G.R. No. 170115 - Province of Cebu vs. Heirs of Morales

Case Summary (G.R. No. 170115)

Key Dates and Procedural Posture

September 27, 1961: Province of Cebu leased a 210-square meter lot (part of Lot No. 646-A) to Rufina Morales.
Circa 1964: Province donated Lot No. 646-A to the City of Cebu; City subdivided and issued TCT No. 30883.
July 19, 1965: City of Cebu sold Lot No. 646-A-3 at public auction; Morales matched the highest bid and paid deposit/down payment.
February 20, 1969: Rufina Morales died.
May 7 / July 17, 1974: Province sued for reversion; parties compromised and the donated lots (including Lot 646-A-3) were returned to the Province and registered under TCT No. 104310.
March 11, 1983 and October 10, 1986: Heirs made written requests for formal conveyance to the Governor.
March 6, 1996: Regional Trial Court rendered judgment ordering conveyance to Morales’s heirs.
March 29, 2005: Court of Appeals affirmed the trial court.
February 19, 2008: Supreme Court denied the petition for review on certiorari and affirmed the Court of Appeals.

Applicable Law and Legal Principles

Constitutional basis: 1987 Philippine Constitution (decision rendered after 1990; constitutional framework applicable).
Civil Code principles controlling the decision:
- Elements and perfection of sale: Article 1458 (consensual nature) and related provisions (Articles 1475–1476 regarding perfection and public auctions).
- Form of sale: Article 1483 (sale need not be in writing except as otherwise required by Statute of Frauds).
- Remedies for nonpayment: Article 1191 (rescission or demand for fulfillment) and Article 1592 (vendee may still pay if no demand for rescission has been made).
Procedural doctrine: Defenses or issues not raised in lower courts generally cannot be first asserted on appeal.

Facts: Lease, Donation, Auction and Award to Morales

The Province leased a portion of Lot No. 646-A to Rufina Morales in 1961. After the Province donated Lot No. 646-A to the City of Cebu and the City subdivided the tract, Lot 646-A-3 (the area occupied by Morales) was offered at public auction in 1965. Morales, as the actual occupant, exercised a preferential right to match the highest bid, matched the bid, and paid the required deposit and partial payment; she also occupied and built on the lot. Morales died in 1969 before completing the balance of the purchase price.

Facts: Reversion Proceeding and Compromise

The Province instituted an action for reversion of donation against the City of Cebu. In 1974 the parties entered a court-approved compromise returning donated lots to the Province. Lot 646-A-3 was among those returned and registered in the Province’s name (TCT No. 104310). The compromise did not expressly nullify prior dispositions made by the City of Cebu.

Facts: Heirs’ Demand, Consignation and Suit

Heirs of Morales repeatedly requested formal conveyance in 1983 and 1986 without success. They then filed an action for specific performance and reconveyance (Civil Case No. CEB-11140) and consigned P13,450.00 — the alleged balance of the purchase price — with the trial court. One heir, Panopio, died shortly after the complaint was filed. The Province answered but failed to present evidence at trial despite opportunities.

Trial Court Judgment and Rationale

The Regional Trial Court ordered the Province to convey Lot 646-A-3 to Morales’s heirs, reasoning that a valid, consummated sale existed between the City of Cebu and Morales: the public auction award, the matching of the highest bid, the deposit/down payment, and continuous occupation satisfied the elements of sale. The trial court held that upon compromise the Province took only the City’s rights and obligations; as successor-in-interest it was bound by the contract to which the City was a party.

Issues Raised on Appeal by the Province

On appeal the Province argued, inter alia, that: (1) Morales and her heirs lacked the right to match the highest bid; (2) no perfected sale existed because no formal contract of sale was executed and the balance was unpaid; (3) laches and prescription barred the claim; (4) respondents failed to pay installments during the pendency of the reversion case. The Province essentially contended the award could be challenged and that the sale was not consummated.

Supreme Court’s Analysis — Existence and Perfection of the Contract of Sale

The Supreme Court affirmed the appellate court’s conclusion that a valid contract of sale had been perfected between the City of Cebu and Morales. Key points of the Court’s reasoning: (a) a sale is consensual and perfected upon a meeting of minds as to object and price; (b) a public auction sale is perfected at the fall of the hammer or its equivalent announcement; (c) matching the highest bid placed Morales in the position of the highest bidder so that a meeting of minds and agreement on price existed; and (d) partial payment and actual occupation evidenced performance and established ownership rights in Morales. The Court stressed that a formal written contract is unnecessary where the essential elements of sale exist, subject to the Statute of Frauds.

Contract Stages and Effect of Partial Performance

The Court applied the recognized stages of a sale — negotiation, perfection (meeting of minds), and consummation (performance) — and found that Morales had progressed the transaction to consummation by paying the deposit/down payment and occupying the lot. Failure to pay the remaining balance did not void the sale; it simply entitled the vendor to remedies (specific performance or rescission) but did not negate the existence of the contract. Because the City had lawfully disposed of the lot, it effectively retained the status of unpaid seller but ownership had passed to Morales.

Successorship and Limits of the Compromise Judgment

When the City ceded the donated lots back to the Province by compromise, the Court found the Province succeeded only to the City’s remaining rights and remedies regarding unsatisfied obligations (e.g., the right to seek rescission or d

Case Syllabus (G.R. No. 170115)

Case Citation and Disposition

Reported at 569 Phil. 641, Third Division, G.R. No. 170115, decided February 19, 2008.
Petition for review on certiorari from the Court of Appeals Decision dated March 29, 2005 in CA-G.R. CV No. 53632, which affirmed the Regional Trial Court (RTC), Branch 6, Cebu City Decision in Civil Case No. CEB-11140 (specific performance and reconveyance of property).
Also assailed was the Court of Appeals Resolution dated August 31, 2005 denying petitioner's motion for reconsideration.
Supreme Court disposition: Petition DENIED; the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 53632 AFFIRMED. SO ORDERED.

Parties and Roles

Petitioner: Province of Cebu.
Respondents: Heirs of Rufina Morales — Felomina V. Panopio (deceased during proceedings), Nenita Villanueva, Erlinda V. Adriano, and Catalina V. Quesada.
Predecessor-in-interest relevant to the facts: City of Cebu (seller at public auction; recipient of donation from Province of Cebu prior to reversion proceedings).

Material Facts — Origin and Early Transactions (1961–1969)

September 27, 1961: Province of Cebu leased a 210-square meter lot (part of Lot No. 646-A of the Banilad Estate) in favor of Rufina Morales.
Circa 1964: Province of Cebu donated several parcels, including Lot No. 646-A, to the City of Cebu; the City subdivided Lot No. 646-A and denominated the Morales-occupied area as Lot No. 646-A-3.
Transfer Certificate of Title (TCT) No. 30883 was issued in favor of the City of Cebu for Lot No. 646-A-3.
July 19, 1965: The City of Cebu sold Lot No. 646-A-3 and other donated lots at public auction to raise funds; the highest bidder for Lot No. 646-A-3 was Hever Bascon.
Morales, as actual occupant, was allowed to match the highest bid (exercise of a preferential right) and did so; she paid the required deposit and a partial payment toward the purchase price.
Morales initially occupied the lot in 1961 as a lessee, built a house, and continuously possessed the property as owner until her death.
February 20, 1969: Rufina Morales died during the pendency of the reversion action (Civil Case No. 238-BC) between the Province of Cebu and the City of Cebu.
Morales did not complete payment of the balance of the purchase price before her death; aside from deposit and down payment, no further payments were made.

Material Facts — Reversion Action, Compromise, and Title Transfer (1974)

Petitioner (Province of Cebu) filed an action for reversion of the donation against the City of Cebu, docketed Civil Case No. 238-BC before Branch 7 of the Court of First Instance of Cebu.
May 7, 1974: Province and City entered into a compromise agreement; July 17, 1974: the court approved the compromise.
The compromise provided for the return of the donated lots to the Province of Cebu except those already utilized by the City.
Pursuant to the compromise, Lot No. 646-A-3 was returned to Province of Cebu and registered in its name under TCT No. 104310.
The City of Cebu, at the time of the compromise, had sold Lot No. 646-A-3 to Morales (who had paid deposit and partial payment), such that the City retained the status of an unpaid seller but had effectively transferred ownership to Morales by virtue of the auction award and partial consummation.

Post-Compromise Correspondence and Plaintiffs’ Efforts (1983–1986)

March 11, 1983: Catalina V. Quesada (one of Morales’s nieces and eventual plaintiffs) wrote to then Governor Eduardo R. Gullas requesting formal conveyance of Lot No. 646-A-3 to Morales’s surviving heirs in accordance with the City’s earlier award.
October 10, 1986: Quesada sent a similar letter to Governor Osmundo G. Rama reiterating the request.
These communications indicate that the Province (or its officials) had notice, at least by 1983, that the City had sold the lot to Morales and that Morales had made the deposit and down payment; nevertheless, no effective corrective action was taken by the Province.

Plaintiffs’ Litigation — Civil Case No. CEB-11140 (Specific Performance and Reconveyance)

Respondents (two nieces, one sister, and another niece of Morales) filed suit for specific performance and reconveyance against the Province of Cebu, docketed Civil Case No. CEB-11140 before RTC, Branch 6, Cebu City.
They alleged: (a) award at public auction to Morales constituted a valid and binding contract between the City and Morales; (b) the lot was returned to the Province inadvertently under the compromise judgment in Civil Case No. 238-BC; (c) they were prevented from paying the balance during the pendency of Civil Case No. 238-BC due to confusion over to whom payment should be made; and (d) they prayed for a final deed of absolute sale in their favor and cancellation of TCT No. 104310 in the Province’s name.
The plaintiffs consigned P13,450.00 with the trial court, representing the balance of the purchase price which the Province allegedly refused to accept.
Panopio (one of the plaintiffs) died shortly after the complaint was filed.

Procedural Posture at Trial and Trial Court Ruling (1996)

Petitioner (Province of Cebu) filed an answer but repeatedly failed to present evidence despite being given several opportunities; consequently, it was deemed to have waived its right to present evidence.
March 6, 1996: RTC rendered judgment in favor of the plaintiffs ordering the Province to convey Lot No. 646-A-3 to the plaintiffs as heirs of Rufina Morales and to execute the necessary deed in their favor; no pronouncement as to costs.
Trial court’s core findings and reasoning:
- There was a consummated sale between the City of Cebu and Rufina Morales: the public auction sale offered the lot; Morales matched the highest bid and paid the agreed down payment and deposit.
- The City of Cebu was the owner at the time of auction and had the absolute right to dispose of the property through public auction.
- The judgment in the reversion case (Civil Case No. 238-BC) did not nullify the sales or dispositions lawfully made by the City of Cebu; the compromise agreement did not provide for the nullification of sales lawfully made.
- As virtual successor-in-interest to the City, the Province
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