G. R. No. 158149             February 9, 2006BOSTON BANK OF THE PHILIPPINES, (formerly BANK OF COMMERCE), Petitioner, vs.PERLA P. MANALO and CARLOS MANALO, JR., Respondents.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. CV No. 47458 affirming, on appeal, the Decision2 of the Regional Trial Court (RTC) of Quezon City, Branch 98, in Civil Case No. Q-89-3905.

The Antecedents

The Xavierville Estate, Inc. (XEI) was the owner of parcels of land in Quezon City, known as the Xavierville Estate Subdivision, with an area of 42 hectares. XEI caused the subdivision of the property into residential lots, which was then offered for sale to individual lot buyers.3

On September 8, 1967, XEI, through its General Manager, Antonio Ramos, as vendor, and The Overseas Bank of Manila (OBM), as vendee, executed a "Deed of Sale of Real Estate" over some residential lots in the subdivision, including Lot 1, Block 2, with an area of 907.5 square meters, and Lot 2, Block 2, with an area of 832.80 square meters. The transaction was subject to the approval of the Board of Directors of OBM, and was covered by real estate mortgages in favor of the Philippine National Bank as security for its account amounting to P5,187,000.00, and the Central Bank of the Philippines as security for advances amounting to P22,185,193.74.4 Nevertheless, XEI continued selling the residential lots in the subdivision as agent of OBM.5

Sometime in 1972, then XEI president Emerito Ramos, Jr. contracted the services of Engr. Carlos Manalo, Jr. who was in business of drilling deep water wells and installing pumps under the business name Hurricane Commercial, Inc. For P34,887.66, Manalo, Jr. installed a water pump at Ramos’ residence at the corner of Aurora Boulevard and Katipunan Avenue, Quezon City. Manalo, Jr. then proposed to XEI, through Ramos, to purchase a lot in the Xavierville subdivision, and offered as part of the downpayment the P34,887.66 Ramos owed him. XEI, through Ramos, agreed. In a letter dated February 8, 1972, Ramos requested Manalo, Jr. to choose which lots he wanted to buy so that the price of the lots and the terms of payment could be fixed and incorporated in the conditional sale.6 Manalo, Jr. met with Ramos and informed him that he and his wife Perla had chosen Lots 1 and 2 of Block 2 with a total area of 1,740.3 square meters.

In a letter dated August 22, 1972 to Perla Manalo, Ramos confirmed the reservation of the lots. He also pegged the price of the lots at P200.00 per square meter, or a total of P348,060.00, with a 20% down payment of the purchase price amounting to P69,612.00 less the P34,887.66 owing from Ramos, payable on or before December 31, 1972; the corresponding Contract of Conditional Sale would then be signed on or before the same date, but if the selling operations of XEI resumed after December 31, 1972, the balance of the downpayment would fall due then, and the spouses would sign the aforesaid contract within five (5) days from receipt of the notice of resumption of such selling operations. It was also stated in the letter that, in the meantime, the spouses may introduce improvements thereon subject to the rules and regulations imposed by XEI in the subdivision. Perla Manalo conformed to the letter agreement.7

The spouses Manalo took possession of the property on September 2, 1972, constructed a house thereon, and installed a fence around the perimeter of the lots.

In the meantime, many of the lot buyers refused to pay their monthly installments until they were assured that they would be issued Torrens titles over the lots they had purchased.8 The spouses Manalo were notified of the resumption of the selling operations of XEI.9 However, they did not pay the balance of the downpayment on the lots because Ramos failed to prepare a contract of conditional sale and transmit the same to Manalo for their signature. On August 14, 1973, Perla Manalo went to the XEI office and requested that the payment of the amount representing the balance of the downpayment be deferred, which, however, XEI rejected. On August 10, 1973, XEI furnished her with a statement of their account as of July 31, 1973, showing that they had a balance of P34,724.34 on the downpayment of the two lots after deducting the account of Ramos, plus P3,819.6810 interest thereon from September 1, 1972 to July 31, 1973, and that the interests on the unpaid balance of the purchase price ofP278,448.00 from September 1, 1972 to July 31, 1973 amounted to P30,629.28.11 The spouses were informed that they were being billed for said unpaid interests.12

On January 25, 1974, the spouses Manalo received another statement of account from XEI, inclusive of interests on the purchase price of the lots.13 In a letter dated April 6, 1974 to XEI, Manalo, Jr. stated they had not yet received the notice of resumption of Lei’s selling operations, and that there had been no arrangement on the payment of interests; hence, they should not be charged with interest on the balance of the downpayment on the property.14 Further, they demanded that a deed of conditional sale over the two lots be transmitted to them for their signatures. However, XEI ignored the demands. Consequently, the spouses refused to pay the balance of the downpayment of the purchase price.15

Sometime in June 1976, Manalo, Jr. constructed a business sign in the sidewalk near his house. In a letter dated June 17, 1976, XEI informed Manalo, Jr. that business signs were not allowed along the sidewalk. It demanded that he remove the same, on the ground, among others, that the sidewalk was not part of the land which he had purchased on installment basis from XEI.16 Manalo, Jr. did not respond. XEI reiterated its demand on September 15, 1977.17

Subsequently, XEI turned over its selling operations to OBM, including the receivables for lots already contracted and those yet to be sold.18 On December 8, 1977, OBM warned Manalo, Jr., that "putting up of a business sign is specifically prohibited by their contract of conditional sale" and that his failure to comply with its demand would impel it to avail of the remedies as provided in their contract of conditional sale.19

Meanwhile, on December 5, 1979, the Register of Deeds issued Transfer Certificate of Title (TCT) No. T-265822 over Lot 1, Block 2, and TCT No. T-265823 over Lot 2, Block 2, in favor of the OBM.20 The lien in favor of the Central Bank of the Philippines was annotated at the dorsal portion of said title, which was later cancelled on August 4, 1980.21

Subsequently, the Commercial Bank of Manila (CBM) acquired the Xavierville Estate from OBM. CBM wrote Edilberto Ng, the president of Xavierville Homeowners Association that, as of January 31, 1983, Manalo, Jr. was one of the lot buyers in the subdivision.22 CBM reiterated in its letter to Ng that, as of January 24, 1984, Manalo was a homeowner in the subdivision.23

In a letter dated August 5, 1986, the CBM requested Perla Manalo to stop any on-going construction on the property since it (CBM) was the owner of the lot and she had no permission for such construction.24 She agreed to have a conference meeting with CBM officers where she informed them that her husband had a contract with OBM, through XEI, to purchase the property. When asked to prove her claim, she promised to send the documents to CBM. However, she failed to do so.25 On September 5, 1986, CBM reiterated its demand that it be furnished with the documents promised,26 but Perla Manalo did not respond.

On July 27, 1987, CBM filed a complaint27 for unlawful detainer against the spouses with the Metropolitan Trial Court of Quezon City. The case was docketed as Civil Case No. 51618. CBM claimed that the spouses had been unlawfully occupying the property without its consent and that despite its demands, they refused to vacate the property. The latter alleged that they, as vendors, and XEI, as vendee, had a contract of sale over the lots which had not yet been rescinded.28

While the case was pending, the spouses Manalo wrote CBM to offer an amicable settlement, promising to abide by the purchase price of the property

(P313,172.34), per agreement with XEI, through Ramos. However, on July 28, 1988, CBM wrote the spouses, through counsel, proposing that the price of P1,500.00 per square meter of the property was a reasonable starting point for negotiation of the settlement.29 The spouses rejected the counter proposal,30 emphasizing that they would abide by their original agreement with XEI. CBM moved to withdraw its complaint31 because of the issues raised.32

In the meantime, the CBM was renamed the Boston Bank of the Philippines. After CBM filed its complaint against the spouses Manalo, the latter filed a complaint for specific performance and damages against the bank before the Regional Trial Court (RTC) of Quezon City on October 31, 1989.

The plaintiffs alleged therein that they had always been ready, able and willing to pay the installments on the lots sold to them by the defendant’s remote predecessor-in-interest, as might be or stipulated in the contract of sale, but no contract was forthcoming; they constructed their house worth P2,000,000.00 on the property in good faith; Manalo, Jr., informed the defendant, through its counsel, on October 15, 1988 that he would abide by the terms and conditions of his original agreement with the defendant’s predecessor-in-interest; during the hearing of the ejectment case on October 16, 1988, they offered to pay P313,172.34 representing the balance on the purchase price of said lots; such tender of payment was rejected, so that the subject lots could be sold at considerably higher prices to third parties.

Plaintiffs further alleged that upon payment of the P313,172.34, they were entitled to the execution and delivery of a Deed of Absolute Sale covering the subject lots, sufficient in form and substance to transfer title thereto free and clear of any and all liens and encumbrances of whatever kind and nature.33 The plaintiffs prayed that, after due hearing, judgment be rendered in their favor, to wit:

WHEREFORE, it is respectfully prayed that after due hearing:

(a) The defendant should be ordered to execute and deliver a Deed of Absolute Sale over subject lots in favor of the plaintiffs after payment of the sum of P313,172.34, sufficient in form and substance to transfer to them titles thereto free and clear of any and all liens and encumbrances of whatever kind or nature;

(b) The defendant should be held liable for moral and exemplary damages in the amounts of P300,000.00 and P30,000.00, respectively, for not promptly executing and delivering to plaintiff the necessary Contract of Sale, notwithstanding repeated demands therefor and for having been constrained to engage the services of undersigned counsel for which they agreed to pay attorney’s fees in the sum

of P50,000.00 to enforce their rights in the premises and appearance fee of P500.00;

(c) And for such other and further relief as may be just and equitable in the premises.34

In its Answer to the complaint, the defendant interposed the following affirmative defenses: (a) plaintiffs had no cause of action against it because the August 22, 1972 letter agreement between XEI and the plaintiffs was not binding on it; and (b) "it had no record of any contract to sell executed by it or its predecessor, or of any statement of accounts from its predecessors, or records of payments of the plaintiffs or of any documents which entitled them to the possession of the lots."35 The defendant, likewise, interposed counterclaims for damages and attorney’s fees and prayed for the eviction of the plaintiffs from the property.36

Meanwhile, in a letter dated January 25, 1993, plaintiffs, through counsel, proposed an amicable settlement of the case by paying P942,648.70, representing the balance of the purchase price of the two lots based on the current market value.37 However, the defendant rejected the same and insisted that for the smaller lot, they payP4,500,000.00, the current market value of the property.38 The defendant insisted that it owned the property since there was no contract or agreement between it and the plaintiffs’ relative thereto.

During the trial, the plaintiffs adduced in evidence the separate Contracts of Conditional Sale executed between XEI and Alberto Soller;39 Alfredo Aguila,40 and Dra. Elena Santos-Roque41 to prove that XEI continued selling residential lots in the subdivision as agent of OBM after the latter had acquired the said lots.

For its part, defendant presented in evidence the letter dated August 22, 1972, where XEI proposed to sell the two lots subject to two suspensive conditions: the payment of the balance of the downpayment of the property, and the execution of the corresponding contract of conditional sale. Since plaintiffs failed to pay, OBM consequently refused to execute the corresponding contract of conditional sale and forfeited the P34,877.66 downpayment for the two lots, but did not notify them of said forfeiture.42 It alleged that OBM considered the lots unsold because the titles thereto bore no annotation that they had been sold under a contract of conditional sale, and the plaintiffs were not notified of XEI’s resumption of its selling operations.

On May 2, 1994, the RTC rendered judgment in favor of the plaintiffs and against the defendant. The fallo of the decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant –

(a) Ordering the latter to execute and deliver a Deed of Absolute Sale over Lot 1 and 2, Block 2 of the Xavierville Estate Subdivision after payment of the sum of P942,978.70 sufficient in form and substance to transfer to them titles thereto free from any and all liens and encumbrances of whatever kind and nature.

(b) Ordering the defendant to pay moral and exemplary damages in the amount of P150,000.00; and

(c) To pay attorney’s fees in the sum of P50,000.00 and to pay the costs.

SO ORDERED.43

The trial court ruled that under the August 22, 1972 letter agreement of XEI and the plaintiffs, the parties had a "complete contract to sell" over the lots, and that they had already partially consummated the same. It declared that the failure of the defendant to notify the plaintiffs of the resumption of its selling operations and to execute a deed of conditional sale did not prevent the defendant’s obligation to convey titles to the lots from acquiring binding effect. Consequently, the plaintiffs had a cause of action to compel the defendant to execute a deed of sale over the lots in their favor.

Boston Bank appealed the decision to the CA, alleging that the lower court erred in (a) not concluding that the letter of XEI to the spouses Manalo, was at most a mere contract to sell subject to suspensive conditions, i.e., the payment of the balance of the downpayment on the property and the execution of a deed of conditional sale (which were not complied with); and (b) in awarding moral and exemplary damages to the spouses Manalo despite the absence of testimony providing facts to justify such awards.44

On September 30, 2002, the CA rendered a decision affirming that of the RTC with modification. The fallo reads:

WHEREFORE, the appealed decision is AFFIRMED with MODIFICATIONS that (a) the figure "P942,978.70" appearing [in] par. (a) of the dispositive portion thereof is changed to "P313,172.34 plus interest thereon at the rate of 12% per annum from September 1, 1972 until fully paid" and (b) the award of moral and exemplary damages and attorney’s fees in favor of plaintiffs-appellees is DELETED.

SO ORDERED.45

The appellate court sustained the ruling of the RTC that the appellant and the appellees had executed a Contract to Sell over the two lots but declared that the balance of the purchase price of the property amounting toP278,448.00 was payable in fixed amounts, inclusive of pre-computed interests, from delivery of the possession of the property to the appellees on a monthly basis for 120 months, based on the deeds of conditional sale executed by XEI in favor of other lot buyers.46 The CA also declared that, while XEI must have resumed its selling operations before the end of 1972 and the downpayment on the property remained unpaid as of December 31, 1972, absent a written notice of cancellation of the contract to sell from the bank or notarial demand therefor as required by Republic Act No. 6552, the spouses had, at the very least, a 60-day grace period from January 1, 1973 within which to pay the same.

Boston Bank filed a motion for the reconsideration of the decision alleging that there was no perfected contract to sell the two lots, as there was no agreement between XEI and the respondents on the manner of payment as well as the other terms and conditions of the sale. It further averred that its claim for recovery of possession of the aforesaid lots in its Memorandum dated February 28, 1994 filed before the trial court constituted a judicial demand for rescission that satisfied the requirements of the New Civil Code. However, the appellate court denied the motion.

Boston Bank, now petitioner, filed the instant petition for review on certiorari assailing the CA rulings. It maintains that, as held by the CA, the records do not reflect any schedule of payment of the 80% balance of the purchase price, or P278,448.00. Petitioner insists that unless the parties had agreed on the manner of payment of the principal amount, including the other terms and conditions of the contract, there would be no existing contract of sale or contract to sell.47 Petitioner avers that the letter agreement to respondent spouses dated August 22, 1972 merely confirmed their reservation for the purchase of Lot Nos. 1 and 2, consisting of 1,740.3 square meters, more or less, at the price of P200.00 per square meter (or P348,060.00), the amount of the downpayment thereon and the application of the P34,887.00 due from Ramos as part of such downpayment.

Petitioner asserts that there is no factual basis for the CA ruling that the terms and conditions relating to the payment of the balance of the purchase price of the property (as agreed upon by XEI and other lot buyers in the same subdivision) were also applicable to the contract entered into between the petitioner and the Respondents. It insists that such a ruling is contrary to law, as it is tantamount to compelling the parties to agree to something that was not even discussed, thus, violating their freedom to contract. Besides, the situation of the respondents cannot be equated with those of the other lot buyers, as, for one thing, the

respondents made a partial payment on the downpayment for the two lots even before the execution of any contract of conditional sale.

Petitioner posits that, even on the assumption that there was a perfected contract to sell between the parties, nevertheless, it cannot be compelled to convey the property to the respondents because the latter failed to pay the balance of the downpayment of the property, as well as the balance of 80% of the purchase price, thus resulting in the extinction of its obligation to convey title to the lots to the Respondents.

Another egregious error of the CA, petitioner avers, is the application of Republic Act No. 6552. It insists that such law applies only to a perfected agreement or perfected contract to sell, not in this case where the downpayment on the purchase price of the property was not completely paid, and no installment payments were made by the buyers.

Petitioner also faults the CA for declaring that petitioner failed to serve a notice on the respondents of cancellation or rescission of the contract to sell, or notarial demand therefor. Petitioner insists that its August 5, 1986 letter requiring respondents to vacate the property and its complaint for ejectment in Civil Case No. 51618 filed in the Metropolitan Trial Court amounted to the requisite demand for a rescission of the contract to sell. Moreover, the action of the respondents below was barred by laches because despite demands, they failed to pay the balance of the purchase price of the lots (let alone the downpayment) for a considerable number of years.

For their part, respondents assert that as long as there is a meeting of the minds of the parties to a contract of sale as to the price, the contract is valid despite the parties’ failure to agree on the manner of payment. In such a situation, the balance of the purchase price would be payable on demand, conformably to Article 1169 of the New Civil Code. They insist that the law does not require a party to agree on the manner of payment of the purchase price as a prerequisite to a valid contract to sell. The respondents cite the ruling of this Court in Buenaventura v. Court of Appeals48 to support their submission.

They argue that even if the manner and timeline for the payment of the balance of the purchase price of the property is an essential requisite of a contract to sell, nevertheless, as shown by their letter agreement of August 22, 1972 with the OBM, through XEI and the other letters to them, an agreement was reached as to the manner of payment of the balance of the purchase price. They point out that such letters referred to the terms of the terms of the deeds of conditional sale executed by XEI in favor of the other lot buyers in the subdivision, which contained uniform terms of 120 equal monthly installments (excluding the downpayment, but inclusive of pre-computed interests). The respondents assert that XEI was a real estate broker and knew that the contracts involving

residential lots in the subdivision contained uniform terms as to the manner and timeline of the payment of the purchase price of said lots.

Respondents further posit that the terms and conditions to be incorporated in the "corresponding contract of conditional sale" to be executed by the parties would be the same as those contained in the contracts of conditional sale executed by lot buyers in the subdivision. After all, they maintain, the contents of the corresponding contract of conditional sale referred to in the August 22, 1972 letter agreement envisaged those contained in the contracts of conditional sale that XEI and other lot buyers executed. Respondents cite the ruling of this Court in Mitsui Bussan Kaisha v. Manila E.R.R. & L. Co.49

The respondents aver that the issues raised by the petitioner are factual, inappropriate in a petition for review on certiorari under Rule 45 of the Rules of Court. They assert that petitioner adopted a theory in litigating the case in the trial court, but changed the same on appeal before the CA, and again in this Court. They argue that the petitioner is estopped from adopting a new theory contrary to those it had adopted in the trial and appellate courts. Moreover, the existence of a contract of conditional sale was admitted in the letters of XEI and OBM. They aver that they became owners of the lots upon delivery to them by XEI.

The issues for resolution are the following: (1) whether the factual issues raised by the petitioner are proper; (2) whether petitioner or its predecessors-in-interest, the XEI or the OBM, as seller, and the respondents, as buyers, forged a perfect contract to sell over the property; (3) whether petitioner is estopped from contending that no such contract was forged by the parties; and (4) whether respondents has a cause of action against the petitioner for specific performance.

The rule is that before this Court, only legal issues may be raised in a petition for review on certiorari. The reason is that this Court is not a trier of facts, and is not to review and calibrate the evidence on record. Moreover, the findings of facts of the trial court, as affirmed on appeal by the Court of Appeals, are conclusive on this Court unless the case falls under any of the following exceptions:

(1) when the conclusion is a finding grounded entirely on speculations, surmises and conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) where there is a grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the

petitioners’ main and reply briefs are not disputed by the respondents; and (10) when the findings of fact of the Court of Appeals are premised on the supposed absence of evidence and contradicted by the evidence on record.50

We have reviewed the records and we find that, indeed, the ruling of the appellate court dismissing petitioner’s appeal is contrary to law and is not supported by evidence. A careful examination of the factual backdrop of the case, as well as the antecedental proceedings constrains us to hold that petitioner is not barred from asserting that XEI or OBM, on one hand, and the respondents, on the other, failed to forge a perfected contract to sell the subject lots.

It must be stressed that the Court may consider an issue not raised during the trial when there is plain error.51Although a factual issue was not raised in the trial court, such issue may still be considered and resolved by the Court in the interest of substantial justice, if it finds that to do so is necessary to arrive at a just decision,52 or when an issue is closely related to an issue raised in the trial court and the Court of Appeals and is necessary for a just and complete resolution of the case.53 When the trial court decides a case in favor of a party on certain grounds, the Court may base its decision upon some other points, which the trial court or appellate court ignored or erroneously decided in favor of a party.54

In this case, the issue of whether XEI had agreed to allow the respondents to pay the purchase price of the property was raised by the parties. The trial court ruled that the parties had perfected a contract to sell, as against petitioner’s claim that no such contract existed. However, in resolving the issue of whether the petitioner was obliged to sell the property to the respondents, while the CA declared that XEI or OBM and the respondents failed to agree on the schedule of payment of the balance of the purchase price of the property, it ruled that XEI and the respondents had forged a contract to sell; hence, petitioner is entitled to ventilate the issue before this Court.

We agree with petitioner’s contention that, for a perfected contract of sale or contract to sell to exist in law, there must be an agreement of the parties, not only on the price of the property sold, but also on the manner the price is to be paid by the vendee.

Under Article 1458 of the New Civil Code, in a contract of sale, whether absolute or conditional, one of the contracting parties obliges 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. A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and the price. From the averment of perfection, the parties are bound, not only to the fulfillment of what has been expressly stipulated, but also to all the consequences which, according to their nature, may be in keeping with good

faith, usage and law.55 On the other hand, when the contract of sale or to sell is not perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties.56

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.57

It is not enough for the parties to agree on the price of the property. The parties must also agree on the manner of payment of the price of the property to give rise to a binding and enforceable contract of sale or contract to sell. This is so because the agreement as to the manner of payment goes into the price, such that a disagreement on the manner of payment is tantamount to a failure to agree on the price.58

In a contract to sell property by installments, it is not enough that the parties agree on the price as well as the amount of downpayment. The parties must, likewise, agree on the manner of payment of the balance of the purchase price and on the other terms and conditions relative to the sale. Even if the buyer makes a downpayment or portion thereof, such payment cannot be considered as sufficient proof of the perfection of any purchase and sale between the parties. Indeed, this Court ruled in Velasco v. Court of Appeals59 that:

It is not difficult to glean from the aforequoted averments that the petitioners themselves admit that they and the respondent still had to meet and agree on how and when the down-payment and the installment payments were to be paid. Such being the situation, it cannot, therefore, be said that a definite and firm sales agreement between the parties had been perfected over the lot in question. Indeed, this Court has already ruled before that a definite agreement on the manner of payment of the purchase price is an essential element in the formation of a binding and enforceable contract of sale. The fact, therefore, that the petitioners delivered to the respondent the sum ofP10,000.00 as part of the downpayment that they had to pay cannot be considered as sufficient proof of the perfection of any purchase and sale agreement between the parties herein under article 1482 of the New Civil Code, as the petitioners themselves admit that some essential matter – the terms of payment – still had to be mutually covenanted.60

We agree with the contention of the petitioner that, as held by the CA, there is no showing, in the records, of the schedule of payment of the balance of the purchase price on the property amounting to P278,448.00. We have meticulously reviewed the records, including Ramos’ February 8, 1972 and August 22, 1972

letters to respondents,61 and find that said parties confined themselves to agreeing on the price of the property (P348,060.00), the 20% downpayment of the purchase price (P69,612.00), and credited respondents for theP34,887.00 owing from Ramos as part of the 20% downpayment. The timeline for the payment of the balance of the downpayment (P34,724.34) was also agreed upon, that is, on or before XEI resumed its selling operations, on or before December 31, 1972, or within five (5) days from written notice of such resumption of selling operations. The parties had also agreed to incorporate all the terms and conditions relating to the sale, inclusive of the terms of payment of the balance of the purchase price and the other substantial terms and conditions in the "corresponding contract of conditional sale," to be later signed by the parties, simultaneously with respondents’ settlement of the balance of the downpayment.

The February 8, 1972 letter of XEI reads:

Mr. Carlos T. Manalo, Jr.Hurricane Rotary Well DrillingRizal Avenue Ext.,Caloocan City

Dear Mr. Manalo:We agree with your verbal offer to exchange the proceeds of your contract with us to form as a down payment for a lot in our Xavierville Estate Subdivision.Please let us know your choice lot so that we can fix the price and terms of payment in our conditional sale.

Sincerely yours,XAVIERVILLE ESTATE, INC.(Signed)EMERITO B. RAMOS, JR.PresidentCONFORME:(Signed)CARLOS T. MANALO, JR.Hurricane Rotary Well Drilling62

The August 22, 1972 letter agreement of XEI and the respondents reads:

Mrs. Perla P. Manalo1548 Rizal Avenue Extensionbr>Caloocan City

Dear Mrs. Manalo:This is to confirm your reservation of Lot Nos. 1 and 2; Block 2 of our consolidation-subdivision plan as amended, consisting of 1,740.3 square meters more or less, at the price of P200.00 per square meter or a total price of P348,060.00.

It is agreed that as soon as we resume selling operations, you must pay a down payment of 20% of the purchase price of the said lots and sign the corresponding Contract of Conditional Sale, on or before December 31, 1972, provided, however, that if we resume selling after December 31, 1972, then you must pay the aforementioned down payment and sign the aforesaid contract within five (5) days from your receipt of our notice of resumption of selling operations.

In the meanwhile, you may introduce such improvements on the said lots as you may desire, subject to the rules and regulations of the subdivision.If the above terms and conditions are acceptable to you, please signify your conformity by signing on the space herein below provided.

Thank you.

Very truly yours,XAVIERVILLE ESTATE, INC. CONFORME:By:

(Signed)EMERITO B. RAMOS, JR.

(Signed)PERLA P. MANALO

President Buyer63

Based on these two letters, the determination of the terms of payment of the P278,448.00 had yet to be agreed upon on or before December 31, 1972, or even afterwards, when the parties sign the corresponding contract of conditional sale.

Jurisprudence is that if a material element of a contemplated contract is left for future negotiations, the same is too indefinite to be enforceable.64 And when an essential element of a contract is reserved for future agreement of the parties, no legal obligation arises until such future agreement is concluded.65

So long as an essential element entering into the proposed obligation of either of the parties remains to be determined by an agreement which they are to make, the contract is incomplete and unenforceable.66 The reason is that such a contract is lacking in the necessary qualities of definiteness, certainty and mutuality.67

There is no evidence on record to prove that XEI or OBM and the respondents had agreed, after December 31, 1972, on the terms of payment of the balance of the purchase price of the property and the other substantial terms and conditions relative to the sale. Indeed, the parties are in agreement that there had been no contract of conditional sale ever executed by XEI, OBM or petitioner, as vendor, and the respondents, as vendees.68

The ruling of this Court in Buenaventura v. Court of Appeals has no bearing in this case because the issue of the manner of payment of the purchase price of the property was not raised therein.

We reject the submission of respondents that they and Ramos had intended to incorporate the terms of payment contained in the three contracts of conditional sale executed by XEI and other lot buyers in the "corresponding contract of conditional sale," which would later be signed by them.69 We have meticulously reviewed the respondents’ complaint and find no such allegation therein.70 Indeed, respondents merely alleged in their complaint that they were bound to pay the balance of the purchase price of the property "in installments." When respondent Manalo, Jr. testified, he was never asked, on direct examination or even on cross-examination, whether the terms of payment of the balance of the purchase price of the lots under the contracts of conditional sale executed by XEI and other lot buyers would form part of the "corresponding contract of conditional sale" to be signed by them simultaneously with the payment of the balance of the downpayment on the purchase price.

We note that, in its letter to the respondents dated June 17, 1976, or almost three years from the execution by the parties of their August 22, 1972 letter agreement, XEI stated, in part, that respondents had purchased the property "on installment basis."71 However, in the said letter, XEI failed to state a specific amount for each installment, and whether such payments were to be made monthly, semi-annually, or annually. Also, respondents, as plaintiffs below, failed to adduce a shred of evidence to prove that they were obliged to pay the P278,448.00 monthly, semi-annually or annually. The allegation that the payment of the P278,448.00 was to be paid in installments is, thus, vague and indefinite. Case law is that, for a contract to be enforceable, its terms must be certain and explicit, not vague or indefinite.72

There is no factual and legal basis for the CA ruling that, based on the terms of payment of the balance of the purchase price of the lots under the contracts of conditional sale executed by XEI and the other lot buyers, respondents were obliged to pay the P278,448.00 with pre-computed interest of 12% per annum in 120-month installments. As gleaned from the ruling of the appellate court, it failed to justify its use of the terms of payment under the three "contracts of conditional sale" as basis for such ruling, to wit:

On the other hand, the records do not disclose the schedule of payment of the purchase price, net of the downpayment. Considering, however, the Contracts of Conditional Sale (Exhs. "N," "O" and "P") entered into by XEI with other lot buyers, it would appear that the subdivision lots sold by XEI, under contracts to sell, were payable in 120 equal monthly installments (exclusive of the downpayment but including pre-computed interests) commencing on delivery of the lot to the buyer.73

By its ruling, the CA unilaterally supplied an essential element to the letter agreement of XEI and the Respondents. Courts should not undertake to make a contract for the parties, nor can it enforce one, the terms of which are in doubt.74 Indeed, the Court emphasized in Chua v. Court of Appeals75 that it is not the province of a court to alter a contract by construction or to make a new contract for the parties; its duty is confined to the interpretation of the one which they have made for themselves, without regard to its wisdom or folly, as the court cannot supply material stipulations or read into contract words which it does not contain.

Respondents, as plaintiffs below, failed to allege in their complaint that the terms of payment of the P278,448.00 to be incorporated in the "corresponding contract of conditional sale" were those contained in the contracts of conditional sale executed by XEI and Soller, Aguila and Roque.76 They likewise failed to prove such allegation in this Court.

The bare fact that other lot buyers were allowed to pay the balance of the purchase price of lots purchased by them in 120 or 180 monthly installments does not constitute evidence that XEI also agreed to give the respondents the same mode and timeline of payment of the P278,448.00.

Under Section 34, Rule 130 of the Revised Rules of Court, evidence that one did a certain thing at one time is not admissible to prove that he did the same or similar thing at another time, although such evidence may be received to prove habit, usage, pattern of conduct or the intent of the parties.

Similar acts as evidence. – Evidence that one did or did not do a certain thing at one time is not admissible to prove that he did or did not do the same or a similar thing at another time; but it may be received to prove a specific intent or knowledge, identity, plan, system, scheme, habit, custom or usage, and the like.

However, respondents failed to allege and prove, in the trial court, that, as a matter of business usage, habit or pattern of conduct, XEI granted all lot buyers the right to pay the balance of the purchase price in installments of 120 months of fixed amounts with pre-computed interests, and that XEI and the respondents had intended to adopt such terms of payment relative to the sale of the two lots in question. Indeed, respondents adduced in evidence the three contracts of conditional sale executed by XEI and other lot buyers merely to prove that XEI continued to sell lots in the subdivision as sales agent of OBM after it acquired said lots, not to prove usage, habit or pattern of conduct on the part of XEI to require all lot buyers in the subdivision to pay the balance of the purchase price of said lots in 120 months. It further failed to prive that the trial court admitted the said deeds77 as part of the testimony of respondent Manalo, Jr.78

Habit, custom, usage or pattern of conduct must be proved like any other facts. Courts must contend with the caveat that, before they admit evidence of usage, of habit or pattern of conduct, the offering party must establish the degree of specificity and frequency of uniform response that ensures more than a mere tendency to act in a given manner but rather, conduct that is semi-automatic in nature. The offering party must allege and prove specific, repetitive conduct that might constitute evidence of habit. The examples offered in evidence to prove habit, or pattern of evidence must be numerous enough to base on inference of systematic conduct. Mere similarity of contracts does not present the kind of sufficiently similar circumstances to outweigh the danger of prejudice and confusion.

In determining whether the examples are numerous enough, and sufficiently regular, the key criteria are adequacy of sampling and uniformity of response. After all, habit means a course of behavior of a person regularly represented in like circumstances.79 It is only when examples offered to establish pattern of conduct or habit are numerous enough to lose an inference of systematic conduct that examples are admissible. The key criteria are adequacy of sampling and uniformity of response or ratio of reaction to situations.80

There are cases where the course of dealings to be followed is defined by the usage of a particular trade or market or profession. As expostulated by Justice Benjamin Cardozo of the United States Supreme Court: "Life casts the moulds of conduct, which will someday become fixed as law. Law preserves the moulds which have taken form and shape from life."81 Usage furnishes a standard for the measurement of many of the rights and acts of men.82 It is also well-settled that parties who contract on a subject matter concerning which known usage prevail, incorporate such usage by implication into their agreement, if nothing is said to be contrary.83

However, the respondents inexplicably failed to adduce sufficient competent evidence to prove usage, habit or pattern of conduct of XEI to justify the use of the terms of payment in the contracts of the other lot buyers, and thus grant respondents the right to pay the P278,448.00 in 120 months, presumably because of respondents’ belief that the manner of payment of the said amount is not an essential element of a contract to sell. There is no evidence that XEI or OBM and all the lot buyers in the subdivision, including lot buyers who pay part of the downpayment of the property purchased by them in the form of service, had executed contracts of conditional sale containing uniform terms and conditions. Moreover, under the terms of the contracts of conditional sale executed by XEI and three lot buyers in the subdivision, XEI agreed to grant 120 months within which to pay the balance of the purchase price to two of them, but granted one 180 months to do so.84 There is no evidence on record that XEI granted the same right to buyers of two or more lots.

Irrefragably, under Article 1469 of the New Civil Code, the price of the property sold may be considered certain if it be so with reference to another thing certain. It is sufficient if it can be determined by the stipulations of the contract made by the parties thereto85 or by reference to an agreement incorporated in the contract of sale or contract to sell or if it is capable of being ascertained with certainty in said contract;86 or if the contract contains express or implied provisions by which it may be rendered certain;87 or if it provides some method or criterion by which it can be definitely ascertained.88 As this Court held in Villaraza v. Court of Appeals,89 the price is considered certain if, by its terms, the contract furnishes a basis or measure for ascertaining the amount agreed upon.

We have carefully reviewed the August 22, 1972 letter agreement of the parties and find no direct or implied reference to the manner and schedule of payment of the balance of the purchase price of the lots covered by the deeds of conditional sale executed by XEI and that of the other lot buyers90 as basis for or mode of determination of the schedule of the payment by the respondents of the P278,448.00.

The ruling of this Court in Mitsui Bussan Kaisha v. Manila Electric Railroad and Light Company91 is not applicable in this case because the basic price fixed in the contract was P9.45 per long ton, but it was stipulated that the price was subject to modification "in proportion to variations in calories and ash content, and not otherwise." In this case, the parties did not fix in their letters-agreement, any method or mode of determining the terms of payment of the balance of the purchase price of the property amounting to P278,448.00.

It bears stressing that the respondents failed and refused to pay the balance of the downpayment and of the purchase price of the property amounting to P278,448.00 despite notice to them of the resumption by XEI of its selling operations. The respondents enjoyed possession of the property without paying a centavo. On the other hand, XEI and OBM failed and refused to transmit a contract of conditional sale to the Respondents. The respondents could have at least consigned the balance of the downpayment after notice of the resumption of the selling operations of XEI and filed an action to compel XEI or OBM to transmit to them the said contract; however, they failed to do so.

As a consequence, respondents and XEI (or OBM for that matter) failed to forge a perfected contract to sell the two lots; hence, respondents have no cause of action for specific performance against petitioner. Republic Act No. 6552 applies only to a perfected contract to sell and not to a contract with no binding and enforceable effect.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 47458 is REVERSED and SET ASIDE.

The Regional Trial Court of Quezon City, Branch 98 is ordered to dismiss the complaint. Costs against the Respondents.

SO ORDERED.

G.R. No. 103338 January 4, 1994FEDERICO SERRA, petitioner, vs.THE HON. COURT OF APPEALS AND RIZAL COMMERCIAL BANKING CORPORATION, respondents.Andres R. Amante, Jr. for petitioner.R.C. Domingo, Jr. & Associates for private respondent.

NOCON, J.:

A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy and 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. (Article 1479, New Civil Code) The first is the mutual promise and each has the right to demand from the other the fulfillment of the obligation. While the second is merely an offer of one to another, which if accepted, would create an obligation to the offeror to make good his promise, provided the acceptance is supported by a consideration distinct from the price.

Disputed in the present case is the efficacy of a "Contract of Lease with Option to Buy", entered into between petitioner Federico Serra and private respondent Rizal Commercial Banking Corporation. (RCBC).

Petitioner is the owner of a 374 square meter parcel of land located at Quezon St., Masbate, Masbate. Sometime in 1975, respondent bank, in its desire to put up a branch in Masbate, Masbate, negotiated with petitioner for the purchase of the then unregistered property. On May 20, 1975, a contract of LEASE WITH OPTION TO BUY was instead forged by the parties, the pertinent portion of which reads:

1. The LESSOR leases unto the LESSEE, an the LESSEE hereby accepts in lease, the parcel of land described in the first WHEREAS clause, to have and to hold the same for a period of twenty-five (25) years commencing from June 1, 1975 to June 1, 2000. The LESSEE, however, shall have the option to purchase said parcel of land within a period of ten (10) years from the date of the signing of this Contract at a price not greater than TWO HUNDRED TEN PESOS (P210.00) per square meter. For this purpose, the LESSOR undertakes, within such ten-year period, to register said parcel of land under the TORRENS SYSTEM and all expenses appurtenant thereto shall be for his sole account.

If, for any reason, said parcel of land is not registered under the TORRENS SYSTEM within the aforementioned ten-year period, the LESSEE shall have the right, upon termination of the lease to be paid by the LESSOR the market value of the building and improvements constructed on said parcel of land.

The LESSEE is hereby appointed attorney-in-fact for the LESSOR to register said parcel of land under the TORRENS SYSTEM in case the LESSOR, for any reason, fails to comply with his obligation to effect said registration within reasonable time after the signing of this Agreement, and all expenses appurtenant to such registration shall be charged by the LESSEE against the rentals due to the LESSOR.

2. During the period of the lease, the LESSEE covenants to pay the LESSOR, at the latter's residence, a monthly rental of SEVEN HUNDRED PESOS (P700.00), Philippine Currency, payable in advance on or before the fifth (5th) day of every calendar month, provided that the rentals for the first four (4) months shall be paid by the LESSEE in advance upon the signing of this Contract.

3. The LESSEE is hereby authorized to construct as its sole expense a building and such other improvements on said parcel of land, which it may need in pursuance of its business and/or operations; provided, that if for any reason the LESSEE shall fail to exercise its option mentioned in paragraph (1) above in case the parcel of land is registered under the TORRENS SYSTEM within the ten-year period mentioned therein, said building and/or improvements, shall become the property of the LESSOR after the expiration of the 25-year lease period without the right of reimbursement on the part of the LESSEE. The authority herein granted does not, however, extend to the making or allowing any unlawful, improper or offensive used of the leased premises, or any use thereof, other than banking and office purposes. The maintenance and upkeep of such building, structure and improvements shall likewise be for the sole account of the LESSEE. 1

The foregoing agreement was subscribed before Notary Public Romeo F. Natividad.

Pursuant to said contract, a building and other improvements were constructed on the land which housed the branch office of RCBC in Masbate, Masbate. Within three years from the signing of the contract, petitioner complied with his part of the agreement by having the property registered andplaced under the TORRENS SYSTEM, for which Original Certificate of Title No. 0-232 was issued by the Register of Deeds of the Province of Masbate.

Petitioner alleges that as soon as he had the property registered, he kept on pursuing the manager of the branch to effect the sale of the lot as per their agreement. It was not until September 4, 1984, however, when the respondent bank decided to exercise its option and informed petitioner, through a letter, 2 of its intention to buy the property at the agreed price of not greater than P210.00 per square meter or a total of P78,430.00. But much to the surprise of the respondent, petitioner replied that he is no longer selling the property. 3

Hence, on March 14, 1985, a complaint for specific performance and damages were filed by respondent against petitioner. In the complaint, respondent alleged that during the negotiations it made clear to petitioner that it intends to stay permanently on property once its branch office is opened unless the exigencies of the business requires otherwise. Aside from its prayer for specific performance, it likewise asked for an award of P50,000.00 for attorney's fees P100,000.00 as exemplary damages and the cost of the suit. 4

A special and affirmative defenses, petitioner contended:

1. That the contract having been prepared and drawn by RCBC, it took undue advantage on him when it set in lopsided terms.

2. That the option was not supported by any consideration distinct from the price and hence not binding upon him.

3. That as a condition for the validity and/or efficacy of the option, it should have been exercised within the reasonable time after the registration of the land under the Torrens System; that its delayed action on the option have forfeited whatever its claim to the same.

4. That extraordinary inflation supervened resulting in the unusual decrease in the purchasing power of the currency that could not reasonably be forseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation, thus, rendering the terms of the contract unenforceable, inequitable and to the undue enrichment of RCBC. 5

and as counterclaim petitioner alleged that:

1. The rental of P700.00 has become unrealistic and unreasonable, that justice and equity will require its adjustment.

2. By the institution of the complaint he suffered moral damages which may be assessed at P100,000.00 and award of attorney's fee of P25,000.00 and exemplary damages at P100,000.00. 6

Initially, after trial on the merits, the court dismissed the complaint. Although it found the contract to be valid, the court nonetheless ruled that the option to buy in unenforceable because it lacked a consideration distinct from the price and RCBC did not exercise its option within reasonable time. The prayer for readjustment of rental was denied, as well as that for moral and exemplary damages. 7

Nevertheless, upon motion for reconsideration of respondent, the court in the order of January 9, 1989, reversed itself, the dispositive portion reads:

WHEREFORE, the Court reconsiders its decision dated June 6, 1988, and hereby renders judgment as follows:

1. The defendant is hereby ordered to execute and deliver the proper deed of sale in favor of plaintiff selling, transferring andconveying the property covered by and described in the Original Certificate of Title 0-232 of the Registry of Deeds of Masbate for the sum of Seventy Eight Thousand Five Hundred Forty Pesos (P78,540,00), Philippine Currency;

2. Defendant is ordered to pay plaintiff the sum of Five Thousand (P5,000.00) Pesos as attorney's fees;

3. The counter claim of defendant is hereby dismissed; and

4. Defendants shall pay the costs of suit. 8

In a decision promulgated on September 19, 1991, 9 the Court of Appeals affirmed the findings of the trial court that:

1. The contract is valid and that the parties perfectly understood the contents thereof;

2. The option is supported by a distinct and separate consideration as embodied in the agreement;

3. There is no basis in granting an adjustment in rental.

Assailing the judgment of the appellate court, petitioner would like us to consider mainly the following:

1. The disputed contract is a contract of adhesion.

2. There was no consideration to support the option, distinct from the price, hence the option cannot be exercised.

3. Respondent court gravely abused its discretion in not granting currency adjustment on the already eroded value of the stipulated rentals for twenty-five years.

The petition is devoid of merit.

There is no dispute that the contract is valid and existing between the parties, as found by both the trial court and the appellate court. Neither do we find the terms of the contract unfairly lopsided to have it ignored.

A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the contract, while the other party merely affixes his signature or his "adhesion" thereto. These types of contracts are as binding as ordinary contracts. Because in reality, the party who adheres to the contract is free to reject it entirely. Although, this Court will not hesitate to rule out blind adherence to terms where facts and circumstances will show that it is basically one-sided. 10

We do not find the situation in the present case to be inequitable. Petitioner is a highly educated man, who, at the time of the trial was already a CPA-Lawyer, and when he entered into the contract, was already a CPA, holding a respectable position with the Metropolitan Manila Commission. It is evident that a man of his stature should have been more cautious in transactions he enters into, particularly where it concerns valuable properties. He is amply equipped to drive a hard bargain if he would be so minded to.

Petitioner contends that the doctrines laid down in the cases ofAtkins Kroll v. Cua Hian Tek, 11 Sanchez v. Rigos, 12 and Vda. de Quirino v. Palarca 13 were misapplied in the present case, because 1) the option given to the respondent bank was not supported by a consideration distinct from the price; and 2) that the stipulated price of "not greater than P210.00 per square meter" is not certain or definite.

Article 1324 of the Civil Code provides that when an offeror has allowed the offeree a certain period to accept, the offer maybe withdrawn at anytime before acceptance by communicating such withdrawal, except when the option is founded upon consideration, as something paid or promised. On the other hand, Article 1479 of the Code provides that an accepted unilateral promise to buy and 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.

In a unilateral promise to sell, where the debtor fails to withdraw the promise before the acceptance by the creditor, the transaction becomes a bilateral contract to sell and to buy, because upon acceptance by the creditor of the offer to sell by the debtor, there is already a meeting of the minds of the parties as to the thing which is determinate and the price which is certain. 14 In which case, the parties may then reciprocally demand performance.

Jurisprudence has taught us that an optional contract is a privilege existing only in one party — the buyer. For a separate consideration paid, he is given the right to decide to purchase or not, a certain merchandise or property, at any time within the agreed period, at a fixed price. This being his prerogative, he may not be compelled to exercise the option to buy before the timeexpires. 15

On the other hand, what may be regarded as a consideration separate from the price is discussed in the case ofVda. de Quirino v. Palarca 16 wherein the facts are almost on all fours with the case at bar. The said case also involved a lease contract with option to buy where we had occasion to say that "the consideration for the lessor's obligation to sell the leased premises to the lessee, should he choose to exercise his option to purchase the same, is the obligation of the lessee to sell to the lessor the building and/or improvements constructed and/or made by the former, if he fails to exercise his option to buy leased premises." 17

In the present case, the consideration is even more onerous on the part of the lessee since it entails transferring of the building and/or improvements on the property to petitioner, should respondent bank fail to exercise its option within the period stipulated. 18

The bugging question then is whether the price "not greater than TWO HUNDRED PESOS" is certain or definite. A price is considered certain if it is so with reference to another thing certain or when the determination thereof is left to the judgment of a specified person or persons. 19 And generally, gross inadequacy of price does not affect a contract of sale. 20

Contracts are to be construed according to the sense and meaning of the terms which the parties themselves have used. In the present dispute, there is evidence to show that the intention of the parties is to peg the price at P210 per square meter. This was confirmed by petitioner himself in his testimony, as follows:

Q. Will you please tell this Court what was the offer?

A. It was an offer to buy the property that I have in Quezon City (sic).

Q. And did they give you a specific amount?

xxx xxx xxx

A. Well, there was an offer to buy the property at P210 per square meters (sic).

Q. And that was in what year?

A . 1975, sir.

Q. And did you accept the offer?

A. Yes, sir. 21

Moreover, by his subsequent acts of having the land titled under the Torrens System, and in pursuing the bank manager to effect the sale immediately, means that he understood perfectly the terms of the contract. He even had the same property mortgaged to the respondent bank sometime in 1979, without the slightest hint of wanting to abandon his offer to sell the property at the agreed price of P210 per square meter. 22

Finally, we agree with the courts a quo that there is no basis, legal or factual, in adjusting the amount of the rent. The contract is the law between the parties and if there is indeed reason to adjust the rent, the parties could by themselves negotiate for the amendment of the contract. Neither could we consider the decline of the purchasing power of the Philippine peso from 1983 to the time of the commencement of the present case in 1985, to be so great as to result in an extraordinary inflation. Extraordinary inflation exists when there in an unimaginable increase or decrease of the purchasing power of the Philippine currency, or fluctuation in the value of pesos manifestly beyond the contemplation of the parties at the time of the establishment of the obligation. 23

Premises considered, we find that the contract of "LEASE WITH OPTION TO BUY" between petitioner and respondent bank is valid, effective and enforceable, the price being certain and that there was consideration distinct from the price to support the option given to the lessee.

WHEREFORE, this petition is hereby DISMISSED, and the decision of the appellate court is hereby AFFIRMED.

SO ORDERED.

G.R. No. 128677             March 2, 2000SANTIAGO ABAPO (now deceased), Substituted by one of his heirs, NATIVIDAD ABAPO-ALMARIO,petitioner, vs.HONORABLE COURT OF APPEALS, (First Division-Manila); and HEIRS OF SPOUSES PEDRO BACALSO AND CRISPULA ABAPO-BACALSO, respondents.

DE LEON, JR., J.:

Before us is a petition for review on certiorari of the Decision1 and the Resolution2 of the Court of Appeals3 dated July 15, 1996 and March 3, 1997, respectively, in its affirmance of the decision4 of the Regional Trial Court of Cebu City, Branch 8 in an action for quieting of title, declaring private respondents as absolute owners of a 1,695 square meter property in Inawayan, Cebu, otherwise known as Lot 3912 of the Cadastral Survey of Cebu.5

The facts are as follows:

The late spouses Victoriano Abapo and Placida Mabalate owned a 1,695 square meter parcel of land located in Inawayan, Cebu identified as Lot 3912 of the Cadastral Survey of Cebu. Of the five (5) children6 the spouses left behind, only Santiago7 and Crispula8 have heirs, who are currently the antagonists in this drawn-out melodrama.

Dispute over the land, designated as Lot 3912 of the Cadastral Survey of Cebu, can be traced to a contract executed by Crispula Abapo-Bacalso and Santiago Abapo in favor of Teodulfo Quimada, their tenant. Under the contract denominated as "Deed of Sale Under Pacto de Retro"9 dated August 8, 1967, the land was sold for P500.00, with right of repurchase within five (5) years failing which the conveyance would become absolute and irrevocable without the necessity of drawing up a new deed. No redemption was done within the five (5) year period.

More than seven (7) years later, Teodulfo Quimada, through a notarized "Deed of Absolute Sale" 10 dated February 13, 1975, yielded ownership of the property to Crispula Abapo-Bacalso and her husband, Pedro Bacalso, for the amount of P500.00. Since then until their deaths 11, the spouses Bacalso had possession, enjoyed the fruits of the land and paid the corresponding real estate taxes thereon to the exclusion of Santiago Abapo.

In an "Extrajudicial Declaration of Heirs" 12 dated February 20, 1990 private respondents, heirs of the spouses Bacalso, allotted unto themselves the subject land in equal pro indiviso shares and succeeded to the possession and enjoyment of the land and paid real property taxes thereon, again to the exclusion of Santiago.

On April 19, 1990, Santiago Abapo instituted 13 a petition for reconstitution of the original certificate of title over the property. The petition was granted and a reconstituted Original Certificate of Title No. RO-2998 14 in the name of Victoriano Abapo was issued, with the owner's copy handed to Santiago.

Upon discovery of the said reconstitution of title, private respondents interposed 15 on July 29, 1991 a petition to surrender owner's copy of the reconstituted Original Certificate of Title No. RO-2998 in the hands of Santiago Abapo. In an Order 16 dated December 23, 1991, the trial court dismissed the petition without prejudice to the filing of the appropriate action.

Thus, on January 31, 1992, private respondents instituted the complaint 17   for "Quieting of Title with Damages" against Santiago Abapo contending, among other things, that the latter's possession of the owner's copy of the reconstituted original certificate of title and his claim as owner of the property constitute a cloud over their title to it.

In his answer 18, petitioner assailed the due execution of both the Deed of Sale under Pacto de Retro and the Deed of Absolute Sale. He vehemently swore that he never sold in 1967 his interest in the disputed land. To strengthen his contentions, Teodulfo Quimada testified for him.

In due time, the trial court rendered its decision in favor of private respondents, the decretal portion of which reads:

THE FOREGOING CONSIDERED, judgment is hereby rendered in favor of the plaintiffs and against the defendant, declaring the former the absolute owners of the property, subject matter of this case; directing the defendant to deliver to the plaintiffs the Owner's copy of OCT RO-22998 (sic) or if for any reason it cannot be given, then for the said title to be declared as null and void; with costs against the defendant.

SO ORDERED. 19

Finding the said decision unacceptable, petitioner interposed 20 an appeal to the public respondent Court of Appeals. Santiago Abapo died in August 13, 1994 while his appeal was pending. He was substituted in his cause by one of his heirs, Natividad Abapo-Almario. On July 15, 1996, respondent appellate court affirmed 21 the challenged decision of the trial court. Petitioner moved 22 for reconsideration of the said adverse decision. However, this was denied in a Resolution 23 dated March 3, 1997.

Hence, the instant petition anchored on four (4) assigned errors, to wit:

A. THE RESPONDENT HONORABLE COURT OF APPEALS HAS GRAVELY AND IMPROVIDENTLY OVERLOOKED, BOTH IN SUBSTANCE AND IN LAW, IN NOT FINDING THE DEED OF SALE UNDER PACTO DE RETRO DATED AUGUST 8, 1967 (EXH. "C", EXH. "1", EXH, "1-A") TO BE THAT OF A MORTGAGE.

B. THE RESPONDENT COURT OF APPEALS HAS GRAVELY AND IMPROVIDENTLY OVERLOOKED, BOTH IN SUBSTANCE AND IN LAW, IN NOT

FINDING THE DEED OF ABSOLUTE SALE DATED FEBRUARY 13, 1975 (EXH. "D", EXH. "2", EXH. "2-A") ILLEGAL AND VOID, EVEN ASSUMING WITHOUT CONCEDING THAT THE DEED OF ABSOLUTE SALE UNDER PACTO DE RETRO DATED AUGUST 8, 1967 (EXH. "C", EXH. "1", EXH. "1-A") WAS THE TRUE TRANSACTION COVERING THE SUBJECT PARCEL OF LAND.

C. THE RESPONDENT HONORABLE COURT OF APPEALS HAS GRAVELY AND IMPROVIDENTLY OVERLOOKED, BOTH IN SUBSTANCE AND IN LAW, IN NOT DECLARING THE PETITIONER SANTIAGO ABAPO A LAWFUL CO-OWNER OVER THE SUBJECT PARCEL OF LAND WITH CRISPULA WITH CRISPULA ABAPO-BACALSO, THE MOTHER OF THE RESPONDENTS HEIRS, AND THAT THE PETITIONER SANTIAGO ABAPO IS THUS ENTITLED TO ONE-HALF (1/2) SHARE OF THE SUBJECT PARCEL OF LAND.

D. THE RESPONDENT HONORABLE COURT OF APPEALS HAS GRAVELY AND IMPROVIDENTLY OVERLOOKED, BOTH IN SUBSTANCE AND IN LAW, IN NOT AWARDING DAMAGES AGAINST THE RESPONDENT HEIRS AND IN FAVOR OF THE PETITIONERS. 24

Petitioner is unrelenting in his insistence that what he entered into in 1967 may be considered only as an "equitable mortgage" in view of the "unusually inadequate" consideration of P500.00 which was the same consideration in the Deed of Absolute Sale in favor of the spouses Bacalso executed in 1975.

It is a truism that the Supreme Court is not a trier of facts. Thus, factual findings of trial courts, adopted and confirmed by the Court of Appeals, are final and conclusive and, generally, will not be reviewed on appeal. 25There is no cogent reason why we should deviate from this rule for none of the circumstances enumerated in Article 1602 26 of the Civil Code, exist in the case at bench.

Thus, the instant petition must fail.

First. The price of P500 is not unusually inadequate. The extant record reveals that the assessed value of the land in dispute in 1970 27 was only P400. Thus, at the time of sale in 1967 the price of P500 is indisputably over and above the assessed value of P400.

Besides, the mere fact that the price is inadequate does not per se support the conclusion that the contract was a loan or that the property was not at all sold to Teodulfo Quimada. The price fixed in a sale with right to repurchase is not necessarily the true value of the land sold. The rationale is that the vendor has the right to repurchase the land. It is the practice to fix a relatively reduced price, although not a grossly inadequate one, in order to afford the vendor a retro every facility to redeem the land. 28 Thus, inadequacy of price is not sufficient to set aside a sale unless it is grossly inadequate 29 or purely shocking to the conscience. 30

Furthermore, Teodulfo Quimada himself unequivocally admitted that from 1967 until 1975 all the fruits of the land belonged to him and only when the spouses Bacalso bought the land in 1975 did he, as tenant anew, share the fruits of the land with the spouses Bacalso. 31 This additional fact is clearly opposing to petitioner's stance that the contract executed in 1967 is an equitable mortgage for this is incompatible to the provisions of Article 1602.

Second. The contracts in dispute, having been executed and attested through the intervention of the notary public, are public documents. As such, they are evidence of the facts in clear, unequivocal manner therein expressed. 32 They have the presumption of regularity, which the petitioner failed to overcome by clear, strong and convincing evidence.

In all the instances in which petitioner Santiago Abapo and Teodulfo Quimada were requested to sign, there was, however, no proof that they were pressured, forced or intimidated by Pedro Bacalso. 33 Apart from allegations and testimonies referring to deceitful manipulations attributed to Pedro Bacalso, petitioner showed no other evidence. Oral testimony, depending as it does exclusively on human memory, is not as reliable as written or documentary evidence. 34 Thus, there is no room for construction inasmuch as the words of the contracts in dispute are clear and readily understandable.1âwphi1

It took petitioner and his witness, Teodulfo Quimada, more than two decades before they questioned the validity of the disputed documents. Their silent acquiescence speaks strongly of the staleness of their claim.

Because of the conclusions we have thus reached, there is no need to delve any further on the other assigned errors as there is no basis to justify a reversal of the decision of the public respondent.

WHEREFORE, the subject petition is hereby DENIED. The Decision and Resolution of the Court of Appeals dated July 15, 1996 and March 3, 1997, respectively, in CA-G.R. CV No. 43706 are hereby AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 152658. July 29, 2005LILY ELIZABETH BRAVO-GUERRERO, BEN MAURICIO P. BRAVO,1 ROLAND P. BRAVO, JR., OFELIA BRAVO-QUIESTAS, HEIRS OF CORPUSINIA BRAVO-NIOR namely: GERSON U. NIOR, MARK GERRY B. NIOR, CLIFF RICHARD B. NIOR, BRYAN B. NIOR, WIDMARK B. NIOR, SHERRY ANNE B. NIOR, represented by LILY ELIZABETH BRAVO-GUERRERO as their attorney-in-fact, and HONORABLE FLORENTINO A. TUASON, JR., Presiding Judge, Regional Trial Court, Branch 139, Makati City, Petitioners, vs.EDWARD P. BRAVO, represented by his attorney-in-fact FATIMA C. BRAVO, respondent, and DAVID B. DIAZ, JR., intervenor-respondent.D E C I S I O NCARPIO, J.:

The Case

Before the Court is a petition for review2 assailing the Decision3 of 21 December 2001 of the Court of Appeals in CA-G.R. CV No. 67794. The Court of Appeals reversed the Decision4 of 11 May 2000 of the Regional Trial Court of Makati, Branch No. 139, in Civil Case No. 97-1379 denying respondents’ prayer to partition the subject properties.

Antecedent Facts

Spouses Mauricio Bravo ("Mauricio") and Simona5 Andaya Bravo ("Simona") owned two parcels of land ("Properties") measuring 287 and 291 square meters and located along Evangelista Street, Makati City, Metro Manila. The Properties are registered under TCT Nos. 58999 and 59000 issued by the Register of Deeds of Rizal on 23 May 1958. The Properties contain a large residential dwelling, a smaller house and other improvements.

Mauricio and Simona had three children - Roland, Cesar and Lily, all surnamed Bravo. Cesar died without issue. Lily Bravo married David Diaz, and had a son, David B. Diaz, Jr. ("David Jr."). Roland had six children, namely, Lily Elizabeth Bravo-Guerrero ("Elizabeth"), Edward Bravo ("Edward"), Roland Bravo, Jr. ("Roland Jr."), Senia Bravo, Benjamin Mauricio Bravo, and their half-sister, Ofelia Bravo ("Ofelia").

Simona executed a General Power of Attorney ("GPA") on 17 June 1966 appointing Mauricio as her attorney-in-fact. In the GPA, Simona authorized Mauricio to "mortgage or otherwise hypothecate, sell, assign and dispose of any and all of my property, real, personal or mixed, of any kind whatsoever and wheresoever situated, or any interest therein xxx."6 Mauricio subsequently mortgaged the Properties to the Philippine National Bank (PNB) and Development Bank of the Philippines (DBP) for P10,000 and P5,000, respectively.7

On 25 October 1970, Mauricio executed a Deed of Sale with Assumption of Real Estate Mortgage ("Deed of Sale") conveying the Properties to "Roland A. Bravo,

Ofelia A. Bravo and Elizabeth Bravo"8 ("vendees"). The sale was conditioned on the payment of P1,000 and on the assumption by the vendees of the PNB and DBP mortgages over the Properties.

As certified by the Clerk of Court of the Regional Trial Court of Manila, the Deed of Sale was notarized by Atty. Victorio Q. Guzman on 28 October 1970 and entered in his Notarial Register.9 However, the Deed of Sale was not annotated on TCT Nos. 58999 and 59000. Neither was it presented to PNB and DBP. The mortage loans and the receipts for loan payments issued by PNB and DBP continued to be in Mauricio’s name even after his death on 20 November 1973. Simona died in 1977.

On 23 June 1997, Edward, represented by his wife, Fatima Bravo, filed an action for the judicial partition of the Properties. Edward claimed that he and the other grandchildren of Mauricio and Simona are co-owners of the Properties by succession. Despite this, petitioners refused to share with him the possession and rental income of the Properties. Edward later amended his complaint to include a prayer to annul the Deed of Sale, which he claimed was merely simulated to prejudice the other heirs.

In 1999, David Jr., whose parents died in 1944 and who was subsequently raised by Simona, moved to intervene in the case. David Jr. filed a complaint-in-intervention impugning the validity of the Deed of Sale and praying for the partition of the Properties among the surviving heirs of Mauricio and Simona. The trial court allowed the intervention in its Order dated 5 May 1999.10

The Ruling of the Trial Court

The trial court upheld Mauricio’s sale of the Properties to the vendees. The trial court ruled that the sale did not prejudice the compulsory heirs, as the Properties were conveyed for valuable consideration. The trial court also noted that the Deed of Sale was duly notarized and was in existence for many years without question about its validity.

The dispositive portion of the trial court’s Decision of 11 May 2000 reads:

WHEREFORE, premises considered, the Court hereby DENIES the JUDICIAL PARTITION of the properties covered by TCT Nos. 58999 and 59000 registered with the Office of the Register of Deeds of Rizal.

SO ORDERED.11

Dissatisfied, Edward and David Jr. ("respondents") filed a joint appeal to the Court of Appeals.

The Ruling of the Court of Appeals

Citing Article 166 of the Civil Code ("Article 166"), the Court of Appeals declared the Deed of Sale void for lack of Simona’s consent. The appellate court held that the GPA executed by Simona in 1966 was not sufficient to authorize Mauricio to sell the Properties because Article 1878 of the Civil Code ("Article 1878") requires a special power of attorney for such transactions. The appellate court reasoned that the GPA was executed merely to enable Mauricio to mortgage the Properties, not to sell them.

The Court of Appeals also found that there was insufficient proof that the vendees made the mortgage payments on the Properties, since the PNB and DBP receipts were issued in Mauricio’s name. The appellate court opined that the rental income of the Properties, which the vendees never shared with respondents, was sufficient to cover the mortgage payments to PNB and DBP.

The Court of Appeals declared the Deed of Sale void and ordered the partition of the Properties in its Decision of 21 December 2001 ("CA Decision"), as follows:

WHEREFORE, the decision of the Regional Trial Court of Makati City, Metro-Manila, Branch 13[9] dated 11 May 2000[,] review of which is sought in these proceedings[,] is REVERSED.

1. The Deed of Sale with Assumption of Real Estate Mortgage (Exh. 4) dated 28 October 1970 is hereby declared null and void;

2. Judicial Partition on the questioned properties is hereby GRANTED in the following manner:

A. In representation of his deceased mother, LILY BRAVO-DIAZ, intervenor DAVID DIAZ, JR., is entitled to one-half (1/2) interest of the subject properties;

B. Plaintiff-appellant EDWARD BRAVO and the rest of the five siblings, namely: LILY ELIZABETH, EDWARD, ROLAND, JR., SENIA, BENJAMIN and OFELIA are entitled to one-sixth (1/6) representing the other half portion of the subject properties;

C. Plaintiff-appellant Edward Bravo, intervenor DAVID DIAZ, JR., SENIA and BENJAMIN shall reimburse the defendant-appellees LILY ELIZABETH, OFELIA and ROLAND the sum of One Thousand (P1,000.00) PESOS representing the consideration paid on the questioned deed of sale with assumption of mortgage with interest of six (6) percent per annum effective 28 October 1970 until fully paid.

SO ORDERED.12

The Issues

Petitioners seek a reversal of the Decision of the Court of Appeals, raising these issues:

1. WHETHER THE COURT OF APPEALS ERRED IN NOT UPHOLDING THE VALIDITY AND ENFORCEMENT OF THE DEED OF SALE WITH ASSUMPTION OF MORTGAGE.

2. WHETHER THE COURT OF APPEALS ERRED IN ORDERING THE PARTITION OF THE PROPERTY IN QUESTION.13

At the least, petitioners argue that the subject sale is valid as to Mauricio’s share in the Properties.

On the other hand, respondents maintain that they are co-owners of the Properties by succession. Respondents argue that the sale of the conjugal Properties is void because: (1) Mauricio executed the Deed of Sale without Simona’s consent; and (2) the sale was merely simulated, as shown by the grossly inadequate consideration Mauricio received for the Properties.

While this case was pending, Leonida Andaya Lolong ("Leonida"), David Jr.’s aunt, and Atty. Cendaña, respondents’ counsel, informed the Court that David Jr. died on 14 September 2004. Afterwards, Leonida and Elizabeth wrote separate letters asking for the resolution of this case. Atty. Cendaña later filed an urgent motion to annotate attorney’s lien on TCT Nos. 58999 and 59000. In its Resolution dated 10 November 2004,14 the Court noted the notice of David Jr.’s death, the letters written by Leonida and Elizabeth, and granted the motion to annotate attorney’s lien on TCT Nos. 58999 and 59000.

The Ruling of the Court

The petition is partly meritorious.

The questions of whether Simona consented to the Deed of Sale and whether the subject sale was simulated are factual in nature. The rule is factual findings of the Court of Appeals are binding on this Court. However, there are exceptions, such as when the factual findings of the Court of Appeals and the trial court are contradictory, or when the evidence on record does not support the factual findings.15 Because these exceptions obtain in the present case, the Court will consider these issues.

On the Requirement of the Wife’s Consent

We hold that the Court of Appeals erred when it declared the Deed of Sale void based on Article 166, which states:

Art. 166. Unless the wife has been declared a non compos mentis or a spendthrift, or is under civil interdiction or is confined in a leprosarium, the husband cannot alienate or encumber any real property of the conjugal partnership without the wife’s consent. If she refuses unreasonably to give her consent, the court may compel her to grant the same.

This article shall not apply to property acquired by the conjugal partnerships before the effective date of this Code.

Article 166 expressly applies only to properties acquired by the conjugal partnership after the effectivity of the Civil Code of the Philippines ("Civil Code"). The Civil Code came into force on 30 August 1950.16 Although there is no dispute that the Properties were conjugal properties of Mauricio and Simona, the records do not show, and the parties did not stipulate, when the Properties were acquired.17 Under Article 1413 of the old Spanish Civil Code, the husband could alienate conjugal partnership property for valuable consideration without the wife’s consent.18

Even under the present Civil Code, however, the Deed of Sale is not void. It is well-settled that contracts alienating conjugal real property without the wife’s consent are merely voidable under the Civil Code – that is, binding on the parties unless annulled by a competent court – and not void ab initio.19

Article 166 must be read in conjunction with Article 173 of the Civil Code ("Article 173"). The latter prescribes certain conditions before a sale of conjugal property can be annulled for lack of the wife’s consent, as follows:

Art. 173. The wife may, during the marriage and within ten years from the transaction questioned, ask the courts for the annulment of any contract of the husband entered into without her consent, when such consent is required, or any act or contract of the husband which tends to defraud her or impair her interest in the conjugal partnership property. Should the wife fail to exercise this right, she or her heirs after the dissolution of the marriage, may demand the value of property fraudulently alienated by the husband. (Emphasis supplied)

Under the Civil Code, only the wife can ask to annul a contract that disposes of conjugal real property without her consent. The wife must file the action for annulment during the marriage and within ten years from the questioned transaction. Article 173 is explicit on the remedies available if the wife fails to exercise this right within the specified period. In such case, the wife or her heirs can only demand the value of the property provided they prove that the husband fraudulently alienated the property. Fraud is never presumed, but must be established by clear and convincing evidence.20

Respondents’ action to annul the Deed of Sale based on Article 166 must fail for having been filed out of time. The marriage of Mauricio and Simona was dissolved when Mauricio died in 1973. More than ten years have passed since the execution of the Deed of Sale.

Further, respondents, who are Simona’s heirs, are not the parties who can invoke Article 166. Article 173 reserves that remedy to the wife alone. Only Simona had the right to have the sale of the Properties annulled on the ground that Mauricio sold the Properties without her consent.

Simona, however, did not assail the Deed of Sale during her marriage or even after Mauricio’s death. The records are bereft of any indication that Simona questioned the sale of the Properties at any time. Simona did not even attempt to take possession of or reside on the Properties after Mauricio’s death. David Jr., who was raised by Simona, testified that he and Simona continued to live in Pasay City after Mauricio’s death, while her children and other grandchildren resided on the Properties.21

We also agree with the trial court that Simona authorized Mauricio to dispose of the Properties when she executed the GPA. True, Article 1878 requires a special power of attorney for an agent to execute a contract that transfers the ownership of an immovable. However, the Court has clarified that Article 1878 refers to the nature of the authorization, not to its form.22 Even if a document is titled as a general power of attorney, the requirement of a special power of attorney is met if there is a clear mandate from the principal specifically authorizing the performance of the act.23

In Veloso v. Court of Appeals,24 the Court explained that a general power of attorney could contain a special power to sell that satisfies the requirement of Article 1878, thus:

An examination of the records showed that the assailed power of attorney was valid and regular on its face. It was notarized and as such, it carries the evidentiary weight conferred upon it with respect to its due execution. While it is true that it was denominated as a general power of attorney, a perusal thereof revealed that it stated an authority to sell, to wit:

"2. To buy or sell, hire or lease, mortgage or otherwise hypothecate lands, tenements and hereditaments or other forms of real property, more specifically TCT No. 49138, upon such terms and conditions and under such covenants as my said attorney shall deem fit and proper."

Thus, there was no need to execute a separate and special power of attorney since the general power of attorney had expressly authorized the agent or attorney in fact the power to sell the subject property. The special power of attorney can be included in the general power when it is specified therein the act or transaction for which the special power is required. (Emphasis supplied)

In this case, Simona expressly authorized Mauricio in the GPA to "sell, assign and dispose of any and all of my property, real, personal or mixed, of any kind whatsoever and wheresoever situated, or any interest therein xxx" as well as to "act as my general representative and agent, with full authority to buy, sell, negotiate and contract for me and in my behalf."25 Taken together, these provisions constitute a clear and specific mandate to Mauricio to sell the Properties. Even if it is called a "general power of attorney," the specific provisions in the GPA are sufficient for the purposes of Article 1878. These provisions in the GPA likewise indicate that Simona consented to the sale of the Properties.

Whether the Sale of the Properties was Simulated

or is Void for Gross Inadequacy of Price

We point out that the law on legitime does not bar the disposition of property for valuable consideration to descendants or compulsory heirs. In a sale, cash of equivalent value replaces the property taken from the estate.26 There is no diminution of the estate but merely a substitution in values. Donations and other dispositions by gratuitous title, on the other hand, must be included in the computation of legitimes.27

Respondents, however, contend that the sale of the Properties was merely simulated. As proof, respondents point to the consideration of P1,000 in the Deed of Sale, which respondents claim is grossly inadequate compared to the actual value of the Properties.

Simulation of contract and gross inadequacy of price are distinct legal concepts, with different effects. When the parties to an alleged contract do not really intend to be bound by it, the contract is simulated and void.28 A simulated or fictitious contract has no legal effect whatsoever29 because there is no real agreement between the parties.

In contrast, a contract with inadequate consideration may nevertheless embody a true agreement between the parties. A contract of sale is a consensual contract, which becomes valid and binding upon the meeting of minds of the parties on the price and the object of the sale.30 The concept of a simulated sale is thus incompatible with inadequacy of price. When the parties agree on a price as the actual consideration, the sale is not simulated despite the inadequacy of the price.31

Gross inadequacy of price by itself will not result in a void contract. Gross inadequacy of price does not even affect the validity of a contract of sale, unless it signifies a defect in the consent or that the parties actually intended a donation or some other contract.32 Inadequacy of cause will not invalidate a contract unless there has been fraud, mistake or undue influence.33 In this case, respondents have not proved any of the instances that would invalidate the Deed of Sale.

Respondents even failed to establish that the consideration paid by the vendees for the Properties was grossly inadequate. As the trial court pointed out, the Deed of Sale

stipulates that, in addition to the payment of P1,000, the vendees should assume the mortgage loans from PNB and DBP. The consideration for the sale of the Properties was thus P1,000 in cash and the assumption of the P15,000 mortgage.

Respondents argue that P16,000 is still far below the actual value of the Properties. To bolster their claim, respondents presented the following: (1) Tax Declarations No. A-001-0090534 and A-001-0090635 for the year 1979, which placed the assessed value of the Properties at P70,020 and their approximate market value atP244,290; and (2) a certified copy of the Department of Finance’s Department Order No. 62-9736 dated 6 June 1997 and attached guidelines37 which established the zonal value of the properties along Evangelista Street atP15,000 per square meter.

The subject Deed of Sale, however, was executed in 1970. The valuation of the Properties in 1979 or 1997 is of little relevance to the issue of whether P16,000 was a grossly inadequate price to pay for the Properties in 1970. Certainly, there is nothing surprising in the sharp increase in the value of the Properties nine or twenty-seven years after the sale, particularly when we consider that the Properties are located in the City of Makati.

More pertinent are Tax Declarations No. 1581238 and No. 15813,39 both issued in 1967, presented by petitioners. These tax declarations placed the assessed value of both Properties at P16,160. Compared to this, the price ofP16,000 cannot be considered grossly inadequate, much less so shocking to the conscience40 as to justify the setting aside of the Deed of Sale.

Respondents next contend that the vendees did not make the mortgage payments on the Properties. Respondents allege that the rents paid by the tenants leasing portions of the Properties were sufficient to cover the mortgage payments to DBP and PNB.

Again, this argument does not help respondents’ cause. Assuming that the vendees failed to pay the full price stated in the Deed of Sale, such partial failure would not render the sale void. In Buenaventura v. Court of Appeals,41 the Court held:

xxx If there is a meeting of the minds of the parties as to the price, the contract of sale is valid, despite the manner of payment, or even the breach of that manner of payment. xxx

It is not the act of payment of price that determines the validity of a contract of sale. Payment of the price has nothing to do with the perfection of the contract. Payment of the price goes into the performance of the contract. Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the fulfillment or cancellation of the obligation under an existing valid contract while the latter prevents the existence of a valid contract. (Emphasis supplied.)

Neither was it shown that the rentals from tenants were sufficient to cover the mortgage payments. The parties to this case stipulated to only one tenant, a certain

Federico M. Puno, who supposedly leased a room on the Properties for P300 per month from 1992 to 1994.42 This is hardly significant, when we consider that the mortgage was fully paid by 1974. Indeed, the fact that the Properties were mortgaged to DBP and PNB indicates that the conjugal partnership, or at least Mauricio, was short of funds.

Petitioners point out that they were duly employed and had the financial capacity to buy the Properties in 1970. Respondents did not refute this. Petitioners presented 72 receipts43 showing the mortgage payments made to PNB and DBP, and the Release of the Real Estate Mortgage44 ("Mortgage Release") dated 5 April 1974. True, these documents all bear Mauricio’s name. However, this tends to support, rather than detract from, petitioner-vendees’ explanation that they initially gave the mortgage payments directly to Mauricio, and then later directly to the banks, without formally advising the bank of the sale. The last 3 mortgage receipts and the Mortgage Release were all issued in Mauricio’s name even after his death in 1970. Obviously, Mauricio could not have secured the Mortgage Release and made these last payments.

Presumption of Regularity and Burden of Proof

The Deed of Sale was notarized and, as certified by the Regional Trial Court of Manila, entered in the notarial books submitted to that court. As a document acknowledged before a notary public, the Deed of Sale enjoys the presumption of regularity45 and due execution.46 Absent evidence that is clear, convincing and more than merely preponderant, the presumption must be upheld.47

Respondents’ evidence in this case is not even preponderant. Respondents’ allegations, testimony and bare denials cannot prevail over the documentary evidence presented by petitioners. These documents – the Deed of Sale and the GPA which are both notarized, the receipts, the Mortgage Release and the 1967 tax declarations over the Properties – support petitioners’ account of the sale.

As the parties challenging the regularity of the Deed of Sale and alleging its simulation, respondents had the burden of proving these charges.48 Respondents failed to discharge this burden. Consequentially, the Deed of Sale stands.

On the Partition of the Property

Nevertheless, this Court finds it proper to grant the partition of the Properties, subject to modification.

Petitioners have consistently claimed that their father is one of the vendees who bought the Properties. Vendees Elizabeth and Ofelia both testified that the "Roland A. Bravo" in the Deed of Sale is their father,49 although their brother, Roland Bravo, Jr., made some of the mortgage payments. Petitioners’ counsel, Atty. Paggao, made the same clarification before the trial court.50

As Roland Bravo, Sr. is also the father of respondent Edward Bravo, Edward is thus a compulsory heir of Roland Bravo, and entitled to a share, along with his brothers and sisters, in his father’s portion of the Properties. In short, Edward and petitioners are co-owners of the Properties.

As such, Edward can rightfully ask for the partition of the Properties. Any co-owner may demand at any time the partition of the common property unless a co-owner has repudiated the co-ownership.51 This action for partition does not prescribe and is not subject to laches.52

WHEREFORE, we REVERSE the Decision of 21 December 2001 of the Court of Appeals in CA-G.R. CV No. 67794. We REINSTATE the Decision of 11 May 2000 of the Regional Trial Court of Makati, Branch No. 139, in Civil Case No. 97-137, declaring VALID the Deed of Sale with Assumption of Mortgage dated 28 October 1970, with the following MODIFICATIONS:

1. We GRANT judicial partition of the subject Properties in the following manner:

a. Petitioner LILY ELIZABETH BRAVO-GUERRERO is entitled to one-third (1/3) of the Properties;

b. Petitioner OFELIA BRAVO-QUIESTAS is entitled to one-third (1/3) of the Properties; and

c. The remaining one-third (1/3) portion of the Properties should be divided equally between the children of ROLAND BRAVO.

2. The other heirs of ROLAND BRAVO must reimburse ROLAND BRAVO, JR. for whatever expenses the latter incurred in paying for and securing the release of the mortgage on the Properties.

SO ORDERED.

G.R. No. 140848            April 25, 2002RAMON RAMOS, petitioner, vs.HEIRS OF HONORIO RAMOS SR.; namely, PUREZA N. RAMOS, HONORIO RAMOS JR. and GWENDOLYN RAMOS-GARCIA, respondents.PANGANIBAN, J.:

The burden of proving the alleged simulation of a contract falls on those who impugn its regularity and validity. A failure to discharge this duty will result in the upholding of the contract. The primary consideration in determining whether a contract is simulated is the intention of the parties as manifested by the express terms of the agreement itself, as well as the contemporaneous and subsequent actions of the parties. The most striking index of simulation is not the filial relationship between the purported seller and buyer, but the complete absence of any attempt in any manner on the part of the latter to assert rights of dominion over the disputed property.

The Case

Before us is a Petition for Review on Certiorari challenging the October 26, 1999 Decision1 of the Court of Appeals2 (CA) in CA-GR CV No. 46938. The assailed Decision disposed as follows:

"WHEREFORE, premises considered, the questioned decision of the lower court dated May 6, 1994 is hereby REVERSED AND SET ASIDE. Let a new judgment be entered ordering the partition of Lot No. 2961 into two (2) equal parts and ordering [herein Petitioner] Ramon Ramos to convey the equivalent one (1) part of Lot 2961 representing the share of Honorio Ramos, Sr. [i]n the disputed lot to the [herein respondents] as heirs."3

The Facts

Quoting the trial court, the CA related the events leading to this Petition in this wise:

"Lucio Ramos and Salud Abejuela are spouses. x x x Lucio died on May 31, 1974 and Salud on September 17, 1966.

"Out of their marriage, they begot the following children, namely: Juan Ramos, Honorio Ramos, Josefa Ramos and Ramon Ramos.

"During their lifetime, they acquired real properties situated at Macasandig, Cagayan de Oro City.

"Sometime in September 1972, the above-named children and Lucio Ramos himself, executed an Extrajudicial Settlement of the estate of the deceased Salud Abejuela. x x x.

"x x x         x x x         x x x

"On March 26, 1975, Juan Ramos and Josefa Ramos Reyes filed in the then Court of First Instance of Misamis Oriental, a complaint for partition and annulment of confirmatory deeds of sale against Ramon A. Ramos and Honorio Ramos. x x x The case was docketed thereat as Civil Case No. 4667.

"Parties to said case, however, on November 10, 1975, submitted a compromise agreement which was approved and adopted by the court as its decision in the case. Under said compromise agreement, [the parties agreed, inter alia: ‘4. That [Juan Ramos and Josefa Ramos Reyes] forever waive, quitclaim, relinquish, and renounce whatever rights and interests they may have over Parcel 5 and [Lot 2961] x x x;’]4

"Very much earlier, however, or to be exact, on January 11, 1954, there appeared in the Notarial Register of Notary Public Fausto Eugenio of Cagayan de Oro City a document denominated as a [D]eed of [A]bsolute [S]ale registered as Doc. No. 17, Page 12; Book III and Series of 1954 of said [N]otarial [R]egister executed by Salud Abejuela in favor of Ramon Ramos married to Nena Villamil and resident of Cagayan de Oro City. Subject of the sale was Lot No. 2961 of the Cagayan Cadastral located at Macasandig, Cagayan de Oro City containing an area of 50,000 square meters and an alleged exclusive property of said Salud Abejuela."5

On July 30, 1991, respondents filed with the Regional Trial Court (RTC) of Cagayan de Oro City (Branch 20),6 a suit against petitioner for the conveyance of title and partition of Lot 2961. The CA continued:

In this action, [herein respondents], who are surviving spouse and children x x x of Honorio Ramos Sr., contend that Honorio Ramos Sr., co-owned the above-mentioned Lot 2961 with Ramon Ramos; that the sale was simulated and fictitious the purpose being only to enable said Ramon Ramos to use the land as collateral security for a loan as he did use it when he was granted a loan by the Philippine National Bank; that the understanding and agreement with his

parents Lucio and Salud Ramos was that, Ramon Ramos should hold said land in trust for his brother, Honorio and same should be divided between the two in equal shares; that as proof that the sale was fictitious and simulated, it was still Lucio Ramos with whom Ramon Ramos live[d] with, who continued to harvest and enjoy the fruits of the coconut trees planted [o]n said Lot 2961 until he died on May 31, 1974; that after Lucio Ramos died Ramon Ramos went to his sister-in-law, Pureza N. Ramos, one of herein [respondents] requesting her that she intercede for him in requesting his brother, Honorio Ramos Sr., to allow him to harvest the coconuts planted on subject property for the reason that his needs were greater tha[n] that o[f] his brother, his children having finished already in their studies, while his, were still in high school and about to enter college to which request Honorio Ramos Sr., agreed; that in 1984, after sixteen years of exclusive enjoyment of the property by Ramon Ramos, [respondents] requested Ramon Ramos that the property be partitioned but without refusing the demand, he made the excuse that he [would] first consult his children and the matter dragged and was shelved until last 1990 when Honorio Ramos became very ill and sickly [and] again [respondents] made their demand for partition x x x but again Ramon Ramos gave his feeble assurance not to worry because he [would] give the share of [respondents]; that when they made a formal demand for the partition and delivery of their one-half, pro-indiviso share, Ramon Ramos repudiated his co-ownership of the lot with Honorio Ramos; x x x."7

Ruling of the Trial Court

The trial court8 dismissed the Complaint in its May 6, 1994 Decision, disposing as follows:

"WHEREFORE, for lack of evidence that the [D]eed of [S]ale executed by Salud Abejuela in favor of [petitioner] over Lot 2961 is simulated (Exh. ‘1’) and likewise, there being no evidence that Honorio Ramos Sr., is the co-owner of said lot with [petitioner], let this case be, as it is hereby dismissed. The counterclaim is likewise dismissed it not being shown that in filing this case, [private respondents were] motivated by bad faith and malice."9

The RTC rejected respondents’ contention that the sale of Lot 2961 was simulated, because a clear intention to sell it was evident. No deed of resale between petitioner and his mother, Salud, was ever executed; and no case for the annulment of the sale was filed despite the passage of eleven years after the latter’s death. Until their death, the parents of petitioner stayed on the said lot with him. Without any objection from respondents, he occupied the disputed lot exclusively and continuously from the time their father died in 1974.

There was no evidence to support the existence of a contra documento. Anastacio Gaylo testified that one such document had allegedly been attested to and acknowledged before a notary public in Cagayan de Oro City, but

respondents failed to secure a copy from the Regional Trial Court of Misamis Oriental, which was the repository of all documents ratified and acknowledged by notaries public in the province. Salud’s revelation that the Deed was made only to enable petitioner to secure a loan was rejected because, being hearsay, the testimonies of Gaylo, Josefa Ramos Reyes and Pureza were inadmissible.

Furthermore, respondents failed to prove the existence of co-ownership between Honorio Sr. and petitioner. Respondents were also estopped from claiming ownership of the questioned lot because in a pleading in the case for settlement of the estate of Salud, Honorio Sr. (respondents’ father) had admitted that the disputed lot had validly been sold to petitioner in 1954.

Ruling of the Court of Appeals

Reversing the RTC, the CA held that the Deed of Sale executed between petitioner and Salud Abejuela had been tainted by several "badges of simulation." First, if petitioner was the sole owner of the lot, Honorio Sr. would not have been impleaded as petitioner’s co-defendant in the earlier partition case. Second, the compromise agreement in the said case was not sufficient proof of petitioner’s exclusive ownership of the disputed lot. On the contrary, Honorio Sr.’s wife, Pureza, demanded in writing that the said lot be partitioned. Third, estoppel did not bar respondents from asking for such partition.

Fourth, the ten-year prescription period did not run until August 1, 1990, when petitioner expressly repudiated the co-ownership after writing Pureza his refusal to convey her alleged share in the disputed property. Prescription should not be deemed to have started from Salud’s death in February 1966, since the lot in question continued to be possessed by petitioner’s father (Lucio) until his death in 1974. Thus, the action for conveyance had not yet prescribed.

Hence, this appeal.10

The Issues

Petitioner, in his Memorandum,11 raises the following issues:

"1. Whether or not the Deed of Absolute Sale executed by Salud Abejuela-Ramos on January 11, 1954 was [a] real and genuine sale conveying ownership of the land in favor of the vendee;

"2. Whether or not the evidence of respondents (plaintiffs in the lower court) is strong and convincing enough to overcome a public document of sale duly notarized;

"3. Granting without admitting that there is any merit [to] the claim of the heirs of Honorio Sr. over the subject lot, the same has already prescribed;

"4. Granting without admitting any merit [to] the claim of [the] heirs of Honorio Sr. over the subject property, the same is unenforceable pursuant to the provisions of the Statute of Frauds."12

In brief, the main issue is whether the 1954 Deed of Sale executed by Salud in petitioner’s favor was simulated.

This Court’s Ruling

The Petition is meritorious.

Preliminary Matter

We begin our discussion with the legal principle that the Supreme Court is not a trier of facts.13 However, where the RTC and the CA arrived at different factual findings, as in this case, we may review he evidence on record.14

Main Issue:Validity of Conveyance

Petitioner disputes the CA finding that the Deed of Absolute Sale between him and his mother, Salud, was simulated. He argues that it was executed with all the formalities and requirements of law; hence, the document is vested with the presumption of regularity and can be impugned only by strong, competent and conclusive proof.

On the other hand, respondents maintain that the presumption of regularity was overturned by several circumstances that prove simulation, as follows: (1) the vendor and the vendee were mother and son, (2) the consideration of P1000 for the lot was too low, and (3) petitioner did not have the means to pay for the supposed purchase price.

We are not convinced that the Deed of Sale was simulated. The primary consideration in determining the true nature of a contract is the intention of the parties.15 Such intention is determined from the express terms of their agreement as well as from their contemporaneous and subsequent acts.16 When they have

no intention to be bound at all, the purported contract is absolutely simulated and void.17 When they conceal their true agreement, it is not completely void and they are bound to their real agreement, provided it is not prejudicial to a third person and is not intended for any purpose that is contrary to law, morals, good customs, public order or public policy.18A duly executed contract carries with it the presumption of validity. The party who impugns its regularity has the burden of proving its simulation.

In the case at bar, we opine that respondents failed to show simulation. First, both the trial and the appellate courts agree that respondents failed to prove the existence of a contra documento. The evidentiary weight of Anastacio Gaylo’s testimony that the contra documento was shown to him by Salud herself is weak, considering that there was no explanation why parol evidence had been resorted to, when the best evidence would have been the contra documento itself.19

Second, mere mother-son relationship between the vendor and the vendee does not prove their lack of intention to be bound by the 1954 Deed of Absolute Sale. Not all contracts between family members are fictitious because, by itself, consanguinity is not proof of simulation. In declaring the sale as fictitious, the CA relied on Suntay v. Court of Appeals,20 which ruled that "[t]he father who promises to bring home a box of tools for his boy is not bound in contract x x x [because] the transaction was understood by the parties not to have jural effects. x x x. [This principle] has been judicially applied to x x x a writing representing merely a family understanding."

In Suntay, the Court said that the relationship between the buyer and seller may be deemed a token of simulation because, among Filipinos, an uncle would almost naively lend his land title to his nephew and agree to its cancellation in favor of the latter, given the trust and intimacy between them. But this statement should be understood in the context of the said case that a Deed of Resale was presented, and that the vendee never exercised acts of ownership over the disputed land. Here, despite the relation, intimacy and trust between petitioner and his mother, such crucial factor as a contra documento was not proven. Moreover, as will be shown later, petitioner exercised acts of dominion over the property that is the subject of the present controversy.Respondents claim that petitioner did not pay any consideration, because he was not yet gainfully employed in 1954 when the Deed of Sale was executed. He vehemently disputed this allegation, however, pointing out in his testimony that, in fact, he was already working for a law firm in the province and earning a decent salary.21 Since no evidence was presented to show how much the lot was worth in 1954, there is no basis for saying that the price was too low.

The CA cited two more circumstances to show that the Deed was simulated. First, in the case for the partition of the estate of their mother, Juan and Josefa Ramos impleaded Honorio Sr. as petitioner’s co-defendant. Second, in the compromise judgment, petitioner did not demand the delivery of the

disputed lot exclusively to him, as he did in the case of another parcel of land (Parcel 5). According to the CA, this inference is bolstered by the demand for partition expressed by Pureza Ramos to enable her to enjoy exclusive dominion over her husband’s share in Lot 2961.

After a careful examination of the records, we believe that the CA merely speculated on the intentions behind the parties’ actions in the settlement case. The mere allegation that Honorio Sr. and petitioner were co-owners did not confer co-ownership on them. Under Section 10, Rule 3 of the Rules of Court, a person whose consent as a co-plaintiff cannot be obtained may be impleaded as a defendant. In the present case, co-ownership cannot be implied from the failure of petitioner to expressly demand the delivery of Lot 2961 solely to him. He did not have to do so, because he was already in possession of it.

In a civil case, the plaintiff has the burden of proving facts asserted in the complaint, petition or declaration.22Hence, respondents -- as plaintiffs in the case for partition and annulment of contract -- had the burden of showing that the 1954 Deed was simulated, a burden they failed to discharge.

The trial court ruled that simulation had not been proven for the following reasons: (1) respondents failed to present a witness who was present during the execution of the Deed of Sale, and who could have testified that Salud had not intended to sell the disputed land to petitioner; (2) the existence of the contra documento was not established; and (3) the testimonies of the children that their mother had told them that the sale was simulated were inadmissible in evidence for being hearsay.

Suntay v. CA23 ruled that the most "protuberant index of simulation" was not the relationship between the ostensible vendor and vendee. Rather, it was the complete absence, on the part of the vendee, of any attempt in any manner to assert his rights of ownership over the disputed property. The supposed buyer’s failure to take exclusive possession of the property allegedly sold or, alternatively, to collect rentals is contrary to the principle of ownership. Such failure is a clear badge of simulation that renders the whole transaction void pursuant to Article 1409 of the Civil Code.24

In the present case, however, the evidence clearly shows that petitioner hired tenants to take care of and to harvest coconuts from Lot 2961.25 Without any protest from Salud or respondents, he declared the property for taxation and paid realty taxes on it in his name.26 His actions negated respondents’ allegation that the parties never intended to be bound by the assailed contract.

On the other hand, Pureza testified that when petitioner approached her husband, Honorio Sr., to share in paying the disturbance compensation to a tenant who had mistakenly planted on the disputed property, her husband

refused. The refusal of Honorio Sr. belied respondents’ claim of co-ownership.27 If their father was really a co-owner of the disputed lot, they should have brought up the fact and insisted on having Lot 2961 declared in the Compromise Judgment as co-owned by petitioner and Honorio Sr.

Respondents claim that the disputed lot was intended to be given by Salud to petitioner and Honorio Sr. as part of their inheritance. The settlement of the estate of Salud, therefore, was the most appropriate opportunity for respondents to establish their claim over the property. Having passed up that chance, laches and estoppel have now set on them.

Laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which could or should have been done earlier through the exercise of due diligence.28 It is only fair and reasonable to apply this rule to this case, because Pureza is a lawyer too.29

The notarization of a document does not guarantee its validity, because it is not the function of a notary public to validate an instrument that was never intended by the parties to have any binding legal effect on them.30 However, in this case, we find no reason to declare the 1954 Deed simulated, because respondents failed to discharge their burden of proving that it was indeed fictitious. Therefore, the presumption of regularity and validity of the 1954 Deed of Sale stands.

Additional Issues:Prescription and Unenforceability

Having already ruled on the validity of the 1954 Deed of Sale, it is no longer necessary to pass upon the other issues raised by petitioner; namely, prescription and unenforceability.

WHEREFORE, the Petition is GRANTED. The assailed Decision is REVERSED and SET ASIDE, and the RTC Decision dated May 6, 1994, REINSTATED. No pronouncement as to costs.

SO ORDERED.

G.R. No. 109355 October 29, 1999SERAFIN MODINA, petitioner,vs.COURT OF APPEALS AND ERNESTO HONTARCIEGO, PAUL FIGUEROA, TEODORO HIPALLA AND RAMON CHIANG, MERLINDA CHIANG, respondents.PURISIMA, J.:

At bar is a Petition for Review on Certiorari assailing the decision of the Court of Appeals in CA G.R. CV No. 26051 affirming the decision of the trial court in the case, entitled "Serafin Modina vs. Ernesto Hontarciego, Paulino Figueroa and Ramon Chiang vs. Merlinda Plana Chiang, intervenors", which declared as void and inexistent the deed of definite sale dated December 17, 1975 as well as the Certificates of Title Nos. T-86912, T-86913, T-86914 in the name of Ramon Chiang.1âwphi1.nêt

The facts that matter are as follows:

The parcels of land in question are those under the name of Ramon Chiang (hereinafter referred to as CHIANG) covered by TCT Nos. T-86912, T-86913, and T-86914. He theorized that subject properties were sold to him by his wife, Merlinda Plana Chiang (hereinafter referred to as MERLINDA), as evidenced by a Deed of Absolute Sale dated December 17, 1975, 1 and were subsequently sold by CHIANG to the petitioner Serafin Modina (MODINA), as shown by the Deeds of Sale, dated August 3, 1979 and August 24, 1979, respectively.

MODINA brought a Complaint for Recovery of Possession with Damages against the private respondents, Ernesto Hontarciego, Paul Figueroa and Teodoro Hipalla, docketed as Civil Case No. 13935 before the Regional Trial Court of Iloilo City.

Upon learning the institution of the said case, MERLINDA presented a Complaint-in-intervention, seeking the declaration of nullity of the Deed of Sale between her husband and MODINA on the ground that the titles of the parcels of land in dispute were never legally transferred to her husband. Fraudulent acts were allegedly employed by him to obtain a Torrens Title in his favor. However, she confirmed the validity of the lease contracts with the other private respondents.

MERLINDA also admitted that the said parcels of land were those ordered sold by Branch 2 of the then Court of First Instance of Iloilo in Special Proceeding No. 2469 in "Intestate Estate of Nelson Plana" where she was appointed as the administratix,

being the widow of the deceased, her first husband. An Authority to Sell was issued by the said Probate Court for the sale of the same properties. 2

After due hearing, the Trial Court decided in favor of MERLINDA, disposing thus:

WHEREFORE, judgment is hereby rendered (1) declaring as void and inexistent the sale of Lots 10063, 10088, 10085 and 10089 of the Cadastral Survey of Sta. Barbara by Merlinda Plana in favor of Ramon Chiang as evidenced by the deed of definite sale dated December 17, 1975 (Exhibits "H"; "3"-Chiang; "9" Intervenor) as well as the Certificates of Title Nos. T-86912, T-86913, T-86914 and T-86915 in the name of Ramon Chiang; (2) declaring as void and inexistent the sale of the same properties by Ramon Chiang in favor of Serafin Modina as evidenced by the deeds of sale (Exhibits "A", "B", "6" — Chiang and "7" — Chiang) dated August 3, and 24, 1979, as well as Certificates of Title Nos. T-102631, 102630, 102632 and 102890 in the name of Serafin Modina; (3) ordering the Register of Deeds of Iloilo to cancel said certificates of title in the names of Ramon Chiang and Serafin Modina and to reinstate the Certificates of Title Nos. T-57960, T-57962, T-57963 and T-57864 in the name of Nelson Plana; (4) ordering Serafin Modina to vacate and restore possession of the lots in question to Merlinda Plana Chiang; (5) ordering Ramon Chiang to restitute and pay to Serafin Modina the sum of P145,800.00 and; (6) ordering Serafin Modina to pay Ernesto Hontarciego the sum of P44,500.00 as actual and compensatory damages plus the sum of P5,000.00, for and as attorney's fees, with costs in favor of said defendants against the plaintiff.

On appeal; the Court of Appeals affirmed the aforesaid decision in toto.

Dissatisfied therewith, petitioner found his way to this Court via the present Petition for Review under the Rule 45 seeking to set aside the assailed decision of the Court of Appeals.

Raised for resolution here are: (1) whether the sale of subject lots should be nullified, (2) whether petitioner was not a purchaser in good faith, (3) whether the decision of the trial court was tainted with excess of jurisdiction; and (4) whether or not only three-fourths of subject lots should be returned to the private respondent.

Anent the first issue, petitioner theorizes that the sale in question is null and void for being violative of Article 14903 of the New Civil Code prohibiting sales between spouses. Consequently, what is applicable is Article 1412 4supra on the principle of in pari delicto, which leaves both guilty parties where they are, and keeps undisturbed the rights of third persons to whom the lots involved were sold; petitioner stressed.1âwphi1.nêt

Petitioner anchors his submission on the following statements of the Trial Court which the Court of Appeals upheld, to wit:

Furthermore, under Art. 1490, husband and wife are prohibited to sell properties to each other. And where, as in this case, the sale is inexistent for lack of consideration, the principle of in pari delicto non oritur actio does not apply. (Vasquez vs. Porta, 98 Phil 490), (Emphasis ours) Thus, Art. 1490 provides:

Art. 1490. The husband and the wife cannot sell property to each other, except:

(1) when a separation of propety was agreed upon in the marriage settlements; or

(2) when there has been a judicial separation of property under Art. 191.

The exception to the rule laid down in Art. 1490 of the New Civil Code not having existed with respect to the property relations of Ramon Chiang and Merlinda Plana Chiang, the sale by the latter in favor of the former of the properties in question is invalid for being prohibited by law. Not being the owner of subject properties, Ramon Chiang could not have validly sold the same to plaintiff Serafin Modina. The sale by Ramon Chiang in favor of Serafin Modina is, likewise, void and inexistent.

xxx xxx xxx

The Court of Appeals, on the other hand, adopted the following findings a quo: that there is no sufficient evidence establishing fault on the part of MERLINDA, and therefore, the principle of in pari delicto is inapplicable and the sale was void for want of consideration. In effect, MERLINDA can recover the lots sold by her husband to petitioner MODINA. However, the Court of Appeals ruled that the sale was void for violating Article 1490 of the Civil Code, which prohibits sales between spouses.

The principle of in pari delicto non oritur actio 6 denies all recovery to the guilty parties inter se. It applies to cases where the nullity arises from the illegality of the consideration or the purpose of the contract. 7 When two persons are equally at fault, the law does not relieve them. The exception to this general rule is when the principle is invoked with respect to inexistent contracts. 8

In the petition under consideration, the Trial Court found that subject Deed of Sale was a nullity for lack of any consideration. 9 This finding duly supported by evidence was affirmed by the Court of Appeals. Well-settled is the rule that this Court will not disturb such finding absent any evidence to the contrary. 10

Under Article 1409 11 of the New Civil Code, enumerating void contracts, a contract without consideration is one such void contract. One of the characteristics of a void or inexistent contract is that it produces no effect. So also, inexistent contracts can be invoked by any person whenever juridical effects founded thereon are asserted against him. A transferor can recover the object of such contract by accion reivindicatoria and any possessor may refuse to deliver it to the transferee, who cannot enforce the transfer. 12

Thus, petitioner's insistence that MERLINDA cannot attack subject contract of sale as she was a guilty party thereto is equally unavailing.

But the pivot of inquiry here is whether MERLINDA is barred by the principle of in pari delicto from questioning subject Deed of Sale.

It bears emphasizing that as the contracts under controversy are inexistent contracts within legal contemplation. Articles 1411 and 1412 of the New Civil Code are inapplicable. In pari delicto doctrine applies only to contracts with illegal consideration or subject matter, whether the attendant facts constitute an offense or misdemeanor or whether the consideration involved is merely rendered illegal. 13

The statement below that it is likewise null and void for being violative of Article 1490 should just be treated as a surplusage or an obiter dictum on the part of the Trial Court as the issue of whether the parcels of land in dispute are conjugal in nature or they fall under the exceptions provided for by law, was neither raised nor litigated upon before the lower Court. Whether the said lots were ganancial properties was never brought to the fore by the parties and it is too late to do so now.

Furthermore, if this line of argument be followed, the Trial Court could not have declared subject contract as null and void because only the heirs and the creditors can question its nullity and not the spouses themselves who executed the contract with full knowledge of the prohibition. 14

Records show that in the complaint-in-intervention of MERLINDA, she did not aver the same as a ground to nullify subject Deed of Sale. In fact, she denied the existence of the Deed of Sale in favor of her husband. In the said Complaint, her allegations referred to the want of consideration of such Deed of Sale. She did not put up the defense under Article 1490, to nullify her sale to her husband CHIANG because such a defense would be inconsistent with her claim that the same sale was inexistent.1âwphi1.nêt

The Trial Court debunked petitioner's theory that MERLINDA intentionally gave away the bulk of her and her late husband's estate to defendant CHIANG as his exclusive property, for want of evidentiary anchor. They insist on the Deed of Sale wherein MERLINIDA made the misrepresentation that she was a widow and CHIANG was single, when at the time of execution thereof, they were in fact already married. Petitioner insists that this document conclusively established bad faith on the part of MERLINDA and therefore, the principle of in pari delicto should have been applied.

These issues are factual in nature and it is not for this Court to appreciate and evaluate the pieces of evidence introduced below. An appellate court defers to the factual findings of the Trial Court, unless petitioner can show a glaring mistake in the appreciation of relevant evidence.

Since one of the characteristics of a void or inexistent contract is that it does not produce any effect, MERLINDA can recover the property from petitioner who never acquired title thereover.

As to the second issue, petitioner stresses that his title should have been respected since he is a purchaser in good faith and for value. The Court of Appeals, however, opined that he (petitioner) is not a purchaser in good faith. It found that there were circumstances known to MODINA which rendered their transaction fraudulent under the attendant circumstances.

As a general rule, in a sale under the Torrens system, a void title cannot give rise to a valid title. The exception is when the sale of a person with a void title is to a third person who purchased it for value and in good faith.

A purchaser in good faith is one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price at the time of the purchase or before he has notice of the claim or interest of some other person in the property.

In the case under scrutiny, petitioner cannot claim that he was a purchaser in good faith. There are circumstances which are indicia of bad faith on his part, to wit: (1) He asked his nephew, Placido Matta, to investigate the origin of the property and the latter learned that the same formed part of the properties of MERLINDA's first husband; (2) that the said sale was between the spouses; (3) that when the property was inspected, MODINA met all the lessees who informed that subject lands belong to MERLINDA and they had no knowledge that the same lots were sold to the husband.

It is a well-settled rule that a purchaser cannot close his eyes to facts which would put a reasonable man upon his guard to make the necessary inquiries, and then claim that he acted in good faith. His mere refusal to believe that such defect exists, or his wilful closing of his eyes to the possibility of the existence of a defect in his vendor's title, will not make him an innocent purchaser for value, if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defect as would have led to its discovery had he acted with that measure of precaution which may reasonably be required of a prudent man in a like situation. 15

Thus, petitioner cannot claim that the sale between him and MODINA falls under the exception provided for by law.

With regard to the third issue posed by petitioner — whether the Trial Court's decision allowing recovery on the part of Merlinda Chiang of subject properties was void — petitioner's contention is untennable. It is theorized that as the sale by MERLINDA was by virtue of an Order to Sell issued in the Intestate Estate Proceedings of her late husband, Nelson Plana — to allow recovery will defeat the said order of the Probate Court. Petitioner equated the aforesaid Order to Sell as a judgment, which another court in a regular proceeding has no jurisdiction to reverse.

Petitioner is under the mistaken impression that as the Order to Sell had become a judgment in itself as to the validity of the sale of the properties involved, any question as to its nullity should have been brought before the Court of Appeals on appeal when the said Order was issued.

It is a well-settled rule that a Court of First Instance (now Regional Trial Court) has jurisdiction over a case brought to rescind a sale made upon prior authority of a Probate Court. This does not constitute an interference or review of the order of a co-equal Court since the Probate Court has no jurisdiction over the question of title to subject properties. Consequently, a separate action may be brought to determine the question of ownership. 16

Lastly, on the issue of whether only three-fourths of the property in question should have been returned to MERLINDA, petitioner's stance is equally unsustainable. It is a settled doctrine that an issue which was neither averred in the Complaint nor raised during the trial before the lower court cannot be raised for the first time on appeal, as such a recourse would be offensive to the basic rules of fair play, justice, and due process. 17

The issue of whether only three-fourths of subject property will be returned was never an issue before the lower court and therefore, the petitioner cannot do it now. A final word. In a Petition for Review, only questions of law may be raised. It is perceived by the Court that what petitioner is trying to, albeit subtly, is for the Court to examine the probative value or evidentiary weight of the evidence presented below 18. The Court cannot do that unless the appreciation of the pieces of evidence on hand is glaringly erroneous. But this is where petitioner utterly failed.1âwphi1.nêt

WHEREFORE, the Petition is DENIED and the decision of the Court of Appeals, dated September 30, 1992, in CA-G.R. CV No. 26051 AFFIRMED. No pronouncement as to costs.

SO ORDERED.

G.R. No. L-116650 May 23, 1995TOYOTA SHAW, INC., petitioner, vs.COURT OF APPEALS and LUNA L. SOSA, respondents.DAVIDE, JR., J.:

At the heart of the present controversy is the document marked Exhibit "A" 1 for the private respondent, which was signed by a sales representative of Toyota Shaw, Inc. named Popong Bernardo. The document reads as follows:

June 4, 1989

AGREEMENTS BETWEEN MR. SOSA& POPONG BERNARDO OF TOYOTA

SHAW, INC.

1. all necessary documents will be submitted to TOYOTA SHAW, INC. (POPONG BERNARDO) a week after, upon arrival of Mr. Sosa from the Province (Marinduque) where the unit will be used on the 19th of June.

2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15, 1989.

3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] and released by TOYOTA SHAW, INC. on the 17th of June at 10 a.m.

Very truly yours, (Sgd.) POPONG BERNARDO.

Was this document, executed and signed by the petitioner's sales representative, a perfected contract of sale, binding upon the petitioner, breach of which would entitle the private respondent to damages and attorney's fees? The trial court and the Court of Appeals took the affirmative view. The petitioner disagrees. Hence, this petition for review oncertiorari.

The antecedents as disclosed in the decisions of both the trial court and the Court of Appeals, as well as in the pleadings of petitioner Toyota Shaw, Inc. (hereinafter Toyota) and respondent Luna L. Sosa (hereinafter Sosa) are as follows.

Sometime in June of 1989, Luna L. Sosa wanted to purchase a Toyota Lite Ace. It was then a seller's market and Sosa had difficulty finding a dealer with an available unit for sale. But upon contacting Toyota Shaw, Inc., he was told that there was an available unit. So on 14 June 1989, Sosa and his son, Gilbert, went to the Toyota office at Shaw Boulevard, Pasig, Metro Manila. There they met Popong Bernardo, a sales representative of Toyota.

Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he, his family, and abalikbayan guest would use it on 18 June 1989 to go to Marinduque, his home province, where he would celebrate his birthday on the 19th of June. He added that if he does not arrive in his hometown with the new car, he would become a "laughing stock." Bernardo assured Sosa that a unit would be ready for pick up at 10:00 a.m. on 17 June 1989. Bernardo then signed the aforequoted "Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc." It was also agreed upon by the parties that the balance of the purchase price would be paid by credit financing through B.A. Finance, and for this Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance pertaining to the application for financing.

The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the downpayment of P100,000.00. They met Bernardo who then accomplished a printed Vehicle Sales Proposal (VSP) No. 928, 2 on which Gilbert signed under the subheading CONFORME. This document shows that the customer's name is "MR. LUNA SOSA" with home address at No. 2316 Guijo Street, United Parañaque II; that the model series of the vehicle is a "Lite Ace 1500" described as "4 Dr minibus"; that payment is by "installment," to be financed by "B.A.," 3 with the initial cash outlay of P100,000.00 broken down as follows:

a) downpayment — P 53,148.00

b) insurance — P 13,970.00

c) BLT registration fee — P 1,067.00

CHMO fee — P 2,715.00

service fee — P 500.00

accessories — P 29,000.00

and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces provided for "Delivery Terms" were not filled-up. It also contains the following pertinent provisions:

CONDITIONS OF SALES

1. This sale is subject to availability of unit.

2. Stated Price is subject to change without prior notice, Price prevailing and in effect at time of selling will apply. . . .

Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP.

On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that the vehicle would not be ready for pick up at 10:00 a.m. as previously agreed upon but at 2:00 p.m. that same day. At 2:00 p.m., Sosa and Gilbert met Bernardo at the latter's office. According to Sosa, Bernardo informed them that the Lite Ace was being readied for delivery. After waiting for about an hour, Bernardo told them that the car could not be delivered because "nasulot ang unit ng ibang malakas."

Toyota contends, however, that the Lite Ace was not delivered to Sosa because of the disapproval by B.A. Finance of the credit financing application of Sosa. It further alleged that a particular unit had already been reserved and earmarked for Sosa but could not be released due to the uncertainty of payment of the balance of the purchase price. Toyota then gave Sosa the option to purchase the unit by paying the full purchase price in cash but Sosa refused.

After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his downpayment be refunded. Toyota did so on the very same day by issuing a Far East Bank check for the full amount of P100,000.00, 4 the receipt of which was shown by a check voucher of Toyota, 5 which Sosa signed with the reservation, "without prejudice to our future claims for damages."

Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27 June 1989 and signed by him, he demanded the refund, within five days from receipt, of the downpayment of P100,000.00 plus interest from the time he paid it and the payment of damages with a warning that in case of Toyota's failure to do so he would be constrained to take legal action. 6 The second, dated 4 November 1989 and signed by M. O. Caballes, Sosa's counsel, demanded one million pesos representing interest and damages, again, with a warning that legal action would be taken if payment was not made within three days. 7 Toyota's counsel answered through a letter dated 27 November 1989 8 refusing to accede to the demands of Sosa. But even before this answer was made and received by Sosa, the latter filed on 20 November 1989 with Branch 38 of the Regional Trial Court (RTC) of Marinduque a complaint against Toyota for damages under Articles 19 and 21 of the Civil Code in the total amount of P1,230,000.00. 9 He alleges, inter alia, that:

9. As a result of defendant's failure and/or refusal to deliver the vehicle to plaintiff, plaintiff suffered embarrassment, humiliation, ridicule, mental anguish and sleepless nights because: (i) he and his family were constrained to take the public transportation from Manila to Lucena City on their way to Marinduque; (ii) his balikbayan-guest canceled his scheduled first visit to Marinduque in order to avoid the inconvenience of taking public transportation; and (iii) his relatives, friends, neighbors and other provincemates, continuously irked him about "his Brand-New Toyota Lite Ace — that never was." Under the circumstances, defendant should be made liable to the plaintiff for moral damages in the amount of One Million Pesos (P1,000,000.00). 10

In its answer to the complaint, Toyota alleged that no sale was entered into between it and Sosa, that Bernardo had no authority to sign Exhibit "A" for and in its behalf, and that Bernardo signed Exhibit "A" in his personal capacity. As special and affirmative defenses, it alleged that: the VSP did not state date of delivery; Sosa had not completed the documents required by the financing company, and as a matter of policy, the vehicle could not and would not be released prior to full compliance with financing requirements, submission of all documents, and execution of the sales agreement/invoice; the P100,000.00 was returned to and received by Sosa; the venue was improperly laid; and Sosa did not have a sufficient cause of action against it. It also interposed compulsory counterclaims.

After trial on the issues agreed upon during the pre-trial session, 11 the trial court rendered on 18 February 1992 a decision in favor of Sosa. 12 It ruled that Exhibit "A," the "AGREEMENTS BETWEEN MR. SOSA AND POPONG BERNARDO," was a valid perfected contract of sale between Sosa and Toyota which bound Toyota to deliver the vehicle to Sosa, and further agreed with Sosa that Toyota acted in bad faith in selling to another the unit already reserved for him.

As to Toyota's contention that Bernardo had no authority to bind it through Exhibit "A," the trial court held that the extent of Bernardo's authority "was not made known to plaintiff," for as testified to by Quirante, "they do not volunteer any information as to the company's sales policy and guidelines because they are internal matters." 13 Moreover, "[f]rom the beginning of the transaction up to its consummation when the downpayment was made by the plaintiff, the defendants had made known to the plaintiff the impression that Popong Bernardo is an authorized sales executive as it permitted the latter to do acts within the scope of an apparent authority holding him out to the public as possessing power to do these acts." 14 Bernardo then "was an agent of the defendant Toyota Shaw, Inc. and hence bound the defendants." 15

The court further declared that "Luna Sosa proved his social standing in the community and suffered besmirched reputation, wounded feelings and sleepless nights for which he ought to be compensated." 16 Accordingly, it disposed as follows:

WHEREFORE, viewed from the above findings, judgment is hereby rendered in favor of the plaintiff and against the defendant:

1. ordering the defendant to pay to the plaintiff the sum of P75,000.00 for moral damages;

2. ordering the defendant to pay the plaintiff the sum of P10,000.00 for exemplary damages;

3. ordering the defendant to pay the sum of P30,000.00 attorney's fees plus P2,000.00 lawyer's transportation fare per trip in attending to the hearing of this case;

4. ordering the defendant to pay the plaintiff the sum of P2,000.00 transportation fare per trip of the plaintiff in attending the hearing of this case; and

5. ordering the defendant to pay the cost of suit.

SO ORDERED.

Dissatisfied with the trial court's judgment, Toyota appealed to the Court of Appeals. The case was docketed as CA-G.R. CV No. 40043. In its decision promulgated on 29 July 1994, 17 the Court of Appeals affirmed in toto the appealed decision.

Toyota now comes before this Court via this petition and raises the core issue stated at the beginning of the ponenciaand also the following related issues: (a) whether or not the standard VSP was the true and documented understanding of the parties which would have led to the ultimate contract of sale, (b) whether or not Sosa has any legal and demandable right to the delivery of the vehicle despite the non-payment of the consideration and the non-approval of his credit application by B.A. Finance, (c) whether or not Toyota acted in good faith when it did not release the vehicle to Sosa, and (d) whether or not Toyota may be held liable for damages.

We find merit in the petition.

Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit "A" is a perfected contract of sale.

Article 1458 of the Civil Code defines a contract of sale as follows:

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

A contract of sale may be absolute or conditional.

and Article 1475 specifically provides when it is deemed perfected:

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

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

What is clear from Exhibit "A" is not what the trial court and the Court of Appeals appear to see. It is not a contract of sale. No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative obligation on the

part of the latter to pay therefor a price certain appears therein. The provision on the downpayment of P100,000.00 made no specific reference to a sale of a vehicle. If it was intended for a contract of sale, it could only refer to a sale on installment basis, as the VSP executed the following day confirmed. But nothing was mentioned about the full purchase price and the manner the installments were to be paid.

This Court had already ruled that a definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale. 18 This is so because the agreement as to the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Definiteness as to the price is an essential element of a binding agreement to sell personal property. 19

Moreover, Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa. For one thing, Sosa did not even sign it. For another, Sosa was well aware from its title, written in bold letters, viz.,

AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA SHAW, INC.

that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that he had the authority to sell any Toyota vehicle. He knew that Bernardo was only a sales representative of Toyota and hence a mere agent of the latter. It was incumbent upon Sosa to act with ordinary prudence and reasonable diligence to know the extent of Bernardo's authority as anagent 20 in respect of contracts to sell Toyota's vehicles. A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. 21

At the most, Exhibit "A" may be considered as part of the initial phase of the generation or negotiation stage of a contract of sale. There are three stages in the contract of sale, namely:

(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties;

(b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and

(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. 22

The second phase of the generation or negotiation stage in this case was the execution of the VSP. It must be emphasized that thereunder, the downpayment of the purchase price was P53,148.00 while the balance to be paid on installment should be financed by B.A. Finance Corporation. It is, of course, to be assumed that B.A.

Finance Corp. was acceptable to Toyota, otherwise it should not have mentioned B.A. Finance in the VSP.

Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended by P.D. No. 1454 and P.D. No. 1793, as "corporations or partnerships, except those regulated by the Central Bank of the Philippines, the Insurance Commission and the Cooperatives Administration Office, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises, either by discounting or factoring commercial papers or accounts receivables, or by buying and selling contracts, leases, chattel mortgages, or other evidence of indebtedness, or by leasing of motor vehicles, heavy equipment and industrial machinery, business and office machines and equipment, appliances and other movable property." 23

Accordingly, in a sale on installment basis which is financed by a financing company, three parties are thus involved: the buyer who executes a note or notes for the unpaid balance of the price of the thing purchased on installment, the seller who assigns the notes or discounts them with a financing company, and the financing company which is subrogated in the place of the seller, as the creditor of the installment buyer. 24 Since B.A. Finance did not approve Sosa's application, there was then no meeting of minds on the sale on installment basis.

We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's application for which reason it suggested to Sosa that he pay the full purchase price. When the latter refused, Toyota cancelled the VSP and returned to him his P100,000.00. Sosa's version that the VSP was cancelled because, according to Bernardo, the vehicle was delivered to another who was "mas malakas" does not inspire belief and was obviously a delayed afterthought. It is claimed that Bernardo said, "Pasensiya kayo, nasulot ang unit ng ibang malakas," while the Sosas had already been waiting for an hour for the delivery of the vehicle in the afternoon of 17 June 1989. However, in paragraph 7 of his complaint, Sosa solemnly states:

On June 17, 1989 at around 9:30 o'clock in the morning, defendant's sales representative, Mr. Popong Bernardo, called plaintiff's house and informed the plaintiff's son that the vehicle will not be ready for pick-up at 10:00 a.m. of June 17, 1989 but at 2:00 p.m. of that day instead. Plaintiff and his son went to defendant's office on June 17 1989 at 2:00 p.m. in order to pick-up the vehicle but the defendant for reasons known only to its representatives, refused and/or failed to release the vehicle to the plaintiff. Plaintiff demanded for an explanation, but nothing was given; . . . (Emphasis supplied). 25

The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that the VSP created no demandable right in favor of Sosa for the delivery of the vehicle to him, and its non-delivery did not cause any legally indemnifiable injury.

The award then of moral and exemplary damages and attorney's fees and costs of suit is without legal basis. Besides, the only ground upon which Sosa claimed moral damages is that since it was known to his friends, townmates, and relatives that he was buying a Toyota Lite Ace which they expected to see on his birthday, he suffered humiliation, shame, and sleepless nights when the van was not delivered. The van became the subject matter of talks during his celebration that he may not have paid for it, and this created an impression against his business standing and reputation. At the bottom of this claim is nothing but misplaced pride and ego. He should not have announced his plan to buy a Toyota Lite Ace knowing that he might not be able to pay the full purchase price. It was he who brought embarrassment upon himself by bragging about a thing which he did not own yet.

Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated, or compensatory damages, he is likewise not entitled to exemplary damages. Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages.

Also, it is settled that for attorney's fees to be granted, the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the award of attorney's fees. 26 No such explicit determination thereon was made in the body of the decision of the trial court. No reason thus exists for such an award.

WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV NO. 40043 as well as that of Branch 38 of the Regional Trial Court of Marinduque in Civil Case No. 89-14 are REVERSED and SET ASIDE and the complaint in Civil Case No. 89-14 is DISMISSED. The counterclaim therein is likewise DISMISSED.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 124242             January 21, 2005SAN LORENZO DEVELOPMENT CORPORATION, petitioner, vs.COURT OF APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA ZAVALLA LU, respondents.D E C I S I O NTINGA, J.:

From a coaptation of the records of this case, it appears that respondents Miguel Lu and Pacita Zavalla, (hereinafter, the Spouses Lu) owned two (2) parcels of land situated in Sta. Rosa, Laguna covered by TCT No. T-39022 and TCT No. T-39023 both measuring 15,808 square meters or a total of 3.1616 hectares.

On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to respondent Pablo Babasanta, (hereinafter, Babasanta) for the price of fifteen pesos (P15.00) per square meter. Babasanta made a downpayment of fifty thousand pesos (P50,000.00) as evidenced by a memorandum receipt issued by Pacita Lu of the same date. Several other payments totaling two hundred thousand pesos (P200,000.00) were made by Babasanta.

Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the execution of a final deed of sale in his favor so that he could effect full payment of the purchase price. In the same letter, Babasanta notified the spouses about having received information that the spouses sold the same property to another without his knowledge and consent. He demanded that the second sale be cancelled and that a final deed of sale be issued in his favor.

In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having agreed to sell the property to him at fifteen pesos (P15.00) per square meter. She, however, reminded Babasanta that when the balance of the purchase price became due, he requested for a reduction of the price and when she refused, Babasanta backed out of the sale. Pacita added that she returned the sum of fifty thousand pesos (P50,000.00) to Babasanta through Eugenio Oya.

On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial Court (RTC), Branch 31, of San Pedro, Laguna, a Complaint for Specific Performance and Damages1 against his co-respondents herein, the Spouses Lu. Babasanta alleged that the lands covered by TCT No. T- 39022 and T-39023 had been sold to him by the spouses at fifteen pesos (P15.00) per square meter. Despite his repeated demands for the execution of a final deed of sale in his favor, respondents allegedly refused.

In their Answer,2 the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta and when the total advances of Pacita reached fifty thousand pesos (P50,000.00), the latter and Babasanta, without the knowledge and consent of Miguel Lu, had verbally agreed to transform the transaction into a contract to sell the two parcels of land to Babasanta with the fifty thousand pesos (P50,000.00) to be considered as the downpayment for the property and the balance to be paid on or before 31 December 1987. Respondents Lu added that as of November 1987, total payments made by Babasanta amounted to only two hundred thousand pesos (P200,000.00) and the latter allegedly failed to pay the balance of two hundred sixty thousand pesos (P260,000.00) despite repeated demands. Babasanta had purportedly asked Pacita for a reduction of the price from fifteen pesos (P15.00) to twelve pesos (P12.00) per square meter and when the Spouses Lu refused to grant Babasanta’s request, the latter rescinded the contract to sell and declared that the original loan transaction just be carried out in that the spouses would be indebted to him in the amount of two hundred thousand pesos (P200,000.00). Accordingly, on 6 July 1989, they purchased Interbank Manager’s Check No. 05020269 in the amount of two hundred thousand pesos (P200,000.00) in the name of Babasanta to show that she was able and willing to pay the balance of her loan obligation.

Babasanta later filed an Amended Complaint dated 17 January 19903 wherein he prayed for the issuance of a writ of preliminary injunction with temporary restraining order and the inclusion of the Register of Deeds of Calamba, Laguna as party defendant. He contended that the issuance of a preliminary injunction was necessary to restrain the transfer or conveyance by the Spouses Lu of the subject property to other persons.

The Spouses Lu filed their Opposition4 to the amended complaint contending that it raised new matters which seriously affect their substantive rights under the original complaint. However, the trial court in its Order dated 17 January 19905 admitted the amended complaint.

On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC) filed a Motion for Intervention6 before the trial court. SLDC alleged that it had legal interest in the subject matter under litigation because on 3 May 1989, the two parcels of land involved, namely Lot 1764-A and 1764-B, had been sold to it in a Deed of Absolute Sale with Mortgage.7 It alleged that it was a buyer in

good faith and for value and therefore it had a better right over the property in litigation.

In his Opposition to SLDC’s motion for intervention,8 respondent Babasanta demurred and argued that the latter had no legal interest in the case because the two parcels of land involved herein had already been conveyed to him by the Spouses Lu and hence, the vendors were without legal capacity to transfer or dispose of the two parcels of land to the intervenor.

Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to intervene. SLDC filed its Complaint-in-Intervention on 19 April 1990.9 Respondent Babasanta’s motion for the issuance of a preliminary injunction was likewise granted by the trial court in its Order dated 11 January 199110 conditioned upon his filing of a bond in the amount of fifty thousand pesos (P50,000.00).

SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu executed in its favor anOption to Buy the lots subject of the complaint. Accordingly, it paid an option money in the amount of three hundred sixteen thousand one hundred sixty pesos (P316,160.00) out of the total consideration for the purchase of the two lots of one million two hundred sixty-four thousand six hundred forty pesos (P1,264,640.00). After the Spouses Lu received a total amount of six hundred thirty-two thousand three hundred twenty pesos (P632,320.00) they executed on 3 May 1989 a Deed of Absolute Sale with Mortgage in its favor. SLDC added that the certificates of title over the property were delivered to it by the spouses clean and free from any adverse claims and/or notice of lis pendens. SLDC further alleged that it only learned of the filing of the complaint sometime in the early part of January 1990 which prompted it to file the motion to intervene without delay. Claiming that it was a buyer in good faith, SLDC argued that it had no obligation to look beyond the titles submitted to it by the Spouses Lu particularly because Babasanta’s claims were not annotated on the certificates of title at the time the lands were sold to it.

After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding the sale of the property to SLDC. It ordered the Spouses Lu to pay Babasanta the sum of two hundred thousand pesos (P200,000.00) with legal interest plus the further sum of fifty thousand pesos (P50,000.00) as and for attorney’s fees. On the complaint-in-intervention, the trial court ordered the Register of Deeds of Laguna, Calamba Branch to cancel the notice of lis pendens annotated on the original of the TCT No. T-39022 (T-7218) and No. T-39023 (T-7219).

Applying Article 1544 of the Civil Code, the trial court ruled that since both Babasanta and SLDC did not register the respective sales in their favor, ownership of the property should pertain to the buyer who first acquired possession of the property. The trial court equated the execution of a public instrument in favor of SLDC as sufficient delivery of the property to the latter. It

concluded that symbolic possession could be considered to have been first transferred to SLDC and consequently ownership of the property pertained to SLDC who purchased the property in good faith.

Respondent Babasanta appealed the trial court’s decision to the Court of Appeals alleging in the main that the trial court erred in concluding that SLDC is a purchaser in good faith and in upholding the validity of the sale made by the Spouses Lu in favor of SLDC.

Respondent spouses likewise filed an appeal to the Court of Appeals. They contended that the trial court erred in failing to consider that the contract to sell between them and Babasanta had been novated when the latter abandoned the verbal contract of sale and declared that the original loan transaction just be carried out. The Spouses Lu argued that since the properties involved were conjugal, the trial court should have declared the verbal contract to sell between Pacita Lu and Pablo Babasanta null and void ab initio for lack of knowledge and consent of Miguel Lu. They further averred that the trial court erred in not dismissing the complaint filed by Babasanta; in awarding damages in his favor and in refusing to grant the reliefs prayed for in their answer.

On 4 October 1995, the Court of Appeals rendered its Decision11 which set aside the judgment of the trial court. It declared that the sale between Babasanta and the Spouses Lu was valid and subsisting and ordered the spouses to execute the necessary deed of conveyance in favor of Babasanta, and the latter to pay the balance of the purchase price in the amount of two hundred sixty thousand pesos (P260,000.00). The appellate court ruled that the Absolute Deed of Sale with Mortgage in favor of SLDC was null and void on the ground that SLDC was a purchaser in bad faith. The Spouses Lu were further ordered to return all payments made by SLDC with legal interest and to pay attorney’s fees to Babasanta.

SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate court.12 However, in aManifestation dated 20 December 1995,13 the Spouses Lu informed the appellate court that they are no longer contesting the decision dated 4 October 1995.

In its Resolution dated 11 March 1996,14 the appellate court considered as withdrawn the motion for reconsideration filed by the Spouses Lu in view of their manifestation of 20 December 1995. The appellate court denied SLDC’s motion for reconsideration on the ground that no new or substantial arguments were raised therein which would warrant modification or reversal of the court’s decision dated 4 October 1995.

Hence, this petition.

SLDC assigns the following errors allegedly committed by the appellate court:

THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A BUYER IN GOOD FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU OBTAINED FROM IT THE CASH ADVANCE OF P200,000.00, SAN LORENZO WAS PUT ON INQUIRY OF A PRIOR TRANSACTION ON THE PROPERTY.

THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED FACT THAT THE ALLEGED FIRST BUYER, RESPONDENT BABASANTA, WAS NOT IN POSSESSION OF THE DISPUTED PROPERTY WHEN SAN LORENZO BOUGHT AND TOOK POSSESSION OF THE PROPERTY AND NO ADVERSE CLAIM, LIEN, ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED ON THE TITLES.

THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT RESPONDENT BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT SAN LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN THE DISPUTED PROPERTY.

THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS FULL CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT REVERSED AND SET ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING THE TITLE OF SAN LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD FAITH. 15

SLDC contended that the appellate court erred in concluding that it had prior notice of Babasanta’s claim over the property merely on the basis of its having advanced the amount of two hundred thousand pesos (P200,000.00) to Pacita Lu upon the latter’s representation that she needed the money to pay her obligation to Babasanta. It argued that it had no reason to suspect that Pacita was not telling the truth that the money would be used to pay her indebtedness to Babasanta. At any rate, SLDC averred that the amount of two hundred thousand pesos (P200,000.00) which it advanced to Pacita Lu would be deducted from the balance of the purchase price still due from it and should not be construed as notice of the prior sale of the land to Babasanta. It added that at no instance did Pacita Lu inform it that the lands had been previously sold to Babasanta.

Moreover, SLDC stressed that after the execution of the sale in its favor it immediately took possession of the property and asserted its rights as new owner as opposed to Babasanta who has never exercised acts of ownership. Since the titles bore no adverse claim, encumbrance, or lien at the time it was sold to it, SLDC argued that it had every reason to rely on the correctness of the certificate of title and it was not obliged to go beyond the certificate to determine the condition of the property. Invoking the presumption of good faith, it added that

the burden rests on Babasanta to prove that it was aware of the prior sale to him but the latter failed to do so. SLDC pointed out that the notice of lis pendens was annotated only on 2 June 1989 long after the sale of the property to it was consummated on 3 May 1989.1awphi1.nét

Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu informed the Court that due to financial constraints they have no more interest to pursue their rights in the instant case and submit themselves to the decision of the Court of Appeals.16

On the other hand, respondent Babasanta argued that SLDC could not have acquired ownership of the property because it failed to comply with the requirement of registration of the sale in good faith. He emphasized that at the time SLDC registered the sale in its favor on 30 June 1990, there was already a notice of lis pendens annotated on the titles of the property made as early as 2 June 1989. Hence, petitioner’s registration of the sale did not confer upon it any right. Babasanta further asserted that petitioner’s bad faith in the acquisition of the property is evident from the fact that it failed to make necessary inquiry regarding the purpose of the issuance of the two hundred thousand pesos (P200,000.00) manager’s check in his favor.

The core issue presented for resolution in the instant petition is who between SLDC and Babasanta has a better right over the two parcels of land subject of the instant case in view of the successive transactions executed by the Spouses Lu.

To prove the perfection of the contract of sale in his favor, Babasanta presented a document signed by Pacita Lu acknowledging receipt of the sum of fifty thousand pesos (P50,000.00) as partial payment for 3.6 hectares of farm lot situated at Barangay Pulong, Sta. Cruz, Sta. Rosa, Laguna.17 While the receipt signed by Pacita did not mention the price for which the property was being sold, this deficiency was supplied by Pacita Lu’s letter dated 29 May 198918 wherein she admitted that she agreed to sell the 3.6 hectares of land to Babasanta for fifteen pesos (P15.00) per square meter.

An analysis of the facts obtaining in this case, as well as the evidence presented by the parties, irresistibly leads to the conclusion that the agreement between Babasanta and the Spouses Lu is a contract to sell and not a contract of sale.

Contracts, in general, are perfected by mere consent,19 which is manifested by the meeting of the offer and the acceptance upon the thing which are to constitute the contract. The offer must be certain and the acceptance absolute.20 Moreover, contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present.21

The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos (P50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot situated in Sta. Rosa, Laguna. While there is no stipulation that the seller reserves the ownership of the property until full payment of the price which is a distinguishing feature of a contract to sell, the subsequent acts of the parties convince us that the Spouses Lu never intended to transfer ownership to Babasanta except upon full payment of the purchase price.

Babasanta’s letter dated 22 May 1989 was quite telling. He stated therein that despite his repeated requests for the execution of the final deed of sale in his favor so that he could effect full payment of the price, Pacita Lu allegedly refused to do so. In effect, Babasanta himself recognized that ownership of the property would not be transferred to him until such time as he shall have effected full payment of the price. Moreover, had the sellers intended to transfer title, they could have easily executed the document of sale in its required form simultaneously with their acceptance of the partial payment, but they did not. Doubtlessly, the receipt signed by Pacita Lu should legally be considered as a perfected contract to sell.

The distinction between a contract to sell and a contract of sale is quite germane. In a contract of sale, title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price.22 In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.23

The perfected contract to sell imposed upon Babasanta the obligation to pay the balance of the purchase price. There being an obligation to pay the price, Babasanta should have made the proper tender of payment and consignation of the price in court as required by law. Mere sending of a letter by the vendee expressing the intention to pay without the accompanying payment is not considered a valid tender of payment.24 Consignation of the amounts due in court is essential in order to extinguish Babasanta’s obligation to pay the balance of the purchase price. Glaringly absent from the records is any indication that Babasanta even attempted to make the proper consignation of the amounts due, thus, the obligation on the part of the sellers to convey title never acquired obligatory force.

On the assumption that the transaction between the parties is a contract of sale and not a contract to sell, Babasanta’s claim of ownership should nevertheless fail.

Sale, being a consensual contract, is perfected by mere consent25 and from that moment, the parties may reciprocally demand performance.26 The essential elements of a contract of sale, to wit: (1) consent or meeting of the minds, that is, to transfer ownership in exchange for the price; (2) object certain which is the subject matter of the contract; (3) cause of the obligation which is established.27

The perfection of a contract of sale should not, however, be confused with its consummation. In relation to the acquisition and transfer of ownership, it should be noted that sale is not a mode, but merely a title. A mode is the legal means by which dominion or ownership is created, transferred or destroyed, but title is only the legal basis by which to affect dominion or ownership.28 Under Article 712 of the Civil Code, "ownership and other real rights over property are acquired and transmitted by law, by donation, by testate and intestate succession, and in consequence of certain contracts, by tradition." Contracts only constitute titles or rights to the transfer or acquisition of ownership, while delivery or tradition is the mode of accomplishing the same.29 Therefore, sale by itself does not transfer or affect ownership; the most that sale does is to create the obligation to transfer ownership. It is tradition or delivery, as a consequence of sale, that actually transfers ownership.

Explicitly, the law provides that the ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Article 1497 to 1501.30 The word "delivered" should not be taken restrictively to mean transfer of actual physical possession of the property. The law recognizes two principal modes of delivery, to wit: (1) actual delivery; and (2) legal or constructive delivery.

Actual delivery consists in placing the thing sold in the control and possession of the vendee.31 Legal or constructive delivery, on the other hand, may be had through any of the following ways: the execution of a public instrument evidencing the sale;32 symbolical tradition such as the delivery of the keys of the place where the movable sold is being kept;33 traditio longa manu or by mere consent or agreement if the movable sold cannot yet be transferred to the possession of the buyer at the time of the sale;34 traditio brevi manu if the buyer already had possession of the object even before the sale;35 and traditio constitutum possessorium, where the seller remains in possession of the property in a different capacity.36

Following the above disquisition, respondent Babasanta did not acquire ownership by the mere execution of the receipt by Pacita Lu acknowledging receipt of partial payment for the property. For one, the agreement between Babasanta and the Spouses Lu, though valid, was not embodied in a public instrument. Hence, no constructive delivery of the lands could have been effected. For another, Babasanta had not taken possession of the property at any time after the perfection of the sale in his favor or exercised acts of dominion over it despite his assertions that he was the rightful owner of the lands. Simply

stated, there was no delivery to Babasanta, whether actual or constructive, which is essential to transfer ownership of the property. Thus, even on the assumption that the perfected contract between the parties was a sale, ownership could not have passed to Babasanta in the absence of delivery, since in a contract of sale ownership is transferred to the vendee only upon the delivery of the thing sold.37

However, it must be stressed that the juridical relationship between the parties in a double sale is primarily governed by Article 1544 which lays down the rules of preference between the two purchasers of the same property. It provides:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.

The principle of primus tempore, potior jure (first in time, stronger in right) gains greater significance in case of double sale of immovable property. When the thing sold twice is an immovable, the one who acquires it and first records it in the Registry of Property, both made in good faith, shall be deemed the owner.38 Verily, the act of registration must be coupled with good faith— that is, the registrant must have no knowledge of the defect or lack of title of his vendor or must not have been aware of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor.39

Admittedly, SLDC registered the sale with the Registry of Deeds after it had acquired knowledge of Babasanta’s claim. Babasanta, however, strongly argues that the registration of the sale by SLDC was not sufficient to confer upon the latter any title to the property since the registration was attended by bad faith. Specifically, he points out that at the time SLDC registered the sale on 30 June 1990, there was already a notice of lis pendens on the file with the Register of Deeds, the same having been filed one year before on 2 June 1989.

Did the registration of the sale after the annotation of the notice of lis pendens obliterate the effects of delivery and possession in good faith which admittedly had occurred prior to SLDC’s knowledge of the transaction in favor of Babasanta?

We do not hold so.

It must be stressed that as early as 11 February 1989, the Spouses Lu executed the Option to Buy in favor of SLDC upon receiving P316,160.00 as option money from SLDC. After SLDC had paid more than one half of the agreed purchase price of P1,264,640.00, the Spouses Lu subsequently executed on 3 May 1989 a Deed of Absolute Sale in favor or SLDC. At the time both deeds were executed, SLDC had no knowledge of the prior transaction of the Spouses Lu with Babasanta. Simply stated, from the time of execution of the first deed up to the moment of transfer and delivery of possession of the lands to SLDC, it had acted in good faith and the subsequent annotation of lis pendens has no effect at all on the consummated sale between SLDC and the Spouses Lu.

A purchaser in good faith is one who buys property of another without notice that some other person has a right to, or interest in, such property and pays a full and fair price for the same at the time of such purchase, or beforehe has notice of the claim or interest of some other person in the property.40 Following the foregoing definition, we rule that SLDC qualifies as a buyer in good faith since there is no evidence extant in the records that it had knowledge of the prior transaction in favor of Babasanta. At the time of the sale of the property to SLDC, the vendors were still the registered owners of the property and were in fact in possession of the lands.l^vvphi1.net Time and again, this Court has ruled that a person dealing with the owner of registered land is not bound to go beyond the certificate of title as he is charged with notice of burdens on the property which are noted on the face of the register or on the certificate of title.41 In assailing knowledge of the transaction between him and the Spouses Lu, Babasanta apparently relies on the principle of constructive notice incorporated in Section 52 of the Property Registration Decree (P.D. No. 1529) which reads, thus:

Sec. 52. Constructive notice upon registration. – Every conveyance, mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed, or entered in the office of the Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing, or entering.

However, the constructive notice operates as such¾by the express wording of Section 52¾from the time of the registration of the notice of lis pendens which in this case was effected only on 2 June 1989, at which time the sale in favor of SLDC had long been consummated insofar as the obligation of the Spouses Lu to transfer ownership over the property to SLDC is concerned.

More fundamentally, given the superiority of the right of SLDC to the claim of Babasanta the annotation of the notice of lis pendens cannot help Babasanta’s position a bit and it is irrelevant to the good or bad faith characterization of SLDC as a purchaser. A notice of lis pendens, as the Court held in Nataño v.

Esteban,42serves as a warning to a prospective purchaser or incumbrancer that the particular property is in litigation; and that he should keep his hands off the same, unless he intends to gamble on the results of the litigation." Precisely, in this case SLDC has intervened in the pending litigation to protect its rights. Obviously, SLDC’s faith in the merit of its cause has been vindicated with the Court’s present decision which is the ultimate denouement on the controversy.

The Court of Appeals has made capital43 of SLDC’s averment in its Complaint-in-Intervention44 that at the instance of Pacita Lu it issued a check for P200,000.00 payable to Babasanta and the confirmatory testimony of Pacita Lu herself on cross-examination.45 However, there is nothing in the said pleading and the testimony which explicitly relates the amount to the transaction between the Spouses Lu and Babasanta for what they attest to is that the amount was supposed to pay off the advances made by Babasanta to Pacita Lu. In any event, the incident took place after the Spouses Lu had already executed the Deed of Absolute Sale with Mortgage in favor of SLDC and therefore, as previously explained, it has no effect on the legal position of SLDC.

Assuming ex gratia argumenti that SLDC’s registration of the sale had been tainted by the prior notice of lis pendens and assuming further for the same nonce that this is a case of double sale, still Babasanta’s claim could not prevail over that of SLDC’s. In Abarquez v. Court of Appeals,46 this Court had the occasion to rule that if a vendee in a double sale registers the sale after he has acquired knowledge of a previous sale, the registration constitutes a registration in bad faith and does not confer upon him any right. If the registration is done in bad faith, it is as if there is no registration at all, and the buyer who has taken possession first of the property in good faith shall be preferred.

In Abarquez, the first sale to the spouses Israel was notarized and registered only after the second vendee, Abarquez, registered their deed of sale with the Registry of Deeds, but the Israels were first in possession. This Court awarded the property to the Israels because registration of the property by Abarquez lacked the element of good faith. While the facts in the instant case substantially differ from that in Abarquez, we would not hesitate to rule in favor of SLDC on the basis of its prior possession of the property in good faith. Be it noted that delivery of the property to SLDC was immediately effected after the execution of the deed in its favor, at which time SLDC had no knowledge at all of the prior transaction by the Spouses Lu in favor of Babasanta.1a\^/phi1.net

The law speaks not only of one criterion. The first criterion is priority of entry in the registry of property; there being no priority of such entry, the second is priority of possession; and, in the absence of the two priorities, the third priority is of the date of title, with good faith as the common critical element. Since SLDC acquired possession of the property in good faith in contrast to Babasanta, who neither registered nor possessed the property at any time, SLDC’s right is definitely superior to that of Babasanta’s.

At any rate, the above discussion on the rules on double sale would be purely academic for as earlier stated in this decision, the contract between Babasanta and the Spouses Lu is not a contract of sale but merely a contract to sell. In Dichoso v. Roxas,47 we had the occasion to rule that Article 1544 does not apply to a case where there was a sale to one party of the land itself while the other contract was a mere promise to sell the land or at most an actual assignment of the right to repurchase the same land. Accordingly, there was no double sale of the same land in that case.

WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals appealed from is REVERSED and SET ASIDE and the decision of the Regional Trial Court, Branch 31, of San Pedro, Laguna is REINSTATED. No costs.

SO ORDERED.

[G.R. No. 151212.  September 10, 2003]TEN FORTY REALTY AND DEVELOPMENT CORP., Represented by its President, VERONICA G. LORENZANA, petitioner, vs. MARINA CRUZ, respondent.

D E C I S I O N

PANGANIBAN, J.:

In an ejectment suit, the question of ownership may be provisionally ruled upon for the sole purpose of determining who is entitled to possession de facto.  In the present case, both parties base their alleged right to possess on their right to own.  Hence, the Court of Appeals did not err in passing upon the question of ownership to be able to decide who was entitled to physical possession of the disputed land.

The Case

Before us is a Petition for Review [1] under Rule 45 of the Rules of Court, seeking to nullify the August 31, 2001 Decision [2] and December 19, 2001 Resolution[3] of the Court of Appeals (CA) in CA- GR SP No. 64861.  The dispositive portion of the assailed Decision is as follows:

“WHEREFORE, premises considered, the petition is hereby DISMISSED and the Decision dated May 4, 2001 is hereby AFFIRMED.”[4]

The assailed Resolution denied petitioner's Motion for Reconsideration.

The Facts

The facts of the case are narrated by the CA as follows:

“A complaint for ejectment was filed by [Petitioner Ten Forty Realty and Development Corporation] against x x x  [Respondent Marina Cruz] before the Municipal Trial Court in Cities (MTCC) of Olongapo City, docketed as Civil Case 4269, which alleged that:  petitioner is the true and absolute owner of a parcel of lot and residential house situated in #71 18th Street, E.B.B. Olongapo City, particularly described as:

‘A parcel of residential house and lot situated in the above-mentioned address containing an area of 324 square meters more or less bounded on the Northeast by

041 (Lot 255, Ts-308); on the Southeast by 044 (Lot 255, Ts-308); on the Southwest by 043 (Lot 226-A & 18th street) and on the Northwest by 045 (Lot 227, Ts-308) and declared for taxation purposes in the name of [petitioner] under T.D. No. 002-4595-R and 002-4596.’

having acquired the same on December 5, 1996 from Barbara Galino by virtue of a Deed of Absolute Sale; the sale was acknowledged by said Barbara Galino through a 'Katunayan'; payment of the capital gains tax for the transfer of the property was evidenced by a Certification Authorizing Registration issued by the Bureau of Internal Revenue;  petitioner came to know that Barbara Galino sold the same property on April 24, 1998 to Cruz, who immediately occupied the property and which occupation was merely tolerated by petitioner; on October 16, 1998, a complaint for ejectment was filed with the Barangay East Bajac-Bajac, Olongapo City but for failure to arrive at an amicable settlement, a Certificate to File Action was issued;  on April 12, 1999 a demand letter was sent to [respondent] to vacate and pay reasonable amount for the use and occupation of the same, but was ignored by the latter; and due to the refusal of [respondent]  to vacate the premises, petitioner was constrained to secure the services of a counsel for an agreed fee of P5,000.00 as attorney’s fee and P500.00 as appearance fee and incurred an expense of P5,000.00 for litigation.

“In respondent’s Answer with Counterclaim, it was alleged that: petitioner is not qualified to own the residential lot in dispute, being a public land; according to Barbara Galino, she did not sell her house and lot to petitioner but merely obtained a loan from Veronica Lorenzana;  the payment of the capital gains tax does not necessarily show that the Deed of Absolute Sale was at that time already in existence; the court has no jurisdiction over the subject matter because the complaint was filed beyond the one (1) year period after the alleged unlawful deprivation of possession; there is no allegation that petitioner had been in prior possession of the premises and the same was lost thru force, stealth or violence; evidence will show that it was Barbara Galino who was in possession at the time of the sale and vacated the property in favor of respondent;  never was there an occasion when petitioner occupied a portion of the premises, before respondent occupied the lot in April 1998, she caused the cancellation of the tax declaration in the name of Barbara Galino and a new one issued in respondent’s name; petitioner obtained its tax declaration over the same property on November 3, 1998, seven (7) months [after] the respondent [obtained hers]; at the time the house and lot [were] bought by respondent, the house was not habitable, the power and water connections were disconnected; being a public land, respondent filed a miscellaneous sales application with the Community Environment and Natural Resources Office in Olongapo City;  and the action for ejectment cannot succeed where it appears that respondent had been in possession of the property prior to the petitioner.”[5]

In a Decision[6] dated October 30, 2000, the Municipal Trial Court in Cities (MTCC) ordered respondent to vacate the property and surrender to petitioner possession thereof.  It also directed her to pay, as damages for its continued unlawful use, P500 a month from April 24, 1999 until the property was vacated, P5,000 as attorney’s fees, and the costs of the suit.

On appeal, the Regional Trial Court[7] (RTC) of Olongapo City (Branch 72) reversed the MTCC. The RTC ruled as follows: 1) respondent’s entry into the property was not by mere tolerance of petitioner, but by virtue of a Waiver and Transfer of Possessory Rights and Deed of Sale in her favor; 2) the execution of the Deed of Sale without actual transfer of the physical possession did not have the effect of making petitioner the owner of the property, because there was no delivery of the object of the sale as provided for in Article 1428 of the Civil Code; and 3) being a corporation, petitioner was disqualified from acquiring the property, which was public land.

Ruling of the Court of Appeals

Sustaining the RTC, the CA held that petitioner had failed to make a case for unlawful detainer, because no contract -- express or implied -- had been entered into by the parties with regard to possession of the property.  It ruled that the action should have been for forcible entry, in which prior physical possession was indispensable -- a circumstance petitioner had not shown either.

The appellate court also held that petitioner had challenged the RTC’s ruling on the question of ownership for the purpose of compensating for the latter’s failure to counter such ruling.   The RTC had held that, as a corporation, petitioner had no right to acquire the property which was alienable public land.

Hence, this Petition.[8]

Issues

Petitioner submits the following issues for our consideration:

“1.     The Honorable Court of Appeals had clearly erred in not holding that [r]espondent’s occupation or possession of the property in question was merely through the tolerance or permission of the herein [p]etitioner;

“[2.]   The Honorable Court of Appeals had likewise erred in holding that the ejectment case should have been a forcible entry case where prior physical possession is indispensable; and

“[3.]   The Honorable Court of Appeals had also erred when it ruled that the herein [r]espondent’s possession or occupation of the said property is in the nature of an exercise of ownership which should put the herein [p]etitioner on guard.”[9]

The Court’s Ruling

The Petition has no merit.

First Issue:Alleged Occupation by Tolerance

Petitioner faults the CA for not holding that the former merely tolerated respondent’s occupation of the subject property. By raising this issue, petitioner is in effect asking this Court to reassess factual findings.  As a general rule, this kind of reassessment cannot be done through a petition for review on certiorari under Rule 45 of the Rules of Court, because this Court is not a trier of facts; it reviews only questions of law.[10] Petitioner has not given us ample reasons to depart from the general rule.

On the basis of the facts found by the CA and the RTC, we find that petitioner failed to substantiate its case for unlawful detainer.  Admittedly, no express contract existed between the parties. Not shown either was the corporation’s alleged tolerance of respondent’s possession.

While possession by tolerance may initially be lawful, it ceases to be so upon the owner’s demand that the possessor by tolerance vacate the property. [11] To justify an action for unlawful detainer, the permission or tolerance must have been present at the beginning of the possession.[12] Otherwise, if the possession was unlawful from the start, an action for unlawful detainer would be an improper remedy. Sarona v. Villegas[13] elucidates thus:

“A close assessment of the law and the concept of the word ‘tolerance’ confirms our view heretofore expressed that such tolerance must be present right from the start of possession sought to be recovered, to categorize a cause of action as one of unlawful detainer not of forcible entry.  Indeed, to hold otherwise would espouse a dangerous doctrine.  And for two reasons.  First.  Forcible entry into the land is an open challenge to the right of the possessor. Violation of that right authorizes the speedy redress – in the inferior court – provided for in the rules.  If one year from the forcible entry is allowed to lapse before suit is filed, then the remedy ceases to be speedy; and the possessor is deemed to have waived his right to seek relief in the inferior court.  Second, if a forcible entry action in the inferior court is allowed after the lapse of a number of years, then the result may well be that no action for forcible entry can really prescribe.  No matter how long such defendant is in physical possession, plaintiff will merely make a demand, bring suit in the inferior court – upon a plea of tolerance to prevent prescription to set in – and summarily throw him out of the land.  Such a conclusion is unreasonable.  Especially if we bear in mind the postulates that proceedings of forcible entry and unlawful detainer are summary in nature, and that the one year time bar to suit is but in pursuance of the summary nature of the action.”[14]

In this case, the Complaint and the other pleadings do not recite any averment of fact that would substantiate the claim of petitioner that it permitted or tolerated the

occupation of the property by Respondent Cruz.  The Complaint contains only bare allegations that 1) respondent immediately occupied the subject property after its sale to her, an action merely tolerated by petitioner;[15] and 2) her allegedly illegal occupation of the premises was by mere tolerance.[16]

These allegations contradict, rather than support, petitioner’s theory that its cause of action is for unlawful detainer.  First, these arguments advance the view that respondent’s occupation of the property was unlawful at its inception. Second, they counter the essential requirement in unlawful detainer cases that petitioner’s supposed act of sufferance or tolerance must be present right from the start of a possession that is later sought to be recovered.[17]

As the bare allegation of petitioner’s tolerance of respondent’s occupation of the premises has not been proven, the possession should be deemed illegal from the beginning.  Thus, the CA correctly ruled that the ejectment case should have been for forcible entry -- an action that had already prescribed, however, when the Complaint was filed on May 12, 1999. The prescriptive period of one year for forcible entry cases is reckoned from the date of respondent’s actual entry into the land, which in this case was on April 24, 1998.

Second Issue:Nature of the CaseMuch of the difficulty in the present controversy stems from the legal characterization of the ejectment Complaint filed by petitioner.  Specifically, was it for unlawful detainer or for forcible entry?

The answer is given in Section 1 of Rule 70 of the Rules of Court, which we reproduce as follows:

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

While both causes of action deal only with the sole issue of  physical or de facto possession,[18] the two cases are really separate and  distinct, as explained below:

“x x x.  In forcible entry, one is deprived of physical possession of land or building by means of force, intimidation, threat, strategy, or stealth.  In unlawful detainer, one

unlawfully withholds possession thereof after the expiration or termination of his right to hold possession under any contract, express or implied.  In forcible entry, the possession is illegal from the beginning and the basic inquiry centers on who has the prior possession de facto.  In unlawful detainer, the possession was originally lawful but became unlawful by the expiration or termination of the right to possess, hence the issue of rightful possession is decisive for, in such action, the defendant is in actual possession and the plaintiff’s cause of action is the termination of the defendant’s right to continue in possession.

“What determines the cause of action is the nature of defendant’s entry into the land.  If the entry is illegal, then the action which may be filed against the intruder within one year therefrom is forcible entry.  If, on the other hand, the entry is legal but the possession thereafter became illegal, the case is one of unlawful detainer which must be filed within one year from the date of the last demand.”[19]

It is axiomatic that what determines the nature of an action as well as which court has jurisdiction over it are the allegations in the complaint[20] and the character of the relief sought.[21]

In its Complaint, petitioner alleged that, having acquired the subject property from Barbara Galino on December 5, 1996,[22] it was the true and absolute owner[23] thereof; that Galino had sold the property to Respondent Cruz on April 24, 1998;[24] that after the sale, the latter immediately occupied the property, an action that was merely tolerated by petitioner;[25] and that, in a letter given to respondent on April 12, 1999,[26] petitioner had demanded that the former vacate the property, but that she refused to do so.[27] Petitioner thereupon prayed for judgment ordering her to vacate the property and to pay reasonable rentals for the use of the premises, attorney’s fees and the costs of the suit.[28]

The above allegations appeared to show the elements of unlawful detainer.  They also conferred initiatory jurisdiction on the MTCC, because the case was filed a month after the last demand to vacate -- hence, within the one-year prescriptive period.

However, what was actually proven by petitioner was that possession by respondent had been illegal from the beginning.  While the Complaint was crafted to be an unlawful detainer suit, petitioner’s real cause of action was for forcible entry, which had already prescribed.  Consequently, the MTCC had no more jurisdiction over the action.

The appellate court, therefore, did not err when it ruled that petitioner’s Complaint for unlawful detainer was a mere subterfuge or a disguised substitute action for forcible entry, which had already prescribed.  To repeat, to maintain a viable action for forcible entry, plaintiff must have been in prior physical possession of the property; this is an essential element of the suit.[29]

Third Issue:Alleged Acts of Ownership

Petitioner next questions the CA’s pronouncement that respondent’s occupation of the property was an exercise of a right flowing from a claim of ownership.  It submits that the appellate court should not have passed upon the issue of ownership, because the only question for resolution in an ejectment suit is that of possession de facto.

Clearly, each of the parties claimed the right to possess the disputed property because of alleged ownership of it.  Hence, no error could have been imputed to the appellate court when it passed upon the issue of ownership only for the purpose of resolving the issue of possession de facto.[30] The CA’s holding is moreover in accord with jurisprudence and the law.

Execution of a Deed of SaleNot Sufficient as Delivery

In a contract of sale, the buyer acquires the thing sold only upon its delivery “in any of the ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee.”[31] With respect to incorporeal property, Article 1498 lays down the general rule: the execution of a public instrument shall be equivalent to the delivery of the thing that is the object of the contract if, from the deed, the contrary does not appear or cannot be clearly inferred.

However, ownership is transferred not by contract but by tradition or delivery.[32]  Nowhere in the Civil Code is it provided that the execution of a Deed of Sale is a conclusive presumption of delivery of possession of a piece of real estate.[33]

This Court has held that the execution of a public instrument gives rise only to a prima facie presumption of delivery.  Such presumption is destroyed when the delivery is not effected because of a legal impediment. [34] Pasagui v. Villablanca[35] had earlier ruled that such constructive or symbolic delivery, being merely presumptive, was deemed negated by the failure of the vendee to take actual possession of the land sold.

It is undisputed that petitioner did not occupy the property from the time it was allegedly sold to it on December 5, 1996 or at any time thereafter. Nonetheless, it maintains that Galino’s continued stay in the premises from the time of the sale up to the time respondent’s occupation of the same on April 24, 1998, was possession held on its behalf and had the effect of delivery under the law.[36]

Both the RTC and the CA disagreed.  According to the RTC, petitioner did not gain control and possession of the property, because Galino had continued to exercise ownership rights over the realty. That is, she had remained in possession, continued to declare it as her property for tax purposes and sold it to respondent in 1998.

For its part, the CA found it highly unbelievable that petitioner -- which claims to be the owner of the disputed property -- would tolerate possession of the property by

respondent from April 24, 1998 up to October 16, 1998.  How could it have been so tolerant despite its knowledge that the property had been sold to her, and that it was by virtue of that sale that she had undertaken major repairs and improvements on it?

Petitioner should have likewise been put on guard by respondent’s declaration of the property for tax purposes on April 23, 1998, [37] as annotated in the tax certificate filed seven  months later.[38] Verily, the tax declaration represented an adverse claim over the unregistered property and was inimical to the right of petitioner.

Indeed, the above circumstances derogated its claim of control and possession of the property.

Order of Preference in DoubleSale of Immovable Property

The ownership of immovable property sold to two different buyers at different times is governed by Article 1544 of the Civil Code, which reads as follows:

“Article 1544.  x  x  x

“Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.

“Should there be no inscription, the ownership shall pertain to the person who in good faith was first in possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.”

Galino allegedly sold the property in question to petitioner on December 5, 1996 and, subsequently, to respondent on April 24, 1998.  Petitioner thus argues that being the first buyer, it has a better right to own the realty.  However, it has not been able to establish that its Deed of Sale was recorded in the Registry of Deeds of Olongapo City.[39] Its claim of an unattested and unverified notation on its Deed of Absolute Sale[40] is not equivalent to registration.  It admits that, indeed, the sale has not been recorded in the Registry of Deeds.[41]

In the absence of the required inscription, the law gives preferential right to the buyer who in good faith is first in possession.  In determining the question of who is first in possession, certain basic parameters have been established by jurisprudence.

First, the possession mentioned in Article 1544 includes not only material but also symbolic possession.[42] Second, possessors in good faith are those who are not aware of any flaw in their title or mode of acquisition. [43] Third, buyers of real property that is in the possession of persons other than the seller must be wary -- they must investigate the rights of the possessors.[44] Fourth, good faith is always presumed;

upon those who allege bad faith on the part of the possessors rests the burden of proof.[45]

Earlier, we ruled that the subject property had not been delivered to petitioner; hence, it did not acquire possession either materially or symbolically. As between the two buyers, therefore, respondent was first in actual possession of the property.

Petitioner has not proven that respondent was aware that her mode of acquiring the property was defective at the time she acquired it from Galino.  At the time, the property -- which was public land -- had not been registered in the name of Galino; thus, respondent relied on the tax declarations thereon.  As shown, the former’s name appeared on the tax declarations for the property until its sale to the latter in 1998.  Galino was in fact occupying the realty when respondent took over possession.  Thus, there was no circumstance that could have placed the latter upon inquiry or required her to further investigate petitioner’s right of ownership.

Disqualification from Ownershipof Alienable Public Land

Private corporations are disqualified from acquiring lands of the public domain, as provided under Section 3 of Article XII of the Constitution, which we quote:

“Sec. 3. Lands of the public domain are classified into agricultural, forest or timber, mineral lands, and national parks.  Agricultural lands of the public domain may be further classified by law according to the uses to which they may be devoted.  Alienable lands of the public domain shall be limited to agricultural lands.  Private corporations or associations may not hold such alienable lands of the public domain except by lease, for a period not exceeding twenty-five years, and not to exceed one thousand hectares in area.  Citizens of the Philippines may not lease not more than five hundred hectares, or acquire not more than twelve hectares thereof by purchase, homestead, or grant.  x x x.” (Italics supplied)

While corporations cannot acquire land of the public domain, they can however acquire private land.[46] Hence, the next issue that needs to be resolved is the determination of whether the disputed property is private land or of the public domain.

According to the certification by the City Planning and Development Office of Olongapo City, the contested property in this case is alienable and disposable public land.[47] It was for this reason that respondent filed a miscellaneous sales application to acquire it.[48]

On the other hand, petitioner has not presented proof that, at the time it purchased the property from Galino, the property had ceased to be of the public domain and was already private land.  The established rule is that alienable and disposable land of the public domain held and occupied by a possessor -- personally or through predecessors-in-interest, openly, continuously, and exclusively for 30 years -- is ipso jure converted to private property by the mere lapse of time.[49]

In view of the foregoing, we affirm the appellate court’s ruling that respondent is entitled to possession de facto.  This determination, however, is only provisional in nature.[50] Well-settled is the rule that an award of possession de facto over a piece of property does not constitute res judicata as to the issue of its ownership.[51]

WHEREFORE, this Petition is DENIED and the assailed Decision AFFIRMED.  Costs against petitioner.

SO ORDERED.

trul