Quijada v. CA [G.R. No. 126444. December 4, 1998.]Second Division, Martinez (J): 3 concurFacts: Petitioners (Alfonso, Cresente, Reynalda, Demetrio, Eliuteria, Eulalio, and Warlito) are the children of the late Trinidad Corvera Vda. de Quijada. Trinidad was one of the heirs of the late Pedro Corvera and inherited from the latter the 2-hectare parcel of land subject of the case, situated in the barrio of San Agustin, Talacogon, Agusan del Sur. On 5 April 1956, Trinidad Quijada together with her sisters Leonila Corvera Vda. de Sequeña and Paz Corvera Cabiltes and brother Epapiadito Corvera executed a conditional deed of donation of the 2-hectare parcel of land in favor of the Municipality of Talacogon, the condition being that the parcel of land shall be used solely and exclusively as part of the campus of the proposed provincial high school in Talacogon. Apparently, Trinidad remained in possession of the parcel of land despite the donation. On 29 July 1962, Trinidad sold 1 hectare of the subject parcel of land to Regalado Mondejar. Subsequently, Trinidad verbally sold the remaining 1 hectare to Mondejar without the benefit of a written deed of sale and evidenced solely by receipts of payment. In 1980, the heirs of Trinidad, who at that time was already dead, filed a complaint for forcible entry against Mondejar, which complaint was, however, dismissed for failure to prosecute. In 1987, the proposed provincial high school having failed to materialize, the Sangguniang Bayan of the municipality of Talacogon enacted a resolution reverting the 2 hectares of land donated back to the donors. In the meantime, Mondejar sold portions of the land to Fernando Bautista, Rodolfo Goloran, Efren Guden, and Ernesto Goloran.

On 5 July 1988, the petitioners filed a complaint against private respondents (Mondejar, Rodulfo and Ernesto Goloran, Asis, Ras, Abiso, Bautista, Macasero and Maguisay) for quieting of title, recovery of possession and ownership of parcels of land with claim for attorney’s fees and damages. The trial court rendered judgment in favor of the petitioners, holding that Trinidad Quijada did not have legal title or right to sell the land to Mondejar as it belongs to the Municipality of Talacogon at that time, and that the deed of sale in favor of Mondejar did not carry the conformity and acquiescence of her children considering that Trinidad was already 63 years old and a widow. The trial court ordered the defendants (private respondents), and any person acting in defendants’ behalf to return and vacate the 2 hectares of land to the plaintiff, and to remove their improvements constructed on the lot; ordered the cancellation of the deed of sale executed by Trinidad to Mondejar, as well as the deeds of sale/relinquishments executed by Mondejar to the other defendants; and ordered the defendants to pay the plaintiffs, in solidum, the amount of P10,000, P8,000, and P30,000 as attorney’s fees, expenses of litigation and moral damages, respectively. On appeal, the Court of Appeals reversed and set

aside the judgment a quo ruling that the sale made by Trinidad Quijada to respondent Mondejar was valid as the former retained an inchoate interest on the lots by virtue of the automatic reversion clause in the deed of donation. Thereafter, petitioners filed a motion for reconsideration. When the CA denied their motion, petitioners instituted a petition for review to the Supreme Court. The Supreme Court affirmed the assailed decision of the Court of Appeals.

1. Condition valid in donation if not contrary to law, morals, good customs, public order or public policyThe donation made on April 5, 1956 by Trinidad Quijada and her brother and sisters was subject to the condition that the donated property shall be “used solely and exclusively as a part of the campus of the proposed Provincial High School in Talacogon.” The donation further provides that should “the proposed Provincial High School be discontinued or if the same shall be opened but for some reason or another, the same may in the future be closed” the donated property shall automatically revert to the donor. Such condition, not being contrary to law, morals, good customs, public order or public policy was validly imposed in the donation.

2. Donation as mode of acquiring ownershipWhen the Municipality’s acceptance of the donation was made known to the donor, the former became the new owner of the donated property, donation being a mode of acquiring and transmitting ownership, notwithstanding the condition imposed by the donee. The donation is perfected once the acceptance by the donee is made known to the donor. Accordingly, ownership is immediately transferred to the latter and that ownership will only revert to the donor if the resolutory condition is not fulfilled.

3. Condition to construct school is a resolutory conditionThe resolutory condition, in the present case, is the construction of the school. It has been ruled that when a person donates land to another on the condition that the latter would build upon the land a school, the condition imposed is not a condition precedent or a suspensive condition but a resolutory one. So long as the resolutory condition subsists and is capable of fulfillment, the donation remains effective and the donee continues to be the owner subject only to the rights of the donor or his successors-in-interest under the deed of donation. Since no period was imposed by the donor on when must the donee comply with the condition, the latter remains the owner so long as he has tried to comply with the condition within a reasonable period. Such period, however, became irrelevant herein when the donee manifested that it cannot comply with the condition and the same was made known to the donor. Only then, when the non-fulfillment of the resolutory condition was brought to the donor’s

knowledge, that ownership of the donated property reverted to the donor as provided in the automatic reversion clause of the deed of donation.

4. Inchoate interest may be subject of contract including a contract of sale; Interest over property under conditional deed of donation, not the land itselfThe donor may have an inchoate interest in the donated property during the time that ownership of the land has not reverted to her. Such inchoate interest may be the subject of contracts including a contract of sale. In the present case, however, what the donor sold was the land itself which she no longer owns. It would have been different if the donor-seller sold her interests over the property under the deed of donation which is subject to the possibility of reversion of ownership arising from the non-fulfillment of the resolutory condition.

5. Laches, elementsLaches presupposes failure or neglect for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier; “it is negligence or omission to assert a right within a reasonable time, thus, giving rise to a presumption that the party entitled to assert it either has abandoned or declined to assert it.” Its essential elements of (a) Conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation complained of; (b) Delay in asserting complainant’s right after he had knowledge of the defendant’s conduct and after he has an opportunity to sue; (c) Lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and, (d) Injury or prejudice to the defendant in the event relief is accorded to the complainant” are absent in this case. In the present case, petitioners’ cause of action to quiet title commenced only when the property reverted to the donor and/or his successors-in-interest in 1987, not in the 1960’s when they had no interest over the property at that time except under the deed of donation to which private respondents were not privy. Moreover, petitioners had previously filed an ejectment suit against private respondents only that it did not prosper on a technicality.

6. Sale, being a consensual contract, is perfected by mere consent; Seller need not own property when sold but when deliveredSale, being a consensual contract, is perfected by mere consent, which is manifested the moment there is a meeting of the minds as to the offer and acceptance thereof on three (3) elements: subject matter, price and terms of payment of the price. Ownership by the seller on the thing sold at the time of the perfection of the contract of sale is not an element for its perfection. What the law requires is that the seller has the right to transfer ownership at the time

the thing sold is delivered. Perfection per se does not transfer ownership which occurs upon the actual or constructive delivery of the thing sold. A perfected contract of sale cannot be challenged on the ground of non-ownership on the part of the seller at the time of its perfection; hence, the sale is still valid.

7. Seller’s title passes by operation of law to the buyerThe consummation of the perfected contract is another matter. It occurs upon the constructive or actual delivery of the subject matter to the buyer when the seller or her successors-in-interest subsequently acquires ownership thereof. In the present case, such circumstance happened in this case when petitioners (Trinidad’s heirs) became the owners of the subject property upon the reversion of the ownership of the land to them. Consequently, ownership is transferred to Mondejar and those who claim their right from him.

Article 1434 of the New Civil Code supports the ruling that the seller’s “title passes by operation of law to the buyer.” This rule applies not only when the subject matter of the contract of sale is goods, but also to other kinds of property, including real property.

8. Article 1409 (4) does not provide that the properties of a municipality are outside the commerce of man; Objects outside of the commerce of man are those which cannot be appropriatedNowhere in Article 1409 (4) is it provided that the properties of a municipality, whether it be those for public use or its patrimonial property, are outside the commerce of men; so as to render the contract involving the same inexistent and void from the beginning when sold. In the present case, the lots were conditionally owned by the municipality. To rule that the donated properties are outside the commerce of men would render nugatory the unchallenged reasonableness and justness of the condition which the donor has the right to impose as owner thereof. Moreover, the objects referred to as outside the commerce of man are those which cannot be appropriated, such as the open seas and the heavenly bodies.

9. No factual or legal basis for the award of fees and damagesThere is neither factual nor legal basis for the trial court’s award of attorney’s fees, litigation expenses and moral damages. Attorney’s fees and expenses of litigation cannot, following the general rule in Article 2208 of the New Civil Code, be recovered in the present case, there being no stipulation to that effect and the case does not fall under any of the exceptions. It cannot be said that private respondents had compelled petitioners to litigate with third persons. Neither can it be ruled that the former acted in “gross and evident bad faith” in

refusing to satisfy the latter’s claims considering that private respondents were under an honest belief that they have a legal right over the property by virtue of the deed of sale. Moral damages cannot likewise be justified as none of the circumstances enumerated under Articles 2219 27 and 2220 28 of the New Civil Code concur in this case.

Fule v. CA [G.R. No. 112212. March 2, 1998.]Third division, Romero (J): 3 concurFacts: Fr. Antonio Jacobe initially mortgage a 10-hectare property in Tanay, Rizal (covered by TCT 320725) to the Rural Bank of Alaminos, Laguna to secure a loan in the amount of P10,000. Said mortgage was later foreclosed and the property offered for public auction upon his default.

In June 1984, Gregorio Fule, as corporate secretary of the bank, asked Remelia Dichoso and Olivia Mendoza to look for a buyer who might be interested in the Tanay property. The two found one in the person of Ninevetch Cruz.

It so happened that in January of said year, Gregorio Fule, also a jeweler, has shown interest in buying a pair of emerald-cut diamond earrings owned by Dr. Cruz. Dr. Cruz has declined Fule’s offer to buy said jewelry for P100,000; and a subsequent bid by Fule to buy them for US$6,000 at $1 to P25 while making a sketch of said jewelry during an inspection at the lobby of Prudential Bank (the latter instance was declined, since the exchange rate appreciated to P19 per dollar).

Subsequently, however, negotiations for the barter of the jewelry and the Tanay property ensued. Atty. Belarmino was requested by Dr. Cruz to check the property and found out that no sale or barter was feasible as the 1-year period of redemption has not expired. In an effort to cut through any legal impediment, Fule executed on 19 October 1984, a deed of redemption on behalf of Fr. Jacobe purportedly in the amount of P15,987.78, and on even date, Fr. Jacobe sold the property to Fule for P75,000.00. The haste with which the two deeds were executed is shown by the fact that the deed of sale was notarized ahead of the deed of redemption. As Dr. Cruz had already agreed to the proposed barter, Fule went to Prudential Bank to take a look at the jewelry.

On 23 October 1984, Fule met Atty. Belarmino at the latter’s residence to prepare the documents of sale. Atty. Belarmino accordingly caused the preparation of a deed of absolute sale while Fule and Dr. Cruz attended to the safekeeping of the jewelry. The following day, Fule, together with Dichoso and Mendoza, arrived at the residence of Atty. Belarmino to finally execute a deed of absolute sale. Fule signed the deed and gave Atty. Belarmino the amount of P13,700.00 for necessary expenses in the transfer of title over the Tanay property; and issued a certification to the effect that the actual consideration of the sale was P200,000.00 and not P80,000.00 as indicated in the deed of absolute sale (the disparity purportedly aimed at minimizing the amount of the capital gains tax that Fule would have to shoulder). Since the jewelry was appraised only at P160,000.00, the parties agreed that the balance of

P40,000.00 would just be paid later in cash. Thereafter, at the bank, as pre-arranged, Dr. Cruz and the cashier opened the safety deposit box, and delivered the contents thereof to Fule. Fule inspected the jewelry, near the electric light at the bank’s lobby, for 10-15 minutes. Fule expressed his satisfaction by nodding his head when asked by Dr. Cruz if the jewelry was okay. For services rendered, Fule paid the agents, Dichoso and Mendoza, the amount of US$300.00 and some pieces of jewelry. He did not, however, give them half of the pair of earrings in question, which he had earlier promised. Later in the evening, Fule arrived at the residence of Atty. Belarmino complaining that the jewelry given him was fake. Dichoso, who borrowed the car of Dr. Cruz, called up Atty. Belarmino. Informed that Fule was at the lawyer’s house, went there posthaste thinking that Fule had finally agreed to give them half of the pair of earrings, only to find Fule demonstrating with a tester that the earrings were fake. Fule then accused Dichoso and Mendoza of deceiving him which they, however, denied. They countered that Fule could not have been fooled because he had vast experience regarding jewelry. Fule nonetheless took back the US$300.00 and jewelry he had given them. Thereafter, the group decided to go to the house of a certain Macario Dimayuga, a jeweler, to have the earrings tested. Dimayuga, after taking one look at the earrings, immediately declared them counterfeit. At around 9:30 p.m., Fule went to one Atty. Reynaldo Alcantara residing at Lakeside Subdivision in San Pablo City, complaining about the fake jewelry. Upon being advised by the latter, Fule reported the matter to the police station where Dichoso and Mendoza likewise executed sworn statements.

On 26 October 1984, Fule filed a complaint before the RTC San Pablo City against private respondents praying, among other things, that the contract of sale over the Tanay property be declared null and void on the ground of fraud and deceit.

On 30 October 1984, the lower court issued a temporary restraining order directing the Register of Deeds of Rizal to refrain from acting on the pertinent documents involved in the transaction. On 20 November 1984, however, the same court lifted its previous order and denied the prayer for a writ of preliminary injunction. After trial, the lower court rendered its decision on 7 March 1989; holding that the genuine pair of earrings used as consideration for the sale was delivered by Dr. Cruz to Fule, that the contract was valid even if the agreement between the parties was principally a barter contract, that the agreement has been consummated at the time the principal parties parted ways at the bank, and that damages are due to the defendants.

From the trial court’s adverse decision, petitioner elevated the matter to the Court of Appeals. On 20 October 1992, the Court of Appeals, however, rendered

a decision affirming in toto the lower court’s decision. His motion for reconsideration having been denied on 19 October 1993. Hence, the petition for review on certiorari.

The Supreme Court affirmed in toto the decision of the Court of Appeals, but ordered Dr. Cruz to pay Fule the balance of the purchase price of P40,000 within 10 days from the finality of the decision; with costs against petitioner.

1. New factual issues cannot be examined as it unduly transcends the limits of the Supreme Court’s review powerThe Supreme Court cannot entertain a factual issue, and thus examine and weigh anew the facts regarding the genuineness of the earrings bartered in exchange for the Tanay property, as this would unduly transcend the limits of the Court’s review power in petitions of this nature which are confined merely to pure questions of law. As a general rule, the Supreme Court accords conclusiveness to a lower court’s findings of fact unless it is shown, inter alia, that: (1) the conclusion is a finding grounded on speculations, surmises or conjectures; (2) the inference is manifestly mistaken, absurd and impossible; (3) when 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; and (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admission of both parties. To reiterate, the Supreme Court’s jurisdiction is only limited to reviewing errors of law in the absence of any showing that the findings complained of are totally devoid of support in the record or that they are glaringly erroneous as to constitute serious abuse of discretion.

2. Immediate rendition of decision not anomalousNo proof has been adduced that Judge Jaramillo was motivated by a malicious or sinister intent in disposing of the case with dispatch. Neither is there proof that someone else wrote the decision for him. The immediate rendition of the decision was no more than Judge Jaramillo’s compliance with his duty as a judge to “dispose of the court’s business promptly and decide cases within the required periods.” The two-year period within which Judge Jaramillo handled the case provided him with all the time to study it and even write down its facts as soon as these were presented to court. In fact, the Supreme Court does not see anything wrong in the practice of writing a decision days before the scheduled promulgation of judgment and leaving the dispositive portion for typing at a time close to the date of promulgation, provided that no malice or any wrongful conduct attends its adoption. The practice serves the dual purposes of safeguarding the confidentiality of draft decisions and rendering decisions with promptness. Neither can Judge Jaramillo be made administratively answerable

for the immediate rendition of the decision. The acts of a judge which pertain to his judicial functions are not subject to disciplinary power unless they are committed with fraud, dishonesty, corruption or bad faith. Hence, in the absence of sufficient proof to the contrary, Judge Jaramillo is presumed to have performed his job in accordance with law and should instead be commended for his close attention to duty.

3. Contract perfected by mere consent, binds parties to stipulation and all the consequences; Contract of sale perfected upon meeting of minds upon the thing object of the contract and upon price; Embodiment of contract in public instrument only for convenience, and registration only to affect third parties; Lack of formal requirements does not invalidate the contractThe Civil Code provides that contracts are perfected by mere consent. From this moment, 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. 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 upon the price. Being consensual, a contract of sale has the force of law between the contracting parties and they are expected to abide in good faith by their respective contractual commitments. Article 1358 of the Civil Code which requires the embodiment of certain contracts in a public instrument, is only for convenience, and registration of the instrument only adversely affects third parties. Formal requirements are, therefore, for the benefit of third parties. Non-compliance therewith does not adversely affect the validity of the contract nor the contractual rights and obligations of the parties thereunder.

4. Voidable or annullable contractsContracts that are voidable or annullable, even though there may have been no damage to the contracting parties are: (1) those where one of the parties is incapable of giving consent to a contract; and (2) those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. The contract can be voided in accordance with law so as to compel the parties to restore to each other the things that have been the subject of the contract with their fruits, and the price with interest.

5. Fraud; No inducement made by the private respondentsThere is fraud when, through the insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. In the present case, the records, are bare of any evidence manifesting that private respondents employed such insidious

words or machinations to entice petitioner into entering the contract of barter. Neither is there any evidence showing that Dr. Cruz induced petitioner to sell his Tanay property or that she cajoled him to take the earrings in exchange for said property. On the contrary, Dr. Cruz did not initially accede to petitioner’s proposal to buy the said jewelry. Rather, it appears that it was petitioner, through his agents, who led Dr. Cruz to believe that the Tanay property was worth exchanging for her jewelry as he represented that its value was P400,000.00 or more than double that of the jewelry which was valued only at P160,000.00. If indeed petitioner’s property was truly worth that much, it was certainly contrary to the nature of a businessman-banker like him to have parted with his real estate for half its price. In short, it was in fact petitioner who resorted to machinations to convince Dr. Cruz to exchange her jewelry for the Tanay property.

6. Mistake; Mistake caused by manifest negligence cannot invalidate a judicial actTo invalidate a contract, mistake must “refer to the substance of the thing that is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract.” An example of mistake as to the object of the contract is the substitution of a specific thing contemplated by the parties with another. In the present case, the petitioner failed to prove the fact that prior to the delivery of the jewelry to him, private respondents endeavored to make such substitution of an inferior one or one with Russian diamonds for the jewelry he wanted to exchange with his 10-hectare land. Further, on account of his work as a banker-jeweler, it can be rightfully assumed that he was an expert on matters regarding gems. He had the intellectual capacity and the business acumen as a banker to take precautionary measures to avert such a mistake, considering the value of both the jewelry and his land. A mistake caused by manifest negligence cannot invalidate a juridical act. As the Civil Code provides, “(t)here is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract.”

7. Contract of sale absolute if no stipulation that title to property is reserved to seller until full payment; Ownership transferred upon actual or constructive deliveryA contract of sale being absolute in nature, title passed to the vendee upon delivery of the thing sold since there was no stipulation in the contract that title to the property sold has been reserved in the seller until full payment of the price or that the vendor has the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. Such stipulations are not manifest in the contract of sale. In the present case, both the trial and appellate courts, therefore, correctly ruled that there were no legal bases for the

nullification of the contract of sale. Ownership over the parcel of land and the pair of emerald-cut diamond earrings had been transferred to Dr. Cruz and Fule, respectively, upon the actual and constructive delivery thereof.

8. Contract silent when balance is due and demandable; non-payment does not invalidate the contractWhile it is true that the amount of P40,000.00 forming part of the consideration was still payable to Fule, its nonpayment by Dr. Cruz is not a sufficient cause to invalidate the contract or bar the transfer of ownership and possession of the things exchanged considering the fact that their contract is silent as to when it becomes due and demandable.

9. No interest due if it is not stipulatedFailure to pay the balance of the purchase price does not result in the payment of interest thereon. Article 1589 of the Civil Code prescribes the payment of interest by the vendee “for the period between the delivery of the thing and the payment of the price” in cases “(1) Should it have been so stipulated; (2) Should the thing sold and delivered produce fruits or income; (3) Should he be in default, from the time of judicial or extrajudicial demand for the payment of the price.”

10. Case distinguished from de la Cruz v LegaspiThe present case should be distinguished from De la Cruz v. Legaspi, where the court held that failure to pay the consideration after the notarization of the contract as previously promised resulted in the vendee’s liability for payment of interest. In the present, there is no stipulation for the payment of interest in the contract of sale nor proof that the Tanay property produced fruits or income. Neither did petitioner demand payment of the price as in fact he filed an action to nullify the contract of sale.

11. Award of moral and exemplary damagesMoral and exemplary damages may be awarded without proof of pecuniary loss. In awarding such damages, the court shall take into account the circumstances obtaining in the case and assess damages according to its discretion. To warrant the award of damages, it must be shown that the person to whom these are awarded has sustained injury. He must likewise establish sufficient data upon which the court can properly base its estimate of the amount of damages. Statements of facts should establish such data rather than mere conclusions or opinions of witnesses. Thus, for moral damages to be awarded, it is essential that the claimant must have satisfactorily proved during the trial the existence of the factual basis of the damages and its causal connection with the adverse party’s acts. If the court has no proof or evidence upon which the

claim for moral damages could be based, such indemnity could not be outrightly awarded. The same holds true with respect to the award of exemplary damages where it must be shown that the party acted in a wanton, oppressive or malevolent manner.

12. Rule that moral damages cannot be recovered from person who filed a complaint does not apply in present caseWhile, as a rule, moral damages cannot be recovered from a person who has filed a complaint against another in good faith because it is not sound policy to place a penalty on the right to litigate, the same, however, cannot apply in the present case. This is not a situation where petitioner’s complaint was simply found later to be based on an erroneous ground which, under settled jurisprudence, would not have been a reason for awarding moral and exemplary damages. Instead, the cause of action of the instant case appears to have been contrived by petitioner himself. The factual findings of the courts a quo to the effect that petitioner filed this case because he was the victim of fraud; that he could not have been such a victim because he should have examined the jewelry in question before accepting delivery thereof, considering his exposure to the banking and jewelry businesses; and that he filed the action for the nullification of the contract of sale with unclean hands, all deserve full faith and credit to support the conclusion that petitioner was motivated more by ill will than a sincere attempt to protect his rights in commencing suit against respondents. It must be noted that before petitioner was able to convince Dr. Cruz to exchange her jewelry for the Tanay property, petitioner took pains to thoroughly examine said jewelry, even going to the extent of sketching their appearance. Why at the precise moment when he was about to take physical possession thereof he failed to exert extra efforts to check their genuineness despite the large consideration involved has never been explained at all by petitioner. His acts thus failed to accord with what an ordinary prudent man would have done in the same situation.

SAN MIGUEL PROPERTIES PHILS., INC. v SPOUSES ALFREDO and GRACE HUANG, G. R. No. 137290, 31 July 2000

Nature of the Case: A petition for review for a decision of the Court of Appeals which reversed the decision of the RTC dismissing the complaint brought by the Huangs against San Miguel Properties for enforcement of a contract of sale.

Facts: San Miguel Properties offered two parcels of land for sale and the offer was made to an agent of the respondents. An “earnest-deposit” of P1 million was offered by the respondents and was accepted by the petitioner’s authorized officer subject to certain terms.

Petitioner, through its executive officer, wrote the respondent’s lawyer that because ethe parties failed to agree on the terms and conditions of the sale despite the extension granted by the petitioner, the latter was returning the “earnest-deposit”.

The respondents demanded execution of a deed of sale covering the properties and attempted to return the “earnest-deposit” but petitioner refused on the ground that the option to purchase had already expired.

A complaint for specific performance was filed against the petitioner and the latter filed a motion to dismiss the complaint because the alleged “exclusive option” of the respondents lacked a consideration separate and distinct from the purchase price and was thus unenforceable; the complaint did not allege a cause of action because there was no “meeting of the mind” between the parties and therefore the contact of sale was not perfected.

The trial court granted the petitioner’s motion and dismissed the action. The respondents filed a motion for reconsideration but were denied by the trial court. The respondents elevated the matter to the Court of Appeals and the latter reversed the decision of the trial court and held that a valid contract of sale had been complied with.

Petitioner filed a motion for reconsideration but was denied.

Issue: WON there was a perfected contract of sale between the parties

Ruling: The decision of the appellate court was reversed and the respondents’ complaint was dismissed.

Ratio Decidendi: 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.

The P1 million “earnest-deposit” could not have been given as earnest money because at the time when petitioner accepted the terms of respondents’ offer, their contract had not yet been perfected. This is evident from the following conditions attached by respondents to their letter.

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.

Coronel v. CA [G.R. No. 103577. October 7, 1996.]Third division, Melo (J): 3 concurring, 1 took no partFacts: On 19 January 1985, Romulo Coronel, et al. executed a document entitled “Receipt of Down Payment” in favor of Ramona Patricia Alcaraz for P50,000 downpayment of the total amount of P1.24M as purchase price for an inherited house and lot (TCT 119627, Registry of Deeds of Quezon City), promising to execute a deed of absolute sale of said property as soon as such has been transferred in their name. The balance of P1.19M is due upon the execution of said deed. On the same date, Concepcion D. Alcaraz, mother of Ramona, paid the down payment of P50,000.00. On 6 February 1985, the property originally registered in the name of the Coronels’ father was transferred in their names (TCT 327043). However, on 18 February 1985, the Coronels sold the property to Catalina B. Mabanag for P1,580,000.00 after the latter has paid P300,000.00. For this reason, Coronels canceled and rescinded the contract with Alcaraz by depositing the down payment in the bank in trust for Alcaraz.

On 22 February 1985, Alcaraz filed a complaint for specific performance against the Coronels and caused the annotation of a notice of lis pendens at the back of TCT 327403. On 2 April 1985, Mabanag caused the annotation of a notice of adverse claim covering the same property with the Registry of Deeds of Quezon City. On 25 April 1985, the Coronels executed a Deed of Absolute Sale over the subject property in favor of Mabanag. On 5 June 1985, a new title over the subject property was issued in the name of Mabanag under TCT 351582.

In the course of the proceedings, the parties agreed to submit the case for decision solely on the basis of documentary exhibits. Upon submission of their respective memoranda and the corresponding comment or reply thereto, and on 1 March 1989, judgment was handed down in favor of the plaintiffs, ordering the defendant to execute a deed of absolute sale of the land covered by TCT 327403 and canceling TCT 331582 and declaring the latter without force and effect. Claims for damages by plaintiffs and counterclaims by the defendants and intervenors were dismissed. A motion for reconsideration was thereafter filed, which was denied. Petitioners interposed an appeal, but on 16 December 1991, the CA rendered its decision fully agreeing with the trial court. Hence, the instant petition.

The Supreme Court dismissed the petition and affirmed the appealed judgment.

1. Receipt of downpayment a binding contract; Meeting of the mindsThe document embodied the binding contract between Ramona Patricia Alcaraz and the heirs of Constancio P. Coronel, pertaining to a particular house and lot

covered by TCT 119627, as defined in Article 1305 of the Civil Code of the Philippines.

2. Definition of contract of saleThe Civil Code defines a contract of sale, in Article 1458, as “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.” Sale, thus, by its very nature a consensual contract because it is perfected by mere consent.

3. Elements of contract of sale; Contract to sell not contract of sale due to the lack of first element; Distinction necessary when property is sold to a third personThe essential elements of a contract of sale are (a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; (b) Determinate subject matter; and (c) Price certain in money or its equivalent. A Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking. It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the subject property is sold by the owner not to the party the seller contracted with, but to a third person.

4. Contract to sell: Seller agrees to sell property when purchase price is delivered to him; seller reserves transfer of title until fulfillment of suspensive condition (payment)In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for present purposes taken to be the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer.

5. Contract to sell: failure to deliver payment is not a breach but event preventing vendor to convey title; obligation demandable upon full payment of price; promise binding if supported by payment distinct from the priceWhen a contract is a contract to sell where the ownership or title is retained by the seller and is not to pass until the full payment of the price, such payment

being a positive suspensive condition and failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force (Roque v. Lapuz). Upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the prospective seller’s obligation to sell the subject property by entering into a contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code (“A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.”) An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.

6. Contract to sell definedA contract to sell be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.

7. Contract to sell not a conditional contract of sale (existence of first element)A contract to sell may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur.

8. Conditional contract of sale: if suspensive condition not fulfilled, pefection abated; if fulfilled, contract of sale perfected and ownership automatically transfers to buyerIf the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated (cf. Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller.

9. Contract to sell: if suspensive condition fulfilled, seller has still to convey title even if property is previously deliveredIn a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer

to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale.

10. Contract to sell: there is no double sale; if property sold to another, the seller may be sued for damagesIn a contract to sell, there being no previous sale of the property, a third person buying such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title to the property will transfer to the buyer after registration because there is no defect in the owner-seller’s title per se, but the latter, of course, may be sued for damages by the intending buyer.

11. Conditional contract of sale: sale becomes absolute upon fulfillment of condition; if property sold to another, first buyer may seek reconveyance In a conditional contract of sale, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the seller’s title thereto. In fact, if there had been previous delivery of the subject property, the seller’s ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have any title to transfer to any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who may have had actual or constructive knowledge of such defect in the seller’s title, or at least was charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first buyer’s title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale.

12. Interpretation of contracts, natural and meaning of words unless technical meaning was intended It is a canon in the interpretation of contracts that the words used therein should be given their natural and ordinary meaning unless a technical meaning was intended (Tan vs. Court of Appeals, 212 SCRA 586 [1992]).

13. Document entitled “Receipt of Down Payment” indicates Conditional Contract of Sale and not contract to sellThe agreement could not have been a contract to sell because the sellers made no express reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which prevented the parties from entering into an absolute contract of sale pertained to the sellers themselves (the certificate

of title was not in their names) and not the full payment of the purchase price. Under the established facts and circumstances of the case, had the certificate of title been in the names of petitioners-sellers at that time, there would have been no reason why an absolute contract of sale could not have been executed and consummated right there and then. Moreover, unlike in a contract to sell, petitioners did not merely promise to sell the property to private respondent upon the fulfillment of the suspensive condition. On the contrary, having already agreed to sell the subject property, they undertook to have the certificate of title changed to their names and immediately thereafter, to execute the written deed of absolute sale. What is clearly established by the plain language of the subject document is that when the said “Receipt of Down Payment” was prepared and signed by petitioners, the parties had agreed to a conditional contract of sale, consummation of which is subject only to the successful transfer of the certificate of title from the name of petitioners’ father to their names. The suspensive condition was fulfilled on 6 February 1985 and thus, the conditional contract of sale between the parties became obligatory, the only act required for the consummation thereof being the delivery of the property by means of the execution of the deed of absolute sale in a public instrument, which petitioners unequivocally committed themselves to do as evidenced by the “Receipt of Down Payment.”

14. Article 1475 and 1181 applies to present case; Perfection of a contract of sale and Conditional obligation based on the happening of the eventArticle 1475 of the New Civil Code provides that “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. Article 1181 of the same code provides that “in conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.” In the present case, since the condition contemplated by the parties which is the issuance of a certificate of title in petitioners’ names was fulfilled on 6 February 1985, the respective obligations of the parties under the contract of sale became mutually demandable, i.e. the sellers were obliged to present the TCT already in their names to he buyer, and to immediately execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000.00.

15. Condition deemed fulfilled when obligor voluntary prevents its fulfillment; Condition fulfilled, such fact controlling over hypothetical

argumentsArticle 1186 provides that “the condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.” Thus, in the present case, the petitioners having recognized that they entered into a contract of sale subject to a suspensive condition, as evidenced in the first paragraph in page 9 of their petition, cannot now contend that there could have been no perfected contract of sale had the petitioners not complied with the condition of first transferring the title of the property under their names. It should be stressed and emphasized that the condition was fulfilled on 6 February 1985, when TCT 327403 was issued in petitioners’ name, and such fact is more controlling than mere hypothetical arguments.

16. Retroactivity of conditional obligation to day of constitution of obligationArticle 1187 provides that “the effects of conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation.” In obligations to do or not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. In the present case, the rights and obligations of the parties with respect to the perfected contract of sale became mutually due and demandable as of the time of fulfillment or occurrence of the suspensive condition on 6 February 1985. As of that point in time, reciprocal obligations of both seller and buyer arose.

17. Succession as a mode of transferring ownershipArticle 774 of the Civil Code defines Succession as a mode of transferring ownership, providing “succession is a mode of acquisition by virtue of which the property, rights and obligations to the extent and value of the inheritance of a person are transmitted through his death to another or others by his will or by operation of law.” In the present case, petitioners-sellers being the sons and daughters of the decedent Constancio P. Coronel are compulsory heirs who were called to succession by operation of law. Thus, at the instance of their father’s death, petitioners stepped into his shoes insofar as the subject property is concerned, such that any rights or obligations pertaining thereto became binding and enforceable upon them. It is expressly provided that rights to the succession are transmitted from the moment of death of the decedent (Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).

18. Estoppel, as to lack of capacityArticle 1431 provides that “through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.” In the present case, the petitioners, having represented themselves as the true owners of the subject

property at the time of sale, cannot claim now that they were not yet the absolute owners thereof at the time they entered into agreement.

19. Mere allegation is not evidenceThe supposed grounds for petitioners’ rescission, are mere allegations found only in their responsive pleadings, which by express provision of the rules, are deemed controverted even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are absolutely bereft of any supporting evidence to substantiate petitioners’ allegations. We have stressed time and again that allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]). Mere allegation is not an evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).

20. No stipulation to authorize extrajudicial rescission of contract of saleEven assuming arguendo that Ramona P. Alcaraz was in the United States of America on 6 February 1985, petitioners-sellers’ act of unilaterally and extrajudicially rescinding the contract of sale cannot be justified as there was no express stipulation authorizing the sellers to extrajudicially rescind the contract of sale. (cf Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de Leon, 132 SCRA 722 [1984])

21. Estoppel, acceptance of check from buyer’s mother; buyer’s absence not a ground for rescissionPetitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because although the evidence on record shows that the sale was in the name of Ramona P. Alcaraz as the buyer, the sellers had been dealing with Concepcion D. Alcaraz, Ramona’s mother, who had acted for and in behalf of her daughter, if not also in her own behalf. Indeed, the down payment was made by Concepcion D. Alcaraz with her own personal check (Exh. “B”; Exh. “2”) for and in behalf of Ramona P. Alcaraz. There is no evidence showing that petitioners ever questioned Concepcion’s authority to represent Ramona P. Alcaraz when they accepted her personal check. Neither did they raise any objection as regards payment being effected by a third person. Accordingly, as far as petitioners are concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind the contract of sale.

22. Buyer not in default as there is no proof that seller presented the TCT and signify their readiness to execute the deed of absolute saleArticle 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations may be considered in default. Said article provides that “those obliged to deliver or to do something, incur in delay from the time the

obligee judicially or extrajudicially demands from them the fulfillment of their obligation. xxx In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfill his obligation, delay by the other begins.” In the present case, there is no proof offered whatsoever to show that the seller actually presented the new transfer certificate of title in their names and signified their willingness and readiness to execute the deed of absolute sale in accordance with their agreement. Ramona’s corresponding obligation to pay the balance of the purchase price in the amount of P1,190,000.00 (as buyer) never became due and demandable and, therefore, she cannot be deemed to have been in default.

23. Double sale; Article 1544, paragraph 2 applies in the present caseArticle 1544 of the Civil Code provides that “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 if 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.” In the present case, the record of the case shows that the Deed of Absolute Sale dated 25 April 1985 as proof of the second contract of sale was registered with the Registry of Deeds of Quezon City giving rise to the issuance of a new certificate of title in the name of Catalina B. Mabanag on 5 June 1985. Thus, the second paragraph of Article 1544 shall apply.

24. Double sale presumes title to pass to first buyer, exceptionsArticle 1544, the provision on double sale, presumes title or ownership to pass to the first buyer, the exceptions being: (a) when the second buyer, in good faith, registers the sale ahead of the first buyer, and (b) should there be no inscription by either of the two buyers, when the second buyer, in good faith, acquires possession of the property ahead of the first buyer. Unless, the second buyer satisfies these requirements, title or ownership will not transfer to him to the prejudice of the first buyer.

25. Prius tempore, potior jure (first in time, stronger in right); First to register in good faithThe governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the first buyer of the second sale cannot defeat the first buyer’s rights except when the second buyer first registers in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge

gained by the second buyer of the first sale defeats his rights even if he is first to register, since knowledge taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. 58530, 26 December 1984). It was further held that it is essential, to merit the protection of Article 1544, second paragraph, that the second realty buyer must act in good faith in registering his deed of sale (Cruz v. Cabana, 129 SCRA 656, citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02 September 1992).

26. Double sale; good faith in recording of second sale, not in buyingIn a case of double sale, what finds relevance and materiality is not whether or not the second buyer was a buyer in good faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any defect in the title of the property sold. In the present case, Mabanag could not have in good faith registered the sale entered into on 18 February 1985 because as early as 22 February 1985, a notice of lis pendens had been annotated on the TCT in the names of petitioners, whereas Mabanag registered the said sale sometime in April 1985. At the time of registration, therefore, petitioner knew that the same property had already been previously sold to Coronel, or, at least, she was charged with knowledge that a previous buyer is claiming title to the same property. Mabanag thus cannot close her eyes to the defect in petitioners’ title to the property at the time of the registration of the property.

27. Double sale; Bad faith in registration does not confer registrant any rightIf a vendee in a double sale registers the sale after he has acquired knowledge that there was a previous sale of the same property to a third party or that another person claims said property in a previous sale, the registration will constitute a registration in bad faith and will not confer upon him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1981];citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)

28. Agency; The issue whether Concepcion, mother of Ramona, is an agent or a co-buyer is undisturbed Although there may be ample indications that there was in fact an agency between Ramona as principal and Concepcion, her mother, as agent insofar as the subject contract of sale is concerned, the issue of whether or not Concepcion was also acting in her own behalf as a co-buyer is not squarely raised in theinstant petition, nor in such assumption disputed between mother and daughter. The Court did not touch this issue and did not disturb the lower courts’ ruling on this point.

Gaite v. Fonacier [G.R. No. L-11827. July 31, 1961.]En Banc, Reyes JBL (J): 9 concurFacts: Isabelo Fonacier was the owner and/or holder of 11 iron lode mineral claims (Dawahan Group), situated in Jose Panganiban, Camarines Norte. By a “Deed of Assignment” dated 29 September 1952, Fonacier constituted and appointed Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a contract with any individual or juridical person for the exploration and development of the mining claims on a royalty basis of not less than P0.50 per ton of ore that might be extracted therefrom. On 19 March 1954, Gaite in turn executed a general assignment conveying the development and exploitation of said mining claims unto the Larap Iron Mines, owned solely by him. Thereafter Gaite embarked upon the development and exploitation of the mining claims, opening and paving roads within and outside their boundaries, making other improvements and installing facilities therein for use in the development of the mines, and in time extracted therefrom what he claimed and estimated to be approximately 24,000 metric tons of iron ore.

For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to Gaite, and Gaite assented thereto subject to certain conditions. As a result, a document entitled “Revocation of Power of Attorney and Contract” was executed on 8 December 1954, wherein Gaite transferred to Fonacier, for the consideration of P20,000, plus 10% of the royalties that Fonacier would receive from the mining claims, all his rights and interests on all the roads, improvements, and facilities in or outside said claims, the right to use the business name “Larap Iron Mines” and its goodwill, and all the records and documents relative to the mines. In the same document, Gaite transferred to Fonacier all his rights and interests over the “24,000 tons of iron ore, more or less” that the former had already extracted from the mineral claims, in consideration of the sum of P75,000, P10,000, of which was paid upon the signing of the agreement, and the balance to be paid out of the first letter of credit covering the first shipment of iron ores or the first amount derived from the local sale of iron ore made by the Larap Mines & Smelting Co. To secure the payment of the balance, Fonacier promised to execute in favor of Gaite a surety bond; delivered on 8 December 1954 with Fonacier as principal and the Larap Mines and Smelting Co. and its stockholders as sureties. A second bond was executed by the parties to the first bond, on the same day, with the Far Eastern Surety and Insurance Co. as additional surety, but it provided that the liability of the surety company would attach only when there had been an actual sale of iron ore by the Larap Mines & Smelting Co. for an amount of not less than P65,000. Both bond were attached and made integral parts of the “Revocation of Power of Attorney and Contract.” On the same day that Fonacier revoked the power of attorney, Fonacier entered into a “Contract of Mining Operation” with

Larap Mines and Smelting Co., Inc. to grant it the right to develop, exploit, and explore the mining claims, together with the improvements therein and the use of the name “Larap Iron Mines” and its goodwill, in consideration of certain royalties. Fonacier likewise transferred, in the same document, the complete title to the approximately 24,000 tons of iron ore which he acquired from Gaite, to the Larap Mines & Smelting Co., in consideration for the signing by the company and its stockholders of the surety bonds delivered by Fonacier to Gaite. On 8 December 1955, the bond with respect to the Far Eastern Surety and Insurance Company expired with no sale of the approximately 24,000 tons of iron ore, nor had the 65,000 balance of the price of said ore been paid to Gaite by Fonacier and his sureties. Whereupon, Gaite demanded from Fonacier and his sureties payment of said amount.

When Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed a complaint against them in the CFI Manila (Civil Case 29310) for the payment of the P65,000 balance of the price of the ore, consequential damages, and attorney’s fees. Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him, jointly and severally, P65,000 with interest at 6% per annum from 9 December 1955 until full payment, plus costs. From this judgment, defendants jointly appealed to the Supreme Court as the claims involved aggregate to more than P200,000.

The Supreme Court affirmed the decision appealed from, with costs against appellants.

1. Shipment or local sale of ore not a condition precedent but a suspensive period or termThe shipment or local sale of the iron ore is not a condition precedent (or suspensive) to the payment of the balance of P65,000, but was only a suspensive period or term. What characterizes a conditional obligation is the fact that its efficacy or obligatory force (as distinguished from its demandability) is subordinated to the happening of a future and uncertain event; so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed.

2. The words of the contract express no contingency in the buyer’s obligation to pay.The contract stipulates that “the balance of Sixty-Five Thousand Pesos (P65,000) will be paid out of the first letter of credit covering the first shipment of iron ore . . .” etc. There is no uncertainty that the payment will have to be made sooner or later; what is undetermined is merely the exact date at which it will be made. By the very terms of the contract, therefore, the existence of the

obligation to pay is recognized; only its maturity or demandability is deferred.

3. Contract of sale commutative and onerous; Each party assume correlative obligation and anticipate performance from the otherA contract of sale is normally commutative and onerous: not only does each one of the parties assume a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to pay the price), but each party anticipates performance by the other from the very start. While in a sale the obligation of one party can be lawfully subordinated to an uncertain event, so that the other understands that he assumes the risk of receiving nothing for what he gives (as in the case of a sale of hopes or expectations, emptio spei), it is not in the usual course of business to do so; hence, the contingent character of the obligation must clearly appear. In the present case, nothing is found in the record to evidence that Gaite desired or assumed to run the risk of losing his rights over the ore without getting paid for it, or that Fonacier understood that Gaite assumed any such risk. The fact that appellants did put up such bonds indicates that they admitted the definite existence of their obligation to pay the balance of P65,000.

4. To consider sale as a condition precedent leaves the payment at the discretion o fthe debtorTo subordinate the obligation to pay the remaining P65,000 to the sale or shipment of the ore as a condition precedent, would be tantamount to leaving the payment at the discretion of the debtor, for the sale or shipment could not be made unless the appellants took steps to sell the ore. Appellants would thus be able to postpone payment indefinitely. Such construction of the contract should be avoided.

5. Interpretation incline in favor of the “greatest reciprocity of interests”Assuming that there could be doubt whether by the wording of the contract the parties intended a suspensive condition or a suspensive period (dies ad quem) for the payment of the P65,000, the rules of interpretation would incline the scales in favor of “the greatest reciprocity of interests”, since sale is essentially onerous. The Civil Code of the Philippines, Article 1378, paragraph 1, in fine, provides “if the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests” and there can be no question that greater reciprocity obtains if the buyer’s obligation is deemed to be actually existing, with only its maturity (due date) postponed or deferred, than if such obligation were viewed as non-existent or not binding until the ore was sold.

6. Sale of ore to Fonacier was a sale on credit, not an aleatory contract

The sale of the ore to Fonacier was a sale on credit, and not an aleatory contract where the transferor, Gaite, would assume the risk of not being paid at all; and that the previous sale or shipment of the ore was not a suspensive condition for the payment of the balance of the agreed price, but was intended merely to fix the future date of the payment.

7. Non-renewal of bond impaired the securities given to the creditorAppellants have forfeited the right to compel Gaite to wait for the sale of the ore before receiving payment of the balance of P65,000, because of their failure to renew the bond of the Far Eastern Surety Company or else replace it with an equivalent guarantee. The expiration of the bonding company’s undertaking on 8 December 1955 substantially reduced the security of the vendor’s rights as creditor for the unpaid P65,000, a security that Gaite considered essential and upon which he had insisted when he executed the deed of sale of the ore to Fonacier. The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines which provides “(2) When he does not furnish to the creditor the guaranties or securities which he has promised. (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through fortuitous event they disappear, unless he immediately gives new ones equally satisfactory.” Appellants’ failure to renew or extend the surety company’s bond upon its expiration plainly impaired the securities given to the creditor (appellee Gaite), unless immediately renewed or replaced.

8. No waiver intended by creditorGaite’s acceptance of the surety company’s bond with full knowledge that on its face it would automatically expire within one year was not a waiver of its renewal after the expiration date. No such waiver could have been intended, for Gaite stood to lose and had nothing to gain thereby; and if there was any, it could be rationally explained only if the appellants had agreed to sell the ore and pay Gaite before the surety company’s bond expired on 8 December 1955. But in the latter case the defendants- appellants’ obligation to pay became absolute after 1 year from the transfer of the ore to Fonacier by virtue of the deed.

9. No short-delivery made by GaiteThis is a case of a sale of a specific mass of fungible goods for a single price or a lump sum, the quantity of “24,000 tons of iron ore, more or less”, stated in the contract, being a mere estimate by the parties of the total tonnage weight of the mass; and second, that the evidence shows that neither of the parties had actually measured or weighed the mass, so that they both tried to arrive at the total quantity by making an estimate of the volume thereof in cubic meters

and then multiplying it by the estimated weight per ton of each cubic meter. The sale between the parties is a sale of a specific mass of iron ore because no provision was made in their contract for the measuring or weighing of the ore sold in order to complete or perfect the sale, nor was the price of P75,000 agreed upon by the parties based upon any such measurement (see Art. 1480, second par., New Civil Code). The subject-matter of the sale is, therefore, a determinate object, the mass, and not the actual number of units or tons contained therein, so that all that was required of the seller Gaite was to deliver in good faith to his buyer all of the ore found in the mass, notwithstanding that the quantity delivered is less than the amount estimated by them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield Salvage Co., Inc. 171 So. 872, applying art. 2459 of the Luisiana Civil Code). The contract expressly stated the amount to be 24,000 tons, more or less. Applying the tonnage factor provided by the chief of Mines and Metallurgical Division of the Bureau of Mines which was between 3 metric tons minimum to 5 metric tons maximum, which was near the 3.3 metric ton tonnage factor adopted by Engr. Gamatero (at the request of Krakower, a stockholder of Larap), and if appellant’s witness is correct in his estimate of 6,609 cubic meters of ore, the product is 21,809.7 tons which is not far from the 24,000 tons estimate. (cf. Pine River Logging & Improvement Co. vs. U. S., 186 U.S. 279, 46, L. Ed. 1164). Thus, there was no short-delivery as would entitle appellants to the payment of damages, nor could Gaite have been guilty of any fraud in making any misrepresentation to appellants as to the total quantity of ore in the stockpiles of the mining claims in question since Gaite’s estimate appears to be substantially correct.

VICENTE GOMEZ, as successor-in-interest of awardee LUISA GOMEZ, petitioner, vs.COURT OF APPEALS, City of MANILA acting thru the City Tenants Security Committee now the Urban Settlement Office, Register of Deeds of Manila, respondents.

BUENA, J.:

Sought to be reversed in this petition for review on certiorari under Rule 45 of the Rules of Court is the decision1 of the Court of Appeals in C.A. G.R. Sp. No. 32101 promulgated on 22 February 1995 which annulled and set aside the decision of the Regional Trial Court of Manila, Branch 12 in Civil Case No. 51930.

Impugned similarly is the resolution2 of the Court of Appeals dated 29 June 1995 denying petitioner's motion for reconsideration.

From the records, we find the following antecedents:

Pursuant to the Land for the Landless Program of the City of Manila and in accordance with City Ordinance No. 6880, the Office of City Mayor issued Resolution No. 16-A,3 Series of 1978, dated 17 May 1978, 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 Sell4 that further laid down terms and conditions which the lot awardee must comply with.

On 30 June 1978, the City of Manila, through the City Tenants Security Committee (CTSC) presently known as the Urban Settlement Office (URBAN), passed Resolution 17-785 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 award6 dated 02 July 1978 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,7 said payments being duly covered by official receipts.

In 1979, Luisa Gomez traveled to the Unites States of America but returned to the Philippines in the same year.

On 18 January 1980, Luisa Gomez finally paid in full the P3,556.00 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 died8 on 09 January 1983. She is survived by her husband and four children, namely, Ramona G. Takorda, Edgardo Gomez, Erlinda G. Pena, and Rebecca G. Dizon.9

Subsequently, in a memorandum dated 07 February 1984, the Urban Settlements Officer and Member-Executive Secretary of the CTSC directed the Western Police District, City Hall Detachment, to conduct an investigation regarding reported violations of the terms and conditions of the award committed by the lot awardees.

Thus, on 23 November 1984, a team headed by Pfc. Reynaldo Cristobal of the Western Police District, proceeded to the former Ampil-Gorospe estate where the subject lots are located, and conducted an investigation of alleged violations thereat.

On 19 December 1984, team leader Pfc. Reynaldo Cristobal rendered an investigation report10 addressed to the City Mayor of Manila, as Chairman of the CTSC, stating, among others, the following findings:

". . . After the said operation, it was found out that of all the lot awardees in the said estate, the following were confirmed to have violated the terms and conditions of their respective awards as indicated opposite their names, to wit:

". . . 2. Name of awardee: Daniel Gomez

Address: No. 2557-C Juan Luna St. Tondo, Manila

Violation: The place was found actually occupied by Mrs. Erlinda Perez and her family together with Mr. Mignony Lorghas and family, who are paying monthly rentals of P210.00 each to Vicente Gomez, brother of awardee. Daniel Gomez is now presently residing in the United States of America and only returns for vacation once in a while as a 'Balikbayan' . . ."

Thus, on 01 July 1986, the CTSC, headed by then City Mayor Gemiliano Lopez, Jr. as Chairman, issued Resolution No. 015-86,11 adopting 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.

In a letter12 dated 04 August 1986, herein petitioner Vicente Gomez, acting as attorney-in-fact13 of his brother Daniel Gomez (spouse of Luisa Gomez) asked for reconsideration of the CTSC resolution revoking the award of the lot.

On 28 June 1988, Daniel Gomez, spouse of awardee Luisa Gomez, died in the United States of America. Eventually, on 01 February 1989, 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 donation14 disposing gratuitously Lot No. 1, Block 4, in-Favor of their uncle Vicente Gomez.

On 20 February 1989, petitioner Vicente Gomez filed a memorandum15 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.

Thereafter, two supplemental memoranda, dated 26 July 198916 and 10 January 1990,17 were submitted by petitioner before the CTSC reiterating the prayer in the initial memorandum.

On 05 February 1990, herein petitioner filed before the Regional Trial Court (RTC) of Manila, Branch 12, a petition for certiorari, prohibition and mandamus docketed as Civil Case No. 90-51930, entitled "Vicente Gomez, as successor-in-interest of Awardee, Luisa Gomez, petitioner, versus City Tenant's Security Committee (now Urban Settlement Office) and Register of Deeds of Manila, respondents."

In an order18 dated 24 April 1990, the lower court directed the petitioner to amend its petition so as to implead the proper government agency.

Hence, petitioner filed an amended petition19 impleading the City of Manila as respondent, to which the latter submitted an answer.20

Accordingly, after the presentation of evidence, the lower court promulgated its decision21 dated 20 January 1993, the decretal portion of which reads:

Wherefore, the petition is hereby granted:

"1. Ordering the City of Manila through its agency the City Tenants Security Committee (now Urban Settlement Office) to set aside the order of cancellation of the award for Lot No. 4, Block 1 (formerly of the Ampil-Gorospe estate) in favor of Luisa Gomez, her heirs and successor-in-interest, the herein petitioner;

"2. Prohibiting the City of Manila through its agency including the Register of Deeds of Manila from awarding the same lot and issuing the corresponding certificate of title therefor to any other person;

"3. Ordering the City of Manila through its agency the City Tenant's Security Committee (now Urban Settlement Office) to execute a Deed of Absolute Sale over the aforementioned lot in favor of the petitioner as successor-in-interest of the awardee and further ordering them to stop and/or refrain from disturbing the peaceful physical possession thereof of (sic) the petitioner; and

"4. Ordering the City of Manila through its agency the City Tenant's Security Committee (now Urban Settlement Office) to refund to the petitioner his overpayments amounting to P8,244.00 and to pay the costs of suit."

On appeal, the Court of Appeals reversed the lower court's decision prompting petitioner to file a motion for reconsideration which the appellate court denied via its assailed resolution dated 29 June 1995.

Hence, the instant appeal where the core of controversy revolves around the propriety of CTSC's act of canceling the lot award, through Resolution No. 015-86, and further declaring the forfeiture of amounts paid by the awardee, as reasonable compensation for the use of the home lot.

The petition is unmeritorious.

A thorough scrutiny of the records and an even more exhaustive perusal of the evidence, both documentary and testimonial, would lead to the inevitable conclusion that the fact of cancellation of the award covering Lot 4, Block 1, by the City of Manila, acting through the CTSC, was properly exercised within the bounds of law and contractual stipulation between the parties.

Viewed broadly, petitioner anchors his case on the premise, albeit erroneous, that upon full payment of the purchase price of the lot in January 1980, Luisa Gomez, actual awardee, already acquired a vested right over the real property subject of the present controversy. Thus, according to petitioner, upon the death of Luisa Gomez on 09 January 1983, the alleged vested right was

transmitted by operation of law to her lawful heirs, pursuant to Article 777 of the Civil Code. Additionally, petitioner submits that by virtue of the affidavit of adjudication with Deed of Donation executed on 01 February 1989 in his favor by the surviving children of Luisa, he, in effect, became the successor-in-interest of Luisa and thus entitled to whatever rights enjoyed by the latter over the property.

In the light of existing law and jurisprudence and based on the evidence adduced, this Court finds difficulty giving credence and weight to petitioner's submissions. We therefore rule that the cancellation of the award of Lot 4, Block 1, through the expediency of Resolution No. 015-86, was proper.

Primarily, it must be stressed that 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.

Speaking through Mr. Justice Florenz Regalado, this Court in Adelfa Properties, Inc. vs. Court of Appeals,22 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 our mind, however, this pronouncement should not curtail the right of the parties in a contract to sell to provide additional stipulations, nor bar them from imposing conditions relative to the transfer of ownership.

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.23 (Emphasis ours)

From the above disquisition in Galang and applying Article 1306 of the Civil Code, the contracting parties are accorded the liberality and freedom to establish such stipulations, clauses, terms and conditions as they may deem convenient, provided the same are not contrary to law, morals, good custom, public order or public policy. In the law on contracts, such fundamental principle is known as the autonomy of contracts.

Under the present circumstances, we see no hindrance that prohibits the parties from stipulating other lawful conditions, aside from full payment of the purchase price, which they pledge to bind themselves and upon which transfer of ownership depends.

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.24

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.25

As to the matter of acceptance, the same may be evidenced by some acts, or conduct, communicated to the offeror, either in a formal or an informal manner, that clearly manifest the intention or determination to accept the offer to buy or sell.26

In the case at bar, acceptance on the part of the vendee was manifested through a plethora of acts, such as payment of the purchase price, declaration of the property for taxation purposes, and payment of real estate taxes thereon, and similar acts showing vendee's assent to the contract.

Verily, Resolution 16-A and the Contract to Sell which was annexed, attached and made to form part of said resolution, clearly laid down the terms and

conditions which the awardee-vendee must comply with. Accordingly, as an awardee, Luisa Gomez, her heirs and successors-in-interest alike, are duty-bound to perform the correlative obligations embodied in Resolution 16-A and the Contract to-Sell.

Resolution 16-A, Series of 1978, explicitly provides that aside from the requirement of Filipino citizenship and legal age, the basic criteria for award of the lot pursuant to the Land for the Landless Program of the City of Manila shall be the following:

"a) Occupancy — The applicant must be the legal and actual or physical occupant of the lot in question at the time of its acquisition by the City. He must be the owner of the house and lot, must be using the same for his residential purposes, and must have had a lessee-lessor relationship with the previous owner of the land or landed estate of which the subject lot is a part.

"b) Non-ownership of land — The applicant and/or his spouse, if he is married, must not be an owner of any parcel of land in Manila, Metropolitan Manila or elsewhere in the Philippines. Neither must he and/or his spouse be a prospective owner or a buyer on installment basis of any lot other than that which he is occupying and for which he is applying for award from the City.

"c) Capacity to pay — The applicant must have such financial means and/or support as will enable him to make regular payments of amortizations or installments for the lot if the same is awarded to him."

Of equal importance are the essential terms and conditions embraced in the Contract to Sell, which awardee Luisa Gomez, her heirs and successors-in-interest, violated, to wit:

". . . Par.(3). The vendee shall occupy and use the lot exclusively for his/her residential purpose . . .

". . . Par. (5). The vendee hereby warrants and declares under oath that he/she is a bona fide and actual occupant and tenant of the lot; . . . and that he/she fully understands that any false statement or misrepresentation hereof (sic) shall be sufficient cause for the automatic cancellation of his/her rights under this agreement as well as ground for criminal prosecution.

"Par. (6). Until complete payment of the purchase price and compliance with all the vendee's obligations herein, title to the lot remains in the name of the owner. During the effectivity of this agreement, however, the owner may

transfer its title or assign its rights and interest under this agreement to any person, corporation, bank or financial institution.

"Title shall pass to the vendee upon execution of a final deed of sale in his/her favor. . . .

"Par. (8). In order not to defeat the purpose of this social land reform program of the City of Manila. and to prevent real estate speculations within twenty years from complete payment of the purchase price and execution of the final deed of sale, the lot and residential house or improvement thereon shall not be sold, transferred, mortgaged, leased or otherwise alienated or encumbered without the written consent of the City Mayor.

"Par. (9). During the effectivity of this agreement, the residential house or improvement thereon shall not be leased, sold, transferred or otherwise alienated by the vendee without the written consent of the owner. . .

"Par. (14). In the event that the vendee dies before full payment of the purchase price of the lot, his/her surviving spouse, children heirs and/or successors-in-interest shall succeed in all his/her rights and interest, as well as assume all/his/her obligations under this agreement.

"Par. (15). This agreement shall be binding upon the heirs. executors and administrators of the vendee." (emphasis ours)

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, dated 19 December 1984.

Results of the investigation conducted on 23 November 1984, 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.

Moreover, in a conference held on 13 January 1989 at the Office of the Acting Urban Settlement Officer, Lorghas admitted that she has been leasing the property and paying rent to petitioner Vicente Gomez, thus:27

"Atty. Bernardo:

Mrs. Lorghas, how long have you been renting the property?

Mrs. Lorghas:

I was living there since 1960 until today. I was renting a small room downfloor (sic). When the family of Mr. Gomez died, kami na ang tumira sa itaas until now.

Atty. Bernardo:

Magkano ang upa mo?

Mrs. Lorghas:

P300 a month.

Atty. Bernardo:

Kanino?

Mrs. Lorghas:

Kay Vicente Gomez.

Atty. Bernardo:

Meron bang resibo?

Mrs. Lorghas:

Wala po.

Atty. Bernardo:

Noong 1973, kayo na rin ang nakatira sa lugar ni Gomez.

Mrs. Lorghas:

Opo."

Certainly, said acts constitute a brazen transgression of Resolution 16-A and clear contravention of the Contract to Sell, specifically par. (3), (8) and (9)

thereof.

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 vendee's rights thereunder.

Thus, par.(10) (b) (a) of the Contract to Sell, which reads:

". . . any violation of the terms and conditions of this agreement shall automatically cause the cancellation of the vendee's rights under this agreement without necessity of prior notice or judicial declaration . . ."

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.28

Moreover, judicial action for rescission of a contract is not necessary where the contract provides for automatic rescission in case of breach,29 as in the contract involved in the present controversy.

Likewise, this Court sustains the forfeiture of the payments made by awardee as reasonable compensation for the use of the lot. At this juncture, par. (1) of the Contract to Sell furnishes support to this conclusion:

". . . In case of the cancellation of the vendee's rights under this agreement as hereinafter stipulated, all payments made by him/her shall be forfeited and considered as rentals for the use of the lot . . . "

Further, Article 1486 of the Civil Code provides that a stipulation that the installments or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may not be unconscionable under the circumstances.30

Applying the foregoing, we are of the considered view that the payment of the purchase price of P3,556.00, constitutes fair and reasonable rental for the period in which said property was under the control of awardee Luisa Gomez, her heirs and successors-in-interest. Undeniably, the awardee together with her heirs and successors-in-interest, have gained benefits, financial or otherwise, for a period of eight years — from the time of actual award of the lot to the time of cancellation thereof (1978-1986).

Nonetheless, we ought to stress that in the present case, forfeiture of the installments paid as rentals, only applies to the purchase price of P3,556.00 and not to the overpayment of the amount of P8,244.00.

Under these circumstances, the vendor should refund the amount of P8,244.00 representing the overpayment made, plus interest, to be computed in accordance with the "rule of thumb" enunciated in the landmark case of Eastern Shipping Lines, Inc. vs. Court of Appeals 31 and reiterated in the case of Philippine National Bank vs. Court of Appeals.32

For us to uphold the forfeiture of the amount representing the overpayment would be to revolt against the dictates of justice and fairness. A contrary ruling would unjustly enrich the vendor to the prejudice of the vendee.

In the same vein, the provisions of Article 777 of the Civil Code notwithstanding, we hold that the surviving children of awardee Luisa Gomez are not qualified transferees of Lot 4, Block 1 for failure to conform with the prerequisites set by Resolution 16-A, to wit, Filipino citizenship and actual occupancy, which in the present case, are basic criteria for the award of the lot, pursuant to the "Land for the Landless Program" of the City of Manila.

The records reveal that the children of Luisa Gomez are American citizens and permanent residents of the United States of America. Notably, Resolution 16-A specifically enumerates Filipino citizenship and actual occupancy of the lot for residential purposes, as qualifications for entitlement to the lot award. For this court to consider said surviving children as qualified awardee-transferees would render illusory the purposes for which Resolution 16-A and the "Land for the Landless Program" of the City of Manila were adopted.

Even assuming arguendo that the surviving children of Luisa Gomez are entitled to the lot by virtue of Article 777 of the Civil Code, said heirs nevertheless abandoned their right when they violated the terms and conditions of the award by donating the subject property to petitioner Vicente Gomez.

As paragraph (15) of the agreement provides that the heirs of the vendee shall be bound thereby, it is then incumbent upon said heirs to render strict compliance with the provisions thereof.

In particular, paragraph (8) of the Contract proscribes the sale, transfer, mortgage, lease, alienation or encumbrance of the lot, residential house, or improvement thereon, without the written consent of the City Mayor, within a

period of twenty (20) years from complete payment of the purchase price and execution of the final deed of sale. The execution of the Deed of Donation by the surviving children of Luisa Gomez on February 1, 1989, in favor of Vicente Gomez, was clearly within the prohibited period of 20 years from the full payment of the purchase price on January 18, 1980.

Without doubt, the prohibition applies to them.

Furthermore, the subject lot and residential house were occupied by, and leased to, third persons, in crystalline and evident derogation of the terms of the award.

WHEREFORE, premises considered, the instant petition is DISMISSED for lack of merit, and the assailed decision of the Court of Appeals with respect to the cancellation of the award of Lot 4, Block 1, is AFFIRMED SUBJECT TO MODIFICATION as to the forfeiture of amounts paid by the vendee.

As modified, the City of Manila, is hereby ordered to refund with dispatch the amount of P8,244.00 representing the overpayment made by petitioner plus interest.

SO ORDERED.

Bellosillo, Mendoza, Quisumbing and De Leon, Jr., JJ ., concur.

[G.R. No. 115307. July 8, 1997]

MANUEL LAO, petitioner, vs. COURT OF APPEALS and BETTER HOMES REALTY & HOUSING CORPORATION, respondents.D E C I S I O NPANGANIBAN, J.:

As a general rule, the main issue in an ejectment suit is possession de facto, not possession de jure. In the event the issue of ownership is raised in the pleadings, such issue shall be taken up only for the limited purpose of determining who between the contending parties has the better right to possession. However, where neither of the parties objects to the allegation of the question of ownership -- which may be initially improvident or improper -- in an ejectment suit and, instead, both present evidence thereon, argue the question in their various submissions and participate in all aspects of the trial without objecting to the Metropolitan (or Municipal) Trial Courts jurisdiction to decide the question of ownership, the Regional Trial Court -- in the exercise of its original jurisdiction as authorized by Section 11, Rule 40 of the Rules of Court -- may rule on the issue and the corollary question of whether the subject deed is one of sale or of equitable mortgage.

These postulates are discussed by the Court as it resolves this petition under Rule 45 seeking a reversal of the December 21, 1993 Decision[1] and April 28, 1994 Resolution[2] of the Court of Appeals in CA-G.R. SP No. 92-14293.

The Antecedent Facts

The facts of this case are narrated by Respondent Court of Appeals as follows:[3]

On June 24, 1992, (herein Private Respondent Better Homes Realty and Housing Corporation) filed with the Metropolitan Trial Court of Quezon City, 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 Title No. 22184 of the Registry of Deeds of Quezon City; 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) on February 5, 1992, 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 publiciana, outside the jurisdiction of an inferior court.

On October 9, 1992, the Metropolitan Trial Court of Quezon City rendered judgment ordering the (petitioner) to vacate the premises located at Unit I, No. 21 N. Domingo Street, Quezon City; to pay (private respondent) the sum of P300.00 a day starting on January 31, 1992, as reasonable rent for the use and occupation of the premises; to pay plaintiff P5,000.00, as attorneys fees, and costs.

On appeal to the Regional Trial Court of Quezon City,[4] on March 30, 1993, the latter court rendered a decision reversing that of the Metropolitan Trial Court, and ordering the dismissal of the (private respondents) complaint for lack of merit, with costs taxed against (private respondent).

In its decision, the Regional Trial Court held that the subject property was acquired by (private respondent) from N. Domingo Realty and Development Corporation, by a deed of sale, and (private respondent) is now the registered owner under Transfer Certificate of Title No. 316634 of the Registry of Deeds of Quezon City, but in truth the (petitioner) is the beneficial owner of the property because the real transaction over the subject property was not a sale but a loan secured by a mortgage thereon.

The dispositive portion of the Regional Trial Courts decision is quoted below:[5]

WHEREFORE, judgment is hereby rendered reversing the appealed decision and ordering the dismissal of plaintiffs complaint for lack of merit, with the costs taxed against it.

IT IS SO ORDERED.

On April 28, 1993, private respondent filed an appeal with the Court of Appeals which reversed the decision of the Regional Trial Court. The Respondent Court ruled:

The Metropolitan Trial Court has no jurisdiction to resolve the issue of ownership in an action for unlawful detainer (B.P. 129, Sec. 33 [2]; Cf. Alvir vs. Vera, 130 SCRA 357). The jurisdiction of a court is determined by the nature of the action alleged in the complaint (Ching vs. Malaya, 153 SCRA 412). In its complaint in

the inferior court, the plaintiff alleged that it is the owner of the premises located at Unit I, No. 21 N. Domingo Street, Quezon City, and that defendants occupation is rent free and based on plaintiffs pure liberality coupled with defendants undertaking to vacate the premises upon demand, but despite demands, defendant has refused to vacate. The foregoing allegations suffice to constitute a cause of action for ejectment (Banco de Oro vs. Court of Appeals, 182 SCRA 464).

The Metropolitan Trial Court is not ousted of jurisdiction simply because the defendant raised the question of ownership (Bolus vs. Court of Appeals, 218 SCRA 798). The inferior court shall resolve the issue of ownership only to determine who is entitled to the possession of the premises (B.P. 129, Sec. 33[2]; Bolus vs. Court of Appeals, supra).

Here, the Metropolitan Trial Court ruled that as owner, plaintiff (herein private respondent Better Homes Realty and Housing Corporation) is entitled to the possession of the premises because the defendants stay is by mere tolerance of the plaintiff (herein private respondent).

On the other hand, the Regional Trial Court ruled that the subject property is owned by the defendant, (herein petitioner Manuel Lao) and, consequently, dismissed the complaint for unlawful detainer. Thus, the Regional Trial Court resolved the issue of ownership, as if the case were originally before it as an action for recovery of possession, or accion publiciana, within its original jurisdiction. In an appeal from a decision of the Municipal Trial Court, or Metropolitan Trial Court, in an unlawful detainer case, the Regional Trial Court is simply to determine whether the inferior court correctly resolved the issue of possession; it shall not delve into the issue of ownership (Manuel vs. Court of Appeals, 199 SCRA 603). What the Regional Trial Court did was to rule that the real agreement between the plaintiff and the previous owner of the property was not a sale, but an equitable mortgage. Defendant was only a director of the seller corporation, and his claim of ownership could not be true. This question could not be determined summarily. It was not properly in issue before the inferior court because, as aforesaid, the only issue was possession de facto (Manlapaz vs. Court of Appeals, 191 SCRA 795), or who has a better right to physical possession (Dalida vs. Court of Appeals, 117 SCRA 480). Consequently, the Regional Trial Court erred in reversing the decision of the Metropolitan Trial Court.

WHEREFORE, the Court hereby REVERSES the decision of the Regional Trial Court. In lieu thereof, We affirm the decision of the Metropolitan Trial Court of Quezon City sentencing the defendant and all persons claiming right under him

to vacate the premises situated at Unit I, No. 21 N. Domingo Street, Quezon City, and to surrender possession to the plaintiff; to pay plaintiff the sum of P300.00, a day starting on January 31, 1992, until defendant shall have vacated the premises; to pay plaintiff P5,000.00 as attorneys fees, and costs.

SO ORDERED.[6]

Manuel Laos motion for reconsideration dated January 24, 1994 was denied by the Court of Appeals in its Resolution promulgated on April 28, 1994. Hence, this petition for review before this Court.[7]

The Issues

Petitioner Manuel Lao raises three issues:

3.1 Whether or not the lower court can decide on the issue of ownership in the present ejectment case

3.2 Whether or not private respondent had acquired ownership over the property in question

3.3 Whether or not petitioner should be ejected from the premises in question[8]

The Courts Ruling

The petition for review is meritorious.

First Issue: Jurisdiction to Decide the Issue of Ownership

The Court of Appeals held that as a general rule, the issue in an ejectment suit is possession de facto, not possession de jure, and that in the event the issue of ownership is raised as a defense, the issue is taken up for the limited purpose of determining who between the contending parties has the better right to possession. Beyond this, the MTC acts in excess of its jurisdiction. However, we hold that this is not a hard and fast rule that can be applied automatically to all unlawful detainer cases.

Section 11, Rule 40 of the Rules of Court provides that [a] case tried by an inferior court without jurisdiction over the subject matter shall be dismissed on appeal by the Court of First Instance. But instead of dismissing the case, the Court of First Instance, in the exercise of its original jurisdiction, may try the

case on the merits if the parties therein file their pleadings and go to the trial without any objection to such jurisdiction. After a thorough review of the records of this case, the Court finds that the respondent appellate court failed to apply this Rule and erroneously reversed the RTC Decision.

Respondent Court cites Alvir vs. Vera to support its Decision. On the contrary, we believe such case buttresses instead the Regional Trial Courts decision. The cited case involves an unlawful detainer suit where the issue of possession was inseparable from the issue of transfer of ownership, and the latter was determinable only after an examination of a contract of sale involving the property in question. The Court ruled that where a case was tried and heard by the lower court in the exercise of its original jurisdiction by common assent of the parties by virtue of the issues raised x x x and the proofs presented by them, any dismissal on the ground of lack of jurisdiction would only lead to needless delays and multiplicity of suits. The Court held:

In actions of forcible entry and detainer, the main issue is possession de facto, independently of any claim of ownership or possession de jure that either party may set forth in his pleading. x x x Defendants claim of ownership of the property from which plaintiff seeks to eject him is not sufficient to divest the inferior court of its jurisdiction over the action of forcible entry and detainer. However, if it appears during the trial that the principal issue relates to the ownership of the property in dispute and any question of possession which may be involved necessarily depends upon the result of the inquiry into the title, previous rulings of this Court are that the jurisdiction of the municipal or city court is lost and the action should be dismissed.

We have at bar a case where, in effect, the question of physical possession could not properly be determined without settling that of lawful or de jure possession and of ownership and hence, following early doctrine, the jurisdiction of the municipal court over the ejectment case was lost and the action should have been dismissed. As a consequence, respondent court would have no jurisdiction over the case on appeal and it should have dismissed the case on appeal from the municipal trial court. However, in line with Section 11, Rule 40 of the Revised Rules of Court, which reads --

SEC. 11. Lack of Jurisdiction. -- A case tried by an inferior court without jurisdiction over the subject matter shall be dismissed on appeal by the Court of First Instance. But instead of dismissing the case, the Court of First Instance in the exercise of its original jurisdiction, may try the case on the merits if the parties therein file their pleadings and go to trial without objection to such jurisdiction.

this Court held in Saliwan vs. Amores, 51 SCRA 329, 337, that dismissal on the said ground of lack of appellate jurisdiction on the part of the lower court flowing from the municipal courts loss of jurisdiction would lead only to needless delay and multiplicity of suits in the attainment of the same result and ignores, as above stated, that the case was tried and heard by the lower court in the exercise of its original jurisdiction by common assent of the parties by virtue of the issues raised by the parties and the proof presented by them thereon. [9]

This pronouncement was reiterated by this Court through Mr. Justice Teodoro R. Padilla in Consignado vs. Court of Appeals[10] as follows:

As the MTC of Laguna had no jurisdiction over the unlawful detainer case in view of the raised question of title or ownership over the property in dispute, the RTC of Laguna also had no appellate jurisdiction to decide the case on the merits. It should have dismissed the appeal. However, it had original jurisdiction to pass upon the controversy. It is to be noted, in this connection, that in their respective memoranda filed with the RTC of Laguna, the petitioners and private respondents did not object to the said court exercising its original jurisdiction pursuant to the aforequoted provisions of Section 11, Rule 40 of the Rules of Court.

x x x x x x x x x

Petitioners now contend, among others, that the Court of Appeals erred in resolving the question of ownership as if actual title, not mere possession of subject premises, is involved in the instant case.

The petitioners contention is untenable. Since the MTC and RTC of Laguna decided the question of ownership over the property in dispute, on appeal the Court of Appeals had to review and resolve also the issue of ownership. x x x

It is clear, therefore, that although an action for unlawful detainer is inadequate for the ventilation of issues involving title or ownership of controverted real property, [i]t is more in keeping with procedural due process that where issues of title or ownership are raised in the summary proceedings for unlawful detainer, said proceeding should be dismissed for lack of jurisdiction, unless, in the case of an appeal from the inferior court to the Court of First Instance, the parties agree to the latter Court hearing the case in its original jurisdiction in accordance with Section 11, Rule 40 x x x.[11]

In the case at bar, a determination of the issue of ownership is indispensable to resolving the rights of both parties over the property in controversy, and is inseparable from a determination of who between them has the right to possess the same. Indeed, the very complaint for unlawful detainer filed in the Metropolitan Trial Court of Quezon City is anchored on the alleged ownership of private respondent over the subject premises.[12] The parties did not object to the incongruity of a question of ownership being brought in an ejectment suit. Instead they both submitted evidence on such question, and the Metropolitan Trial Court decided on the issue. These facts are evident in the Metropolitan Trial Courts decision:

From the records of the case, the evidence presented and the various arguments advanced by the parties, the Court finds that the property subject matter of this case is in the name of (herein private respondent) Better Homes and Realty Housing Corporation; that the Deed of Absolute Sale which was the basis for the issuance of said TCT No. 22184 is between N. Domingo Realty and Development Corporation and Better Homes Realty and Housing Corporation which was signed by Artemio S. Lao representing the seller N. Domingo and Realty Development Corporation; that a Board Resolution of N. Domingo and Realty and Development Corporation (Exhibit D position paper) shows that the Directors of the Board of the N. Domingo Realty and Development Corporation passed a resolution selling apartment units I and F located at No. 21 N. Domingo St., Quezon City and designating the (herein petitioner) with his brother Artemio S. Lao as signatories to the Deed of Sale. The claim therefore of the (herein petitioner) that he owns the property is not true. x x x[13]

When the MTC decision was appealed to the Regional Trial Court, not one of the parties questioned the Metropolitan Trial Courts jurisdiction to decide the issue of ownership. In fact, the records show that both petitioner and private respondent discussed the issue in their respective pleadings before the Regional Trial Court.[14] They participated in all aspects of the trial without objection to its jurisdiction to decide the issue of ownership. Consequently, the Regional Trial Court aptly decided the issue based on the exercise of its original jurisdiction as authorized by Section 11, Rule 40 of the Rules of Court.

This Court further notes that in both of the contending parties pleadings filed on appeal before the Court of Appeals, the issue of ownership was likewise amply discussed.[15] The totality of evidence presented was sufficient to decide categorically the issue of ownership.

These considerations, taken together with the fact that both the Metropolitan Trial Court and the Regional Trial Court decided the issue of ownership, justify

the review of the lower courts findings of fact and decision on the issue of ownership. This we now do, as we dispose of the second issue and decide the case with finality to spare the parties the time, trouble and expense of undergoing the rigors of another suit where they will have to present the same evidence all over again and where, in all probability, the same ultimate issue of ownership will be brought up on appeal.

Second Issue: Absolute Sale or Equitable Mortgage?

Private Respondent Better Homes Realty and Housing Corporation anchored its right in the ejectment suit on a contract of sale in which petitioner (through their family corporation) transferred the title of the property in question. Petitioner contends, however, that their transaction was not an absolute sale, but an equitable mortgage.

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.[16] 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. In Macapinlac vs. Gutierrez Repide, which involved an identical question, the Court succintly stated:

x x x This conclusion is fully supported by the decision in Cuyugan vs. Santos (34 Phil., 100), where this court held that a conveyance in the form of a contract of sale with pacto de retro will be treated as a mere mortgage, if really executed as security for a debt, and that this fact can be shown by oral evidence apart from the instrument of conveyance, a doctrine which has been followed in the later cases of Villa vs. Santiago (38 Phil., 157), and Cuyugan vs. Santos (39 Phil., 970).

x x x x x x x x x

In the first place, it must be borne in mind that the equitable doctrine which has been so fully stated above, to the effect that any conveyance intended as security for a debt will be held in effect to be a mortgage, whether so actually expressed in the instrument or not, operates regardless of the form of the agreement chosen by the contracting parties as the repository of their will. Equity looks through the form and considers the substance; and no kind of

engagement can be adopted which will enable the parties to escape from the equitable doctrine to which reference is made. In other words, a conveyance of land, accompanied by registration in the name of the transferee and the issuance of a new certificate, is no more secured from the operation of this equitable doctrine than the most informal conveyance that could be devised.[17]

The law enumerates when a contract may be presumed to be an equitable mortgage:

(1) When the price of a sale with right to repurchase is unusually inadequate;

(2) When the vendor remains in possession as lessee or otherwise;

(3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed;

(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

x x x x x x x x x[18]

The foregoing presumption applies also to a contract purporting to be an absolute sale.[19]

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.[20] It 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.[21] Second, the option given to Manuel Lao to purchase the property in controversy had been extended twice[22] through 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.[23] 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.[24] In fact, this Court, in various cases involving the same situation, had occasion to state:

x x x In Jayme, et al. v. Salvador, et al., this Court upheld a judgment of the Court of First Instance of Iloilo which found the transaction between the parties to be a loan instead of a sale of real property notwithstanding the terminology used in the document, after taking into account the surrounding circumstances of the transaction. The Court through Justice Norberto Romualdez stated that while it was true that plaintiffs were aware of the contents of the contracts, the preponderance of the evidence showed however that they signed knowing that said contracts did not express their real intention, and if they did so notwithstanding this, it was due to the urgent necessity of obtaining funds. Necessitous men are not, truly speaking, free men; but to answer a present emergency, will submit to any terms that the crafty may impose upon them.[25]

Moreover, since the borrowers urgent need for money places the latter at a disadvantage vis-a-vis the lender who can thus dictate the terms of their contract, the Court, in case of an ambiguity, deems the contract to be one which involves the lesser transmission of rights and interest over the property in controversy.[26]

As aptly found and concluded by the regional trial court:

The evidence of record indicates that while as of April 4, 1988 (the date of execution of the Deed of Absolute Sale whereby the N. Domingo and Realty &

Development Corporation purportedly sold the townhouse and lot subject of this suit to [herein private respondent Better Homes Realty & Housing Corporation] for P100,000.00) said N. Domingo Realty & Development Corporation (NDRDC, for short) was the registered owner of the subject property under Transfer Certificate of Title (TCT) No. 316634 of the Registry of Deeds for Quezon City, (herein petitioner Manuel Lao) in fact was and has been since 1975 the beneficial owner of the subject property and, thus, the same was assigned to him by the NDRDC, the family corporation set up by his parents and of which (herein petitioner) and his siblings are directors. That the parties real transaction or contract over the subject property was not one of sale but, rather, one of loan secured by a mortgage thereon is unavoidably inferrable from the following facts of record, to (herein petitioners) possession of the subject property, which started in 1975 yet, continued and remained even after the alleged sale of April 4, 1988; (herein private respondent) executed an option to purchase in favor (herein petitioner) as early as April 2, 1988 or two days before (herein private respondent) supposedly acquired ownership of the property; the said option was renewed several times and the price was increased with each renewal (thus, the original period for the exercise of the option was up to June 11, 1988 and the price was P109,000.00; then, on June 10, 1988, the option was extended for 60 days or until August 11, 1988 and the price was increased to P137,000.00; and then on August 11, 1988, the option was again extended until November 11, 1988 and the price was increased to P158, 840.00); and, the Deed of Absolute Sale of April 4, 1988 was registered and the property transferred in the name of (private respondent) only on May 10, 1989, per TCT No. 22184 of the Registry of Deeds for Quezon City (Arts. 1602, nos. 2, 3, & 6, & 1604, Civil Code). Indeed, if it were true, as it would have the Court believe, that (private respondent) was so appreciative of (petitioners) alleged facilitation of the subject propertys sale to it, it is quite strange why (private respondent) some two days before such supposed sale would have been minded and inclined to execute an option to purchase allowing (petitioner) to acquire the property -- the very same property it was still hoping to acquire at the time. Certainly, what is more likely and thus credible is that, if (private respondent) was indeed thankful that it was able to purchase the property, it would not given (petitioner) any option to purchase at all x x x.[27]

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.

Third Issue: Should Petitioner Be Ejected?

We answer in the negative. An action for unlawful detainer is grounded on Section 1, Rule 70 of the Rules of Court which provides that:

x x x a landlord, 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 landlord, 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 inferior 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. x x x.

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.[28]

Other Matters

Private respondent in his memorandum also contends that (1) petitioner is not the real party in interest and (2) the petition should be dismissed for raising/stating facts not so found by the Court of Appeals. These deserve scant consideration. Petitioner was impleaded as party defendant in the ejectment suit by private respondent itself. Thus, private respondent cannot question his standing as a party. As such party, petitioner should be allowed to raise defenses which negate private respondents right to the property in question. The second point is really academic. This ponencia relies on the factual narration of the Court of Appeals and not on the facts supplied by petitioner.

WHEREFORE, the petition is hereby GRANTED. The challenged Decision of the Court of Appeals is REVERSED and SET ASIDE. The decision of the Regional Trial Court of Quezon City ordering the dismissal of the complaint for ejectment is REINSTATED and AFFIRMED. No pronouncement as to costs.

SO ORDERED