[G.R. NO.

170115 : February 19, 2008]

PROVINCE OF CEBU, Petitioner, v. HEIRS OF RUFINA MORALES, NAMELY: FELOMINA V.

PANOPIO, NENITA VILLANUEVA, ERLINDA V. ADRIANO and CATALINA V.
QUESADA, Respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a Petition for Review on Certiorari of the Decision 1 of the Court of Appeals dated March 29,
2005 in CA-G.R. CV No. 53632, which affirmed in toto the Decision 2 of the Regional Trial Court of
Cebu City, Branch 6, in Civil Case No. CEB-11140 for specific performance and reconveyance of
property. Also assailed is the Resolution 3 dated August 31, 2005 denying the motion for
reconsideration.

On September 27, 1961, petitioner Province of Cebu leased 4 in favor of Rufina Morales a 210-
square meter lot which formed part of Lot No. 646-A of the Banilad Estate. Subsequently or
sometime in 1964, petitioner donated several parcels of land to the City of Cebu. Among those
donated was Lot No. 646-A which the City of Cebu divided into sub-lots. The area occupied by
Morales was thereafter denominated as Lot No. 646-A-3, for which Transfer Certificate of Title
(TCT) No. 30883 5 was issued in favor of the City of Cebu.

On July 19, 1965, the city sold Lot No. 646-A-3 as well as the other donated lots at public auction
in order to raise money for infrastructure projects. The highest bidder for Lot No. 646-A-3 was
Hever Bascon but Morales was allowed to match the highest bid since she had a preferential right
to the lot as actual occupant thereof. 6 Morales thus paid the required deposit and partial payment
for the lot. 7

In the meantime, petitioner filed an action for reversion of donation against the City of Cebu
docketed as Civil Case No. 238-BC before Branch 7 of the then Court of First Instance of Cebu. On
May 7, 1974, petitioner and the City of Cebu entered into a compromise agreement which the
court approved on July 17, 1974. 8 The agreement provided for the return of the donated lots to
petitioner except those that have already been utilized by the City of Cebu. Pursuant thereto, Lot
No. 646-A-3 was returned to petitioner and registered in its name under TCT No. 104310. 9

Morales died on February 20, 1969 during the pendency of Civil Case No. 238-BC. 10 Apart from
the deposit and down payment, she was not able to make any other payments on the balance of
the purchase price for the lot.

On March 11, 1983, one of the nieces of Morales, respondent Catalina V. Quesada, wrote to then
Cebu Governor Eduardo R. Gullas asking for the formal conveyance of Lot No. 646-A-3 to Morales'
surviving heirs, in accordance with the award earlier made by the City of Cebu. 11 This was
followed by another letter of the same tenor dated October 10, 1986 addressed to Governor
Osmundo G. Rama. 12

The requests remained unheeded thus, Quesada, together with the other nieces of Morales
namely, respondents Nenita Villanueva and Erlinda V. Adriano, as well as Morales' sister, Felomina
V. Panopio, filed an action for specific performance and reconveyance of property against
petitioner, which was docketed as Civil Case No. CEB-11140 before Branch 6 of the Regional Trial
Court of Cebu City. 13 They also consigned with the court the amount of P13,450.00 representing
the balance of the purchase price which petitioner allegedly refused to accept. 14

Panopio died shortly after the complaint was filed. 15

Respondents averred that the award at public auction of the lot to Morales was a valid and binding
contract entered into by the City of Cebu and that the lot was inadvertently returned to petitioner
under the compromise judgment in Civil Case No. 238-BC. They alleged that they could not pay
the balance of the purchase price during the pendency of said case due to confusion as to whom
and where payment should be made. They thus prayed that judgment be rendered ordering
petitioner to execute a final deed of absolute sale in their favor, and that TCT No. 104310 in the
name of petitioner be cancelled. 16

Petitioner filed its answer but failed to present evidence despite several opportunities given thus, it
was deemed to have waived its right to present evidence. 17

On March 6, 1996, the trial court rendered judgment, the dispositive part of which reads:

WHEREFORE, judgment is rendered in favor of the plaintiffs and against the defendant
Province of Cebu, hereby directing the latter to convey Lot 646-A-3 to the plaintiffs as
heirs of Rufina Morales, and in this connection, to execute the necessary deed in favor
of said plaintiffs.

No pronouncement as to costs.

SO ORDERED. 18

In ruling for the respondents, the trial court held thus:

[T]he Court is convinced that there was already a consummated sale between the City
of Cebu and Rufina Morales. There was the offer to sell in that public auction sale. It
was accepted by Rufina Morales with her bid and was granted the award for which she
paid the agreed downpayment. It cannot be gainsaid that at that time the owner of the
property was the City of Cebu. It has the absolute right to dispose of it thru that public
auction sale. The donation by the defendant Province of Cebu to Cebu City was not
voided in that Civil Case No. 238-BC. The compromise agreement between the parties
therein on the basis of which judgment was rendered did not provide nullification of the
sales or disposition made by the City of Cebu. Being virtually successor-in-interest of
City of Cebu, the defendant is bound by the contract lawfully entered into by the
former. Defendant did not initiate any move to invalidate the sale for one reason or
another. Hence, it stands as a perfectly valid contract which defendant must respect.
Rufina Morales had a vested right over the property. The plaintiffs being the heirs or
successors-in-interest of Rufina Morales, have the right to ask for the conveyance of
the property to them. While it may be true that the title of the property still remained
in the name of the City of Cebu until full payment is made, and this could be the reason
why the lot in question was among those reverted to the Province, the seller's
obligation under the contract was, for all legal purposes, transferred to, and assumed
by, the defendant Province of Cebu. It is then bound by such contract. 19

Petitioner appealed to the Court of Appeals which affirmed the decision of the trial court in toto.
Upon denial of its motion for reconsideration, petitioner filed the instant petition under Rule 45 of
the Rules of Court, alleging that the appellate court erred in:

FINDING THAT RUFINA MORALES AND RESPONDENTS, AS HER HEIRS, HAVE THE
RIGHT TO EQUAL THE BID OF THE HIGHEST BIDDER OF THE SUBJECT PROPERTY AS
LESSEES THEREOF;

FINDING THAT WITH THE DEPOSIT AND PARTIAL PAYMENT MADE BY RUFINA
MORALES, THE SALE WAS IN EFFECT CLOSED FOR ALL LEGAL PURPOSES, AND THAT
THE TRANSACTION WAS PERFECTED AND CONSUMMATED;

FINDING THAT LACHES AND/OR PRESCRIPTION ARE NOT APPLICABLE AGAINST

RESPONDENTS;

FINDING THAT DUE TO THE PENDENCY OF CIVIL CASE NO. 238-BC, PLAINTIFFS WERE
NOT ABLE TO PAY THE AGREED INSTALLMENTS;

AFFIRMING THE DECISION OF THE TRIAL COURT IN FAVOR OF THE RESPONDENTS

AND AGAINST THE PETITIONERS. 20

The petition lacks merit.

The appellate court correctly ruled that petitioner, as successor-in-interest of the City of Cebu, is
bound to respect the contract of sale entered into by the latter pertaining to Lot No. 646-A-3. The
City of Cebu was the owner of the lot when it awarded the same to respondents' predecessor-in-
interest, Morales, who later became its owner before the same was erroneously returned to
petitioner under the compromise judgment. The award is tantamount to a perfected contract of
sale between Morales and the City of Cebu, while partial payment of the purchase price and actual
occupation of the property by Morales and respondents effectively transferred ownership of the lot
to the latter. This is true notwithstanding the failure of Morales and respondents to pay the balance
of the purchase price.

Petitioner can no longer assail the award of the lot to Morales on the ground that she had no right
to match the highest bid during the public auction. Whether Morales, as actual occupant and/or
lessee of the lot, was qualified and had the right to match the highest bid is a foregone matter that
could have been questioned when the award was made. When the City of Cebu awarded the lot to
Morales, it is assumed that she met all qualifications to match the highest bid. The subject lot was
auctioned in 1965 or more than four decades ago and was never questioned. Thus, it is safe to
assume, as the appellate court did, that all requirements for a valid public auction sale were
complied with.

A sale by public auction is perfected "when the auctioneer announces its perfection by the fall of
the hammer or in other customary manner". 21 It does not matter that Morales merely matched
the bid of the highest bidder at the said auction sale. The contract of sale was nevertheless
perfected as to Morales, since she merely stepped into the shoes of the highest bidder.

Consequently, there was a meeting of minds between the City of Cebu and Morales as to the lot
sold and its price, such that each party could reciprocally demand performance of the contract
from the other. 22 A contract of sale is a consensual contract and 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. The elements of a valid contract of sale under Article 1458 of
the Civil Code are: (1) consent or meeting of the minds; (2) determinate subject matter; and (3)
price certain in money or its equivalent. 23 All these elements were present in the transaction
between the City of Cebu and Morales.

There is no merit in petitioner's assertion that there was no perfected contract of sale because no
"Contract of Purchase and Sale" was ever executed by the parties. As previously stated, a contract
of sale is a consensual contract that is perfected upon a meeting of minds as to the object of the
contract and its price. Subject to the provisions of the Statute of Frauds, a formal document is not
necessary for the sale transaction to acquire binding effect. 24 For as long as the essential
elements of a contract of sale are proved to exist in a given transaction, the contract is deemed
perfected regardless of the absence of a formal deed evidencing the same.

Similarly, petitioner erroneously contends that the failure of Morales to pay the balance of the
purchase price is evidence that there was really no contract of sale over the lot between Morales
and the City of Cebu. On the contrary, the fact that there was an agreed price for the lot proves
that a contract of sale was indeed perfected between the parties. Failure to pay the balance of the
purchase price did not render the sale inexistent or invalid, but merely gave rise to a right in favor
of the vendor to either demand specific performance or rescission of the contract of sale. 25 It did
not abolish the contract of sale or result in its automatic invalidation.

As correctly found by the appellate court, the contract of sale between the City of Cebu and
Morales was also partially consummated. The latter had paid the deposit and downpayment for the
lot in accordance with the terms of the bid award. She first occupied the property as a lessee in
1961, built a house thereon and was continuously in possession of the lot as its owner until her
death in 1969. Respondents, on the other hand, who are all surviving heirs of Morales, likewise
occupied the property during the latter's lifetime and continue to reside on the property to this
day. 26

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. 27 In this case,
respondents' predecessor had undoubtedly commenced performing her obligation by making a
down payment on the purchase price. Unfortunately, however, she was not able to complete the
payments due to legal complications between petitioner and the city.

Thus, the City of Cebu could no longer dispose of the lot in question when it was included as
among those returned to petitioner pursuant to the compromise agreement in Civil Case No. 238-
BC. The City of Cebu had sold the property to Morales even though there remained a balance on
the purchase price and a formal contract of sale had yet to be executed. Incidentally, the failure of
respondents to pay the balance on the purchase price and the non-execution of a formal
agreement was sufficiently explained by the fact that the trial court, in Civil Case No. 238-BC,
issued a writ of preliminary injunction enjoining the city from further disposing the donated lots.
According to respondents, there was confusion as to the circumstances of payment considering
that both the city and petitioner had refused to accept payment by virtue of the injunction. 28 It
appears that the parties simply mistook Lot 646-A-3 as among those not yet sold by the city.

The City of Cebu was no longer the owner of Lot 646-A-3 when it ceded the same to petitioner
under the compromise agreement in Civil Case No. 238-BC. At that time, the city merely retained
rights as an unpaid seller but had effectively transferred ownership of the lot to Morales. As
successor-in-interest of the city, petitioner could only acquire rights that its predecessor had over
the lot. These rights include the right to seek rescission or fulfillment of the terms of the contract
and the right to damages in either case. 29

In this regard, the records show that respondent Quesada wrote to then Cebu Governor Eduardo
R. Gullas on March 11, 1983, asking for the formal conveyance of Lot 646-A-3 pursuant to the
award and sale earlier made by the City of Cebu. On October 10, 1986, she again wrote to
Governor Osmundo G. Rama reiterating her previous request. This means that petitioner had
known, at least as far back as 1983, that the city sold the lot to respondents' predecessor and that
the latter had paid the deposit and the required down payment. Despite this knowledge, however,
petitioner did not avail of any rightful recourse to resolve the matter.

Article 1592 of the Civil Code pertinently provides:

Article 1592. In the sale of immovable property, even though it may have been
stipulated that upon failure to pay the price at the time agreed upon the rescission of
the contract shall of right take place, the vendee may pay, even after the expiration of
the period, as long as no demand for rescission of the contract has been made upon
him either judicially or by notarial act. After the demand, the court may not grant him a
new term. (Underscoring supplied) cralawlibrary

Thus, respondents could still tender payment of the full purchase price as no demand for rescission
had been made upon them, either judicially or through notarial act. While it is true that it took a
long time for respondents to bring suit for specific performance and consign the balance of the
purchase price, it is equally true that petitioner or its predecessor did not take any action to have
the contract of sale rescinded. Article 1592 allows the vendee to pay as long as no demand for
rescission has been made. 30 The consignation of the balance of the purchase price before the trial
court thus operated as full payment, which resulted in the extinguishment of respondents'
obligation under the contract of sale.

Finally, petitioner cannot raise the issue of prescription and laches at this stage of the proceedings.
Contrary to petitioner's assignment of errors, the appellate court made no findings on the issue
because petitioner never raised the matter of prescription and laches either before the trial court
or Court of Appeals. It is basic that defenses and issues not raised below cannot be considered on
appeal. 31 Thus, petitioner cannot plead the matter for the first time before this Court.

WHEREFORE, in view of the foregoing, the petition is hereby DENIED and the decision and
resolution of the Court of Appeals in CA-G.R. CV No. 53632 are AFFIRMED.