Velarde, et.al. vs.

CA
361 SCRA 56, 11 July 2001, Third Division, (Panganiban, J.) 3 concur, 1 on leave
David Raymundo (private respondent) is the absolute and registered owner of a parcel
of land, located at 1918 Kamias St., Dasmarias Village Makati, together with the house and
other improvements, which was under lease. It was negotiated by Davids father with plaintiffs
Avelina and Mariano Velarde (petitioners). A Deed of Sale with Assumption of Mortgage was
executed in favor of the plaintiffs. Part of the consideration of the sale was the vendees
assumption to pay the mortgage obligations of the property sold in the amount of P
1,800,000.00 in favor of the Bank of the Philippine Islands. And while their application for the
assumption of the mortgage obligations is not yet approved by the mortgagee bank, they have
agreed to pay the mortgage obligations on the property with the bank in the name of Mr. David
Raymundo. It was further stated that in the event Velardes violate any of the terms and
conditions of the said Deed of Real Estate Mortgage, they agree that the downpayment
P800,000.00, plus all the payments made with the BPI on the mortgage loan, shall be forfeited
in Favor of Mr. Raymundo, as and by way of liquidated damages, w/out necessity of notice or
any judicial declaration to that effect, and Mr. Raymundo shall resume total and complete
ownership and possession of the property, and the same shall be deemed automatically
cancelled, signed by the Velardes.
Pursuant to said agreements, plaintiffs paid BPI the monthly interest loan for three
months but stopped in paying the mortgage when informed that their application for the
assumption of mortgage was not approved. The defendants through a counsel, wrote plaintiffs
informing the latter that their non-payment to the mortgagee bank constituted non-performance
of their obligation and the cancellation and rescission of the intended sale. And after two days,
the plaintiffs responded and advised the vendor that he is willing to pay provided that Mr.
Raymundo:
(1) delivers actual possession of the property to them not later than January 15, 1987 for
their occupancy;
(2) causes the release of title and mortgage from the BPI and make the title available
and free from any liens and encumbrances;
(3) executes an absolute deed of sale in their favor free from any liens and
encumbrances not later than Jan. 21, 1987.
The RTC of Makati dismissed the complaint of the petitioners against Mr. Raymundo for
specific performance, nullity of cancellation, writ of possession and damages. However, their
Motion for Reconsideration was granted and the Court instructed petitioners to pay the balance
of P 1.8 million to private respondent who, in turn were ordered to execute a deed of absolute
sale and to surrender possession of the disputed property to petitioners.
Upon the appeal of the private respondent to the CA, the court upheld the earlier
decision of the RTC regarding the validity of the rescission made by private respondents.
Issue:
Whether or not the rescission of contract made by the private respondent is valid.
Held:
Yes. In a contract of sale, the seller obligates itself to transfer the ownership of
and deliver a determinate thing, and the buyer to pay therefor a price certain in money or

its equivalent. Private respondents had already performed their obligation through the
execution of the Deed of Sale, which effectively transferred ownership of the property to
petitioner through constructive delivery. Prior physical delivery or possession is not legally
required, and the execution of the Deed of Sale is deemed equivalent to delivery.
Petitioners, on the other hand, did not perform their correlative obligation of paying the
contract price in the manner agreed upon. Worse, they wanted private respondents to perform
obligations beyond those stipulated in the contract before fulfilling their own obligation to pay the
full purchase price.
As pointed out earlier, the breach committed by petitioners was not so much their
nonpayment of the mortgage obligations, as their nonperformance of their reciprocal obligation
to pay the purchase price under the contract of sale. Private respondents right to rescind the
contract finds basis in Article 1191 of the Civil Code, which explicitly provides as follows:
Art. 1191. -- The power to rescind obligations is implied in reciprocal ones,
in case one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission even after he has chosen fulfillment, if the latter should become
impossible.
The right of rescission of a party to an obligation under Article 1191 of the Civil Code
is predicated on a breach of faith by the other party who violates the reciprocity between
them. The breach contemplated in the said provision is the obligors failure to comply with an
existing obligation. When the obligor cannot comply with what is incumbent upon it, the obligee
may seek rescission and, in the absence of any just cause for the court to determine the period
of compliance, the court shall decree the rescission.
In the present case, private respondents validly exercised their right to rescind the contract,
because of the failure of petitioners to comply with their obligation to pay the balance of the
purchase price. Indubitably, the latter violated the very essence of reciprocity in the
contract of sale, a violation that consequently gave rise to private respondents right to
rescind the same in accordance with law.
Rescission creates the obligation to return the object of the contract. It can be
carried out only when the one who demands rescission can return whatever he may be
obliged to restore. To rescind is to declare a contract void at its inception and to put an end to
it as though it never was. It is not merely to terminate it and release the parties from further
obligations to each other, but to abrogate it from the beginning and restore the parties to their
relative positions as if no contract has been made

JOVAN LAND vs. COURT OF APPEALS and EUGENIO QUESADA, INC.

G.R. No. 125531. February 12, 1997, First Division (Hermosisima Jr. J.) 4 concur
Petitioner Jovan Land, Inc. is a corporation engaged in the real estate business. Its
President and Chairman of the Board of Directors is one Joseph Sy.
Private respondent Eugenio Quesada is the owner of the Q Building located on an 801 sq.
m. lot at the corner of Mayhaligue Street and Rizal Avenue, Sta. Cruz, Manila. The property is
covered by TCT No. 77796 of the Registry of Deeds of Manila.
Petitioner learned from co-petitioner Consolacion P. Mendoza that private respondent was
selling the aforesaid Mayhaligue property.
First offer:
Petitioner through Joseph Sy made a written offerfor P10.25 million. This first offer was not
accepted by Conrado Quesada, the General Manager of private respondent.
Second offer:
Joseph Sy sent a second written offer for the same price but inclusive of an undertaking to
pay the documentary stamp tax, transfer tax, registration fees and notarial charges. A check for
one million pesos drawn against the Philippine Commercial and Industrial Bank (PCIB) was
enclosed therewith as earnest money. This second offer, with earnest money, was again
rejected by Conrado Quesada.
Third offer:
Joseph Sysent a third written offer for twelve million pesos with a similar check for one
million pesos as earnest money. Annotated on this third letter-offer was the phrase "Received
original, 9-4-89" beside which appears the signature of Conrado Quesada.
On the basis of this annotation which petitioner insists is the proof that there already exists
a valid, perfected agreement to sell the Mayhaligue property, petitioner filed with the trial court, a
complaint for specific performance and collection of sum of money with damages. RTC and CA
ruled against Jovan Land.
ISSUE: Whether or not there is a perfected contract of sale.

HELD: No. In the case of Ang Yu Asuncion v. Court of Appeals,[4] we held that:
"xxx [A] contract (Art. 1157, Civil Code), x x x is a meeting of minds between two
persons whereby one binds himself, with respect to the other, to give something or to
render some service xxx. A contract undergoes various stages that include its
negotiation or preparation, its perfection and, finally, its consummation. Negotiation
covers the period from the time the prospective contracting parties indicate interest in
the contract to the time the contract is concluded xxx. The perfection of the contract
takes place upon the concurrence of the essential elements thereof."
Moreover, it is a fundamental principle that before contract of sale can be valid, the
following elements must be present, viz:
(a) consent or meeting of the minds;
(b) determinate subject matter;
(c) price certain in money or its equivalent.
Until the contract of sale is perfected, it cannot, as an independent source of obligation,
serve as a binding juridical relation between the parties.
Clearly then, a punctilious examination of the receipt reveals that the same can neither be
regarded as a contract of sale nor a promise to sell. Such an annotation by Conrado Quesada
amounts to neither a written nor an implied acceptance of the offer of Joseph Sy. It is merely a
memorandum of the receipt by the former of the latter's offer. The requisites of a valid contract
of sale are lacking in said receipt and therefore the "sale" is neither valid nor enforceable.
Although there was a series of communications through letter-offers and rejections as
evident from the facts of this case, still it is undeniable that no written agreement was reached
between petitioner and private respondent with regard to the sale of the realty. Hence, the
alleged transaction is unenforceable as the requirements under the Statute of Frauds have not
been complied with. Under the said provision, an agreement for the sale of real property or of an
interest therein, to be enforceable, must be in writing and subscribed by the party charged or by
an agent thereof

MIGUEL KATIPUNAN et al. vs. BRAULIO KATIPUNAN, JR.

G.R.No.132415, 30 January 2002, THIRD DIVISION (SANDOVAL-GUTIERREZ, J.) 4 concur
Respondent Braulio Katipunan, Jr. is the owner of a 203 square meter lot and a five-door
apartment constructed thereon located at 385-F Matienza St., San Miguel, Manila. The lot is
registered in his name under TCT No. 109193of the Registry of Deeds of Manila. The apartment
units are occupied by lessees.
Respondent, assisted by his brother, petitioner Miguel Katipunan, entered into a Deed of
Absolute Sale with brothers Edgardo Balguma and Leopoldo Balguma, Jr. (co-petitioners),
represented by their father Atty. Leopoldo Balguma, Sr., involving the subject property for a
consideration of P187,000.00. Consequently, respondents title to the property was cancelled
and in lieu thereof, TCT No. 168394 [ was registered and issued in the names of the Balguma
brothers. Atty. Balguma, then still alive, started collecting rentals from the lessees of the
apartments.
Respondent filed with the RTC a complaint for annulment of the Deed of Absolute Sale. He
averred that his brother Miguel, Atty. Balguma and Inocencio Valdez (defendants therein, now
petitioners) convinced him to work abroad. They even brought him to the NBI and other
government offices for the purpose of securing clearances and other documents which later
turned out to be falsified. Through insidious words and machinations, they made him sign a
document purportedly a contract of employment, which document turned out to be a Deed of

Absolute Sale. By virtue of the said sale, brothers Edgardo and Leopoldo, Jr. (co-defendants),
were able to register the title to the property in their names. Respondent further alleged that he
did not receive the consideration stated in the contract. He was shocked when his sister Agueda
Katipunan-Savellano told him that the Balguma brothers sent a letter to the lessees of the
apartment informing them that they are the new owners. Finally, he claimed that the defendants,
now petitioners, with evident bad faith, conspired with one another in taking advantage of his
ignorance, he being only a third grader.
ISSUE:
Whether or not the the Deed of Absolute sale is voidable.
HELD:
Yes. A contract of sale is born from the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price. This meeting of the minds
speaks of the intent of the parties in entering into the contract respecting the subject
matter and the consideration thereof. Thus, the elements of a contract of sale are
consent, object, and price in money or its equivalent. Under Article 1330 of the Civil
Code, consent may be vitiated by any of the following: (a) mistake, (2) violence, (3)
intimidation, (4) undue influence, and (5) fraud. The presence of any of these vices
renders the contract voidable.
The circumstances surrounding the execution of the contract manifest a vitiated consent on
the part of respondent. Undue influence was exerted upon him by his brother Miguel and
Inocencio Valdez (petitioners) and Atty. Balguma. It was his brother Miguel who negotiated with
Atty. Balguma. However, they did not explain to him the nature and contents of the document.
Worse, they deprived him of a reasonable freedom of choice. It bears stressing that he reached
only grade three.

A contract where one of the parties is incapable of giving consent or where

consent is vitiated by mistake, fraud, or intimidation is not void ab initio but only
voidable and is binding upon the parties unless annulled by proper Court action. The
effect of annulment is to restore the parties to the status quo ante insofar as legally and
equitably possible-- this much is dictated by Article 1398 of the Civil Code. As an exception
however to the principle of mutual restitution, Article 1399 provides that when the defect of
the contract consists in the incapacity of one of the parties, the incapacitated person is not
obliged to make any restitution, except when he has been benefited by the things or price
received by him.
Thus, since the Deed of Absolute Sale between respondent and the Balguma brothers is
voidable and hereby annulled, then the restitution of the property and its fruits to respondent is
just and proper. Petitioners should turn over to respondent all the amounts they received

starting January, 1986 up to the time the property shall have been returned to the latter. During
the pre-trial and as shown by the Pre-Trial Order, the contending parties stipulated that the
Balguma brothers received from the lessees monthly rentals.
Article 24 of the Civil Code enjoins courts to be vigilant for the protection of a party to a
contract who is placed at a disadvantage on account of his ignorance, mental weakness or
other handicap, like respondent herein.

REGINA P. DIZON et al. vs. CA et. Al

302 SCRA 288, 28 January 1999, FIRST DIVISION (MARTINEZ, J.) 4 concur
In 1974, Overland Express Lines, Inc. entered into a Contract of Lease with Option to Buy
with herein petitioners involving a land in Quezon City. The term of the lease was for one (1)
year, during which period, the lessee was granted an option to purchase the lot for P3,000.00
per square meter. Thereafter, the lease shall be on a per month basis with a monthly rental of
P3,000.00. Later, for failure to pay the increased rental of P8,000.00 per month effective June
1976, herein petitioners filed an action for ejectment to which the Corporation was ordered to
vacate the leased premises. The Corporation, however, questioned the jurisdiction of the City

Court over the ejectment case. Subsequently, the Corporation filed its own action for specific
performance and fixing the period for obligation. It sought to compel the execution of a deed of
sale pursuant to the option to purchase, and the receipt of the partial payment it made and to fix
the period to pay the balance thereof.
Petitioners have established a right to evict private respondent from the subject premises
for non-payment of rentals. In this regard, the then City Court had exclusive jurisdiction over the
ejectment suit. The filing by the Corporation of a suit with the RTC for specific performance did
not divest the City Court of its jurisidiction over the ejectment case The decision of the City
Court was affirmed by the Intermediate Appellate Court and the Supreme Court. Having failed
to exercise the option to purchase within the stipulated one-year period, private respondent
Corporation cannot now enforce its option. An implied new lease on a monthly basis does
not ipso facto carry with it an implied revival of the option to purchase the leased premises. The
right to exercise the option to purchase expired with the termination of the original contract of
lease for one year. The private respondent delivered a check of P300,000.00 to Alice Dizon
who allegedly acted as agent of petitioners pursuant to the supposed authority given by
petitioner as payee thereof does not amount to a perfected contract of sale pursuant to the
contract of lease with option to buy. There was no valid consent by the petitioners on the
supposed sale entered into by Alice Dizon, as petitioners alleged agent, and private respondent.

ISSUE:
Whether or not there is a perfected contract of sale.
HELD:
No.
NON-PAYMENT OF RENTALS GIVES RIGHT TO EVICT, REGARDLESS OF THE
ACTION FOR SPECIFIC PERFORMANCE TO ENFORCE OPTION TO PURCHASE WHICH
WAS ALSO INSTITUTED. Petitioners have established a right to evict private respondent from
the subject premises for non-payment of rentals. Since the rent was paid on a monthly basis,
the period of lease is considered to be from month to month in accordance with Article 1687 of
the New Civil Code. Where the rentals are paid monthly, the lease, even if verbal may be
deemed to be on a monthly basis, expiring at the end of every month pursuant to Article 1687, in
relation to Article 1673 of the Civil Code. In such case, a demand to vacate is not even
necessary for judicial action after the expiration of every month. When private respondent failed
to pay the increased rental, the petitioners had a cause of action to institute an ejectment suit
against the former with the then City Court. In this regard, the City Court (now MTC) had
exclusive jurisdiction over the ejectment suit. The filing by private respondent of a suit with the
Regional Trial Court for specific performance to enforce the option to purchase did not divest the
then City Court of its jurisdiction to take cognizance over the ejectment case. Of note is the fact

that the decision of the City Court was affirmed by both the Intermediate Appellate Court and
this Court.
FAILURE TO EXERCISE OPTION TO PURCHASE WITHIN THE STIPULATED
PERIOD; EFFECT; Having failed to exercise the option to purchase within the stipulated one
year period, private respondent cannot enforce its option to purchase anymore. Moreover, even
assuming arguendo that the right to exercise the option still subsists at the time private
respondent tendered the amount, the suit for specific performance to enforce the option to
purchase was filed more than ten (10) years after accrual of the cause of action as provided
under Article 1144 of the New Civil Code. In this case, there was a contract of lease for one (1)
year with option to purchase. The contract of lease expired without the private respondent, as
lessee, purchasing the property but remained in possession thereof. Hence, there was an
implicit renewal of the contract of lease on a monthly basis. The other terms of the original
contract of lease which are revived in the implied new lease under Article 1670 of the New Civil
Code are only those terms which are germane to the lessees right of continued enjoyment of
the property leased. Therefore, an implied new lease does not ipso facto carry with it any
implied revival of private respondents option to purchase (as lessee thereof) the leased
premises. The provision entitling the lessee the option to purchase the leased premises is not
deemed incorporated in the impliedly renewed contract because it is alien to the possession of
the lessee. Private respondents right to exercise the option to purchase expired with the
termination of the original contract of lease for one year.
CONTRACT OF SALE; WHEN PERFECTED. Under Article 1475 of the New Civil Code,
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.
Thus, the elements of a contract of sale are consent, object, and price in money or its
equivalent. It bears stressing that the absence of any of these essential elements negates the
existence of a perfected contract of sale. Sale is a consensual contract and he who alleges it
must show its existence by competent proof.
CONTRACT OF AGENCY; NOT APPRECIATED. There was no valid consent by the
petitioners (as co-owners of the leased premises) on the supposed sale entered into by Dizon,
as petitioners alleged agent, and private respondent. The basis for agency is representation
and a person dealing with an agent is put upon inquiry and must discover upon his peril the
authority of the agent. As provided in Article 1868 of the New Civil Code, there was no showing
that petitioners consented to the act of Dizon nor authorized her to act on their behalf with
regard to her transaction with private respondent. The most prudent thing private respondent
should have done was to ascertain the extent of the authority of Dizon. Being negligent in this
regard, private respondent cannot seek relief on the basis of a supposed agency.

VICENTE GOMEZ, as successor-in-interest of awardee LUISA GOMEZ vs. CA et al.

G.R. No. 120747, 21 September 2000, SECOND DIVISION (BUENA, J.) 4 concur
Pursuant to the Land for the Landless Program of the City of Manila and in accordance with
City Ordinance, the Office of City Mayor issued Resolution No. 16-A, which effectively set
guidelines and criteria for the award of city home lots to qualified and deserving
applicants. Attached to said resolution and made as integral part thereof was a Contract to
Sellthat further laid down terms and conditions which the lot awardee must comply with.
The City of Manila, through the City Tenants Security Committee (CTSC) presently known
as the Urban Settlement Office (URBAN), passed Resolution 17-78 which in effect awarded to
46 applicants, 37 homelots in the former Ampil-Gorospe estate located in Tondo, Manila. Luisa
Gomez, predecessor-in-interest of herein petitioner Vicente Gomez, was awarded Lot 4,
Block 1, subject to the provisions of Resolution No. 3-78 of the CTSC and building,
subdivision and zoning rules and regulations.
Consequently, a certificate of award was granted by the CTSC in favor of Luisa Gomez,
who paid the purchase price of the lot in the amount of P3,556.00 on installment basis, said
payments being duly covered by official receipts.
Luisa Gomez finally paid in full the P 3,556.00 purchase price of the lot. Despite the full
payment, Luisa still paid in installment an amount of P8,244.00, in excess of the purchase price,
which the City of Manila, through the CTSC, accepted. Additionally, the lot was declared for
taxation purposes and the corresponding real estate taxes thereon paid from 1980-1988. In
1982, Luisa, together with her spouse Daniel, left again for the United States of America where
she died. She is survived by her husband and four children.
Petitioner urges that awardee Luisa Gomez did not commit any violation of the lot award.
On the contrary, the records would indubitably show that Luisa Gomez, including her heirs and
successors-in-interest, have performed acts that constitute gross, if not brazen, violation of the
aforementioned terms and conditions of the award, as evidenced by the investigation report
submitted by Pfc. Cristobal.
Results of the investigation conducted, reveal that the lot was actually occupied and leased
by a certain Erlinda Perez and Mignony Lorghas, together with their respective families, who
were paying rentals to petitioner Vicente Gomez for the lease of the subject premises.

the CTSC, headed by then City Mayor Gemiliano Lopez, Jr. as Chairman, issued
Resolutionadopting the findings of the investigation report submitted by Pfc. Cristobal, and
ordering the cancellation of the lot awards of Daniel Gomez and other awardees who were
found to have committed violations, and further declaring the forfeiture of payments made by
said awardees as reasonable compensation for the use of the homelots.
Daniel Gomez, spouse of awardee Luisa Gomez, died in the United States of
America. Eventually, the surviving children of the deceased spouses, who were American
citizens and residents of the United States of America, executed an affidavit of adjudication with
deed of donation disposing gratuitously Lot No. 1, Block 4, in favor of their uncle Vicente
Gomez.
Petitioner Vicente Gomez filed a memorandum[15] before the CTSC praying that Resolution
15-86 be set aside and that the award of the lot be restored to Luisa Gomez, or her heirs or
successor-in-interest , preferably Vicente Gomez

ISSUE:
Whether or not the contract entered into between the City of Manila and awardee Luisa Gomez
was not one of sale but a contract to sell, which, under both statutory and case law, has its own
attributes, peculiarities and effects.
HELD:
Yes. Speaking through Mr. Justice Florenz Regalado, this Court in Adelfa Properties, Inc. vs. Court
of Appeals, mapped out the bold distinctions between these species of contracts, to wit:
In a contract of sale, the 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. 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 purchase 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 being effective. Thus, a
deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is
reserved in the seller until the full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the
moment the buyer fails to pay within a fixed period.

To be sure, a contract of sale may either be absolute or conditional. One form of conditional sales is
what is now popularly termed as a Contract to Sell, where ownership or title is retained until the fulfillment
of a positive suspensive condition normally the payment of the purchase price in the manner agreed upon.
In the instant case, we uphold the Contract to Sell, duly annexed and attached to Resolution 16-A,
which explicitly provides for additional terms and conditions upon which the lot awardees are
bound.Although unsigned, the Contract to Sell, in addition to the provisions of Resolution 16-A, constitutes
the law between the contracting parties. After all, under the law there exists a binding contract between the

parties whose minds have met on a certain matter notwithstanding that they did not affix their signatures to
its written form.
For a contract, like a contract to sell, involves a meeting of minds between two persons whereby one
binds himself, with respect to the other, to give something or to render some service. Contracts, in general,
are perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance
absolute.
The contract provides in no uncertain terms, that the abovementioned terms and conditions shall bind
the heirs, executors and administrators of the vendee. The contract further states that breach thereof would
result to the automatic cancellation of the vendees rights thereunder.
Thus, par.(10) (b) (a) of the Contract to Sell, which reads:
X X X any violation of the terms and conditions of this agreement shall automatically cause the cancellation of the vendees rights
under this agreement without necessity of prior notice or judicial declaration X X X.

Such kind of stipulation was upheld by this Court in the Adelfa case where we categorically declared
that Article 1592 of the Civil Code, which requires rescission either by judicial action, or notarial act, does
not apply to a contract to sell.
Moreover, judicial action for rescission of a contract is not necessary where the contract provides for
automatic rescission in case of breach, as in the contract involved in the present controversy.
SAN MIGUEL PROPERTIES PHILIPPINES, INC. vs. SPOUSES HUANG
G.R. No. 137290, 31 July 2000, SECOND DIVISION (MENDOZA, J.) 3 concur, 1 on leave
Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation engaged in the
purchase and sale of real properties. Part of its inventory are two parcels of land totalling 1,
738 square meters at the corner of Meralco Avenue and General Capinpin Street, Barrio
Oranbo, Pasig City, which are covered by TCT Nos. PT-82395 and PT-82396 of the Register
of Deeds of Pasig City.
On February 21, 1994, the properties were offered for sale for P52,140,000.00 in cash.
The offer was made to Atty. Helena M. Dauz who was acting for respondent spouses as
undisclosed principals. In a letter dated March 24, 1994, Atty. Dauz signified her clients
interest in purchasing the properties for the amount for which they were offered by petitioner,
under the following terms: the sum of P500,000.00 would be given as earnest money and the
balance would be paid in eight equal monthly installments from May to December, 1994.
However, petitioner refused the counter-offer. sidro A. Sobrecarey, petitioners vice-president
and operations manager for corporate real estate, indicated his conformity to the offer by
affixing his signature to the letter and accepted the "earnest-deposit" ofP1 million. Upon
request of respondent spouses, Sobrecarey ordered the removal of the "FOR SALE" sign
from the properties.

Isidro A. Sobrecarey, petitioners vice-president and operations manager for corporate real
estate, indicated his conformity to the offer by affixing his signature to the letter and accepted
the "earnest-deposit" ofP1 million. Upon request of respondent spouses, Sobrecarey ordered
the removal of the "FOR SALE" sign from the properties.
Petitioner, through its president and chief executive officer, Federico Gonzales, wrote Atty.
Dauz informing her that because the parties failed to agree on the terms and conditions of the
sale despite the extension granted by petitioner, the latter was returning the amount of P1
million given as "earnest-deposit."
Petitioner contends that the Court of Appeals erred in finding that there was a perfected
contract of sale between the parties because the March 29, 1994 letter of respondents, which
petitioner accepted, merely resulted in an option contract, albeit it was unenforceable for lack
of a distinct consideration. Petitioner argues that the absence of agreement as to the mode of
payment was fatal to the perfection of the contract of sale. I
ISSUE: Whether or not there was a perfected contract of sale.

HELD:
No. With regard to the alleged payment and acceptance of earnest money, the Court holds
that respondents did not give the P1 million as "earnest money" as provided by Art. 1482 of
the Civil Code. They presented the amount merely as a deposit of what would eventually
become the earnest money or downpayment should a contract of sale be made by them. The
amount was thus given not as a part of the purchase price and as proof of the
perfection of the contract of sale but only as a guarantee that respondents would not
back out of the sale. Respondents in fact described the amount as an "earnestdeposit."
The first condition for an option period of 30 days sufficiently shows that a sale was never
perfected. As petitioner correctly points out, acceptance of this condition did not give rise to a

perfected sale but merely to an option or an accepted unilateral promise on the part of
respondents to buy the subject properties within 30 days from the date of acceptance of the
offer. Such option giving respondents the exclusive right to buy the properties within
the period agreed upon is separate and distinct from the contract of sale which the
parties may enter. All that respondents had was just the option to buy the properties which
privilege was not, however, exercised by them because there was a failure to agree on the
terms of payment. No contract of sale may thus be enforced by respondents.
Even the option secured by respondents from petitioner was fatally defective. Under
the second paragraph of Art. 1479, an accepted unilateral promise to buy or sell a determinate
thing for a price certain is binding upon the promisor only if the promise is supported by a
distinct consideration. Consideration in an option contract may be anything of value,
unlike in sale where it must be the price certain in money or its equivalent. There is no
showing here of any consideration for the option. Lacking any proof of such consideration, the
option is unenforceable.
Equally compelling as proof of the absence of a perfected sale is the second condition
that, during the option period, the parties would negotiate the terms and conditions of the
purchase. The stages of a contract of sale are as follows:
(1) negotiation, covering the period from the time the prospective contracting parties
indicate interest in the contract to the time the contract is perfected;
(2) perfection, which takes place upon the concurrence of the essential elements of the
sale which are the meeting of the minds of the parties as to the object of the contract and
upon the price; and
(3) consummation, which begins when the parties perform their respective undertakings
under the contract of sale, culminating in the extinguishment thereof
In the present case, the parties never got past the negotiation stage. The alleged
"indubitable evidence of a perfected sale cited by the appellate court was nothing more than
offers and counter-offers which did not amount to any final arrangement containing the
essential elements of a contract of sale. While the parties already agreed on the real
properties which were the objects of the sale and on the purchase price, the fact remains that
they failed to arrive at mutually acceptable terms of payment, despite the 45-day extension
given by petitioner.
Thus, it is not the giving of earnest money, but the proof of the concurrence of all the
essential elements of the contract of sale which establishes the existence of a perfected sale.

MANUEL LAO vs. CA and BETTER HOMES REALTY & HOUSING CORPORATION
G.R. No. 115307. July 8, 1997, THIRD DIVISION, (PANGANIBAN, J.)3 concur 1 on leave

Private Respondent Better Homes Realty and Housing Corporation) filed with the MTC
of QC, a complaint for unlawful detainer, on the ground that (said private respondent) is the
owner of the premises situated at Unit I, No. 21 N. Domingo Street, Quezon City, evidenced by
Transfer Certificate of of the Registry of Deeds of QC; that (herein Petitioner Manuel Lao)
occupied the property without rent, but on (private respondents) pure liberality with the
understanding that he would vacate the property upon demand, but despite demand to vacate
made by letter received by (herein petitioner) , the (herein petitioner) refused to vacate the
premises.
In his answer to the complaint, (herein petitioner) claimed that he is the true owner of the
house and lot located at Unit I, No. 21 N. Domingo Street, Quezon City; that the (herein private
respondent) purchased the same from N. Domingo Realty and Development Corporation but
the agreement was actually a loan secured by mortgage; and that plaintiffs cause of action is
for accion publiciana1, outside the jurisdiction of an inferior court.
ISSUE:
Whether or not the subject deed is one of sale.
HELD:No.
It is one of equitable mortgage. Based on the conduct of the petitioner and private
respondent and even the terminology of the second option to purchase, we rule that the intent
and agreement between them was undoubtedly one of equitable mortgage and not of sale.
In determining the nature of a contract, the Court looks at the intent of the
parties and not at the nomenclature used to describe it. Pivotal to deciding this issue is
the true aim and purpose of the contracting parties as shown by the terminology used in the
covenant, as well as by their conduct, words, actions and deeds prior to, during and
immediately after executing the agreement. In this regard, parol evidence becomes admissible
to prove the true intent and agreement of the parties which the Court will enforce even if the
title of the property in question has already been registered and a new transfer certificate of
title issued in the name of the transferee.
Applying the preceding principles to the factual milieu of this case, we find the agreement
between the private respondent and N. Domingo Realty & Housing Corporation, as
represented by petitioner, manifestly one of equitable mortgage.
First, possession of the property in the controversy remained with Petitioner Manuel
Lao who was the beneficial owner of the property, before, during and after the alleged sale. It
1 Accion publiciana is the plenary action to recover the right of possession which
should be brought in the proper regional trial court when dispossession has lasted
for more than one year. It is an ordinary civil proceeding to determine the better
right of possession of realty independently of title. In other words, if at the time of
the filing of the complaint more than one year had elapsed since defendant had
turned plaintiff out of possession or defendants possession had become illegal, the
action will be, not one of the forcible entry or illegal detainer,
but an accion publiciana.

is settled that a pacto de retro sale should be treated as a mortgage where the (property) sold
never left the possession of the vendors.
Second, the option given to Manuel Lao to purchase the property in controversy had
been extended twicethrough documents executed by Mr. Tan Bun Uy, President and
Chairman of the Board of Better Homes Realty & Housing Corporation. The wording of the
first extension is a refreshing revelation that indeed the parties really intended to be bound by
a loan with mortgage, not by a pacto de retro. It reads, On June 10, 88, this option is extended
for another sixty days to expired (sic) on Aug. 11, 1988. The purchase price is increased
to P137,000.00. Since Mr. Lao borrow (sic) P20,000.00 from me. These extensions clearly
represent the extension of time to pay the loan given to Manuel Lao upon his failure to pay
said loan on its maturity. Mr. Lao was even granted an additional loan of P20,000.00 as
evidenced by the above-quoted document.
Third, unquestionably, Manuel Lao and his brother were in such dire need of money
that they mortgaged their townhouse units registered under the name of N. Domingo Realty
Corporation, the family corporation put up by their parents, to Private Respondent Better
Homes Realty & Housing Corporation. In retrospect, it is easy to blame Petitioner Manuel Lao
for not demanding a reformation of the contract to reflect the true intent of the parties. But this
seeming inaction is sufficiently explained by the Lao brothers desperate need for money,
compelling them to sign the document purporting to be a sale after they were told that the
same was just for formality.
Based on the previous discussion, there was no sale of the disputed property. Hence,
it still belongs to petitioners family corporation, N. Domingo Realty & Development
Corporation. Private respondent, being a mere mortgagee, has no right to eject
petitioner. Private respondent, as a creditor and mortgagee, x x x cannot appropriate the
things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary
is null and void.