In the instant petition, we shall have the occasion to apply the concept of mistake in the annulment of contracts.

Private respondent Calsons Development Corporation is the owner of three (3) adjacent parcels of land covered by Transfer Certificate of Title (TCT) Nos. 15515 (parcel no. 1 in the location map), 15516 (parcel no. 2) and 15684 (parcel no. 3), with the area of 1,000 square meters, 226 square meters and 1,000 square meters, respectively. All three parcels of land are situated along Ligaya Drive, Barangay Francisco, Tagaytay City. Adjacent to parcel no. 3, which is the lot covered by TCT No. 15684, is a vacant lot denominated as parcel no. 4.

In 1985, private respondent constructed a two-storey house on parcel no. 3. The lots covered by TCT No. 15515 and TCT No. 15516, which are parcel no. 1 and parcel no. 2, respectively, remained idle.

However, in a survey conducted in 1985, parcel no. 3, where the two-storey house stands, was erroneously indicated to be covered not by TCT No. 15684 but by TCT No. 15515, while the two idle lands (parcel nos. 1 and 2) were mistakenly surveyed to be located on parcel no. 4 instead (which was not owned by private respondent) and covered by TCT Nos. 15516 and 15684.

On October 26, 1987, unaware of the mistake by which private respondent appeared to be the owner of parcel no. 4 as indicated in the erroneous survey, and based on the erroneous information given by the surveyor that parcel no. 4 is covered by TCT No. 15516 and 15684, private respondent, through its authorized representative, one Atty. Tarcisio S. Calilung, sold said parcel no. 4 to petitioners.

Upon execution of the Deed of Sale, private respondent delivered TCT Nos. 15516 and 15684 to petitioners who, on October 28, 1987, immediately registered the same with the Registry of Deeds of Tagaytay City. Thus, TCT Nos. 17041 and 17042 in the names of the petitioners were issued.

Indicated on the Deed of Sale as purchase price was the amount of P130,000.00. The actual price agreed upon and paid, however, was P486,000.00. This amount was not immediately paid to private respondent; rather, it was deposited in escrow in an interest-bearing account in its favor with the United Coconut Planters Bank in Makati City. The P486,000.00 in escrow was released to, and received by, private respondent on December 4, 1987.

Thereafter, petitioners did not immediately occupy and take possession of the two (2) idle parcels of land purchased from private respondent. Instead, petitioners went to Germany.

In the early part of 1990, petitioners returned to the Philippines. When they went to Tagaytay to look over the vacant lots and to plan the construction of their house thereon, they discovered that parcel no. 4 was owned by another person. They also discovered that the lots actually sold to them were parcel nos. 2 and 3 covered by TCT Nos. 15516 and 15684, respectively. Parcel no. 3, however, could not have been sold to the petitioners by the private respondents as a two-storey house, the construction cost of which far exceeded the price paid by the petitioners, had already been built thereon even prior to the execution of the contract between the disputing parties.

Petitioners insisted that they wanted parcel no. 4, which is the idle lot adjacent to parcel no. 3, and persisted in claiming that it was parcel no. 4 that private respondent sold to them. However, private respondent could not have possibly sold the same to them for it did not own parcel no. 4 in the first place.

The mistake in the identity of the lots is traceable to the erroneous survey conducted in 1985.

To remedy the mistake, private respondent offered parcel nos. 1 and 2 covered by TCT Nos. 15515 and 15516, respectively, as these two were precisely the two vacant lots which private respondent owned and intended to sell when it entered into the transaction with petitioners. Petitioners adamantly rejected the good faith offer. They refused to yield to reason and insisted on taking parcel no. 3, covered by TCT No. 155864 and upon which a two-storey house stands, in addition to parcel no. 2, covered by TCT No. 15516, on the ground that these TCTs have already been cancelled and new ones issued in their name.

Such refusal of petitioners prompted private respondent to make another offer, this time, the return of an amount double the price paid by petitioners. Petitioners still refused and stubbornly insisted in their stand.

Private respondent was then compelled to file an action for annulment of deed of sale and reconveyance of the properties subject thereof^[1] in the Regional Trial Court.^[2]

The trial court rendered judgment in favor of private respondent. Identifying the core issue in the instant controversy to be the voidability of the contract of sale between petitioners and private respondent on the ground of mistake, the trial court annulled said contract of sale after finding that there was indeed a mistake in the identification of the parcels of land intended to be the subject matter of said sale. The trial court ratiocinated:

"Meeting head-on the issue of alleged mistake in the object of the same, defendants in their answer averred that they relied on the technical descriptions of TCT Nos. 15516 and 15684 appearing in the deed of sale x x x

A resolution of the conflicting claims of the parties to the instant controversy calls for an inquiry on their real intent relative to the identity of the parcels which plaintiff intended to sell to defendants and which the latter in turn, intended to buy from the former. For, the Court cannot ignore the dictates of logic and common sense which, ordinarily, could not push a person to sell to another, a property which the former does not own in the first place, for fear of adverse consequences. The vendee, following the same reasoning, would not buy a thing unless he is totally certain that the seller is the real owner of the thing offered for sale. It is equally true that when one sells or buys a real property, he either sells or buys the property as he sees it, in its actual setting and by its physical metes and bounds, and not be the mere lot number assigned to the same property in the certificate of title or in any document. And, when a buyer of real property decides to purchase from his seller, he is ordinarily bound by prudence to ascertain the true nature, identity or character of the property that he intends to buy and ascertain the title of his vendor before he parts with his money. It is quite obvious that the foregoing precepts and precautions were observed by the parties in the case at bar as there is no question at all that the sale in question was consummated through the initiative of Mrs. Gloria Contreras and then Vice-Mayor Benjamin Erni x x x both brokers of the sale who, after a chance meeting with defendants at the Taal Vista Lodge Hotel prior to the sale of plaintiff's parcels, brought defendants to the vicinity where plaintiff's three (3) adjacent parcels of land are located and pointed to defendants the two (2) vacant parcels right beside plaintiff's house. It is also undisputed that when defendants intimated to the brokers their desire to buy the vacant lots pointed to them when they visited the same place, they were brought to plaintiff's representative, Tarcisio S. Calilung, at the latter's office in Makati where the parties discussed the terms of the sale.

The Court notes further from the records that defendants' desire to buy vacant lots from plaintiff is not only confirmed by the testimony of Gloria Contreras and the ocular inspection conducted by the court but by defendant Betty Theis herself when the latter testified as follows:

'COURT:

Q. Why, what was the lot that you intended to buy?

A. The right side of the house, Your Honor.' (TSN of November 8, 1991, page 19)

Similarly, in answer to a question propounded to the same defendant by their counsel, she stated that

'ATTY. ROSALES:

Q. In other words, the titles delivered to you were not the titles covering the right side of the house?

A. No, sir.' (Ibid., page 20)

It is relevant to mention that when the defendants attempted to take possession of the parcels of land they bought from the plaintiff on which they intended to construct their house after their return from a foreign sojourn, they admittedly wanted to take that vacant area, which as herein shown, turns out to be a property not owned by plaintiff. From this act of the defendants, a clear meaning is shown. Defendants themselves, knew right from the beginning that what they intended to buy was that vacant lot, not the lot where plaintiff's house stands, covered by TCT No. 15684 which was wrongly mentioned as one of the objects of the sale. x x x

The fact that the Deed of Sale subsequently executed by plaintiff and the defendants on October 27, 1987 covers the parcel of land where plaintiff's two-storey house was constructed will clearly reflect a situation that is totally different from what defendants had intended to buy from the plaintiff viz-a-viz [sic] the latter's intention to sell its two (2) vacant lots to defendants. Notwithstanding defendants' claim that it was not possible for plaintiff's representative not to be familiar with its properties, the acts and circumstances established in this case would clearly show, and this Court is convinced, that the inclusion of the parcel where plaintiff's house is constructed is solely attributable to a mistake in the object of the sale between the parties. This mistake, obviously, was made, on the part of plaintiff's representative when the latter mistook the vacant lot situated on the right side of plaintiff's house as its vacant parcels of land when its vacant lots are actually situated on the left side of the same house. Indeed, such mistake on plaintiff's part appears to be tragic as it turned out later that the vacant lot on the right side of plaintiff's house did not belong to plaintiff. Worse, is the fact that what was conveyed to defendants under the deed of sale was the parcel where plaintiff's house already stood at the time of the sale. This, definitely, is not what the parties intended.

x x x Going by the facts established by defendants' evidence, it is clear that defendants did not intend to buy the parcel of land where plaintiff's house stood as defendant Betty Theis declared in her testimony that they wanted to buy the parcel at the right side of plaintiff's house where she and her husband would construct their house (TSN of June 4, 1991, p. 56). Neither can this Court accept the hypothesis that plaintiff intended to sell that parcel where its house was already constructed for if this was its true intention, it would not sell its two (2) lots at the price of P486,000.00 which is way below the costs of its construction of P1,500,000.00.

The law itself explicitly recognizes that consent of the parties is one of the essential elements to the validity of the contract and where consent is given through mistake, the validity of the contractual relations between the parties is legally impaired.

As earlier stated, the facts obtaining in the case at bar undoubtedly show that when defendants bought the properties of plaintiff, they intended to buy the vacant lots owned by the latter. As the sale that was finally consummated by the parties had covered the parcel where plaintiff's house was constructed even before the sale took place, this Court can safely assume that the deed of sale executed by the parties did not truly express their true intention. In other words, the mistake or error on the subject of the sale in question appears to be substantial as the object of the same transaction is different from that intended by the parties. This fiasco could have been cured and the pain and travails of this litigation avoided, had parties agreed to reformation of the deed of sale. But, as shown by the sequence of events occurring after the sale was consummated, and the mistake was discovered, the defendants refused, insisting that they wanted the vacant lots on the right side of plaintiff's house, which was impossible for plaintiff to do, as said vacant lots were not of its own dominion."^[3] [Emphasis supplied]

Aggrieved by the decision of the trial court, petitioners sought its reversal^[4] from respondent Court of Appeals.^[5] Respondent court, however, did not find the appeal meritorious and accordingly affirmed^[6] the trial court decision. Ruled the respondent appellate court:

"There is no doubt that when defendants-appellants attempted to take physical possession of Parcel No. 4 in May, 1990, they were prevented by the true owner thereof from taking possession of said land. To clear the matter, plaintiff-appellee hired a new surveyor who revealed in his survey that Parcel No. 4 is not included in plaintiff-appellee's Transfer Certificates of Title from which said plaintiff-appellee mistakenly offered defendants-appellants said Parcel No. 4. Realizing its mistake, plaintiff-appellee offered defendants-appellants Parcels Nos. 1 and 2 under the same Transfer Certificates of Title or the reimbursement of the purchase price in double amount. But defendants-appellants insisted this time to acquire Parcel No. 3 wherein plaintiff-appellee had already a house, and was not the object of the sale.

Said Parcel No. 3 cannot be the object of the sale between the parties as plaintiff-appellee's house already stands in the said area even before defendants-appellants had chosen Parcel No. 4 which was described to be on the right side of said plaintiff-appellee's house in Parcel No. 3. There is no dispute that defendants-appellants wanted to buy Parcel No. 4 as testified to by defendant-appellant Betty Theis, herself (p. 19, TSN, Nov. 8, 1991), which lot turned out to be outside of the Transfer Certificates of Title of plaintiff-appellee. Defendants-appellants cannot now insist on Parcel No. 3 as the same was not the object of the sale between the parties.

Clearly, therefore, there was honest mistake on the part of plaintiff-appellee in the sale of Parcel No. 4 to defendants-appellants which plaintiff-appellee tried to remedy by offering defendants-appellants instead his Parcels Nos. 1 or 2, or reimbursement of the purchase price in double amount."^[7] [Emphasis ours]

We find that respondent court correctly affirmed the findings and conclusions of the trial court in annulling the deed of sale as the former are supported by evidence and the latter are in accordance with existing law and jurisprudence.

Art. 1390 of the New Civil Code provides:

"Art. 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties:

(1) x x     x

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence, or fraud.

x        x x"

In the case at bar, the private respondent obviously committed an honest mistake in selling parcel no. 4. As correctly noted by the Court of Appeals, it is quite impossible for said private respondent to sell the lot in question as the same is not owned by it. The good faith of the private respondent is evident in the fact that when the mistake was discovered, it immediately offered two other vacant lots to the petitioners or to reimburse them with twice the amount paid. That petitioners refused either option left the private respondent with no other choice but to file an action for the annulment of the deed of sale on the ground of mistake. As enunciated in the case of Mariano vs. Court of Appeals:^[8]

"A contract may be annulled where the consent of one of the contracting parties was procured by mistake, fraud, intimidation, violence, or undue influence."

Art. 1331 of the New Civil Code provides for the situations whereby mistake may invalidate consent. It states:

  "Art. 1331.     In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract."

Tolentino^[9] explains that the concept of error in this article must include both ignorance, which is the absence of knowledge with respect to a thing, and mistake properly speaking, which is a wrong conception about said thing, or a belief in the existence of some circumstance, fact, or event, which in reality does not exist. In both cases, there is a lack of full and correct knowledge about the thing. The mistake committed by the private respondent in selling parcel no. 4 to the petitioners falls within the second type. Verily, such mistake invalidated its consent and as such, annulment of the deed of sale is proper.

The petitioners cannot be justified in their insistence that parcel no. 3, upon which private respondent constructed a two-storey house, be given to them in lieu of parcel no. 4. The cost of construction in 1985 for the said house (P1,500,000.00) far exceeds the amount paid by the petitioners to the private respondent (P486,000.00). Moreover, the trial court, in questioning private respondent's witness, Atty. Tarciso Calilung (who is also its authorized representative) clarified that parcel no. 4, the lot mistakenly sold, was a vacant lot:^[10]

"COURT: What property did you point to them?
A.             I pointed to parcel No. 4, as appearing in the sketch.
COURT: Parcel No. 4 is a vacant lot?

A.             Yes, your Honor.
COURT: So, there was no house on that lot?
A.             There was no house. There were pineapple crops existing on the property.
COURT: So, you are telling the Court that the intended lot is vacant lot or Parcel 4?
A.             Yes, your Honor.

Thus, to allow the petitioners to take parcel no. 3 would be to countenance unjust enrichment. Considering that petitioners intended at the outset to purchase a vacant lot, their refusal to accept the offer of the private respondent to give them two (2) other vacant lots in exchange, as well as their insistence on parcel no. 3, which is a house and lot, is manifestly unreasonable. As held by this Court in the case of Security Bank and Trust Company v. Court of Appeals^[11]:

"Hence, to allow petitioner bank to acquire the constructed building at a price far below its actual construction cost would undoubtedly constitute unjust enrichment for the bank to the prejudice of the private respondent. Such unjust enrichment, as previously discussed, is not allowed by law."

WHEREFORE, the petition is hereby DISMISSED and the decision of the Court Appeals in CA-G.R. 47000 dated May 31, 1996 AFFIRMED. Costs against the petitioner.

SO ORDERED

Padilla (Chairman), Bellosillo, Vitug, and Kapunan, JJ., concur.

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^[1] Civil Case No. TG-1167.

^[2] Branch 18, Tagaytay City, Cavite.

^[3] Decision of the RTC in Civil Case No. TG-1167 penned by Judge Julieto P. Tabiolo and dated December 15, 1993, pp. 3-6, Rollo, pp. 87-90.

^[4] Petitioners' appeal was docketed as CA-G.R. CV No. 47000.

^[5] Eighth Division.

^[6] Decision promulgated on May 31, 1996 and penned by Associate Justice Lourdes K. Tayao-Jaguros, with Associate Justices Jaime M. Lantin and B.A. Adefuin-de la Cruz concurring, Rollo, pp. 28-34.

^[7] Id., pp. 6-7, Rollo, pp. 31-32.

^[8] 220 SCRA 716 (1993).

^[9] TOLENTINO, CIVIL CODE OF THE PHILIPPINES p. 476, Vol. 4 (1991 ed.)

^[10] Rollo, pp. 109-110.

^[11] 249 SCRA 206 (1995).