate Deeds of Assignment6 in which the assignees assigned to the petitioner their respective rights as tenants/tillers of the landholdings possessed and tilled by them for and in consideration of P50.00 per square meter. The said amount was made payable "when the legal impediments to the sale of the property to the petitioner no longer existed." The petitioner was also granted the exclusive right to buy the property if and when the respondents, with the concurrence of the defendants-tenants, agreed to sell the property. In the interim, the petitioner gave varied sums of money to the tenants as partial payments, and the latter issued receipts for the said amounts.

On July 24, 1996, the petitioner called a meeting of the defendants-tenants to work out the implementation of the terms of their separate agreements.7 However, on August 8, 1996, the defendants-tenants, through Joven Mariano, wrote the petitioner stating that they were not attending the meeting and instead gave

notice of their collective decision to sell all their rights and interests, as tenants/lessees, over the landholding to the respondents.8 Explaining their reasons for their collective decision, they wrote as follows:

Kami ay nagtiwala sa inyo, naging tapat at nanindigan sa lahat ng ating napagkasunduan, hindi tumanggap ng ibang buyer o ahente, pero sinira ninyo ang aming pagtitiwala sa pamamagitan ng demanda ninyo at pagbibigay ng problema sa amin na hindi naman nagbenta ng lupa.

Kaya kami ay nagpulong at nagpasya na ibenta na lang ang aming karapatan o ang aming lupang sinasaka sa landowner o sa mga pamilyang Lacson, dahil ayaw naming magkaroon ng problema.

Kaya kung ang sasabihin ninyong ito’y katangahan, lalo sigurong magiging katangahan kung ibebenta pa namin sa inyo ang aming lupang sinasaka, kaya pasensya na lang Mister Tayag. Dahil sinira ninyo ang aming pagtitiwala at katapatan.9

On August 19, 1996, the petitioner filed a complaint with the Regional Trial Court of San Fernando, Pampanga, Branch 44, against the defendants-tenants, as well as the respondents, for the court to fix a period within which to pay the agreed purchase price of P50.00 per square meter to the defendants, as provided for in the Deeds of Assignment. The petitioner also prayed for a writ of preliminary injunction against the defendants and the respondents therein.10 The case was docketed as Civil Case No. 10910.

In his complaint, the petitioner alleged, inter alia, the following:

4. That defendants Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano Ramos are original farmers or direct tillers of landholdings over parcels of lands covered by Transfer

Certificate of Title Nos. 35922-R, 35923-R and 35925-R which are registered in the names of defendants LACSONS; while defendants Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Alfredo Gozun, Jose Tiamson, Augusto Tolentino, Sixto Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de Leon, Alberto Hernandez, and Aurelio Flores are sub-tenants over the same parcel of land.

5. That on March 17, 1996 the defendants TIAMSON, et al., entered into Deeds of Assignment with the plaintiff by which the defendants assigned all their rights and interests on their landholdings to the plaintiff and that on the same date (March 17, 1996), the defendants received from the plaintiff partial payments in the amounts corresponding to their names. Subsequent payments were also received:

1st PAYMENT

2nd PAYMENT CHECK NO. TOTAL

1.Julio Tiamson - - - - - - P 20,000 P 10,621.54 231281 P 30,621.54

2. Renato Gozun - - - - - -[son of Felix Gozun (deceased)]

P 10,000 96,000 106,000.00

3. Rosita Hernandez - - - - P 5,000 14,374.24 231274 P 19,374.24

4. Bienvenido Tongol - - - [Son of Abundio Tongol (deceased)]

P 10,000 14,465.90 231285 24,465.90

5. Alfonso Flores - - - - - - P 30,000 26,648.40 231271 56,648.40

6. Norma Quiambao - - - - P 10,000 41,501.10 231279 51,501.10

7. Rosita Tolentino - - - - - P 10,000 22,126.08 231284 32,126.08

8. Jose Sosa - - - - - - - - - P 10,000 14,861.31 231291 24,861.31

9. Francisco Tolentino, Sr. P 10,000 24,237.62 231283 34,237.62

10. Emiliano Laxamana - - P 10,000 ------ ------ ------

11. Ruben Torres - - - - - - [Son of Mariano Torres (deceased)]

P 10,000 P 33,587.31 ------ P 43,587.31

12. Meliton Allanigue P 10,000 12,944.77 231269 P 22,944.77

13. Dominga Laxamana P 5,000 22,269.02 231275 27,269.02

14. Felicencia de Leon 10,000 ------ ------ ------

15. Emiliano Ramos 5,000 18,869.60 231280 23,869.60

16. Felino G. Tolentino 10,000 ------ ------ ------

17. Rica Gozun 5,000 ------ ------ ------

18. Perla Gozun 10,000 ------ ------ ------

19. Benigno Tolentino 10,000 ------ ------ ------

20. Rodolfo Quiambao 10,000 ------ ------ ------

21. Roman Laxamana 10,000 ------ ------ ------

22. Eddie San Luis 10,000 ------ ------ ------

23. Ricardo Hernandez 10,000 ------ ------ ------

24. Nicenciana Miranda 10,000 ------ ------ ------

25. Jose Gozun 10,000 ------ ------ ------

26. Alfredo Sosa 5,000 ------ ------ ------

27. Jose Tiamson 10,000 ------ ------ ---

28. Augusto Tolentino 5,000 ------ ------ ------

29. Sixto Hernandez 10,000 ------ ------ ------

30. Alex Quiambao 10,000 ------ ------ ------

31. Isidro Tolentino 10,000 ------ ------ ------

32. Ceferino de Leon ------ 11,378.70 231270 ------

33. Alberto Hernandez 10,000 ------ ------ ------

34. Orlando Florez 10,000 ------ ------ ------

35. Aurelio Flores 10,000 ------ ------ ------

6. That on July 24, 1996, the plaintiff wrote the defendants TIAMSON, et al., inviting them for a meeting regarding the negotiations/implementations of the terms of their Deeds of Assignment;

7. That on August 8, 1996, the defendants TIAMSON, et al., through Joven Mariano, replied that they are no longer willing to pursue with the negotiations, and instead they gave notice to the plaintiff that they will sell all their rights and interests to the registered owners (defendants LACSONS).

A copy of the letter is hereto attached as Annex "A" etc.;

8. That the defendants TIAMSON, et. al., have no right to deal with the defendants LACSON or with any third persons while their contracts with the plaintiff are subsisting; defendants LACSONS are inducing or have induced the defendants TIAMSON, et. al., to violate their contracts with the plaintiff;

9. That by reason of the malicious acts of all the defendants, plaintiff suffered moral damages in the forms of mental anguish, mental torture and serious anxiety which in the sum of P500,000.00 for which defendants should be held liable jointly and severally.11

In support of his plea for injunctive relief, the petitioner, as plaintiff, also alleged the following in his complaint:

11. That to maintain the status quo, the defendants TIAMSON, et al., should be restrained from rescinding their contracts with the plaintiff, and the defendants LACSONS should also be restrained from accepting any offer of sale or alienation with the defendants TIAMSON, et al., in whatever form, the latter’s rights and interests in the properties mentioned in paragraph 4 hereof; further, the LACSONS should be restrained from encumbering/alienating the subject properties covered by TCT No. 35922-R, 35923-R and TCT No. 35925-R, Registry of Deeds of San Fernando, Pampanga;

12. That the defendants TIAMSON, et al., threaten to rescind their contracts with the plaintiff and are also bent on selling/alienating their rights and interests over the subject properties to their co-defendants (LACSONS) or any other persons to the damage and prejudice of the plaintiff who already invested much money, efforts and time in the said transactions;

13. That the plaintiff is entitled to the reliefs being demanded in the complaint;

14. That to prevent irreparable damages and prejudice to the plaintiff, as the latter has no speedy and adequate remedy under the ordinary course of law, it is essential that a Writ of Preliminary Injunction be issued enjoining and restraining the defendants TIAMSON, et al., from rescinding their contracts with the plaintiff and from selling/alienating their properties to the LACSONS or other persons;

15. That the plaintiff is willing and able to put up a reasonable bond to answer for the damages which the defendants would suffer should the injunction prayed for and granted be found without basis.12

The petitioner prayed, that after the proceedings, judgment be rendered as follows:

1. Pending the hearing, a Writ of Preliminary Injunction be issued prohibiting, enjoining and restraining defendants Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano Ramos, Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Ricardo Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson, Augusto Tolentino, Ceferino de Leon, Alberto Hernandez, Orlando Flores, and Aurelio Flores from rescinding their contracts with the plaintiff and from alienating their rights and interest over the aforementioned properties in favor of defendants LACSONS or any other third persons; and prohibiting the defendants LACSONS from encumbering/alienating TCT Nos. 35922-R, 35923-R and 35925-R of the Registry of Deeds of San Fernando, Pampanga.

2. And pending the hearing of the Prayer for a Writ of Preliminary Injunction, it is prayed that a restraining order be issued restraining the aforementioned defendants (TIAMSON, et al.) from rescinding their contracts with the plaintiff and from alienating the subject

properties to the defendants LACSONS or any third persons; further, restraining and enjoining the defendants LACSONS from encumbering/selling the properties covered by TCT Nos. 35922-R, 35923-R, and 35925-R of the Registry of Deeds of San Fernando, Pampanga.

3. Fixing the period within which plaintiff shall pay the balance of the purchase price to the defendants TIAMSON, et al., after the lapse of legal impediment, if any.

4. Making the Writ of Preliminary Injunction permanent;

5. Ordering the defendants to pay the plaintiff the sum of P500,000.00 as moral damages;

6. Ordering the defendants to pay the plaintiff attorney’s fees in the sum of P100,000.00 plus litigation expenses of P50,000.00;

Plaintiff prays for such other relief as may be just and equitable under the premises.13

In their answer to the complaint, the respondents as defendants asserted that (a) the defendant Angelica Vda. de Lacson had died on April 24, 1993; (b) twelve of the defendants were tenants/lessees of respondents, but the tenancy status of the rest of the defendants was uncertain; (c) they never induced the defendants Tiamson to violate their contracts with the petitioner; and, (d) being merely tenants-tillers, the defendants-tenants had no right to enter into any transactions involving their properties without their knowledge and consent. They also averred that the transfers or assignments of leasehold rights made by the defendants-tenants to the petitioner is contrary to Presidential Decree (P.D.) No. 27 and Republic Act No. 6657, the Comprehensive Agrarian Reform Program (CARP).14 The respondents interposed counterclaims for damages against the petitioner as plaintiff.

The defendants-tenants Tiamson, et al., alleged in their answer with counterclaim for damages, that the money each of them received from the petitioner were in the form of loans, and that they were deceived into signing the deeds of assignment:

a) That all the foregoing allegations in the Answer are hereby repleaded and incorporated in so far as they are material and relevant herein;

b) That the defendants Tiamson, et al., in so far as the Deeds of Assignment are concern[ed] never knew that what they did sign is a Deed of Assignment. What they knew was that they were made to sign a document that will serve as a receipt for the loan granted [to] them by the plaintiff;

c) That the Deeds of Assignment were signed through the employment of fraud, deceit and false pretenses of plaintiff and made the defendants believe that what they sign[ed] was a mere receipt for amounts received by way of loans;

d) That the documents signed in blank were filled up and completed after the defendants Tiamson, et al., signed the documents and their completion and accomplishment was done in the absence of said defendants and, worst of all, defendants were not provided a copy thereof;

e) That as completed, the Deeds of Assignment reflected that the defendants Tiamson, et al., did assign all their rights and interests in the properties or landholdings they were tilling in favor of the plaintiff. That if this is so, assuming arguendo that the documents were voluntarily executed, the defendants Tiamson, et al., do not have any right to transfer their interest in the landholdings they are tilling as they have no right whatsoever in the landholdings, the landholdings belong to their co-defendants, Lacson, et al., and therefore, the contract is null and void;

f) That while it is admitted that the defendants Tiamson, et al., received sums of money from plaintiffs, the same were received as approved loans granted by plaintiff to the defendants Tiamson, et al., and not as part consideration of the alleged Deeds of Assignment; and by way of:…15

At the hearing of the petitioner’s plea for a writ of preliminary injunction, the respondents’ counsel failed to appear. In support of his plea for a writ of preliminary injunction, the petitioner adduced in evidence the Deeds of Assignment,16 the receipts17 issued by the defendants-tenants for the amounts they received from him; and the letter18 the petitioner received from the defendants-tenants. The petitioner then rested his case.

The respondents, thereafter, filed a Comment/Motion to dismiss/deny the petitioner’s plea for injunctive relief on the following grounds: (a) the Deeds of Assignment executed by the defendants-tenants were contrary to public policy and P.D. No. 27 and Rep. Act No. 6657; (b) the petitioner failed to prove that the respondents induced the defendants-tenants to renege on their obligations under the "Deeds of Assignment;" (c) not being privy to the said deeds, the respondents are not bound by the said deeds; and, (d) the respondents had the absolute right to sell and dispose of their property and to encumber the same and cannot be enjoined from doing so by the trial court.

The petitioner opposed the motion, contending that it was premature for the trial court to resolve his plea for injunctive relief, before the respondents and the defendants-tenants adduced evidence in opposition thereto, to afford the petitioner a chance to adduce rebuttal evidence and prove his entitlement to a writ of preliminary injunction. The respondents replied that it was the burden of the petitioner to establish the requisites of a writ of preliminary injunction without any evidence on their part, and that they were not bound to adduce any evidence in opposition to the petitioner’s plea for a writ of preliminary injunction.

On February 13, 1997, the court issued an Order19 denying the motion of the respondents for being premature. It directed the hearing to proceed for the respondents to adduce their evidence. The court ruled that the petitioner, on the basis of the material allegations of the complaint, was entitled to injunctive relief. It also held that before the court could resolve the petitioner’s plea for injunctive relief, there was need for a hearing to enable the respondents and the defendants-tenants to adduce evidence to controvert that of the petitioner. The respondents filed a motion for reconsideration, which the court denied in its Order dated April 16, 1997. The trial court ruled that on the face of the averments of the complaint, the pleadings of the parties and the evidence adduced by the petitioner, the latter was entitled to injunctive relief unless the respondents and the defendants-tenants adduced controverting evidence.

The respondents, the petitioners therein, filed a petition for certiorari in the Court of Appeals for the nullification of the February 13, 1997 and April 16, 1997 Orders of the trial court. The case was docketed as CA-G.R. SP No. 44883. The petitioners therein prayed in their petition that:

1. An order be issued declaring the orders of respondent court dated February 13, 1997 and April 16, 1997 as null and void;

2. An order be issued directing the respondent court to issue an order denying the application of respondent Herminio Tayag for the issuance of a Writ of Preliminary Injunction and/or restraining order.

3. In the meantime, a Writ of Preliminary Injunction be issued against the respondent court, prohibiting it from issuing its own writ of injunction against Petitioners, and thereafter making said injunction to be issued by this Court permanent.

Such other orders as may be deemed just & equitable under the premises also prayed for.20

The respondents asserted that the Deeds of Assignment executed by the assignees in favor of the petitioner were contrary to paragraph 13 of P.D. No. 27 and the second paragraph of Section 70 of Rep. Act No. 6657, and, as such, could not be enforced by the petitioner for being null and void. The respondents also claimed that the enforcement of the deeds of assignment was subject to a supervening condition:

3. That this exclusive and absolute right given to the assignee shall be exercised only when no legal impediments exist to the lot to effect the smooth transfer of lawful ownership of the lot/property in the name of the ASSIGNEE.21

The respondents argued that until such condition took place, the petitioner would not acquire any right to enforce the deeds by injunctive relief. Furthermore, the petitioner’s plea in his complaint before the trial court, to fix a period within which to pay the balance of the amounts due to the tenants under said deeds after the "lapse" of any legal impediment, assumed that the deeds were valid, when, in fact and in law, they were not. According to the respondents, they were not parties to the deeds of assignment; hence, they were not bound by the said deeds. The issuance of a writ of preliminary injunction would restrict and impede the exercise of their right to dispose of their property, as provided for in Article 428 of the New Civil Code. They asserted that the petitioner had no cause of action against them and the defendants-tenants.

On April 17, 1998, the Court of Appeals rendered its decision against the petitioner, annulling and setting aside the assailed orders of the trial court; and permanently enjoining the said trial court from proceeding with Civil Case No. 10901. The decretal portion of the decision reads as follows:

However, even if private respondent is denied of the injunctive relief he demands in the lower court still he could avail of other course of action in order to protect his interest such as the institution of a simple civil case of collection of money against TIAMSON, et al.

For all the foregoing considerations, the orders dated 13 February 1997 and 16 April 1997 are hereby NULLIFIED and ordered SET ASIDE for having been issued with grave abuse of discretion amounting to lack or excess of jurisdiction. Accordingly, public respondent is permanently enjoined from proceeding with the case designated as Civil Case No. 10901.22

The CA ruled that the respondents could not be enjoined from alienating or even encumbering their property, especially so since they were not privies to the deeds of assignment executed by the defendants-tenants. The defendants-tenants were not yet owners of the portions of the landholdings respectively tilled by them; as such, they had nothing to assign to the petitioner. Finally, the CA ruled that the deeds of assignment executed by the defendants-tenants were contrary to P.D. No. 27 and Rep. Act No. 6657.

On August 4, 1998, the CA issued a Resolution denying the petitioner’s motion for reconsideration.23

Hence, the petitioner filed his petition for review on certiorari before this Court, contending as follows:

I

A MERE ALLEGATION IN THE ANSWER OF THE TENANTS COULD NOT BE USED AS EVIDENCE OR BASIS FOR ANY CONCLUSION, AS THIS ALLEGATION, IS STILL THE SUBJECT OF TRIAL IN THE LOWER COURT (RTC).24

II

THE COURT OF APPEALS CANNOT ENJOIN THE HEARING OF A PETITION FOR PRELIMINARY INJUNCTION AT A TIME WHEN THE LOWER COURT (RTC) IS STILL RECEIVING EVIDENCE PRECISELY TO DETERMINE WHETHER OR NOT THE WRIT OF PRELIMINARY INJUNCTION BEING

PRAYED FOR BY TAYAG SHOULD BE GRANTED OR NOT.25

III

THE COURT OF APPEALS CANNOT USE "FACTS" NOT IN EVIDENCE, TO SUPPORT ITS CONCLUSION THAT THE TENANTS ARE NOT YET "AWARDEES OF THE LAND REFORM.26

IV

THE COURT OF APPEALS CANNOT CAUSE THE PERMANENT STOPPAGE OF THE ENTIRE PROCEEDINGS BELOW INCLUDING THE TRIAL ON THE MERITS OF THE CASE CONSIDERING THAT THE ISSUE INVOLVED ONLY THE PROPRIETY OF MAINTAINING THE STATUS QUO.27

V

THE COURT OF APPEALS CANNOT INCLUDE IN ITS DECISION THE CASE OF THE OTHER 35 TENANTS WHO DO NOT QUESTION THE JURISDICTION OF THE LOWER COURT (RTC) OVER THE CASE AND WHO ARE IN FACT STILL PRESENTING THEIR EVIDENCE TO OPPOSE THE INJUNCTION PRAYED FOR, AND TO PROVE AT THE SAME TIME THE COUNTER-CLAIMS THEY FILED AGAINST THE PETITIONER.28

VI

THE LOWER COURT (RTC) HAS JURISDICTION OVER THE CASE FILED BY TAYAG FOR "FIXING OF PERIOD" UNDER ART. 1197 OF THE NEW CIVIL CODE AND FOR "DAMAGES" AGAINST THE

LACSONS UNDER ART. 1314 OF THE SAME CODE. THIS CASE CANNOT BE SUPPRESSED OR RENDERED NUGATORY UNCEREMONIOUSLY.29

The petitioner faults the Court of Appeals for permanently enjoining the trial court from proceeding with Civil Case No. 10910. He opines that the same was too drastic, tantamount to a dismissal of the case. He argues that at that stage, it was premature for the appellate court to determine the merits of the case since no evidentiary hearing thereon was conducted by the trial court. This, the Court of Appeals cannot do, since neither party moved for the dismissal of Civil Case No. 10910. The petitioner points out that the Court of Appeals, in making its findings, went beyond the issue raised by the private respondents, namely, whether or not the trial court committed a grave abuse of discretion amounting to excess or lack of jurisdiction when it denied the respondent’s motion for the denial/dismissal of the petitioner’s plea for a writ of preliminary injunction. He, likewise, points out that the appellate court erroneously presumed that the leaseholders were not DAR awardees and that the deeds of assignment were contrary to law. He contends that leasehold tenants are not prohibited from conveying or waiving their leasehold rights in his favor. He insists that there is nothing illegal with his contracts with the leaseholders, since the same shall be effected only when there are no more "legal impediments."

At bottom, the petitioner contends that, at that stage, it was premature for the appellate court to determine the merits of his case since no evidentiary hearing on the merits of his complaint had yet been conducted by the trial court.

The Comment/Motion of theRespondents to Dismiss/DenyPetitioner’s Plea for a Writof Preliminary InjunctionWas Not Premature.

Contrary to the ruling of the trial court, the motion of the respondents to dismiss/deny the petitioner’s plea for a writ of preliminary injunction after the petitioner had adduced his evidence, testimonial and documentary, and had rested his case on the incident, was proper and timely. It bears stressing that the petitioner had the burden to prove his right to a writ of preliminary injunction. He may rely solely on the material allegations of his complaint or adduce evidence in support thereof. The petitioner adduced his evidence to support his plea for a writ of preliminary injunction against the respondents and the defendants-tenants and rested his case on the said incident. The respondents then had three options: (a) file a motion to deny/dismiss the motion on the ground that the petitioner failed to discharge his burden to prove the factual and legal basis for his plea for a writ of preliminary injunction and, if the trial court denies his motion, for them to adduce evidence in opposition to the petitioner’s plea; (b) forgo their motion and adduce testimonial and/or documentary evidence in opposition to the petitioner’s plea for a writ of preliminary injunction; or, (c) waive their right to adduce evidence and submit the incident for consideration on the basis of the pleadings of the parties and the evidence of the petitioner. The respondents opted not to adduce any evidence, and instead filed a motion to deny or dismiss the petitioner’s plea for a writ of preliminary injunction against them, on their claim that the petitioner failed to prove his entitlement thereto. The trial court cannot compel the respondents to adduce evidence in opposition to the petitioner’s plea if the respondents opt to waive their right to adduce such evidence. Thus, the trial court should have resolved the respondents’ motion even without the latter’s opposition and the presentation of evidence thereon.

The RTC Committed a GraveAbuse of Discretion Amountingto Excess or Lack of Jurisdictionin Issuing its February 13, 1997and April 16, 1997 Orders

In its February 13, 1997 Order, the trial court ruled that the petitioner was entitled to a writ of preliminary injunction against the respondents on the basis of the material averments of the complaint. In its April 16, 1997 Order, the trial court denied the respondents’ motion for reconsideration of the previous order, on its finding that the petitioner was entitled to a writ of preliminary injunction based on the material allegations of his complaint, the evidence on record, the pleadings of the parties, as well as the applicable laws:

… For the record, the Court denied the LACSONS’ COMMENT/MOTION on the basis of the facts culled from the evidence presented, the pleadings and the law applicable unswayed by the partisan or personal interests, public opinion or fear of criticism (Canon 3, Rule 3.02, Code of Judicial Ethics).30

Section 3, Rule 58 of the Rules of Court, as amended, enumerates the grounds for the issuance of a writ of preliminary injunction, thus:

(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually;

(b) That the commission, continuance or non-performance of the act or acts complained of during the litigation would probably work injustice to the applicant; or

(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual.

A preliminary injunction is an extraordinary event calculated to preserve or maintain the status quo of things ante litem and is generally availed of to prevent actual or threatened acts, until the merits of the case can be heard. Injunction is accepted as the strong arm of equity or a transcendent remedy.31 While generally the grant of a writ of preliminary injunction rests on the sound discretion of the trial

court taking cognizance of the case, extreme caution must be observed in the exercise of such discretion.32 Indeed, in Olalia v. Hizon,33 we held:

It has been consistently held that there is no power the exercise of which is more delicate, which requires greater caution, deliberation and sound discretion, or more dangerous in a doubtful case, than the issuance of an injunction. It is the strong arm of equity that should never be extended unless to cases of great injury, where courts of law cannot afford an adequate or commensurate remedy in damages.

Every court should remember that an injunction is a limitation upon the freedom of action of the defendant and should not be granted lightly or precipitately. It should be granted only when the court is fully satisfied that the law permits it and the emergency demands it.34

The very foundation of the jurisdiction to issue writ of injunction rests in the existence of a cause of action and in the probability of irreparable injury, inadequacy of pecuniary compensation and the prevention of the multiplicity of suits. Where facts are not shown to bring the case within these conditions, the relief of injunction should be refused.35

For the court to issue a writ of preliminary injunction, the petitioner was burdened to establish the following: (1) a right in esse or a clear and unmistakable right to be protected; (2) a violation of that right; (3) that there is an urgent and permanent act and urgent necessity for the writ to prevent serious damage.36 Thus, in the absence of a clear legal right, the issuance of the injunctive writ constitutes a grave abuse of discretion. Where the complainant’s right is doubtful or disputed, injunction is not proper. Injunction is a preservative remedy aimed at protecting substantial rights and interests. It is not designed to protect contingent or future rights. The possibility of irreparable damage without proof of adequate existing rights is not a ground for injunction.37

We have reviewed the pleadings of the parties and found that, as contended by the respondents, the petitioner failed to establish the essential requisites for the issuance of a writ of preliminary injunction. Hence, the trial court committed a grave abuse of its discretion

amounting to excess or lack of jurisdiction in denying the respondents’ comment/motion as well as their motion for reconsideration.

First. The trial court cannot enjoin the respondents, at the instance of the petitioner, from selling, disposing of and encumbering their property. As the registered owners of the property, the respondents have the right to enjoy and dispose of their property without any other limitations than those established by law, in accordance with Article 428 of the Civil Code. The right to dispose of the property is the power of the owner to sell, encumber, transfer, and even destroy the property. Ownership also includes the right to recover the possession of the property from any other person to whom the owner has not transmitted such property, by the appropriate action for restitution, with the fruits, and for indemnification for damages.38 The right of ownership of the respondents is not, of course, absolute. It is limited by those set forth by law, such as the agrarian reform laws. Under Article 1306 of the New Civil Code, the respondents may enter into contracts covering their property with another under such terms and conditions as they may deem beneficial provided they are not contrary to law, morals, good conduct, public order or public policy.

The respondents cannot be enjoined from selling or encumbering their property simply and merely because they had executed Deeds of Assignment in favor of the petitioner, obliging themselves to assign and transfer their rights or interests as agricultural farmers/laborers/sub-tenants over the landholding, and granting the petitioner the exclusive right to buy the property subject to the occurrence of certain conditions. The respondents were not parties to the said deeds. There is no evidence that the respondents agreed, expressly or impliedly, to the said deeds or to the terms and conditions set forth therein. Indeed, they assailed the validity of the said deeds on their claim that the same were contrary to the letter and spirit of P.D. No. 27 and Rep. Act No. 6657. The petitioner even admitted when he testified that he did not know any of the respondents, and that he had not met any of them before he filed his complaint in the RTC. He did not even know that one of those whom he had impleaded as defendant, Angelica Vda. de Lacson, was already dead.

Q: But you have not met any of these Lacsons?

A: Not yet, sir.

Q: Do you know that two (2) of the defendants are residents of the United States?

A: I do not know, sir.

Q: You do not know also that Angela Tiotuvie (sic) Vda. de Lacson had already been dead?

A: I am aware of that, sir.39

We are one with the Court of Appeals in its ruling that:

We cannot see our way clear on how or why injunction should lie against petitioners. As owners of the lands being tilled by TIAMSON, et al., petitioners, under the law, have the right to enjoy and dispose of the same. Thus, they have the right to possess the lands, as well as the right to encumber or alienate them. This principle of law notwithstanding, private respondent in the lower court sought to restrain the petitioners from encumbering and/or alienating the properties covered by TCT No. 35922-R, 35923-R and TCT No. 35925-R of the Registry of Deeds of San Fernando, Pampanga. This cannot be allowed to prosper since it would constitute a limitation or restriction, not otherwise established by law on their right of ownership, more so considering that petitioners were not even privy to the alleged transaction between private respondent and TIAMSON, et al.40

Second. A reading the averments of the complaint will show that the petitioner clearly has no cause of action against the respondents for the principal relief prayed for therein, for the trial court to fix a period within which to pay to each of the defendants-tenants the balance of the P50.00 per square meter, the consideration under the Deeds of Assignment executed by the defendants-tenants. The respondents are not parties or privies to the deeds of assignment. The matter of the period for the petitioner to pay the balance of the said amount to each of the defendants-tenants is an issue between them, the parties to the deed.

Third. On the face of the complaint, the action of the petitioner against the respondents and the defendants-tenants has no legal basis. Under the Deeds of Assignment, the obligation of the petitioner to pay to each of the defendants-tenants the balance of the purchase price was conditioned on the occurrence of the following events: (a) the respondents agree to sell their property to the petitioner; (b) the legal impediments to the sale of the landholding to the petitioner no longer exist; and, (c) the petitioner decides to buy the property. When he testified, the petitioner admitted that the legal impediments referred to in the deeds were (a) the respondents’ refusal to sell their property; and, (b) the lack of approval of the Department of Agrarian Reform:

Q : There is no specific agreement prior to the execution of those documents as when they will pay?

A : We agreed to that, that I will pay them when there are no legal impediment, sir.

Q : Many of the documents are unlattered (sic) and you want to convey to this Honorable Court that prior to the execution of these documents you have those tentative agreement for instance that the amount or the cost of the price is to be paid when there are no legal impediment, you are using the word "legal impediment," do you know the meaning of that?

A : When there are (sic) no more legal impediment exist, sir.

Q : Did you make how (sic) to the effect that the meaning of that phrase that you used the unlettered defendants?

A : We have agreed to that, sir.

ATTY. OCAMPO:

May I ask, Your Honor, that the witness please answer my question not to answer in the way he wanted it.

COURT:

Just answer the question, Mr. Tayag.

WITNESS:

Yes, Your Honor.

ATTY. OCAMPO:

Q : Did you explain to them?

A : Yes, sir.

Q : What did you tell them?

A : I explain[ed] to them, sir, that the legal impediment then especially if the Lacsons will not agree to sell their shares to me or to us it would be hard to (sic) me to pay them in full. And those covered by DAR. I explain[ed] to them and it was clearly stated in the title that there is [a] prohibited period of time before you can sell the property. I explained every detail to them.41

It is only upon the occurrence of the foregoing conditions that the petitioner would be obliged to pay to the defendants-tenants the balance of the P50.00 per square meter under the deeds of assignment. Thus:

2. That in case the ASSIGNOR and LANDOWNER will mutually agree to sell the said lot to the ASSIGNEE, who is given an exclusive and absolute right to buy the lot, the ASSIGNOR shall receive the sum of FIFTY PESOS (P50.00) per square meter as consideration of the total area actually tilled and possessed by the ASSIGNOR, less whatever amount received by the ASSIGNOR including commissions, taxes and all allowable deductions relative to the sale of the subject properties.

3. That this exclusive and absolute right given to the ASSIGNEE shall be exercised only when no legal impediments exist to the lot to effect the smooth transfer of lawful ownership of the lot/property in the name of the ASSIGNEE;

4. That the ASSIGNOR will remain in peaceful possession over the said property and shall enjoy the fruits/earnings and/or harvest of the said lot until such time that full payment of the agreed purchase price had been made by the ASSIGNEE.42

There is no showing in the petitioner’s complaint that the respondents had agreed to sell their property, and that the legal impediments to the agreement no longer existed. The petitioner and the defendants-tenants had yet to submit the Deeds of Assignment to the Department of Agrarian Reform which, in turn, had to act on and approve or disapprove the same. In fact, as alleged by the petitioner in his complaint, he was yet to meet with the defendants-tenants to discuss the implementation of the deeds of assignment. Unless and until the Department of Agrarian Reform approved the said deeds, if at all, the petitioner had no right to enforce the same in a court of law by asking the trial court to fix a period within which to pay the balance of the purchase price and praying for injunctive relief.

We do not agree with the contention of the petitioner that the deeds of assignment executed by the defendants-tenants are perfected option contracts.43 An option is a contract by which the owner of the property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. It is a condition offered or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, 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 imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until accepted, it is not, properly speaking, treated as a contract.44 The second party gets in praesenti, not lands, not an agreement that he shall have the lands, but the right to call for and receive lands if he elects.45 An option contract is a separate and distinct contract from which the parties may enter into upon the conjunction of the option.46

In this case, the defendants-tenants-subtenants, under the deeds of assignment, granted to the petitioner not only an option but the exclusive right to buy the landholding. But the grantors were merely the defendants-tenants, and not the respondents, the registered owners of the property. Not being the registered owners of the

property, the defendants-tenants could not legally grant to the petitioner the option, much less the "exclusive right" to buy the property. As the Latin saying goes, "NEMO DAT QUOD NON HABET."

Fourth. The petitioner impleaded the respondents as parties-defendants solely on his allegation that the latter induced or are inducing the defendants-tenants to violate the deeds of assignment, contrary to the provisions of Article 1314 of the New Civil Code which reads:

Art. 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party.

In So Ping Bun v. Court of Appeals,47 we held that for the said law to apply, the pleader is burdened to prove the following: (1) the existence of a valid contract; (2) knowledge by the third person of the existence of the contract; and (3) interference by the third person in the contractual relation without legal justification.

Where there was no malice in the interference of a contract, and the impulse behind one’s conduct lies in a proper business interest rather than in wrongful motives, a party cannot be a malicious interferer. Where the alleged interferer is financially interested, and such interest motivates his conduct, it cannot be said that he is an officious or malicious intermeddler.48

In fine, one who is not a party to a contract and who interferes thereon is not necessarily an officious or malicious intermeddler. The only evidence adduced by the petitioner to prove his claim is the letter from the defendants-tenants informing him that they had decided to sell their rights and interests over the landholding to the respondents, instead of honoring their obligation under the deeds of assignment because, according to them, the petitioner harassed those tenants who did not want to execute deeds of assignment in his favor, and because the said defendants-tenants did not want to have any problem with the respondents who could cause their eviction for executing with the petitioner the deeds of assignment as the said deeds are in violation of P.D. No. 27 and Rep. Act No. 6657.49 The defendants-tenants did not allege therein that the respondents induced

them to breach their contracts with the petitioner. The petitioner himself admitted when he testified that his claim that the respondents induced the defendants-assignees to violate contracts with him was based merely on what "he heard," thus:

Q: Going to your last statement that the Lacsons induces (sic) the defendants, did you see that the Lacsons were inducing the defendants?

A: I heard and sometime in [the] first week of August, sir, they went in the barrio (sic). As a matter of fact, that is the reason why they sent me letter that they will sell it to the Lacsons.

Q: Incidentally, do you knew (sic) these Lacsons individually?

A: No, sir, it was only Mr. Espinosa who I knew (sic) personally, the alleged negotiator and has the authority to sell the property.50

Even if the respondents received an offer from the defendants-tenants to assign and transfer their rights and interests on the landholding, the respondents cannot be enjoined from entertaining the said offer, or even negotiating with the defendants-tenants. The respondents could not even be expected to warn the defendants-tenants for executing the said deeds in violation of P.D. No. 27 and Rep. Act No. 6657. Under Section 22 of the latter law, beneficiaries under P.D. No. 27 who have culpably sold, disposed of, or abandoned their land, are disqualified from becoming beneficiaries.

From the pleadings of the petitioner, it is quite evident that his purpose in having the defendants-tenants execute the Deeds of Assignment in his favor was to acquire the landholding without any tenants thereon, in the event that the respondents agreed to sell the property to him. The petitioner knew that under Section 11 of Rep. Act No. 3844, if the respondents agreed to sell the property, the defendants-tenants shall have preferential right to buy the same under reasonable terms and conditions:

SECTION 11. Lessee’s Right of Pre-emption. – In case the agricultural lessor desires to sell the landholding, the agricultural lessee shall have

the preferential right to buy the same under reasonable terms and conditions: Provided, That the entire landholding offered for sale must be pre-empted by the Land Authority if the landowner so desires, unless the majority of the lessees object to such acquisition: Provided, further, That where there are two or more agricultural lessees, each shall be entitled to said preferential right only to the extent of the area actually cultivated by him. …51

Under Section 12 of the law, if the property was sold to a third person without the knowledge of the tenants thereon, the latter shall have the right to redeem the same at a reasonable price and consideration. By assigning their rights and interests on the landholding under the deeds of assignment in favor of the petitioner, the defendants-tenants thereby waived, in favor of the petitioner, who is not a beneficiary under Section 22 of Rep. Act No. 6657, their rights of preemption or redemption under Rep. Act No. 3844. The defendants-tenants would then have to vacate the property in favor of the petitioner upon full payment of the purchase price. Instead of acquiring ownership of the portions of the landholding respectively tilled by them, the defendants-tenants would again become landless for a measly sum of P50.00 per square meter. The petitioner’s scheme is subversive, not only of public policy, but also of the letter and spirit of the agrarian laws. That the scheme of the petitioner had yet to take effect in the future or ten years hence is not a justification. The respondents may well argue that the agrarian laws had been violated by the defendants-tenants and the petitioner by the mere execution of the deeds of assignment. In fact, the petitioner has implemented the deeds by paying the defendants-tenants amounts of money and even sought their immediate implementation by setting a meeting with the defendants-tenants. In fine, the petitioner would not wait for ten years to evict the defendants-tenants. For him, time is of the essence.

The Appellate Court ErredIn Permanently EnjoiningThe Regional Trial CourtFrom Continuing with theProceedings in Civil Case No. 10910.

We agree with the petitioner’s contention that the appellate court erred when it permanently enjoined the RTC from continuing with the

proceedings in Civil Case No. 10910. The only issue before the appellate court was whether or not the trial court committed a grave abuse of discretion amounting to excess or lack of jurisdiction in denying the respondents’ motion to deny or dismiss the petitioner’s plea for a writ of preliminary injunction. Not one of the parties prayed to permanently enjoin the trial court from further proceeding with Civil Case No. 10910 or to dismiss the complaint. It bears stressing that the petitioner may still amend his complaint, and the respondents and the defendants-tenants may file motions to dismiss the complaint. By permanently enjoining the trial court from proceeding with Civil Case No. 10910, the appellate court acted arbitrarily and effectively dismissed the complaint motu proprio, including the counterclaims of the respondents and that of the defendants-tenants. The defendants-tenants were even deprived of their right to prove their special and affirmative defenses.

IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The Decision of the Court of Appeals nullifying the February 13, 1996 and April 16, 1997 Orders of the RTC is AFFIRMED. The writ of injunction issued by the Court of Appeals permanently enjoining the RTC from further proceeding with Civil Case No. 10910 is hereby LIFTED and SET ASIDE. The Regional Trial Court of Mabalacat, Pampanga, Branch 44, is ORDERED to continue with the proceedings in Civil Case No. 10910 as provided for by the Rules of Court, as amended.

SO ORDERED.

Puno, (Chairman), Quisumbing, Austria-Martinez, and Tinga, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 97332 October 10, 1991

SPOUSES JULIO D. VILLAMOR AND MARINA VILLAMOR, petitioners, vs.THE HON. COURT OF APPEALS AND SPOUSES MACARIA LABINGISA REYES AND ROBERTO REYES,respondents.

Tranquilino F. Meris for petitioners.

Agripino G. Morga for private respondents.

MEDIALDEA, J.:p

This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. No. 24176 entitled, "Spouses Julio Villamor and Marina Villamor, Plaintiffs-Appellees, versus Spouses Macaria Labing-isa Reyes and Roberto Reyes, Defendants-Appellants," which reversed the decision of the Regional Trial Court (Branch 121) at Caloocan City in Civil Case No. C-12942.

The facts of the case are as follows:

Macaria Labingisa Reyes was the owner of a 600-square meter lot located at Baesa, Caloocan City, as evidenced by Transfer Certificate of Title No. (18431) 18938, of the Register of Deeds of Rizal.

In July 1971, Macaria sold a portion of 300 square meters of the lot to the Spouses Julio and Marina and Villamor for the total amount of P21,000.00. Earlier, Macaria borrowed P2,000.00 from the spouses which amount was deducted from the total purchase price of the 300 square meter lot sold. The portion sold to the Villamor spouses is now covered by TCT No. 39935 while the remaining portion which is still in the name of Macaria Labing-isa is covered by TCT No. 39934 (pars. 5 and 7, Complaint). On November 11, 1971, Macaria executed a "Deed of Option" in favor of Villamor in which the remaining 300 square meter portion (TCT No. 39934) of the lot would be sold to Villamor under the conditions stated therein. The document reads:

DEED OF OPTION

This Deed of Option, entered into in the City of Manila, Philippines, this 11th day of November, 1971, by and between Macaria Labing-isa, of age, married to Roberto Reyes, likewise of age, and both resideing on Reparo St., Baesa, Caloocan City, on the one hand, and on the other hand the spouses Julio Villamor and Marina V. Villamor, also of age and residing at No. 552 Reparo St., corner Baesa Road, Baesa, Caloocan City.

WITNESSETH

That, I Macaria Labingisa, am the owner in fee simple of a parcel of land with an area of 600 square meters, more or less, more particularly described in TCT No. (18431) 18938 of the Office of the Register of Deeds for the province of Rizal, issued in may name, I having inherited the same from my deceased parents, for which reason it is my paraphernal property;

That I, with the conformity of my husband, Roberto Reyes, have sold one-half thereof to the aforesaid spouses Julio Villamor and Marina V. Villamor at the price of P70.00 per sq. meter, which was greatly higher than the actual reasonable prevailing value of lands in that place at the time, which portion, after segregation, is now

covered by TCT No. 39935 of the Register of Deeds for the City of Caloocan, issued on August 17, 1971 in the name of the aforementioned spouses vendees;

That the only reason why the Spouses-vendees Julio Villamor and Marina V. Villamor, agreed to buy the said one-half portion at the above-stated price of about P70.00 per square meter, is because I, and my husband Roberto Reyes, have agreed to sell and convey to them the remaining one-half portion still owned by me and now covered by TCT No. 39935 of the Register of Deeds for the City of Caloocan, whenever the need of such sale arises, either on our part or on the part of the spouses (Julio) Villamor and Marina V. Villamor, at the same price of P70.00 per square meter, excluding whatever improvement may be found the thereon;

That I am willing to have this contract to sell inscribed on my aforesaid title as an encumbrance upon the property covered thereby, upon payment of the corresponding fees; and

That we, Julio Villamor and Marina V. Villamor, hereby agree to, and accept, the above provisions of this Deed of Option.

IN WITNESS WHEREOF, this Deed of Option is signed in the City of Manila, Philippines, by all the persons concerned, this 11th day of November, 1971.

JULIO VILLAMOR MACARIA LABINGISA

With My Conformity:

MARINA VILLAMOR ROBERTO REYES

Signed in the Presence Of:

MARIANO Z. SUNIGAROSALINDA S. EUGENIO

ACKNOWLEDGMENT

REPUBLIC OF THE PHILIPPINES)CITY OF MANILA ) S.S.

At the City of Manila, on the 11th day of November, 1971, personally appeared before me Roberto Reyes, Macaria Labingisa, Julio Villamor and Marina Ventura-Villamor, known to me as the same persons who executed the foregoing Deed of Option, which consists of two (2) pages including the page whereon this acknowledgement is written, and signed at the left margin of the first page and at the bottom of the instrument by the parties and their witnesses, and sealed with my notarial seal, and said parties acknowledged to me that the same is their free act and deed. The Residence Certificates of the parties were exhibited to me as follows: Roberto Reyes, A-22494, issued at Manila on Jan. 27, 1971, and B-502025, issued at Makati, Rizal on Feb. 18, 1971; Macaria Labingisa, A-3339130 and B-1266104, both issued at Caloocan City on April 15, 1971, their joint Tax Acct. Number being 3028-767-6; Julio Villamor, A-804, issued at Manila on Jan. 14, 1971, and B-138, issued at Manila on March 1, 1971; and Marina Ventura-Villamor, A-803, issued at Manila on Jan. 14, 1971, their joint Tax Acct. Number being 608-202-6.

ARTEMIO M. MALUBAYNotary PublicUntil December 31, 1972PTR No. 338203, ManilaJanuary 15, 1971

Doc. No. 1526;Page No. 24;Book No. 38;Series of 1971. (pp. 25-29, Rollo)

According to Macaria, when her husband, Roberto Reyes, retired in 1984, they offered to repurchase the lot sold by them to the Villamor spouses but Marina Villamor refused and reminded them instead that the Deed of Option in fact gave them the option to purchase the remaining portion of the lot.

The Villamors, on the other hand, claimed that they had expressed their desire to purchase the remaining 300 square meter portion of the lot but the Reyeses had been ignoring them. Thus, on July 13, 1987, after conciliation proceedings in the barangay level failed, they filed a complaint for specific performance against the Reyeses.

On July 26, 1989, judgment was rendered by the trial court in favor of the Villamor spouses, the dispositive portion of which states:

WHEREFORE, and (sic) in view of the foregoing, judgment is hereby rendered in favor of the plaintiffs and against the defendants ordering the defendant MACARIA LABING-ISA REYES and ROBERTO REYES, to sell unto the plaintiffs the land covered by T.C.T No. 39934 of the Register of Deeds of Caloocan City, to pay the plaintiffs the sum of P3,000.00 as and for attorney's fees and to pay the cost of suit.

The counterclaim is hereby DISMISSED, for LACK OF MERIT.

SO ORDERED. (pp. 24-25, Rollo)

Not satisfied with the decision of the trial court, the Reyes spouses appealed to the Court of Appeals on the following assignment of errors:

1. HOLDING THAT THE DEED OF OPTION EXECUTED ON NOVEMBER 11, 1971 BETWEEN THE PLAINTIFF-APPELLEES AND DEFENDANT-APPELLANTS IS STILL VALID AND BINDING DESPITE THE LAPSE OF MORE THAN THIRTEEN (13) YEARS FROM THE EXECUTION OF THE CONTRACT;

2. FAILING TO CONSIDER THAT THE DEED OF OPTION CONTAINS OBSCURE WORDS AND STIPULATIONS WHICH SHOULD BE RESOLVED AGAINST THE PLAINTIFF-APPELLEES WHO UNILATERALLY DRAFTED AND PREPARED THE SAME;

3. HOLDING THAT THE DEED OF OPTION EXPRESSED THE TRUE INTENTION AND PURPOSE OF THE PARTIES DESPITE ADVERSE,

CONTEMPORANEOUS AND SUBSEQUENT ACTS OF THE PLAINTIFF-APPELLEES;

4. FAILING TO PROTECT THE DEFENDANT-APPELLANTS ON ACCOUNT OF THEIR IGNORANCE PLACING THEM AT A DISADVANTAGE IN THE DEED OF OPTION;

5. FAILING TO CONSIDER THAT EQUITABLE CONSIDERATION TILT IN FAVOR OF THE DEFENDANT-APPELLANTS; and

6. HOLDING DEFENDANT-APPELLANTS LIABLE TO PAY PLAINTIFF-APPELLEES THE AMOUNT OF P3,000.00 FOR AND BY WAY OF ATTORNEY'S FEES. (pp. 31-32, Rollo)

On February 12, 1991, the Court of Appeals rendered a decision reversing the decision of the trial court and dismissing the complaint. The reversal of the trial court's decision was premised on the finding of respondent court that the Deed of Option is void for lack of consideration.

The Villamor spouses brought the instant petition for review on certiorari on the following grounds:

I. THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE PHRASE WHENEVER THE NEED FOR SUCH SALE ARISES ON OUR (PRIVATE RESPONDENT) PART OR ON THE PART OF THE SPOUSES JULIO D. VILLAMOR AND MARINA V. VILLAMOR' CONTAINED IN THE DEED OF OPTION DENOTES A SUSPENSIVE CONDITION;

II. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED PHRASE IS INDEED A CONDITION, THE COURT OF APPEALS ERRED IN NOT FINDING, THAT THE SAID CONDITION HAD ALREADY BEEN FULFILLED;

III. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED PHRASE IS INDEED A CONDITION, THE COURT OF APPEALS ERRED IN HOLDING THAT THE IMPOSITION OF SAID

CONDITION PREVENTED THE PERFECTION OF THE CONTRACT OF SALE DESPITE THE EXPRESS OFFER AND ACCEPTANCE CONTAINED IN THE DEED OF OPTION;

IV. THE COURT OF APPEALS ERRED IN FINDING THAT THE DEED OF OPTION IS VOID FOR LACK OF CONSIDERATION;

V. THE COURT OF APPEALS ERRED IN HOLDING THAT A DISTINCT CONSIDERATION IS NECESSARY TO SUPPORT THE DEED OF OPTION DESPITE THE EXPRESS OFFER AND ACCEPTANCE CONTAINED THEREIN. (p. 12, Rollo)

The pivotal issue to be resolved in this case is the validity of the Deed of Option whereby the private respondents agreed to sell their lot to petitioners "whenever the need of such sale arises, either on our part (private respondents) or on the part of Julio Villamor and Marina Villamor (petitioners)." The court a quo, rule that the Deed of Option was a valid written agreement between the parties and made the following conclusions:

xxx xxx xxx

It is interesting to state that the agreement between the parties are evidence by a writing, hence, the controverting oral testimonies of the herein defendants cannot be any better than the documentary evidence, which, in this case, is the Deed of Option (Exh. "A" and "A-a")

The law provides that when the terms of an agreement have been reduced to writing it is to be considered as containing all such terms, and therefore, there can be, between the parties and their successors in interest no evidence of their terms of the agreement, other than the contents of the writing. ... (Section 7 Rule 130 Revised Rules of Court) Likewise, it is a general and most inflexible rule that wherever written instruments are appointed either by the requirements of law, or by the contract of the parties, to be the repositories and memorials of truth, any other evidence is excluded from being used, either as a substitute for such instruments, or to contradict or alter them. This is a matter both of principle and of policy; of principle because such instruments

are in their nature and origin entitled to a much higher degree of credit than evidence of policy, because it would be attended with great mischief if those instruments upon which man's rights depended were liable to be impeached by loose collateral evidence. Where the terms of an agreement are reduced to writing, the document itself, being constituted by the parties as the expositor of their intentions, it is the only instrument of evidence in respect of that agreement which the law will recognize so long as it exists for the purpose of evidence. (Starkie, EV, pp. 648, 655 cited in Kasheenath vs. Chundy, W.R. 68, cited in Francisco's Rules of Court, Vol. VII Part I p. 153) (Emphasis supplied, pp. 126-127, Records).

The respondent appellate court, however, ruled that the said deed of option is void for lack of consideration. The appellate court made the following disquisitions:

Plaintiff-appellees say they agreed to pay P70.00 per square meter for the portion purchased by them although the prevailing price at that time was only P25.00 in consideration of the option to buy the remainder of the land. This does not seem to be the case. In the first place, the deed of sale was never produced by them to prove their claim. Defendant-appellants testified that no copy of the deed of sale had ever been given to them by the plaintiff-appellees. In the second place, if this was really the condition of the prior sale, we see no reason why it should be reiterated in the Deed of Option. On the contrary, the alleged overprice paid by the plaintiff-appellees is given in the Deed as reason for the desire of the Villamors to acquire the land rather than as a consideration for the option given to them, although one might wonder why they took nearly 13 years to invoke their right if they really were in due need of the lot.

At all events, the consideration needed to support a unilateral promise to sell is a dinstinct one, not something that is as uncertain as P70.00 per square meter which is allegedly 'greatly higher than the actual prevailing value of lands.' A sale must be for a price certain (Art. 1458). For how much the portion conveyed to the plaintiff-appellees was sold so that the balance could be considered the consideration for the promise to sell has not been shown, beyond a mere allegation that it was very much below P70.00 per square meter.

The fact that plaintiff-appellees might have paid P18.00 per square meter for another land at the time of the sale to them of a portion of defendant-appellant's lot does not necessarily prove that the prevailing market price at the time of the sale was P18.00 per square meter. (In fact they claim it was P25.00). It is improbable that plaintiff-appellees should pay P52.00 per square meter for the privilege of buying when the value of the land itself was allegedly P18.00 per square meter. (pp. 34-35, Rollo)

As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why of the contracts, the essential reason which moves the contracting parties to enter into the contract." The cause or the impelling reason on the part of private respondent executing the deed of option as appearing in the deed itself is the petitioner's having agreed to buy the 300 square meter portion of private respondents' land at P70.00 per square meter "which was greatly higher than the actual reasonable prevailing price." This cause or consideration is clear from the deed which stated:

That the only reason why the spouses-vendees Julio Villamor and Marina V. Villamor agreed to buy the said one-half portion at the above stated price of about P70.00 per square meter, is because I, and my husband Roberto Reyes, have agreed to sell and convey to them the remaining one-half portion still owned by me ... (p. 26, Rollo)

The respondent appellate court failed to give due consideration to petitioners' evidence which shows that in 1969 the Villamor spouses bough an adjacent lot from the brother of Macaria Labing-isa for only P18.00 per square meter which the private respondents did not rebut. Thus, expressed in terms of money, the consideration for the deed of option is the difference between the purchase price of the 300 square meter portion of the lot in 1971 (P70.00 per sq.m.) and the prevailing reasonable price of the same lot in 1971. Whatever it is, (P25.00 or P18.00) though not specifically stated in the deed of option, was ascertainable. Petitioner's allegedly paying P52.00 per square meter for the option may, as opined by the appellate court, be improbable but improbabilities does not invalidate a contract freely entered into by the parties.

The "deed of option" entered into by the parties in this case had unique features. Ordinarily, an optional contract is a privilege existing in one person, for which he had paid a consideration and which gives him the right to buy, for example, certain merchandise or certain specified property, from another person, if he chooses, at any time within the agreed period at a fixed price (Enriquez de la Cavada v. Diaz, 37 Phil. 982). If We look closely at the "deed of option" signed by the parties, We will notice that the first part covered the statement on the sale of the 300 square meter portion of the lot to Spouses Villamor at the price of P70.00 per square meter "which was higher than the actual reasonable prevailing value of the lands in that place at that time (of sale)." The second part stated that the only reason why the Villamor spouses agreed to buy the said lot at a much higher price is because the vendor (Reyeses) also agreed to sell to the Villamors the other half-portion of 300 square meters of the land. Had the deed stopped there, there would be no dispute that the deed is really an ordinary deed of option granting the Villamors the option to buy the remaining 300 square meter-half portion of the lot in consideration for their having agreed to buy the other half of the land for a much higher price. But, the "deed of option" went on and stated that the sale of the other half would be made "whenever the need of such sale arises, either on our (Reyeses) part or on the part of the Spouses Julio Villamor and Marina V. Villamor. It appears that while the option to buy was granted to the Villamors, the Reyeses were likewise granted an option to sell. In other words, it was not only the Villamors who were granted an option to buy for which they paid a consideration. The Reyeses as well were granted an option to sell should the need for such sale on their part arise.

In the instant case, the option offered by private respondents had been accepted by the petitioner, the promise, in the same document. The acceptance of an offer to sell for a price certain created a bilateral contract to sell and buy and upon acceptance, the offer, ipso facto assumes obligations of a vendee (See Atkins, Kroll & Co. v. Cua Mian Tek, 102 Phil. 948). Demandabilitiy may be exercised at any time after the execution of the deed. InSanchez v. Rigos, No. L-25494, June 14, 1972, 45 SCRA 368, 376, We held:

In other words, since there may be no valid contract without a cause of consideration, the promisory is not bound by his promise and may,

accordingly withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale.

A contract of sale is, under Article 1475 of the Civil Code, "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 perform of contracts." Since there was, between the parties, a meeting of minds upon the object and the price, there was already a perfected contract of sale. What was, however, left to be done was for either party to demand from the other their respective undertakings under the contract. It may be demanded at any time either by the private respondents, who may compel the petitioners to pay for the property or the petitioners, who may compel the private respondents to deliver the property.

However, the Deed of Option did not provide for the period within which the parties may demand the performance of their respective undertakings in the instrument. The parties could not have contemplated that the delivery of the property and the payment thereof could be made indefinitely and render uncertain the status of the land. The failure of either parties to demand performance of the obligation of the other for an unreasonable length of time renders the contract ineffective.

Under Article 1144 (1) of the Civil Code, actions upon written contract must be brought within ten (10) years. The Deed of Option was executed on November 11, 1971. The acceptance, as already mentioned, was also accepted in the same instrument. The complaint in this case was filed by the petitioners on July 13, 1987, seventeen (17) years from the time of the execution of the contract. Hence, the right of action had prescribed. There were allegations by the petitioners that they demanded from the private respondents as early as 1984 the enforcement of their rights under the contract. Still, it was beyond the ten (10) years period prescribed by the Civil Code. In the case of Santos v. Ganayo, L-31854, September 9, 1982, 116 SCRA 431, this Court affirming and subscribing to the observations of the courta quo held, thus:

... Assuming that Rosa Ganayo, the oppositor herein, had the right based on the Agreement to Convey and Transfer as contained in Exhibits '1' and '1-A', her failure or the abandonment of her right to file an action against Pulmano Molintas when he was still a co-owner of the on-half (1/2) portion of the 10,000 square meters is now barred by laches and/or prescribed by law because she failed to bring such action within ten (10) years from the date of the written agreement in 1941, pursuant to Art. 1144 of the New Civil Code, so that when she filed the adverse claim through her counsel in 1959 she had absolutely no more right whatsoever on the same, having been barred by laches.

It is of judicial notice that the price of real estate in Metro Manila is continuously on the rise. To allow the petitioner to demand the delivery of the property subject of this case thirteen (13) years or seventeen (17) years after the execution of the deed at the price of only P70.00 per square meter is inequitous. For reasons also of equity and in consideration of the fact that the private respondents have no other decent place to live, this Court, in the exercise of its equity jurisdiction is not inclined to grant petitioners' prayer.

ACCORDINGLY, the petition is DENIED. The decision of respondent appellate court is AFFIRMED for reasons cited in this decision. Judgement is rendered dismissing the complaint in Civil Case No. C-12942 on the ground of prescription and laches.

SO ORDERED.

Narvasa (Chairman) and Cruz, JJ., concur.

Griño-Aquino, J., took no part.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC 

G.R. No. L-25494 June 14, 1972

NICOLAS SANCHEZ, plaintiff-appellee, vs.SEVERINA RIGOS, defendant-appellant.

Santiago F. Bautista for plaintiff-appellee.

Jesus G. Villamar for defendant-appellant.

CONCEPCION, C.J.:p

Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals, which certified the case to Us, upon the ground that it involves a question purely of law.

The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos executed an instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of land situated in the barrios of Abar and Sibot, municipality of San Jose, province of Nueva Ecija, and more particularly described in Transfer Certificate of Title No. NT-12528 of said province, within two (2) years from said date with the understanding that said option shall be deemed "terminated and elapsed," if "Sanchez shall fail to exercise his right to buy the property" within the stipulated period. Inasmuch as several tenders of payment of the sum of Pl,510.00, made by Sanchez within said period, were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said amount with the

Court of First Instance of Nueva Ecija and commenced against the latter the present action, for specific performance and damages.

After the filing of defendant's answer — admitting some allegations of the complaint, denying other allegations thereof, and alleging, as special defense, that the contract between the parties "is a unilateral promise to sell, and the same being unsupported by any valuable consideration, by force of the New Civil Code, is null and void" — on February 11, 1964, both parties, assisted by their respective counsel, jointly moved for a judgment on the pleadings. Accordingly, on February 28, 1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos to accept the sum judicially consigned by him and to execute, in his favor, the requisite deed of conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as attorney's fees, and other costs. Hence, this appeal by Mrs. Rigos.

This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which provides:

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.

In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant agreed and committed to sell" and "the plaintiff agreed and committed to buy" the land described in the option, copy of which was annexed to said pleading as Annex A thereof and is quoted on the margin. 1 Hence, plaintiff maintains that the promise contained in the contract is "reciprocally demandable," pursuant to the first paragraph of said Article 1479. Although defendant had really "agreed, promised and committed" herself to sell the land to the plaintiff, it is not true that the latter had, in turn, "agreed and committed himself " to buy said property.

Said Annex A does not bear out plaintiff's allegation to this effect. What is more, since Annex A has been made "an integral part" of his complaint, the provisions of said instrument form part "and parcel" 2 of said pleading.

The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so understood it, as indicated by the caption, "Option to Purchase," given by them to said instrument. Under the provisions thereof, the defendant "agreed, promised and committed" herself to sell the land therein described to the plaintiff for P1,510.00, but there is nothing in the contract to indicate that her aforementioned agreement, promise and undertaking is supported by a consideration "distinct from the price" stipulated for the sale of the land.

Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said consideration, and this would seem to be the main factor that influenced its decision in plaintiff's favor. It should be noted, however, that:

(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to "sales" in particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." In other words, Article 1479 is controlling in the case at bar.

(2) In order that said unilateral promise may be "binding upon the promisor, Article 1479 requires the concurrence of a condition, namely, that the promise be "supported by a consideration distinct from the price." Accordingly, the promisee can not compel the promisor to comply with the promise, unless the former establishes the existence of said distinct consideration. In other words, the promisee has the burden of proving such consideration. Plaintiff herein has not even alleged the existence thereof in his complaint.

(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special defense, the absence of said consideration for her promise to sell and, by joining in the petition for a judgment on the pleadings, plaintiff has impliedly admitted the truth of said averment in defendant's answer. Indeed as early as March 14, 1908, it had been held, in Bauermann v. Casas, 3 that:

One who prays for judgment on the pleadings without offering proof as to the truth of his own allegations, and without giving the opposing party an opportunity to introduce evidence, must be understood to admit the truth of all the material and relevant allegations of the opposing party, and to rest his motion for judgment on those allegations taken together with such of his own as are admitted in the pleadings. (La Yebana Company vs. Sevilla, 9 Phil. 210). (Emphasis supplied.)

This view was reiterated in Evangelista v. De la Rosa 4 and Mercy's Incorporated v. Herminia Verde. 5

Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 6 from which We quote:

The main contention of appellant is that the option granted to appellee to sell to it barge No. 10 for the sum of P30,000 under the terms stated above has no legal effect because it is not supported by any consideration and in support thereof it invokes article 1479 of the new Civil Code. The article provides:

"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 sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price."

On the other hand, Appellee contends that, even granting that the "offer of option" is not supported by any consideration, that option

became binding on appellant when the appellee gave notice to it of its acceptance, and that having accepted it within the period of option, the offer can no longer be withdrawn and in any event such withdrawal is ineffective. In support this contention, appellee invokes article 1324 of the Civil Code which provides:

"ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn any time before acceptance by communicating such withdrawal, except when the option is founded upon consideration as something paid or promised."

There is no question that under article 1479 of the new Civil Code "an option to sell," or "a promise to buy or to sell," as used in said article, to be valid must be "supported by a consideration distinct from the price." This is clearly inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by consideration. In other words, "an accepted unilateral promise can only have a binding effect if supported by a consideration which means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration. It is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the acceptance of it by appellee.

It is true that under article 1324 of the new Civil Code, the general rule regarding offer and acceptance is that, when the offerer gives to the offeree a certain period to accept, "the offer may be withdrawn at any time before acceptance" except when the option is founded upon consideration, but this general rule must be interpreted as modified by the provision of article 1479 above referred to, which applies to "a promise to buy and sell" specifically. As already stated, this rule requires that a promise to sell to be valid must be supported by a consideration distinct from the price.

We are not oblivious of the existence of American authorities which hold that an offer, once accepted, cannot be withdrawn, regardless of whether it is supported or not by a consideration (12 Am. Jur.

528). These authorities, we note, uphold the general rule applicable to offer and acceptance as contained in our new Civil Code. But we are prevented from applying them in view of the specific provision embodied in article 1479. While under the "offer of option" in question appellant has assumed a clear obligation to sell its barge to appellee and the option has been exercised in accordance with its terms, and there appears to be no valid or justifiable reason for appellant to withdraw its offer, this Court cannot adopt a different attitude because the law on the matter is clear. Our imperative duty is to apply it unless modified by Congress.

However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, 8 decided later thatSouthwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 9 saw no distinction between Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar to the one sued upon here was involved, treating such promise as an option which, although not binding as a contract in itself for lack of a separate consideration, nevertheless generated a bilateral contract of purchase and sale upon acceptance. Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this Court said:

Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree should decide to exercise his option within the specified time. After accepting the promise and before he exercises his option, the holder of the option is not bound to buy. He is free either to buy or not to buy later. In this case, however, upon accepting herein petitioner's offer a bilateral promise to sell and to buy ensued, and the respondent ipso facto assumed the obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It was not a mere option then; it was a bilateral contract of sale.

Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the authorities hold that:

"If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even though the option was not supported by a sufficient consideration. ... . (77 Corpus Juris Secundum, p. 652. See also 27 Ruling Case Law 339 and cases cited.)

"It can be taken for granted, as contended by the defendant, that the option contract was not valid for lack of consideration. But it was, at least, an offer to sell, which was accepted by letter, and of the acceptance the offerer had knowledge before said offer was withdrawn. The concurrence of both acts — the offer and the acceptance — could at all events have generated a contract, if none there was before (arts. 1254 and 1262 of the Civil Code)." (Zayco vs. Serra, 44 Phil. 331.)

In other words, since there may be no valid contract without a cause or consideration, the promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale.

This view has the advantage of avoiding a conflict between Articles 1324 — on the general principles on contracts — and 1479 — on sales — of the Civil Code, in line with the cardinal rule of statutory construction that, in construing different provisions of one and the same law or code, such interpretation should be favored as will reconcile or harmonize said provisions and avoid a conflict between the same. Indeed, the presumption is that, in the process of drafting the Code, its author has maintained a consistent philosophy or position. Moreover, the decision in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art. 1324 ismodified by Art. 1479 of the Civil Code, in effect, considers the latter as an exception to the former, and exceptions are not favored, unless the intention to the contrary is clear, and it is not so, insofar as said two (2) articles are concerned. What is more, the reference, in both the second paragraph of Art. 1479 and Art. 1324, to an option or promise supported by or founded upon a

consideration, strongly suggests that the two (2) provisions intended to enforce or implement the same principle.

Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby reiterates the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar as inconsistent therewith, the view adhered to in theSouthwestern Sugar & Molasses Co. case should be deemed abandoned or modified.

WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendant-appellant Severina Rigos. It is so ordered.

Reyes, J.B.L., Makalintal, Zaldivar, Teehankee, Barredo and Makasiar, JJ., concur.

Castro, J., took no part.

Separate Opinions

 ANTONIO, J., concurring:

I concur in the opinion of the Chief Justice.

I fully agree with the abandonment of the view previously adhered to in Southwestern Sugar & Molasses Co. vs. Atlantic Gulf and Pacific Co., 1 which holds that an option to sell can still be withdrawn, even if accepted, if the same is not supported by any consideration, and the reaffirmance of the doctrine in Atkins, Kroll & Co., Inc. vs. Cua Hian Tek, 2 holding that "an option implies ... the legal obligation to keep the offer (to sell) open for the time specified;" that it could be withdrawn before acceptance, if there was no consideration for the option, but once the "offer to sell" is accepted, a bilateral promise to sell and to buy ensues, and the offeree ipso facto assumes the obligations of a purchaser. In other words, if the option is given without a consideration, it is a mere offer to sell, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding

contract of sale. The concurrence of both acts — the offer and the acceptance — could in such event generate a contract.

While the law permits the offeror to withdraw the offer at any time before acceptance even before the period has expired, some writers hold the view, that the offeror can not exercise this right in an arbitrary or capricious manner. This is upon the principle that an offer implies an obligation on the part of the offeror to maintain in such length of time as to permit the offeree to decide whether to accept or not, and therefore cannot arbitrarily revoke the offer without being liable for damages which the offeree may suffer. A contrary view would remove the stability and security of business transactions. 3

In the present case the trial court found that the "Plaintiff (Nicolas Sanchez) had offered the sum of Pl,510.00before any withdrawal from the contract has been made by the Defendant (Severina Rigos)." Since Rigos' offer sell was accepted by Sanchez, before she could withdraw her offer, a bilateral reciprocal contract — to sell and to buy — was generated.

 

 

 

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION 

G.R. No. 83759 July 12, 1991

SPOUSES CIPRIANO VASQUEZ and VALERIANA GAYANELO, petitioners, vs.HONORABLE COURT OF APPEALS and SPOUSES MARTIN VALLEJERA and APOLONIA OLEA,respondents.

Dionisio C. Isidto for petitioners.

Raymundo Lozada, Jr. for private respondents.

GUTIERREZ, JR., J.:p

This petition seeks to reverse the decision of the Court of Appeals which affirmed the earlier decision of the Regional Trial Court, 6th Judicial Region, Branch 56, Himamaylan, Negros Occidental in Civil Case No. 839 (for specific performance and damages) ordering the petitioners (defendants in the civil case) to resell Lot No. 1860 of the Cadastral Survey of Himamaylan, Negros Occidental to the respondents (plaintiffs in the civil case) upon payment by the latter of the amount of P24,000.00 as well as the appellate court's resolution denying a motion for reconsideration. In addition, the appellate court ordered the petitioners to pay the amount of P5,000.00 as necessary and useful expenses in accordance with Article 1616 of the Civil Code.

The facts of the case are not in dispute. They are summarized by the appellate court as follows:

On January 15, 1975, the plaintiffs-spouses (respondents herein) filed this action against the defendants-spouses (petitioners herein) seeking to redeem Lot No. 1860 of the Himamaylan Cadastre which was previously sold by plaintiffs to defendants on September 21, 1964.

The said lot was registered in the name of plaintiffs. On October 1959, the same was leased by plaintiffs to the defendants up to crop year 1966-67, which was extended to crop year 1968-69. After the execution of the lease, defendants took possession of the lot, up to now and devoted the same to the cultivation of sugar.

On September 21, 1964, the plaintiffs sold the lot to the defendants under a Deed of Sale for the amount of P9,000.00. The Deed of Sale was duly ratified and notarized. On the same day and along with the execution of the Deed of Sale, a separate instrument, denominated as Right to Repurchase (Exh. E), was executed by the parties granting plaintiffs the right to repurchase the lot for P12,000.00, said Exh. E likewise duly ratified and notarized. By virtue of the sale, defendants secured TCT No. T-58898 in their name. On January 2, 1969, plaintiffs sold the same lot to Benito Derrama, Jr., after securing the defendants' title, for the sum of P12,000.00. Upon the protestations of defendant, assisted by counsel, the said second sale was cancelled after the payment of P12,000.00 by the defendants to Derrama.

Defendants resisted this action for redemption on the premise that Exh. E is just an option to buy since it is not embodied in the same document of sale but in a separate document, and since such option is not supported by a consideration distinct from the price, said deed for right to repurchase is not binding upon them.

After trial, the court below rendered judgment against the defendants, ordering them to resell lot No. 1860 of the Himamaylan

Cadastre to the plaintiffs for the repurchase price of P24,000.00, which amount combines the price paid for the first sale and the price paid by defendants to Benito Derrama, Jr.

Defendants moved for, but were denied reconsideration. Excepting thereto, defendants-appealed, . . . (Rollo, pp. 44-45)

The petition was given due course in a resolution dated February 12, 1990.

The petitioners insist that they can not be compelled to resell Lot No. 1860 of the Himamaylan Cadastre. They contend that the nature of the sale over the said lot between them and the private respondents was that of an absolute deed of sale and that the right thereafter granted by them to the private respondents (Right to Repurchase, Exhibit "E") can only be either an option to buy or a mere promise on their part to resell the property. They opine that since the "RIGHT TO REPURCHASE" was not supported by any consideration distinct from the purchase price it is not valid and binding on the petitioners pursuant to Article 1479 of the Civil Code.

The document denominated as "RIGHT TO REPURCHASE" (Exhibit E) provides:

RIGHT TO REPURCHASE

KNOW ALL MEN BY THESE PRESENTS:

I, CIPRIANO VASQUEZ, . . ., do hereby grant the spouses Martin Vallejera and Apolonia Olea, their heirs and assigns, the right to repurchase said Lot No. 1860 for the sum of TWELVE THOUSAND PESOS (P12,000.00), Philippine Currency, within the period TEN (10) YEARS from the agricultural year 1969-1970 when my contract of lease over the property shall expire and until the agricultural year 1979-1980.

IN WITNESS WHEREOF, I have hereunto signed my name at Binalbagan, Negros Occidental, this 21st day of September, 1964.

SGD. CIPRIANO VASQUEZ

SGD. VALERIANA G. VASQUEZ SGD. FRANCISCO SANICAS

(Rollo, p. 47)

The Court of Appeals, applying the principles laid down in the case of Sanchez v. Rigos, 45 SCRA 368 [1972] decided in favor of the private respondents.

In the Sanchez case, plaintiff-appellee Nicolas Sanchez and defendant-appellant Severino Rigos executed a document entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and committed . . . to sell" to Sanchez for the sum of P1,510.00, a registered parcel of land within 2 years from execution of the document with the condition that said option shall be deemed "terminated and lapsed," if "Sanchez shall fail to exercise his right to buy the property" within the stipulated period. In the same document, Sanchez" . . . hereby agree and conform with all the conditions set forth in the option to purchase executed in my favor, that I bind myself with all the terms and conditions." (Emphasis supplied) The notarized document was signed both by Sanchez and Rigos.

After several tenders of payment of the agreed sum of P1,510.00 made by Sanchez within the stipulated period were rejected by Rigos, the former deposited said amount with the Court of First Instance of Nueva Ecija and filed an action for specific performance and damages against Rigos.

The lower court rendered judgment in favor of Sanchez and ordered Rigos to accept the sum judicially consigned and to

execute in Sanchez' favor the requisite deed of conveyance. Rigos appealed the case to the Court of Appeals which certified to this Court on the ground that it involves a pure question of law.

This Court after deliberating on two conflicting principles laid down in the cases of Southwestern Sugar and Molasses Co. v. Atlantic Gulf and Pacific Co., (97 Phil. 249 [1955]) and Atkins, Kroll & Co., Inc. v. Cua Hian Tek, 102 Phil. 948 [1958]) arrived at the conclusion that Article 1479 of the Civil Code which provides: ––

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 promissory if the promise is supported by a consideration distinct from the price.

and Article 1324 thereof which provides:

Art. 1324. When the offerer has allowed the offerer a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised.

should be reconciled and harmonized to avoid a conflict between the two provisions. In effect, the Court abandoned the ruling in the Southwestern Sugar and Molasses Co. case and reiterated the ruling in the Atkins, Kroll and Co. case, to wit:

However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, (102 Phil. 948, 951-952) decided later than Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., (supra) saw no distinction between Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar to the one sued upon here was involved, treating such promise as an option which, although not binding as a contract in

itself for lack of separate consideration, nevertheless generated a bilateral contract of purchase and sale upon acceptance. Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this Court said:

Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree should decide to exercise his option within the specified time. After accepting the promise and before he exercises his option, the holder of the option is not bound to buy. He is free either to buy or not to buy later. In this case however, upon accepting herein petitioner's offer a bilateral promise to sell and to buy ensued, and the respondent ipso facto assumed the obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It was not a mere option then; it was bilateral contract of sale.

Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the authorities hold that

If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even though the option was not supported by a sufficient consideration . . . (77 Corpus Juris Secundum p. 652. See also 27 Ruling Case Law 339 and cases cited.)

This Court affirmed the lower court's decision although the promise to sell was not supported by a consideration distinct from the price. It was obvious that Sanchez, the promisee, accepted the option to buy before Rigos, the promisor, withdrew the same. Under such circumstances, the option to purchase was converted into a bilateral contract of sale which bound both parties.

In the instant case and contrary to the appellate court's finding, it is clear that the right to repurchase was not supported by a consideration distinct from the price. The rule is that the promisee has the burden of proving such consideration. Unfortunately, the

private respondents, promisees in the right to repurchase failed to prove such consideration. They did not even allege the existence thereof in their complaint. (See Sanchez v. Rigos supra)

Therefore, in order that the Sanchez case can be applied, the evidence must show that the private respondents accepted the right to repurchase.

The record, however, does not show that the private respondents accepted the "Right to Repurchase" the land in question. We disagree with the appellate court's finding that the private respondents accepted the "right to repurchase" under the following circumstances: . . as evidenced by the annotation and registration of the same on the back of the transfer of certificate of title in the name of appellants. As vividly appearing therein, it was signed by appellant himself and witnessed by his wife so that for all intents and purposes the Vasquez spouses are estopped from disregarding its obvious purpose and intention."

The annotation and registration of the right to repurchase at the back of the certificate of title of the petitioners can not be considered as acceptance of the right to repurchase. Annotation at the back of the certificate of title of registered land is for the purpose of binding purchasers of such registered land. Thus, we ruled in the case of Bel Air Village Association, Inc. v. Dionisio (174 SCRA 589 [1989]), citing Tanchoco v. Aquino (154 SCRA 1 [1987]), and Constantino v. Espiritu (45 SCRA 557 [1972]) that purchasers of a registered land are bound by the annotations found at the back of the certificate of title covering the subject parcel of land. In effect, the annotation of the right to repurchase found at the back of the certificate of title over the subject parcel of land of the private respondents only served as notice of the existence of such unilateral promise of the petitioners to resell the same to the private respondents. This, however, can not be equated with acceptance of such right to repurchase by the private respondent.

Neither can the signature of the petitioners in the document called "right to repurchase" signify acceptance of the right to repurchase.

The respondents did not sign the offer. Acceptance should be made by the promisee, in this case, the private respondents and not the promisors, the petitioners herein. It would be absurd to require the promisor of an option to buy to accept his own offer instead of the promisee to whom the option to buy is given.

Furthermore, the actions of the private respondents –– (a) filing a complaint to compel re-sale and their demands for resale prior to filing of the complaint cannot be considered acceptance. As stated in Vda. de Zulueta v. Octaviano (121 SCRA 314 [1983]):

And even granting, arguendo that the sale was a pacto de retro sale, the evidence shows that Olimpia, through her lawyer, opted to repurchase the land only on 16 February 1962, approximately two years beyond the stipulated period, that is not later than May, 1960.

If Olimpia could not locate Aurelio, as she contends, and based on her allegation that the contract between her was one of sale with right to repurchase, neither, however, did she tender the redemption price to private respondent Isauro, but merely wrote him letters expressing her readiness to repurchase the property.

It is clear that the mere sending of letters by the vendor expressing his desire to repurchase the property without accompanying tender of the redemption price fell short of the requirements of law. (Lee v. Court of Appeals, 68 SCRA 197 [1972])

Neither did petitioner make a judicial consignation of the repurchase price within the agreed period.

In a contract of sale with a right of repurchase, the redemptioner who may offer to make the repurchase on the option date of redemption should deposit the full amount in court . . . (Rumbaoa v. Arzaga, 84 Phil. 812 [1949])

To effectively exercise the right to repurchase the vendor a retro must make an actual and simultaneous tender of payment or consignation. (Catangcatang v. Legayada, 84 SCRA 51 [1978])

The private respondents' ineffectual acceptance of the option to buy validated the petitioner's refusal to sell the parcel which can be considered as a withdrawal of the option to buy.

We agree with the petitioners that the case of Vda. de Zulueta v. Octaviano, (supra) is in point.

Stripped of non-essentials the facts of the Zulueta case are as follows: On November 25, 1952 (Emphasis supplied) Olimpia Fernandez Vda. de Zulueta, the registered owner of a 5.5 hectare riceland sold the lot to private respondent Aurelio B. Octaviano for P8,600.00 subject to certain terms and conditions. The contract was an absolute and definite sale. On the same day, November 25, 1952, (Emphasis supplied) the vendee, Aurelio signed another document giving the vendor Zulueta the "option to repurchase" the property at anytime after May 1958 but not later than May 1960. When however, Zulueta tried to exercise her "option to buy" the property, Aurelio resisted the same prompting Zulueta to commence suit for recovery of ownership and possession of the property with the then Court of First Instance of Iloilo.

The trial court ruled in favor of Zulueta. Upon appeal, however, the Court of Appeals reversed the trial court's decision.

We affirmed the appellate court's decision and ruled:

The nature of the transaction between Olimpia and Aurelio, from the context of Exhibit "E" is not a sale with right to repurchase. Conventional redemption takes place "when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of Article 1616 and other stipulations which may have been agreed upon. (Article 1601, Civil Code).

In this case, there was no reservation made by the vendor, Olimpia, in the document Exhibit "E" the "option to repurchase" was contained in a subsequent document and was made by the vendee, Aurelio. Thus, it was more of an option to buy or a mere promise on the part of the vendee, Aurelio, to resell the property to the vendor, Olimpia. (10 Manresa, p. 311 cited in Padilla's Civil Code Annotated, Vol. V, 1974 ed., p. 467) As held in Villarica v. Court of Appeals (26 SCRA 189 [1968]):

The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument, but is a right reserved by the vendor in the same instrument of sale as one of the stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can no longer reserve the right to repurchase, and any right thereafter granted the vendor by the vendee in a separate instrument cannot be a right of repurchase but some other right like the option to buy in the instant case. . . (Emphasis supplied)

The appellate court rejected the application of the Zulueta case by stating:

. . . [A]s found by the trial court from which we quote with approval below, the said cases involve the lapse of several days for the execution of separate instruments after the execution of the deed of sale, while the instant case involves the execution of an instrument, separate as it is, but executed on the same day, and notarized by the same notary public, to wit:

A close examination of Exh. "E" reveals that although it is a separate document in itself, it is far different from the document which was pronounced as an option by the Supreme Court in the Villarica case. The option in the Villarica case was executed several days after the execution of the deed of sale. In the present case, Exh. "E" was executed and ratified by the same notary public and the Deed of Sale of Lot No. 1860 by the plaintiffs to the defendants were notarized by the same notary public and entered in the same page of the same notarial register . . .

The latter case (Vda. de Zulueta v. Octaviano, supra), likewise involved the execution of the separate document after an intervention of several days and the question of laches was decided therein, which is not present in the instant case. That distinction is therefore crucial and We are of the opinion that the appellee's right to repurchase has been adequately provided for and reserved in conformity with Article 1601 of the Civil Code, which states:

Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provision of Article 1616 and other stipulations which may have been agreed upon. (Rollo, pp. 46-47)

Obviously, the appellate court's findings are not reflected in the cited decision. As in the instant case, the option to repurchase involved in the Zulueta case was executed in a separate document but on the same date that the deed of definite sale was executed.

While it is true that this Court in the Zulueta case found Zulueta guilty of laches, this, however, was not the primary reason why this Court disallowed the redemption of the property by Zulueta. It is clear from the decision that the ruling in the Zulueta case was based mainly on the finding that the transaction between Zulueta and Octaviano was not a sale with right to repurchase and that the "option to repurchase was but an option to buy or a mere promise on the part of Octaviano to resell the property to Zulueta.

In the instant case, since the transaction between the petitioners and private respondents was not a sale with right to repurchase, the private respondents cannot avail of Article 1601 of the Civil Code which provides for conventional redemption.

WHEREFORE, the petition is GRANTED. The questioned decision and resolution of the Court of Appeals are hereby REVERSED and SET ASIDE. The complaint in Civil Case No. 839 of the then Court

of First Instance of Negros Occidental 12th Judicial District Branch 6 is DISMISSED. No costs.

SO ORDERED.

Fernan, C.J., Feliciano, Bidin and Davide, Jr., JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC 

G.R. No. L-32873 August 18, 1972

AQUILINO NIETES, petitioner, vs.HON. COURT OF APPEALS & DR. PABLO C. GARCIA, respondents.

Conrado V. del Rosario for petitioner.

Romeo D. Magat for private respondent. 

CONCEPCION, C.J.:p

Petitioner Aquilino Nietes seeks a review on certiorari of a decision of the Court of Appeals.

It appears that, on October 19, 1959, said petitioner and respondent Dr. Pablo C. Garcia entered into a "Contract of Lease with Option to Buy," pursuant to the terms and conditions set forth in the deed Exhibits A and A-1, (also, marked as Exhibit 2) namely:

That the LESSOR is an owner of the ANGELES EDUCATIONAL INSTITUTE situated at Angeles, Pampanga, a school which is duly recognized by the Government;

That the lessor agrees to lease the above stated school to the LESSEE under the following terms and conditions:

1. That the term will be for a period of five (5) years;

2. That the price of the rent is FIVE THOUSAND PESOS (P5,000) per year payable in the following manners:

a. That the amount of FIVE THOUSAND FIVE HUNDRED PESOS (P5,500) will be paid upon the execution of this Contract of Lease;

b. That the amount of FOUR THOUSAND FIVE HUNDRED PESOS (P4,500) is payable on or before the 30th day of October, 1959;

c. That the remaining balance of FIFTEEN THOUSAND PESOS (P15,000) will be paid on or before March 30, 1960;

3. That all improvements made during the lease by the LESSEE will be owned by the LESSOR after the expiration of the term of this Contract of Lease;

4. That the LESSOR agrees to give the LESSEE an option to buy the land and the school building, for a price of ONE HUNDRED THOUSAND PESOS (P100,000) within the period of the Contract of Lease;

5. That should the LESSEE buy the lot, land and the school building within the stipulated period, the unused payment for the Contract of Lease will be considered as part payment for the sale of the land and school;

6. That an inventory of all properties in the school will be made on March 31, 1960;

6A. That the term of this Contract will commence in June 1960 and will terminate in June 1965;

7. That the LESSEE will be given full control and responsibilities over all the properties of the school and over all the supervisions and administrations of the school;

8. That the LESSEE agrees to help the LESSOR to collect the back accounts of students incurred before the execution of this contract.

Instead of paying the lessor in the manner set forth in paragraph 2 of said contract, Nietes had, as of August 4, 1961, made payments as follows:

October 6,1960 ....................................... P18,957.00 (Exh. D)

November 23, 1960 ................................. 300.00 (Exh. E)

December 21, 1960 ................................. 200.00 (Exh. F)

January 14, 1961 ..................................... 500.00 (Exh. G)

February 16, 1961 ................................... 3,000.00 (Exh. H)

March 12, 1961 ....................................... 1,000.00 (Exh. I)

March 13, 1961 ....................................... 700.00 (Exh. J)

August 4, 1961 ........................................ 100.00 (Exh. K) _________

TOTAL ..................................... P24,757.00

Moreover, Nietes maintains that, on September 4, 1961, and December 13, 1962, he paid Garcia the additional sums of P3,000 and P2,200, respectively, for which Garcia issued receipts Exhibit B and C, reading:

Received the amount of (P3,000.00) Three Thousand Pesos from Mrs. Nietes as per advance pay for the school, the contract of lease being paid.

(Sgd.) PABLO GARCIA (Exh. B)

To Whom it May Concern:

This is to certify that I received the sum of Two Thousand Two Hundred Pesos, Philippine Currency, from Mrs. Catherine R. Nietes as the partial payment on the purchase of the property as specified on the original contract of "Contract of Lease with the First Option to Buy" originally contracted and duly signed.

(Sgd.) DR. PABLO GARCIA (Exh. C)

On or about July 31, 1964, Dr. Garcia's counsel wrote to Nietes the letter Exhibit 1 (also Exhibit V) stating:

The Director Philippine Institute of Electronics Angeles, Pampanga

Sir:

I regret to inform you that our client, Dr. Pablo Garcia, desires to rescind your contract, dated 19 October 1959 because of the following:

1. That you had not maintained the building, subject of the lease contract in good condition.

2. That you had not been using the original name of the school — Angeles Institute, thereby extinguishing its existence in the eyes of the public and injuring its prestige.

3. That through your fault, no inventory has been made of all properties of the school.

4. That up to this time, you had not collected or much less helped in the collection of back accounts of former students.

This is to remind you that the foregoing obligations had been one, if not, the principal moving factors which had induced the lessor in agreeing with the terms embodied in your contract of lease, without which fulfillment, said contract could not have come into existence. It is not simply one of those reminders that we make mention, that our client under the circumstances, is not only entitled to a rescission of the contract. He is likewise entitled to damages — actual, compensatory and exemplary.

In view of the serious nature of the breach which warrant and sanction drastic legal remedies against you, we earnestly request you to please see the undersigned at the above-named address two days from receipt hereof. Otherwise, if we shall not hear from you, the foregoing will serve notice on your part to vacate the premises within five (5) days to be counted from date of notice.

Very truly yours, (Sgd.) VICTOR T. LLAMAS, JR.

to which counsel for Nietes replied in the following language:

Atty. Victor T. Llamas, Jr. Victor Llamas Law Office Corner Rivera-Zamora Streets Dagupan City

Dear Sir:

Your letter dated July 31, 1964 addressed to my client, the Director of the Philippine Institute of Electronics, Angeles City, has been referred to me and in reply, please, be informed that my client has not violated any provision of the CONTRACT OF LEASE WITH OPTION TO BUY, executed by him as LESSEE and Dr. Pablo Garcia as LESSOR. For this reason, there is no basis for

rescission of the contract nor of the demands contained in your letter.

In this connection, I am also serving this formal notice upon your client Dr. Pablo Garcia, thru you, that my client Mr. AQUILINO T. NIETES will exercise his OPTION to buy the land and building subject matter of the lease and that my said client is ready to pay the balance of the purchase price in accordance with the contract. Please, inform Dr. Pablo Garcia to make available the land title and execute the corresponding Deed of Sale pursuant to this notice, and that if he fails to do so within fifteen (15) days from the receipt of this letter, we shall take the corresponding action to enforce the agreement.

Truly yours,

(Sgd.) CONRADO V. DEL ROSARIO Counsel for Mr. Aquilino T. Nietes Angeles City

On July 26, 1965, Nietes deposited with the branch office of the Agro-Industrial Bank in Angeles City checks amounting to P84,860.50, as balance of the purchase price of the property, but he withdrew said sum of P84,860.50 on August 12, 1965, after the checks had been cleared. On August 2, 1965, he commenced the present action, in the Court of First Instance of Pampanga, for specific performance of Dr. Garcia's alleged obligation to execute in his (Nietes') favor a deed of absolute sale of the leased property, free from any lien or encumbrance whatsoever, he having meanwhile mortgaged it to the People's Bank and Trust Company, and to compel him (Garcia) to accept whatever balance of the purchase price is due him, as well as to recover from him the aggregate sum of P90,000 by way of damages, apart from attorney's fees and the costs.

Dr. Garcia filed an answer admitting some allegations of the complaint and denying other allegations thereof, as well as setting up a counterclaim for damages in the sum of P150,000.

After due trial, said court rendered its decision, the dispositive part of which reads:

WHEREFORE, in view of the preponderance of evidence in favor of the plaintiff and against the defendant, judgment is hereby rendered ordering the latter to execute the Deed of Absolute Sale of property originally leased together with the school building and other improvements thereon which are covered by the contract, Annex "A", upon payment of the former of the balance (whatever be the amount) of the stipulated purchase price; to free the said property from any mortgage or encumbrance and deliver the title thereto to the plaintiff free from any lien or encumbrance, and should said defendant fail to do so, the proceeds from the purchase price be applied to the payment of the encumbrance so that the title may be conveyed to the plaintiff; to pay the plaintiff the sum of P1,000.00 as attorney's fees, and the cost of this suit.

Both parties appealed to the Court of Appeals, Dr. Garcia insofar as the trial court had neither dismissed the complaint nor upheld his counterclaim and failed to order Nietes to vacate the property in question, and Nietes insofar as the trial court had granted him no more than nominal damages in the sum of P1,000, as attorney's fees.

After appropriate proceedings, a special division of Court of Appeals rendered its decision, on October 18, 1969, affirming, in effect, that of the trial court, except as regards said attorney's fees, which were eliminated. The dispositive part of said decision of the Court of Appeals reads:

WHEREFORE, with the modification that the attorney's fees awarded by the trial court in favor of the plaintiff is eliminated, the appealed judgment is hereby affirmed in all other respects, and the

defendant is ordered to execute the corresponding deed of sale for the school building and lot in question in favor of the plaintiff upon the latter's full payment of the balance of the purchase price. The costs of this proceedings shall be taxed against the defendant-appellant.

On motion for reconsideration of defendant Garcia, said special division set aside its aforementioned decision and rendered another one, promulgated on March 10, 1970 reversing the appealed decision of the court of first instance, and dismissing the complaint of Nietes, with costs again him. Hence, the present petition of Nietes for review certiorari of the second decision of the Court of Appeals, dated March 10, 1970, to which petition We gave due course.

Said decision of the Court of Appeals, reversing that of the Court of First Instance, is mainly predicated upon the theory that, under the contract between the parties, "the full purchase price must be paid before the option counsel be exercised," because "there was no need nor sense providing that "the unused payment for the Contract Lease will be considered as part payment for the sale the land and school'" inasmuch as "otherwise there is substantial amount from which such unused rental could be deducted"; that the statement in the letter, Exhibit L, of Nietes, dated August 7, 1964, to the effect that he "will exercise his OPTION to buy the land and building," indication that he did not consider the receipts, Exhibits B and for P3,000 and P2,200, respectively, "as an effective exercise of his option to buy"; that the checks for P84,860.50 deposited by Nietes with the Agro-Industrial Development Bank, did not constitute a proper tender of payment, which, at any rate, was "made beyond the stipulated 5-year period"; that such deposit "was not seriously made, because on August 12, 1965, the same was withdrawn from the Bank and ostensibly remains in the lessee's hand"; and that "the fact that such deposit was made by the lessee shows that he himself believed that he should have paid the entire amount of the purchase price before he could avail of the option to buy, otherwise, the deposit was a senseless gesture ... ."

Dr. Garcia, in turn, maintained in his answer "that the sums paid" to him "were part of the price of the contract of lease between the parties which were paid late and not within the periods and/or schedules fixed by the contract (Annex A.)." What is more, on the witness stand, Garcia claimed that he did "not know" whether the signatures on Exhibits B and C — the receipt for P3,000 and P2,200, respectively — were his, and even said that he was "doubtful" about it.

This testimony is manifestly incredible, for a man of his intelligence — a Doctor of Medicine and the owner of an educational institution — could not possibly "not know" or entertain doubts as to whether or not the aforementioned signatures are his and the payments therein acknowledged had been received by him. His dubious veracity becomes even more apparent when we consider the allegations in paragraph (4) of his answer — referring to paragraphs 5 and 6 of the complaint alleging, inter alia, the aforementioned partial payments of P3,000 and P2,200, on account of the stipulated sale price — to the effect that said sums " paid to the herein defendant were part of the price of the contract of lease." In other words, payment of said sums of P3,000 and P2,200 is admitted in said answer. Besides, the rentals for the whole period of the lease aggregated P25,000 only, whereas said sums of P3,000 and P2,200, when added to the payments previously made by Nietes, give a grand total of P29,957.00, or P4,957 in excess of the agreed rentals for the entire period of five years. Thus, Dr. Garcia was less than truthful when he tried to cast doubt upon the fact of payment of said sums of P3,000 and P2,200, as well as when he claimed that the same were part of the rentals collectible by him.

We, likewise, find ourselves unable to share the view taken by the Court of Appeals. Neither the tenor of the contract Exhibits A and A-1 (also Exhibit 2) nor the behaviour of Dr. Garcia — as reflected in the receipts Exhibits B and C — justifies such view. The contract does not say that Nietes had to pay the stipulated price of P100,000before exercising his option to buy the property in

question. Accordingly, said option is governed by the general principles on obligations, pursuants to which:

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. 1

In the case of an option to buy, the creditor may validly and effectively exercise his right by merely advising the debtor of the former's decision to buy and expressing his readiness to pay the stipulated price, provided that the same is available and actually delivered to the debtor upon execution and delivery by him of the corresponding deed of sale. Unless and until the debtor shall have done this the creditor is not and cannot be in default in the discharge of his obligation to pay. 2 In other words, notice of the creditor's decision to exercise his option to buy need not be coupled with actual payment of the price, so long as this is delivered to the owner of the property upon performance of his part of the agreement. Nietes need not have deposited, therefore, with the Agro-Industrial Bank checks amounting altogether to P84,860.50 on July 26, 1965, and the withdrawal thereof soon after does not and cannot affect his cause of action in the present case. In making such deposit, he may have had the intent to show his ability to pay the balance of the sum due to Dr. Garcia as the sale price of his property. In short, said deposit and its subsequent withdrawal cannot affect the result of the present case.

Nietes was entitled to exercise his option to buy "within the period of the Contract of Lease," which — pursuant to paragraph 6-A of said contract — commenced "in June 1960" and was to "terminate in June 1965." As early as September 4, 1961, or well "within the period of the Contract of Lease," Nietes had paid Dr. Garcia the following sums:

October 6, 1960 ............................ P18,957.00 (Exh. D)

November 23, 1960 ....................... 300.00 (Exh E)

December 21, 1960 ....................... 200.00 (Exh. F)

January 14, 1961 ........................... 500.00 (Exh. G)

February 16, 1961 ......................... 3,000.00 (Exh. H)

March 12, 1961 ............................. 1,000.00 (Exh. I)

March 13, 1961 ............................. 700.00 (Exh. J)

August 4, 1961 ............................... 100.00 (Exh. K)

September 4, 1961 ......................... 3,000.00 (Exh. B)________

TOTAL ............................... P27,757.00

It is true that Nietes was bound, under the contract, to pay P5,500 on October 19, 1959, P4,500 on or before October 30, 1959, and P15,000 on or before March 30, 1960, or the total sum of P25,000, from October 19, 1959 to March 30, 1960, whereas his first payment was not made until October 10, 1960, when he delivered the sum of P18,957 to Dr. Garcia, and the latter had by August 4, 1961, received from the former the aggregate sum of P24,757. This is, however, P243.00 only less than the P25,000 due as of March 30, 1960, so that Nietes may be considered as having complied substantially with the terms agreed upon. Indeed, Dr. Garcia seems to have either agreed thereto or not considered that Nietes had thereby violated the contract, because the letter of the former, dated July 31, 1964, demanding rescission of the contract, did not mention said acts or omissions of Nietes among his alleged violations thereof enumerated in said communication. In fact, when, on September 4, 1961, Mrs. Nietes turned over the sum of P3,000 to Dr. Garcia, he issued the receipt Exhibit B, stating that said payment had been made "as per advance pay for the school,

the Contract of Lease being paid" — in other words, in accordance or conformity with said contract. Besides, when, on December 13, 1962, Mrs. Nietes delivered the additional sum of P2,200, Dr. Garcia issued a receipt accepting said amount "as the partial payment on the purchase price of the property as specified on the original contract," thus further indicating that the payment, in his opinion, conformed with said contract, and that, accordingly, the same was in full force and effect.

In any event, it is undisputed that, as of September 4, 1961, Dr. Garcia had received the total sum of P27,757, or P2,757 in excess of the P25,000 representing the rentals for the entire period of the lease, and over P21,200 in excess of the rentals for the unexpired portion of the lease, from September 4, 1961 to June 1965. This circumstance indicates clearly that Nietes had, on September 4, 1961, chosen to exercise and did exercise then his option to buy. What is more, this is borne out by the receipt issued by Dr. Garcia for the payment of P2,200, on December 13, 1962, to which he referred therein as a "partial payment on the purchase of the property as specified on the original contract of 'Contract of Lease with the First Option to Buy' ... ."

Further confirmation is furnished by the letter of Nietes, Exhibit L, of August 1964 — also, within the period of the lease — stating that he "will exercise his OPTION to buy the land and building subject matter of the lease." It is not correct to construe this expression — as did the appealed decision — as implying that the option had not been or was not yet being exercised, or as a mere announcement of the intent to avail of it at some future time. This interpretation takes said expression out of the context of Exhibit L, which positively states, also, that Nietes "is ready to pay the balance of the purchase price in accordance with the contract," and requests counsel for Dr. Garcia to inform or advise him "to make available the land title and execute the corresponding Deed of Sale pursuant to this notice, and that if he fails to do so within fifteen (15) days ... we shall take the corresponding action to enforce the agreement." Such demand and said readiness to pay the balance of the purchase price leave no room for doubt that, as

stated in Exhibit L, the same is "a formal notice" that Nietes had exercised his option, and expected Dr. Garcia to comply, within fifteen (15) days, with his part of the bargain. Surely, there would have been no point for said demand and readiness to pay, if Nietes had not yet exercised his option to buy.

The provision in paragraph 5 of the Contract, to the effect that "should the LESSEE" choose to make use of his option to buy "the unused payment for the Contract of Lease will be considered as payment for the sale of the land and school, "simply means that the rental paid for the unused portion of the lease shall be applied to and deducted from the sale price of P100,000 to be paid by Nietes at the proper time — in other words,simultaneously with the delivery to him of the corresponding deed of sale, duly executed by Dr. Garcia.

It is, consequently, Our considered opinion that Nietes had validly and effectively exercised his option to buy the property of Dr. Garcia, at least, on December 13, 1962, when he acknowledged receipt from Mrs. Nietes of the sum of P2,200 then delivered by her "in partial payment on the purchase of the property" described in the "Contract of Lease with Option to Buy"; that from the aggregate sum of P29,957.00 paid to him up to that time, the sum of P12,708.33 should be deducted as rental for the period from June 1960 to December 13, 1962, or roughly thirty (30) months and a half, thereby leaving a balance of P17,248.67, consisting of P12,291.67, representing the rentals for the unused period of the lease, plus P4,957.00 paid in excess of said rental and advanced solely on account of the purchase price; that deducting said sum of P17,248.67 from the agreed price of P100,000.00, there results a balance of P82,751.33 which should be paid by Nietes to Dr. Garcia, upon execution by the latter of the corresponding deed of absolute sale of the property in question, free from any lien or encumbrance whatsoever, in favor of Nietes, and the delivery to him of said deed of sale, as well as of the owner's duplicate of the certificate of title to said property; and that Dr. Garcia should indemnify Nietes in the sum of P2,500 as and for attorney's fees.

Thus modified, the decision of the Court of First Instance of Pampanga is hereby affirmed in all other respects, and that of the Court of Appeals reversed, with costs against respondent herein, Dr. Pablo C. Garcia. It is so ordered.

Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Makasiar Antonio and Esguerra, JJ., concur.

Castro, J., took no part.