G.R. No. 171165 ; February 14, 2011
CAROLINA HERNANDEZ-NIEVERA, DEMETRIO P. HERNANDEZ, JR., and MARGARITA H. MALVAR, Petitioners, vs. WILFREDO HERNANDEZ, HOME INSURANCE AND GUARANTY CORPORATION, PROJECT MOVERS REALTY AND DEVELOPMENT CORPORATION, MARIO P. VILLAMOR and LAND BANK OF THE PHILIPPINES, Respondents.

FACTS

Project Movers Realty & Development Corporation (PMRDC), through its president Mario Villamor, entered into agreements with Home Insurance & Guaranty Corporation (HIGC) and Land Bank of the Philippines (LBP) for the construction of housing and commercial projects, involving the formation of an Asset Pool where LBP acted as trustee. On November 13, 1997, PMRDC entered into a Memorandum of Agreement (MOA) with petitioners Carolina Hernandez-Nievera, Margarita H. Malvar, and Demetrio P. Hernandez, Jr. (the latter signing under a Special Power of Attorney to Sell or Mortgage also for Carolina and Margarita). The MOA gave PMRDC an option to purchase petitioners’ lands (aggregate 4,580,451 sq. meters, divided into Area I and Area II) for Php 25.00 per square meter, totaling Php 114,511,270.00. The option period was twelve (12) months. PMRDC was to pay option money: for Area I, Php 6,000,000.00 in two installments (due Nov. 20 and Dec. 15, 1997); for Area II, Php 8,500,000.00 payable within 30 days after conveyance to the Isabel Homes Asset Pool. If PMRDC exercised the option, it was to complete a 25% downpayment (inclusive of option money) within the option period, with the balance payable in eight quarterly installments over two years. If PMRDC failed to exercise the option, the option money would be forfeited and PMRDC was to return the Transfer Certificates of Title (TCTs) free from liens within 30 days. The MOA also allowed the vendor, at the vendee’s request, to convey the land to a bank or trustee via mortgage or trust agreement, but the vendor would not be liable for any loans incurred.
Pursuant to the MOA, the Area I lands were mortgaged to Solid Bank, with petitioners receiving consideration from PMRDC. Subsequently, on March 23, 1998, PMRDC, LBP, and Demetrio (again purportedly under the same Special Power of Attorney) executed a Deed of Assignment and Conveyance (DAC), which conveyed the Area II lands to the Asset Pool in exchange for shares of stock issued in Demetrio’s name. The DAC contained a provision dispensing with PMRDC’s obligation under the MOA to pay the option money for Area II.
PMRDC did not exercise its option to purchase the Area II lands within the twelve-month period. Although PMRDC delivered checks for the option money, these allegedly bounced. On January 8, 1999, petitioners demanded the return of the TCTs for Area II. In a January 21, 1999 letter, PMRDC, through Villamor, stated the TCTs could not be returned as the properties had already been conveyed to the Asset Pool per the DAC. Petitioners then disowned Demetrio’s signature on the DAC, claiming it was forged, and argued that Demetrio’s power of attorney only authorized selling or mortgaging, not conveying to an Asset Pool. They alleged fraudulent execution through the connivance of all respondents.
Petitioners filed an action in the RTC of San Pablo City, Laguna, for rescission of the MOA and declaration of nullity of the DAC, with a prayer for preliminary injunction and damages. The RTC ruled for petitioners, rescinding the MOA (declaring it an option contract) and declaring the DAC null and void due to forgery of Demetrio’s signature and fraud in its execution. It held respondents PMRDC and Villamor liable for damages. The Court of Appeals reversed this decision. Petitioners then filed this Rule 45 petition for review.

ISSUE

The core legal issue is whether the Court of Appeals erred in reversing the RTC’s decision which rescinded the MOA and declared the DAC null and void, and held respondents liable for damages.

RULING

The Supreme Court DENIED the petition and AFFIRMED the Court of Appeals’ decision. The key holdings are as follows:
1. On the Nature of the MOA: The MOA was not a mere option contract but a conditional contract of sale. An option contract is a preparatory contract where one party grants the other the right to buy or sell at a fixed price within a set time, without imposing an obligation to purchase. A contract of sale is perfected upon meeting of the minds on the object and price. Here, the MOA contained all essential elements of a contract of sale: consent (through the agreement), object (the parcels of land), and price (Php 25.00 per sq. meter). The provision for a 12-month “option” period and payment terms (downpayment and installments) merely established a condition precedent (the payment of the option money and downpayment within the period) for the enforcement of the reciprocal obligations of delivery and payment under an already perfected contract. The MOA’s stipulation that failure to exercise the “option” results in forfeiture of the option money and return of titles is characteristic of an earnest money arrangement in a conditional sale, not a penalty for not accepting an offer under an option.
2. On the Validity of the DAC: The DAC was declared valid and binding. The Court found no conclusive evidence of forgery of Demetrio’s signature. More importantly, the execution of the DAC was a legitimate exercise of the authority granted under the MOA. Clause 4 of the MOA expressly authorized the vendor (petitioners), at the request of the vendee (PMRDC), to convey the land “to any bank or financial institution by way of mortgage or to a Trustee by way of a Trust Agreement.” The Asset Pool, for which LBP acted as trustee, qualified as a “Trustee” under this clause. Therefore, Demetrio’s act of signing the DAC to convey Area II to the Asset Pool (with LBP as trustee) was within the scope of the authority granted by the MOA itself, which he and his co-petitioners had signed. The provision in the DAC waiving the option money for Area II was a valid modification of the payment terms agreed upon between the parties to the DAC.
3. On the Liability of Respondents: Since the MOA was a valid conditional contract of sale and the DAC was a valid implementation thereof, petitioners’ action for rescission and annulment had no basis. Consequently, the claims for damages against respondents, including PMRDC, Villamor, HIGC, and LBP, failed. The Court specifically noted that LBP, in its capacity as trustee of the Asset Pool, was a proper party to the suit and was correctly represented by the Office of the Government Corporate Counsel.
In conclusion, the Supreme Court held that the MOA was a conditional contract of sale, not a rescissible option contract, and the DAC was a valid conveyance authorized under the MOA. Thus, the RTC’s decision was correctly reversed by the Court of Appeals.