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RIDO MONTECILLO v. IGNACIA REYNES

FACTS:

Respondents Ignacia Reynes and Spouses Abucay filed a complaint for Declaration of Nullity and Quieting of Title against petitioner Rido Montecillo. Reynes claimed to be the owner of a parcel of land known as the Mabolo Lot. She sold a portion of the Mabolo Lot to the Abucay Spouses in 1981. In March 1984, Reynes signed a Deed of Sale of the Mabolo Lot in favor of Montecillo. However, Montecillo failed to pay the purchase price within the agreed timeframe. Reynes demanded the return of the Deed of Sale but Montecillo refused. Consequently, Reynes unilaterally revoked the sale and executed a document confirming the previous sale to the Abucay Spouses. Reynes and the Abucay Spouses later discovered that a Certificate of Title was issued in Montecillo's name for the Mabolo Lot. They argued that there was no meeting of the minds between Reynes and Montecillo due to the lack of consideration. Montecillo claimed to be a buyer in good faith and argued that he paid the purchase price as stated in his Deed of Sale. He also alleged that he paid for the release of a chattel mortgage that he argued constituted a lien.

The case involves a dispute over the ownership of a property located in Mabolo, Cebu City. The defendant, Montecillo, claimed that he purchased the property from the plaintiff, Reynes, for a purchase price of P47,000. Montecillo alleged that he paid P50,000 for the release of a chattel mortgage, as well as the real property tax and capital gains tax on the sale of the property. On the other hand, Reynes and the Abucay Spouses argued that Montecillo did not have authority to discharge the chattel mortgage and that he took advantage of the real property taxes paid by the Abucay Spouses. Montecillo claimed that the consideration for the sale of the property was the amount he paid to Cebu Ice and Cold Storage Corporation for the mortgage debt of Bienvenido Jayag. The trial court declared Montecillo's Deed of Sale null and void, ordered the cancellation of his title, and issued a new title in favor of the Abucay Spouses. The Court of Appeals affirmed the trial court's decision. Montecillo then filed a petition for review on certiorari before the Supreme Court.

ISSUES:

  1. Was there an agreement between Reynes and Montecillo that the stated consideration of P47,000.00 in the Deed of Sale be paid to Cebu Ice and Cold Storage to secure the release of the Transfer Certificate of Title?

  2. If there was none, is the Deed of Sale void from the beginning or simply rescissible?

  3. Whether there was a valid consideration in Montecillo's Deed of Sale.

  4. Whether the failure to pay the purchase price constitutes a breach of obligation or lack of consideration.

  5. The issue in this case is whether there was a valid contract between the parties due to the lack of consent or meeting of the minds on the manner of payment.

RULING:

  1. The petition is devoid of merit.

  2. First issue: The manner of payment of the P47,000.00 purchase price.

  3. The Court held that Montecillo's payment to Cebu Ice Storage is not the payment that would extinguish Montecillo's obligation to Reynes under the Deed of Sale. Montecillo failed to present evidence that Reynes agreed that the purchase price should be paid to Cebu Ice Storage. Absent such evidence, the payment must be made to Reynes, the vendor in the sale. The court cited Article 1240 of the Civil Code, which provides that payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it.

  4. Second issue: Whether the Deed of Sale is void ab initio or only rescissible.

  5. The Court held that Montecillo's Deed of Sale did not have a valid contract because there was a lack of consideration. While the Deed of Sale stated that Montecillo paid the purchase price to Reynes, the trial court found that Montecillo never paid Reynes, and Reynes never received the purchase price. Therefore, there was no valid contract between the parties. The court rejected Montecillo's argument that there was only a breach of his obligation to pay the full purchase price on time, and held that there was a lack of consideration that rendered the Deed of Sale void ab initio.

  6. There was no valid consideration in Montecillo's Deed of Sale. The trial court and appellate court found that there was a total absence of consideration in the Deed of Sale. The evidence presented showed that Montecillo did not pay the purchase price to Reynes and Reynes did not receive any payment from Montecillo. Factual findings of the trial court are binding unless the evidence on record clearly does not support such findings or such findings are based on a patent misunderstanding of facts. Therefore, the finding that there was no valid consideration is upheld.

  7. The failure to pay the purchase price constitutes lack of consideration, not simply a breach of obligation. While a failure to pay the purchase price may result in a breach of obligation and the proper remedy is rescission, in this case, there was a complete absence of consideration. A valid contract requires a cause, and the lack of consideration prevents the existence of a valid contract. Therefore, the Deed of Sale is null and void ab initio for lack of consideration.

  8. The Supreme Court ruled that there was no valid contract between the parties due to the lack of consent on the manner of payment. The Deed of Sale was deemed null and void ab initio, and the cancellation of the Transfer Certificate of Title (TCT) was ordered.

PRINCIPLES:

  • Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. (Article 1240, Civil Code)

  • Contracts without cause produce no effect whatsoever. (Article 1352, Civil Code)

  • A valid contract requires the concurrence of consent, object certain, and consideration. (Article 1318, Civil Code)

  • Lack of consideration renders a contract void ab initio.

  • A contract of sale is void and produces no effect whatsoever where the price, which appears thereon as paid, has in fact never been paid by the purchaser to the vendor.

  • The manner of payment of the purchase price is an essential element before a valid and binding contract of sale can exist. Disagreement on the manner of payment is tantamount to a failure to agree on the price.

  • An agreement on the price and the manner of payment are essential requisites of a valid contract of sale. Lack of consideration prevents the existence of a valid contract.

  • For a contract to be valid, there must be consent or meeting of the minds on all essential elements, including the manner of payment.

  • An agreement on the price but a disagreement on the manner of payment prevents the existence of a valid contract.

  • Lack of consent due to disagreement on the manner of payment is separate and distinct from lack of consideration, where the contract states that the price has been paid when it has not.