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HEIRS OF JUAN SAN ANDRES (VICTOR S.

Held:
ZIGA) and SALVACION S. TRIA, petitioners,
vs. VICENTE RODRIGUEZ, respondent. Civil Code provides that By the contract of sale
one of the contracting parties obligates himself
G.R. No. 135634 May 31, 2000 to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor
Facts: a price certain in money or its equivalent.

Juan andres was the owner of the lot A contract of sale may be absolute or
situated in liboton, naga city. The sale was conditional.
evidenced by a deed of sale. Upon the death of
juan andres, ramon san andres was appointed As thus defined, the essential elements of sale
as administrator of the estate, and hired are the following:
geodetic engineer. Jose panero prepared a
consolidated plan of the estate and also a) Consent or meeting of the minds, that is,
prepared a sketch plan of the lot sold to consent to transfer ownership in exchange for
respondent. It was found out that respondent the price;
had enlarged the area which he purchased from
juan. The administrator sent a letter to the b) Determinate subject matter; and,
respoindent to vacate the said portion in which
the latter refused to do.
c) Price certain in money or its equivalent. 12
Respondent alleged that apart from the original
lot, which had been sold to him, the latter As shown in the receipt, dated September 29,
likewise sold to him the following day the 1964, the late Juan San Andres received
remaining portion of the lot. He alleged that the P500.00 from respondent as "advance payment
payment for such would be affected in 5 years for the residential lot adjoining his previously
from the eecution of the formal deed of sale after paid lot on three sides excepting on the
a survey is conducted. He also alleged that frontage; the agreed purchase price was P15.00
under the consent of juan, he took possession of per square meter; and the full amount of the
the same and introduced improvements thereon. purchase price was to be based on the results of
a survey and would be due and payable in five
(5) years from the execution of a deed of sale.
Respondent deposited in court the balance of
the purchase price amounting to P7,035.00 for
the aforesaid 509-square meter lot. Petitioner's contention is without merit. There is
no dispute that respondent purchased a portion
of Lot 1914-B-2 consisting of 345 square
On September 20, 1994, the trial court rendered meters. This portion is located in the middle of
judgment in favor of petitioner. It ruled that there Lot 1914-B-2, which has a total area of 854
was no contract of sale to speak of for lack of a square meters, and is clearly what was referred
valid object because there was no sufficient to in the receipt as the "previously paid lot."
indication to identify the property subject of the Since the lot subsequently sold to respondent is
sale, hence, the need to execute a new contract. said to adjoin the "previously paid lot" on three
sides thereof, the subject lot is capable of being
Respondent appealed to the Court of Appeals, determined without the need of any new
which on April 21, 1998 rendered a decision contract. The fact that the exact area of these
reversing the decision of the trial court. The adjoining residential lots is subject to the result
appellate court held that the object of the of a survey does not detract from the fact that
contract was determinable, and that there was a they are determinate or determinable. As the
conditional sale with the balance of the purchase Court of Appeals explained: 15
price payable within five years from the
execution of the deed of sale. Concomitantly, the object of the sale is certain
and determinate. Under Article 1460 of the New
Issue: whether or not there was a valid sale. Civil Code, a thing sold is determinate if at the
time the contract is entered into, the thing is

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capable of being determinate without necessity parties is absolute, not conditional. There is no
of a new or further agreement between the reservation of ownership nor a stipulation
parties. Here, this definition finds realization. providing for a unilateral rescission by either
party. In fact, the sale was consummated upon
Thus, all of the essential elements of a contract the delivery of the lot to respondent. 20 Thus, Art.
of sale are present, i.e., that there was a 1477 provides that the ownership of the thing
meeting of the minds between the parties, by sold shall be transferred to the vendee upon the
virtue of which the late Juan San Andres actual or constructive delivery thereof.
undertook to transfer ownership of and to deliver
a determinate thing for a price certain in money. The stipulation that the "payment of the full
As Art. 1475 of the Civil Code provides: consideration based on a survey shall be due
and payable in five (5) years from the execution
The contract of sale is perfected at the moment of a formal deed of sale" is not a condition which
there is a meeting of minds upon the thing which affects the efficacy of the contract of sale. It
is the object of the contract and upon the price. . merely provides the manner by which the full
. .That the contract of sale is perfected was consideration is to be computed and the time
confirmed by the former administrator of the within which the same is to be paid. But it does
estates, Ramon San Andres, who wrote a letter not affect in any manner the effectivity of the
to respondent on March 30, 1966 asking for contract. Consequently, the contention that the
P300.00 as partial payment for the subject lot. absence of a formal deed of sale stipulated in
As the Court of Appeals observed: the receipt prevents the happening of a sale has
no merit.
Without any doubt, the receipt profoundly
speaks of a meeting of the mind between San The claim of petitioners that the price of
Andres and Rodriguez for the sale. Evidently, P7,035.00 is iniquitous is untenable. The
this is a perfected contract of sale on a deferred amount is based on the agreement of the parties
payment of the purchase price. All the pre- as evidenced by the receipt (Exh. 2). Time and
requisite elements for a valid purchase again, we have stressed the rule that a contract
transaction are present. is the law between the parties, and courts have
no choice but to enforce such contract so long
as they are not contrary to law, morals, good
There is a need, however, to clarify what the
customs or public policy. Otherwise, court would
Court of Appeals said is a conditional contract of
be interfering with the freedom of contract of the
sale. Apparently, the appellate court considered
parties. Simply put, courts cannot stipulate for
as a "condition" the stipulation of the parties that
the parties nor amend the latter's agreement, for
the full consideration, based on a survey of the
to do so would be to alter the real intentions of
lot, would be due and payable within five (5)
the contracting parties when the contrary
years from the execution of a formal deed of
function of courts is to give force and effect to
sale. It is evident from the stipulations in the
the intentions of the parties.
receipt that the vendor Juan San Andres sold
the residential lot in question to respondent and
undertook to transfer the ownership thereof to The decision of the Court of Appeals is
respondent without any qualification, reservation AFFIRMED with the modification that
or condition. respondent is ORDERED to reimburse
petitioners for the expenses of the survey.
A deed of sale is considered absolute in nature
where there is neither a stipulation in the deed
that title to the property sold is reserved in the
seller until full payment of the price, nor one
giving the vendor the right to unilaterally resolve
the contract the moment the buyer fails to pay
within a fixed period.

Applying these principles to this case, it cannot


be gainsaid that the contract of sale between the

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Hernando R. Penalosa vs. Severino Santos that he had bought the property from Severino
and thus entitled to possession thereof, if
G.R. No. 133749 August 23, 2001 petitioner did not have any right to the property.

Facts: Also worth noting is the fact that in the case filed
by Severino's tenant against Severino and
petitioner in 1989, assailing the validity of the
Severino sold his property to henry. Henry
sale made to petitioner, Severino explicitly
applied for a loan with philam life. As It was
asserted in his sworn answer to the complaint
already approved pending the submission of
that the sale was a legitimate transaction. He
certain documents such as the owners duplicate
further alleged that the ejectment case filed by
of transfer certificate of title which is in
petitioner against the tenant was a legitimate
possession of severino.
action by an owner against one who refuses to
turn over possession of his property.
Henry already took possession of the property in
question after ejectment of the lessees. He also
It should be emphasized that the non-
paid an ernest money of 300,000 under the
appearance of the parties before the notary
premise that it shall be forfeited in favor of
public who notarized the deed does not
severino in case of nonpayment.
necessarily nullify nor render the parties'
transaction void ab initio. We have held
Severino now claims ownership over the previously that the provision of Article 1358 of
property claiming that henry did not pay for the the New Civil Code on the necessity of a public
property, therefore there was no sale to speak document is only for convenience, not for validity
of. or enforceability. Failure to follow the proper
form does not invalidate a contract. Where a
Issue: whether or not there is a contract of sale contract is not in the form prescribed by law, the
perfected in this case. parties can merely compel each other to
observe that form, once the contract has been
Held: there was a perfected contract of sale due perfected.35 This is consistent with the basic
to the second deed of sale. principle that contracts are obligatory in
whatever form they may have been entered into,
The basic characteristic of an absolutely provided all essential requisites are present.3
simulated or fictitious contract is that the
apparent contract is not really desired or The elements of a valid contract of sale under
intended to produce legal effects or alter the Art. 1458 of the Civil Code are: (1) consent or
juridical situation of the parties in any way. 30 meeting of the minds; (2) determinate subject
However, in this case, the parties already matter; and (3) price certain in money or its
undertook certain acts which were directed equivalent.37 In the instant case, the second
towards fulfillment of their respective covenants deed reflects the presence of all these elements
under the second deed, indicating that they and as such, there is already a perfected
intended to give effect to their agreement. contract of sale.

Further, the fact that Severino executed the two The non-payment of the contract price merely
deeds in question, primarily so that petitioner results in a breach of contract for non-
could eject the tenant and enter into a performance and warrants an action for
loan/mortgage contract with Philam Life, is to rescission or specific performance under Article
our mind, a strong indication that he intended to 1191 of the Civil Code.
transfer ownership of the property to petitioner.
For why else would he authorize the latter to sue Be that as it may, we agree with petitioner that
the tenant for ejectment under a claim of although the law allows rescission as a remedy
ownership, if he truly did not intend to sell the for breach of contract, the same may not be
property to petitioner in the first place? Needless availed of by respondents in this case. To begin
to state, it does not make sense for Severino to with, it was Severino who prevented full
allow petitioner to pursue the ejectment case, in payment of the stipulated price when he refused
petitioner's own name, with petitioner arguing to deliver the owner's original duplicate title to
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Philam Life. His refusal to cooperate was
unjustified, because as Severino himself
admitted, he signed the deed precisely to enable
petitioner to acquire the loan. He also knew that
the property was to be given as security
therefor. Thus, it cannot be said that petitioner
breached his obligation towards Severino since
the former has always been willing to and could
comply with what was incumbent upon him.

In sum, the only conclusion which can be


deduced from the aforesaid circumstances is
that ownership of the property has been
transferred to petitioner.

WHEREFORE, the petition is GRANTED.

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Issue:

PEOPLE OF THE PHILIPPINES v. ELIZABETH Whether the trial court erred in finding
GANGUSO that the prosecution has fully met the test of
moral certainty as to the guilt of the accused on
G.R. No. 115430 November 23, 1995 both charges of violation of section 15, Article III
of the Dangerous Drugs Act of 1972 and of
DAVIDE, JR., J.: illegal possession of firearms.

Facts: Decision:

Major Juvenile Sulapas, Officer-in- The instant appeal is partly granted, and
charge, Dangerous Drugs Enforcement Section, the challenged decision of the Regional Trial
Pasay City Police Station, received a Court of Pasay City is modified. As modified,
confidential report from an informant about the accused-appellant Beth is acquitted for the
rampant trafficking of drugs by Elizabeth charge of illegal possession of firearms on
Ganguso y Decena a.k.a. "Beth Tomboy". ground of reasonable doubt. The penalty
imposed on her for the violation of section 15,
A buy-bust operation was planned with Article III of the Dangerous Drugs Act of 1972 is
Dennis Vermug acting as poseur-buyer, backed- reduced to an indeterminate sentence of three
up by SPO1 Lumapat, SPO1 Gabutin, PO3s months of arresto mayor, as minimum, to three
Mendoza and Garcia with SPO3 Fucanan as years of prision correccional, as maximum.
team leader.
Ratio Decidendi:
The operation was carried out and they
were successful in arresting Beth for the Supreme Court held that the
violation of Dangerous Drugs Act of 1972. At elements of a contract of sale were present.
the same time, they were able to recover a .38 Beth is presumed to have given her consent
caliber Paltik revolver from the suspect. by not inquiring as to the meaning of “S”
when the officer posed to buy “Php 500
Several documentary exhibits were worth of S”. Therefore, there was a meeting
presented as evidence to the crime. Beth made of minds upon a definite object and upon the
statements in her testimony different to that of price.
the police’s: policemen barged into her house,
searched the premises and her person without a Though she was not in possession of
warrant and; denied the revolver recovered from the object of sale, Article 1459 merely
her. requires that the vendor must have the right
to transfer ownership of the object sold at
At the trial, defense presented two the time of delivery. In the case at bar,
witnesses who also claimed that no buy bust though Beth is not the owner, she had the
operation took place and no revolver was in the right to dispose of the prohibited drug.
possession of the suspect. Ownership was thereafter acquired upon her
delivery to the men in the alley after her
Nevertheless, the Regional Trial Court payment of the price.
of Pasay convicted her of both charges. She
was sentenced to suffer the penalty of life Supreme Court also held that failure to
imprisonment and to pay a fine plus costs for the conduct prior surveillance and absence of
crime involving drugs. She was also sentenced marked money does not affect the evidence of
to an indeterminate penalty of ten years and one the prosecution. It is sufficient that the members
day of prision mayor, as minimum, to twelve of the operation were accompanied by the
years and one day, as maximum, with fine and informant to the scene; the sale was adequately
costs for the crime of illegal possession of proven and; the drug subject was presented
firearms. before the court.

Hence, Beth appealed. As regards the penalty imposed, since


the shabu only weighs 0.1954 grams, penalty
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should be prision correccional to reclusion
temporal depending upon the quantity. Applying
R.A. No. 7659, ISLAW, and the decision in the
case of People v. Simon, proper penalty should
be within the range of arresto mayor to prision
correccional.

• R.A. No. 7659, amending R.A. No.


6425, took effect on 31 December 1993.
Being patently favorable to the
appellant, that amendatory law should
be applied retroactively.

• ISLAW: If an offense under the RPC is


also punishable by another law, the
court shall sentence the accused to an
indeterminate sentence, the maximum
term of which shall not exceed the
maximum fixed by said law and the
minimum shall not be less than the
minimum term prescribed by the same.

Finally, there was no proof that Beth is


guilty beyond reasonable doubt for the
possession of firearms. Hence, presumption of
innocence stands for failure of the prosecution to
establish such guilt.

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HEIRS OF AMPARO DEL ROSARIO v. and convey to plaintiff the 20,000 sq. m. of land
AURORA SANTOS to be taken either from Lot 4 or from Lot 5-A of
Custodio’s lots, which defendants own ½
G.R. No. L-46892 September 30, 1981 interest thereof.

GUERRERO, J.: Aggrieved by the aforesaid decision, the


defendants filed an appeal with the Court of
Facts: Appeals which certified the records of the case
to the Supreme Court for final determination.
Amparo Del Rosario entered into a
contract with Attorney Andres Santos and his Issue:
wife Aurora Santos whereby the latter sold to the (As far as it concerns Sales)
former a 20,000 sq. m. of land which is to be
segregated from Lot 1. Said lot forms part of the Whether the sale is valid as to the cause
several lots belonging to a certain Teofilo or object of the contract.
Custodio, of which lots, Attorney Santos, by
agreement with the latter, as his attorney’s fees, Decision:
owns ½ interest thereof.
The judgment appealed from is hereby
Parties agreed that spouses Andres affirmed in toto, with costs against the
shall thereafter execute a Deed of Confirmation appellants.
of Sale in favor of Del Rosario as soon as the
title has been released and the subdivision plan Ratio Decidendi:
of said Lot 1 has been approved by the Land
Registration Commissioner. Supreme Court held that the execution
of the deed of sale is valid notwithstanding the
Due to the failure of spouses Andres to lack of any title to the lot by appellants at the
execute the deed after the fulfillment of the time of execution f the deed of sale in favor of
condition, Del Rosario claims malicious breach appellee as there can be a sale of an expected
of a Deed of Sale. thing in accordance with Article 1461 of the New
Civil Code:
Defendant thereafter filed a motion to
dismiss setting up the defenses of lack of Art. 1461. Things having a potential
jurisdiction of the court over the subject of the existence may be the object of the
action and lack of cause of action as well as the contract of sale.
defense of prescription.
The efficacy of the sale of a mere
They further alleged that the deed of hope or expectancy is deemed
sale was only an accommodation graciously subject to the condition that the thing
extended, out of close friendship between the will come into existence.
defendants and the plaintiff, hence, tantamount
to waiver, abandonment or otherwise The sale of a vain hope or
extinguishment of the demand set forth in the expectancy is void.
complaint.
The case at bar is not a case of a vain
Finally, defendants alleged that the hope or expectancy which is void under the law.
claim on which the action or suit is founded is The expectant right came into existence or
unenforceable under the statute of frauds and materialized for the appellants actually derived
that the cause or object of the contract did titles from Lot I which subsequently became the
not exist at the time of the transaction. object of subdivision.

The lower court resolved to deny the


motion to dismiss.

After actions by respective parties, the


lower court ordered the defendants to execute
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JOSE M. JAVIER and ESTRELLA F. JAVIER stated in the deed itself. Since said corporation
vs. COURT OF APPEALS and LEONARDO never came into existence, no share of stocks
TIRO was ever transferred to them, hence the said
deed is null and void for lack of cause or
GR No. 48194 March 15, 1990 consideration.

Regalado, J.: The true cause or consideration of said deed


was the transfer of the forest concession of
FACTS: private respondent to petitioners for
P120,000.00. This finding is supported by the
Leonardo Tiro executed a Deed of contemporaneous and subsequent acts of
assignment concerning his shares of stock in petitioners and private respondent. It is settled
Timberwealth Corporation on Feb. 15, 1966 in that the previous and simultaneous and
favor of spouses Jose and Estrella Javier and subsequent acts of the parties are properly
for the amount of P 120,000. Spouses paid P cognizable indicia of their true intention. Their
20,000 as initial payment and the balance to be acts reveal that the cause stated in the
paid in instalments as agreed. The parties questioned deed of assignment is false.
entered into another deed on Feb. 28, 1966 for
the addt’l forest concession, subject of a The deed of assignment of February 15, 1966 is
pending application, adjoining the area covered a relatively simulated contract which states a
in the first deed. As agreed, the payment false cause or consideration, or one where the
therefor of P 30,000 shall be paid as soon as the parties conceal their true agreement. A contract
application is approved. with a false consideration is not null and void per
se. Under Article 1346 of the Civil Code, a
On Nov. 18, 1966, the Dir. of Forestry relatively simulated contract, when it does not
directed a consolidation for the renewal of the prejudice a third person and is not intended for
concession. By virtue of the deed, spouses any purpose contrary to law, morals, good
Javier consolidated with the other adjoining customs, public order or public policy binds the
concessionaires.On July 16, 1968, Tiro filed a parties to their real agreement.
complaint for failure of the spouses to pay the
remaining balance.Spouses filed their answer As to the nullity for the non-fulfilment of the
arguing therein the nullity of the deeds and the conditions, SC agrees. The efficacy of said deed
return of the payments made by them. It of assignment is subject to the condition that the
appeared in record that the Timberwealth application of private respondent for an
Corporation was a non-existent organization.The additional area for forest concession be
trial court dismissed the complaint hence, Tiro approved by the Bureau of Forestry. Since
appealed to CA. CA reversed the judgment. private respondent did not obtain that approval,
Petition to review filed with SC. said deed produces no effect. When a contract
is subject to a suspensive condition, its birth or
ISSUE: effectivity can take place only if and when the
event which constitutes the condition happens or
W/N THE TWO DEEDS ARE NULL AND VOID,
is fulfilled.
THE FORMER FOR TOTAL ABSENCE OF
CONSIDERATION AND THE LATTER FOR Moreover, under the second paragraph of Article
NON-FULFILLMENT OF CONDITIONS. 1461 of the Civil Code, the efficacy of the sale of
a mere hope or expectancy is deemed subject to
the condition that the thing will come into
RULING: existence. In this case, since private respondent
never acquired any right over the additional area
Decision Modified. for failure to secure the approval of the Bureau
of Forestry, the agreement executed therefor,
which had for its object the transfer of said right
to petitioners, never became effective or
Petitioners contend that the deed of assignment enforceable.
conveyed to them the shares of stocks of private
respondent in Timberwealth Corporation, as

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ONAPAL PHILS. COMMODITIES, INC. vs. by the parties, is a contract for the sale of
THE COURT OF APPEALS and SUSAN CHUA products for future delivery, in which either seller
or buyer may elect to make or demand delivery
February 1, 1993 GR No. 90707 of goods agreed to be bought and sold, but
where no such delivery is actually made. By
Campos, Jr., J.: delivery is meant the act by which the res or
subject is placed in the actual or constructive
FACTS: possession or control of another. ONAPAL
received the customer's orders and private
ONAPAL Phils. Commodities, Inc. is a
respondent's money. As per terms of the trading
commission merchant/broker licensed by SEC,
contract, customer's orders shall be directly
engaged in commodity futures trading.
transmitted by the petitioner as broker to its
Futures Commission Merchant/Broker refers to principal, Frankwell Enterprises Ltd. of
a corporation or partnership, which must be Hongkong , which in turn must place the
registered and licensed as a Futures customer's orders with the Tokyo Exchange.
Commission Merchant/Broker and is engaged in There is no evidence that the orders and money
soliciting or in accepting orders for the purchase were transmitted to its principal Frankwell
or sale of any commodity for future delivery on Enterprises Ltd. in Hongkong nor were the
or subject to the rules of the contract market and orders forwarded to the Tokyo Exchange. We
that, in connection with such solicitation or draw the conclusion that no actual delivery of
acceptance of orders, accepts any money, goods and commodity was intended and ever
securities or property (or extends credit in lieu made by the parties. In the realities of the
thereof) to margin, guarantee or secure any transaction, the parties merely speculated on the
trade or contract that results or may result rise and fall in the price of the goods/commodity
therefrom. Its Account Executive Elizabeth Diaz subject matter of the transaction. If private
invited Susan Chua to invest in commodity respondent's speculation was correct, she would
futures trading and they subsequently entered be the winner and the petitioner, the loser, so
into a commodity futures contract without petitioner would have to pay private respondent
explanation to Susan as to the risks involved. the "margin". But if private respondent was
wrong in her speculation then she would emerge
A commodity futures contract refers to an as the loser and the petitioner, the winner. The
agreement to buy or sell a specified quantity and petitioner would keep the money or collect the
grade of a commodity at a future date at a price difference from the private respondent. This is
established at the floor of the exchange. clearly a form of gambling provided for with
unmistakeable certainty under Article 2018
As stipulated in the trading contract, Susan may
withdraw anytime and she did. From P 800,000 If a contract which purports to be for the delivery
Susan invested, she was able to get only P of goods, securities or shares of stock is entered
470,000. Hence, complaint was filed with the into with the intention that the difference
trial court. The trial court found and rendered the between the price stipulated and the exchange
trading contract a specie of gambling and or market price at the time of the pretended
therefore null and void. CA upheld the judgment. delivery shall be paid by the loser to the winner,
the transaction is null and void. The loser may
Hence, petition for certiorari with SC. recover what he has paid.

ISSUE: W/N THE TRADING CONTRACT IS


NULL AND VOID AS IT APPEARS TO BE A
SPECIE OF GAMBLING

RULING:

Petition Dismissed. The trading contract signed

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Sps. Bernardo Buenaventura and price. If there is a meeting of the minds of the
Consolacion Joaquin vs. Court of Appeals parties as to the price, the contract of sale is
valid, despite the manner of payment, or even
November 20, 2003 GR No. 126376 the breach of that manner of payment. If the real
First Division price is not stated in the contract, then the
Ponente: Carpio, J. contract of sale is valid but subject to
reformation. If there is no meeting of the minds
Facts: Defendant spouses Leonardo Joaquin of the parties as to the price, because the price
and Feliciana Landrito are the parents of stipulated in the contract is simulated, then the
plaintiffs Consolacion, Nora, Emma and contract is void. Article 1471 of the Civil Code
Natividad as well as of defendants Fidel, Tomas, states that if the price in a contract of sale is
Artemio, Clarita, Felicitas, Fe, and Gavino, all simulated, the sale is void.
surnamed Joaquin. Leonardo and Feliciana
executed several deeds of sale in favour of their It is not the act of payment of price that
co-defendant children. determines the validity of a contract of sale.
Payment of the price has nothing to do with the
Petitioners then filed an action the Regional Trial perfection of the contract. Payment of the price
Court (RTC) of Makati seeking to declare as null goes into the performance of the contract.
and void ab initio the deeds of sale executed by Failure to pay the consideration is different from
Leonardo and Feliciana claiming that: (1) here lack of consideration. The former results in a
was no actual valid consideration for the deeds right to demand the fulfillment or cancellation of
of sale, (2) assuming that there was the obligation under an existing valid contract
consideration in the sums reflected in the while the latter prevents the existence of a valid
questioned deeds, the properties are more than contract.
three-fold times more valuable than the measly
sums appearing therein, and (3) the deeds of Petitioners failed to show that the prices in the
sale do not reflect and express the true intent of Deeds of Sale were absolutely simulated. To
the parties prove simulation, petitioners presented Emma
Joaquin Valdozs testimony stating that their
Defendants, on the other hand aver (1) that the father, respondent Leonardo Joaquin, told her
sales were with sufficient considerations and that he would transfer a lot to her through a
made by defendants parents voluntarily, in good deed of sale without need for her payment of the
faith, and with full knowledge of the purchase price. The trial court did not find the
consequences of their deeds of sale; and (2) allegation of absolute simulation of price
that the certificates of title were issued with credible. Petitioners failure to prove absolute
sufficient factual and legal basis. simulation of price is magnified by their lack of
knowledge of their respondent siblings financial
The RTC dismissed the case, declaring that the capacity to buy the questioned lots. On the other
deeds of sale were all executed for valuable hand, the Deeds of Sale which petitioners
consideration. presented as evidence plainly showed the cost
of each lot sold. Not only did respondents’ minds
On appeal, the Court of Appeals affirmed the meet as to the purchase price, but the real price
decision of the RTC. was also stated in the Deeds of Sale. As of the
filing of the complaint, respondent siblings have
Issues: also fully paid the price to their respondent
(1) Whether there the deeds of sale are father.
void for lack of consideration
(2) Whether the deeds of sale are void for (2) Articles 1355 of the Civil Code states:
gross inadequacy of price Art. 1355. Except in cases specified by law,
lesion or inadequacy of cause shall not
Held: The petition is without merit. invalidate a contract, unless there has been
(1) A contract of sale is not a real contract, but a fraud, mistake or undue influence.
consensual contract. As a consensual contract,
a contract of sale becomes a binding and valid Article 1470 of the Civil Code further provides:
contract upon the meeting of the minds as to Art. 1470. Gross inadequacy of price does
not affect a contract of sale, except as may
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indicate a defect in the consent, or that the
parties really intended a donation or some other
act or contract.

Petitioners failed to prove any of the instances


mentioned in Articles 1355 and 1470 of the Civil
Code which would invalidate, or even affect, the
Deeds of Sale. Indeed, there is no requirement
that the price be equal to the exact value of the
subject matter of sale. All the respondents
believed that they received the commutative
value of what they gave.

Labagala vs. Santiago

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December 4, 2001 GR No. 132305 Code provides:
Second Division
Ponente: Quisumbing, J. If the price is simulated, the sale is void, but the
act may be shown to have been in reality a
Facts: Jose T. Santiago owned a parcel of land. donation, or some other act or contract.
Alleging that Jose had fraudulently registered it
in his name alone, his sisters Nicolasa and
Amanda Santiago (respondents), sued Jose for
recovery of 2/3 share of the property. On April
20, 1981, the trial court in that case decided in
favor of the sisters, recognizing their right of
ownership over portions of the property. Jose
died intestate. Thereafter, the respondents filed
an action before the Regional Trial Court of
Manila seeking to recover Jose’s 1/3 share over
the property.

Respondents claim that Jose’s share in the


property ipso jure belongs to them because they
are the only legal heirs of their brother, who died
intestate and without issue. They allege that it is
highly improbable for petitioner to have paid the
supposed consideration of P150,000 for the sale
of the subject property because petitioner was
unemployed and without any visible means of
livelihood at the time of the alleged sale.

Petitioner Labagala, on the other hand, claims


that she is the daughter of Jose and argued that
the purported sale of the property was in fact a
donation to her.

The RTC held that while there was indeed no


consideration for the deed of sale executed by
Jose in favor of petitioner, but said deed
constitutes a valid donation.

On appeal, the Court of Appeals reversed the


decision of the RTC

Issue: Whether the purported deed of sale was


valid

Held: There is no valid sale.

Clearly, there is no valid sale in this case. Jose


did not have the right to transfer ownership of
the entire property to petitioner since 2/3 thereof
belonged to his sisters. Petitioner could not have
given her consent to the contract, being a minor
at the time. Consent of the contracting parties is
among the essential requisites of a contract,
including one of sale, absent which there can be
no valid contract. Moreover, petitioner admittedly
Dizon vs. Court of Appeals
did not pay any centavo for the property, which
G.R. No. 122544 302 SCRA 288
makes the sale void. Article 1471 of the Civil
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FIRST DIVISION 2. The term stipulated in the contract of lease
Ponente: Martinez, J with option to buy is just one (1) year.
Having failed to exercise the option within
Facts: that period, the lessee cannot enforce its
option to purchase anymore. Even assuming
On 1974, Private respondent Overland Express that such option still subsists, when the
Lines, Inc (lessee) entered into a Contract of lessee tendered the amount on 1975, the
Lease with Option to Buy with petitioners suit for specific performance to enforce the
(lessors) involving a land situated at Quezon option to purchase was filed only on 1985
City for one (1) year. During that period the ore more than ten (10) years after accrual of
respondent was granted an option to purchase the cause of action.
the land. 1976, for failure of lessee to pay the
rentals the petitioners filed an action for Since the lessee did not purchase within the
ejectment. The City Court rendered judgment stipulated one (1) year and afterwhich still
ordering lessee to vacate the leased premises kept possession thereof, there was an
and to pay the rentals in arrears and damages implicit renewal of the contract reviving all
with interests. Lessee filed a petition enjoining the terms in the original contract which are
the enforcement of said judgment and dismissal only germane to the lessee’s rights of
of the case for lack of jurisdiction. Such petition continued enjoyment of the property leased.
was denied. Thereafter, lessee filed for an action The option to purchase is not deemed
for specific performance to compel the execution incorporated.
of a deed of sale pursuant to the option to
purchase and the receipt of the partial 3. There was no perfected contract of sale
consideration given to Alice Dizon and for the between the parties. In herein case, the
fixing of period to pay the balance. Respondent lessee gave the money to Alice Dizon in an
Court of Appeals rendered a decision upholding attempt to resurrect the lapsed option.The
the jurisdiction of City Court and concluding that basis for agency is representation and a
there was a perfected contract of sale between person dealing with an agent is put upon
the parties due to the said partial payment. inquiry and must discover upon his peril the
Petitioner’s motion for reconsideration was authority of the agent. Here, there was no
denied by the respondent Court. showing that petitioners consented to the act
of Alice Dizon nor authorized her to act on
HTP. their behalf with regard to her transaction
with the lessee. Therefore, one of the
Issues: essential elements for a contract of sale to
be perfected is lacking: consent.
Whether the Quezon City court has jurisdiction
over the ejectment case?

Whether the money given constitutes partial


consideration to the option to purchase the
land?

Whether or not there is a perfected contract of


sale?

Ruling:
1. The petitioneres had a cause of action to
institute an ejectment suit against the lessee
with the City Court thus the city court (now
MTC) has jurisdiction over it. The filing of
lessor of a suit with the RTC did not divest
the City Court of its jurisdiction to take Heirs of San Juan Andres vs. Rodriguez
cognizance over the ejectment case. G.R. 135634 332 SCRA 769
SECOND DIVISION

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Ponente: Mendoza, J Since the lot subsequently sold to
respondent is said to adjoin the
Facts: “previously paid lot” on three sides
Juan San Andres sold a portion of his land to thereof, the subject lot is capable of
respondent Vicente Rodriguez evidenced by a being determined without the need of
Deed of Sale. Upon the death of Juan, Ramon any new contract. The contract of Sale
San Andres was appointed judicial administrator can be gainsaid to be absolute because
of his estate. Ramon engaged the serviced of there is no reservation of ownership.
geodetic engineers to survey the lot. From such The stipulation “payment of full
survey, thtey discovered that the respondent consideration based on a survey shall
had enlarged the area which he purchased from be due and payable in five (5) years
the late Juan. Ramon then send a letter from the execution of deed of sale” is
demanding the respondent to vacate the portion not a condition which affects the efficacy
allegedly encroached by him. However, of the contract. It merely provides for the
respondent refused to do so claiming that he manner of computation of payment..
purchased the same from the late Juan with 2. Consignation is proper only in cases
both parties treating the two lots as one who where an existing obligation is due. In
parcel of land. Respondent further alleged that herein case since there is no deed of
the full payment of the additional lot would be sale yet thus the period when the
effected within five (5) years from the execution purchase price should be paid has not
of the deed of sale after a survey is conducted commenced yet which makes it not yet
over said property. Respondent attached to his due and demandable. The court is not
answer a receipt signed by the late Juan as erroneous because it thereafter ordered
proof of the purchase. Respondent thereafter the execution of deed and the
deposited in the court the balance of the acceptance of the deposit.
purchase price. While the case is pending, 3. The amount is based on the agreement
Ramon died and was replaced by son Ricardo. which is the law between the parties.
Vicente also died and was substituted by his Thus, it is binding and the court can only
heirs. The trial court rendered judgement in give force and effect to the intentions of
faovr of the petitioner and ruled that there was the parties.
no contract of sale because there is no valid 4. Since there was no Deed of Sale yet
object because there is no sufficient indication. and the respondent wants to pay the
Respondent Court of Appeals reversed the purchase price, he deemed it proper to
decision rendered by the Trial Court. deposit it in the Court. Thus,
Prescription does not apply.
Issues:
Whether the Court erred in holding that there is
a valid contract of sale?

Whether the Court erred in holding that the


consignation is valid?

Whether the amount of consignation is


untenable?

Whether the respondent is barred by


prescription and laches from enforcing the
contract?

Rulings:
1. There is a valid Contract of Sale
because all the essential elements are
present. In herein case, petitioner’s
contention that there is no determinate LAGRIMAS A. BOY, petitioner,
object is without merit. The receipt vs.
described the lot as “previously paid lot”. COURT OF APPEALS, ISAGANI P. RAMOS

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and ERLINDA GASINGAN RAMOS, BETWEEN PETITIONER
respondents. (DEFENDANT) AND PRIVATE
RESPONDENT (PLAINTIFF)
April 14, 2004 G.R. No. 125088 SUPERSEDES THE DEED OF SALE
WHICH HAS NOT BEEN
CONSUMMATED. NO.
FIRST DIVISION

Ruling:
AZCUNA, J.:

The Court of Appeals did not give


Facts:
credence to the statement in the Kasunduan that
private respondents paid only P22,500 to
On September 24, 1993, spouses petitioner since her indebtedness already
Isagani P. Ramos and Erlinda Gasingan Ramos, reached P26,200. CA gave weight to the
filed an action for ejectment against Lagrimas A. argument of private respondents that Erlinda
Boy (Lagrimas), with the Metropolitan Trial Court Ramos was merely tricked into signing the
of Manila. In their Complaint, the spouses Kasunduan.
alleged that they are the owners of a parcel of
land and the house existing thereon at 1151
It has been established that petitioner
Florentino Torres St., Singalong, Manila. They
sold the subject property to private respondents
acquired the said properties from Lagrimas who
for the price of P31,000, as evidenced by the
sold the same to them by virtue of a Deed of
Deed of Absolute Sale, the due execution of
Absolute Sale, which was executed on June 4,
which was not controverted by petitioner. The
1986. However, Lagrimas requested for time to
contract is absolute in nature, without any
vacate the premises, and they agreed thereto,
provision that title to the property is reserved in
because they were not in immediate need of the
the vendor until full payment of the purchase
premises. Time came when they needed the
price.
said house as they were only renting their own
residence. They then demanded that Lagrimas
vacate the subject premises, but she refused to By the contract of sale, petitioner (as
do so. Hence, they initiated this action for vendor), obligated herself to transfer the
ejectment against Lagrimas. ownership of, and to deliver, the subject property
to private respondents (as vendees) after they
paid the price of P31,000. Under Article 1477 of
Sometime in May 1988, Erlinda Ramos
the Civil Code, the ownership of the thing sold
and Lagrimas executed an agreement
shall be transferred to the vendee upon the
(Kasunduan) acknowledging that the subject
actual or constructive delivery thereof.
parcel of land, together with the upper portion of
the house thereon, had been sold by Lagrimas
to the spouses Ramos for P31,000; that of the In addition, Article 1498 of the Civil
said price, the sum of P22,500 (representing Code provides that when the sale is made
P15,000 cash loan plus P7,500 as interest from through a public instrument, as in this case, the
September 1984 to May 1988) had been paid; execution thereof shall be equivalent to the
that the balance of P8,500 would be paid on the delivery of the thing which is the object of the
last week of August 1988; and that possession contract, if from the deed the contrary does not
of the property would be transferred to the appear or cannot clearly be inferred. In this
spouses Ramos only upon full payment of the case, the Deed of Absolute Sale does not
purchase price. contain any stipulation against the constructive
delivery of the property to private respondents.
In the absence of stipulation to the contrary, the
Issue:
ownership of the property sold passes to the
vendee upon the actual or constructive delivery
WHETHER OR NOT THE COURT OF thereof. The Deed of Absolute Sale, therefore,
APPELS GRAVELY ERRED AND supports private respondents’ right of material
ABUSED ITS DISCRETION IN NOT possession over the subject property.
INTERPRETING THAT THE
"KASUNDUAN" EXECUTED BY AND

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SPS. HENRY CO AND ELIZABETH CO AND
MELODY CO, petitioners,
vs.
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COURT OF APPEALS AND MRS. The March 15, 1985 letter sent by the
ADORACION CUSTODIO, represented by her COS through their lawyer to the CUSTODIO
Attorney-in-fact, TRINIDAD KALAGAYAN, reveals that the parties entered into a perfected
respondents. contract of sale and not an option contract.

August 17, 1999 A contract of sale is a consensual


contract and is perfected at the moment there is
G.R. No. 112330 a meeting of the minds upon the thing which is
the object of the contract and upon the price.
From that moment the parties may reciprocally
THIRD DIVISION
demand performance subject to the provisions
of the law governing the form of contracts.
GONZAGA-REYES, J.:
The elements of a valid contract of sale
Facts: under Article 1458 of the Civil Code are (1)
consent or meeting of the minds; (2) determinate
. . . sometime on October 9, 1984, plaintiff subject matter; and (3) price certain in money or
entered into a verbal contract with defendant for its equivalent. As evidenced by the March 15,
her purchase of the latter's house and lot located 1985 letter, all three elements of a contract of
at 316 Beata St., New Alabang Village, sale are present in the transaction between the
Muntinlupa, Metro Manila, for and in petitioners and respondent. Custodio's offer to
consideration of the sum of $100,000.00. One purchase the Beata property, subject of the sale
week thereafter, plaintiff paid to the defendants at a price of $100,000.00 was accepted by the
the amounts of $1,000.00 and P40,000.00 as COS. Even the manner of payment of the price
earnest money, in order that the same may be was set forth in the letter. Earnest money in the
reserved for her purchase, said earnest money amounts of US$1,000.00 and P40,000.00 was
to be deducted from the total purchase price. already received by the COS. Under Article
The purchase price of $100,000.00 is payable in 1482 of the Civil Code, earnest money given in a
two payments $40,000.00 on December 4, 1984 sale transaction is considered part of the
and the balance of $60,000.00 on January 5, purchase price and proof of the perfection of the
1985. On January 25, 1985, although the period sale.
of payment had already expired, plaintiff paid to
the defendant Melody Co in the United States, . The COS were of the mistaken belief
the sum of $30,000.00, as partial payment of the that CUSTODIO had lost her "option" over the
purchase price. Defendant's counsel, Atty. Beata property when she failed to pay the
Leopoldo Cotaco, wrote a letter to the plaintiff remaining balance of $70,000.00 pursuant to
dated March 15, 1985, demanding that she pay their August 8, 1986 letter. Accordingly,
the balance of $70,000.00 and not receiving any CUSTODIO acted well within her rights when
response thereto, said lawyer wrote another she attempted to pay the remaining balance of
letter to plaintiff dated August 8, 1986, informing $70,000.00 to complete the sum owed of
her that she has lost her "option to purchase" $100,000.00 as the contract was still subsisting
the property subject of this case and offered to at that time. When the COS refused to accept
sell her another property. said payment and to deliver the Beata property,
CUSTODIO immediately sued for the rescission
Issue: of the contract of sale and prayed for the return
of the $30,000.00 she had initially paid.
Whether or not the Court of Appeals erred in
ordering the spouses Co (COS) to return the Under Article 138518 of the Civil Code,
$30,000.00 paid by CUSTODIO pursuant to the rescission creates the obligation to return the
"option" granted to her over the Beata property? things which were the object of the contract but
NO. such rescission can only be carried out when the
one who demands rescission can return
whatever he may be obliged to restore.

Ruling: The property involved has not been


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delivered to the appellee. She has therefore
nothing to return to the appellants. The price
received by the appellants has to be returned to
the appellee as aptly ruled by the lower court, for
such is a consequence of rescission, which is to
restore the parties in their former situations.

SAN MIGUEL PROPERTIES PHILIPPINES,


INC., PETITIONER, VS. SPOUSES ALFREDO
HUANG AND GRACE HUANG,
RESPONDENTS.

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[GRN 137290 July 31, 2000] counsel, demanded the execution of the Deed of
Sale and attempted to return the earnest-deposit
First Division but SMPPI refused to accept it on the ground
that the option to purchase had already expired.
Facts:
Thus on August 16, 1994, respondent
Petitioner San Miguel Properties Philippines, spouses filed a complaint for specific
Inc. is a domestic corporation engaged in the performance against SMPPI but the latter
purchase and sale of real properties. Parts of its moved to dismiss said complaint alleging that: 1.
inventory are two parcels of land totaling to 1, the alleged “exclusive option” of respondent
738 square meters at the corner of Meralco spouses lacked a consideration separate and
Avenue and Gen. Capinpin St., Barrio Oranbo, distinct from the purchase price and was thus
Pasig City. unenforceable; and 2. the complaint did not
allege a cause of action because there was no
On February 21, 1994, the properties meeting of the minds between the parties and
were offered for sale for ₱52,140,000 in cash. therefore, no perfected contract of sale. This
The offer was made to Atty. Helena Dauz who motion was opposed by respondent spouses.
was acting for respondent spouses as
undisclosed principals. In a letter dated March RTC granted the motion to dismiss but
24, 1994, Atty. Dauz signified her clients’ the CA reversed it on appeal and held that all
interest in purchasing the properties for the the requisites of a perfected contract of sale had
amount for which they were offered by been complied with as the offer made in
petitioner, under the following terms: the sum of connection with which the earnest money in the
₱500,000 would be given as earnest money and amount of ₱1 Million was tendered by
the balance would be paid in 8 equal monthly respondent spouses had already been accepted
installments from May to December 1994. by SMPPI. The court cited Art. 1482 of the Civil
However, petitioner refused the counter-offer. Code which provides that “whenever earnest
money is given in a contract of sale, it shall be
Atty. Dauz thus wrote San Miguel considered as part of the price and proof of the
expressing the interest of respondent spouses, perfection of the contract.”
subject to the following conditions:

“1. We will be given the exclusive option to


purchase the property within 30 days from date Issue: Whether or not the contract of sale was
of your acceptance of this offer; perfected.
2. During said period, we will negotiate on the
terms and conditions of the purchase; SMPPI
will secure the necessary management and Ruling:
board approvals; and we initiate the
documentation if there is mutual agreement The contract of sale was not perfected. In
between us; holding that there is perfected contract of sale,
the CA relied on the following findings: (1)
3. In the event that we do not come to an earnest money was allegedly given by
agreement on this transaction, the said amount respondents and accepted by SMPPI through its
of ₱1,000,000 shall be refundable to us in full vice-president and operations manager, Isidro
upon demand.” Sobrecarey; and (2) the documentary evidence
in the records show that there was perfected
On July 7, 1994, San Miguel, through its contract of sale.
president, Federico Gonzales, wrote Atty. Dauz
informing her that because the parties failed to With regard to the alleged payment and
agree on the terms and conditions of the sale acceptance of the earnest money, the SC holds
despite the extension granted by San Miguel, it that respondents did not give the ₱1 Million as
is already returning the amount of ₱1 Million earnest money as contemplated in Art. 1482.
given as “earnest-deposit”. Respondents presented the amount merely as
deposit of what would eventually become
Respondent spouses, through their earnest money or down payment should a

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contract of sale be made by them. The amount
was thus given not as part of the purchase price
and proof of the perfection of the contract of sale
but only as guarantee that respondents would
not back out of the sale. They even described it
as “earnest-deposit”.

All that respondents had was just an


option to buy the properties which privilege was
not exercised by them because there was a
failure to agree on the terms of payment. No
contract of sale may thus be enforced by
respondents.

SPOUSES ONNIE SERRANO AND AMPARO


HERRERA, PETITIONERS, VS. GODOFREDO
CAGUIAT, RESPONDENT.

[GRN 139173 February 28, 2007]First Division

Facts:

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Petitioners are registered owners of a lot DEED OF SALE ON THIS DATE.” there can be
located in Las Piñas. On March 23, 1900, no other interpretation than that they agreed to a
respondent offered to buy the lot and petitioners conditional contract of sale, consummation of
agreed to sell it at ₱1,500 per square meter. which is subject only to the full payment of the
Respondent then gave ₱100,000 as partial purchase price.
payment.
“A contract to sell is akin to a conditional
A few days after, respondent, through sale where the efficacy or obligatory force of the
his counsel, wrote petitioners informing them of vendor’s obligation to transfer title is
his readiness to pay the balance of the contract subordinated to the happening of a future and
price and requesting them to prepare the Deed uncertain event, so that if the suspensive
of Sale. condition does not take place, the parties would
stand as if the conditional obligation had never
Petitioners, through counsel, informed existed. The suspensive condition is commonly
respondent in a letter that Amparo Herrera full payment of the purchase price.
would be leaving for abroad on or before April
15, 1990 and they are canceling the transaction “In this case, the “Receipt for Partial
and that respondent may recover the earnest Payment” shows that the true agreement
money (₱100,000) anytime. Petitioners also between the parties is a contract to sell.
wrote him stating that they already delivered a
manager’s check to his counsel in said amount. “First, ownership over the property was
retained by petitioners and was not to pass to
Respondent thus filed a complaint for respondent until full payment of the purchase
specific performance and damages with the price. Second, the agreement between the
RTC of Makati. parties was not embodied in a deed of sale. The
absence of a formal deed of conveyance is a
The trial court ruled that there was strong indication that the parties did not intend
already a perfected contract of sale between the immediate transfer of ownership, but only a
parties and ordered the petitioners to execute a transfer after full payment of the purchase price.
final deed of sale in favor of respondent. Third, petitioners retained possession of the
certificate of title of the lot.
The Court of appeals affirmed said
decision. “It is true that Article 1482 provides that
whenever earnest money is given in a contract
Issue: Whether or not there was a contract of of sale, it shall be considered as part of the price
sale. and proof of the perfection of the contract.
However, this article speaks of earnest money
Ruling: given in a contract of sale. In this case, the
earnest money was given in a contract to sell.
The transaction was a contract to sell.
The earnest money forms part of the
consideration only if the sale is consummated
upon full payment of the purchase price.
“When petitioners declared in the
“Receipt for Partial Payment” that they – “Clearly, respondent cannot compel
petitioners to transfer ownership of the property
to him.”

“RECEIVED FROM MR. GODOFREDO PCI Leasing and Finance Inc. Vs. Giraffe- X
CAGUIAT THE AMOUNT OF ONE HUNDRED Creative Imaging, Inc.
THOUSAND PESOS AS PARTIAL PAYMENT July 12, 2007 GR 142618
OF OUR LOT SITUATED IN LAS PIÑAS… First Division
Garcia, J
MR. CAGUIAT PROMISED TO PAY
THE BALANCE OF THE PURCHASE PRICE Facts:
ON OR BEFORE MARCH 23, 1990, AND THAT -On December 4, 1996, petitioner PCI
WE WILL EXECUTE AND SIGN THE FINAL LEASING and respondent GIRAFFE entered
into a Lease Agreement, whereby the former
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leased out to the latter one (1) set of Silicon Whether the agreement between PCI Leasing
High Impact Graphics and accessories worth and GIRAFFE is governed by Articles 1484 and
P3,900,00.00 and one (1) unit of Oxberry 1485 of the Civil Code?
Cinescan 6400-10 worth P6,500,000.00.
- A year into the life of the Lease Agreement, Held:
GIRAFFE defaulted in its monthly rental-
payment obligations. And following a three- Petition denied. Trial Court’s decision affirmed
month default, PCI LEASING addressed a
formal pay-or-surrender-equipment type of Ratio:
demand letter dated February 24, 1998 to -The PCI LEASING- GIRAFFE lease agreement
GIRAFFE. is in reality a lease with an option to purchase
- The demand went unheeded. the equipment. This has been made manifest
- PCI Leasing instituted a case against by the actions of the petitioner itself, foremost of
GIRAFFE. PCI prayed for the issuance of a writ which is the declarations made in its demand
of replevin for the recovery of the leased letter to the respondent. There could be no other
property explanation than that if the respondent paid the
- Upon PCI LEASING’s posting of a replevin balance, then it could keep the equipment for its
bond, the trial court issued a writ of replevin, own; if not, then it should return them. This is
paving the way for PCI LEASING to secure the clearly an option to purchase given to the
seizure and delivery of the equipment covered respondent. Being so, Article 1485 of the Civil
by the basic lease agreement. Code should apply.
- Instead of an answer, GIRAFFE filed a Motion - The present case reflects a situation where the
to Dismiss,arguing that the seizure of the two (2) financing company can withhold and conceal -
leased equipment stripped PCI LEASING of its up to the last moment - its intention to sell the
cause of action. property subject of the finance lease, in order
-GIRAFFE argues that, pursuant to Article 1484 that the provisions of the Recto Law may be
of the Civil Code on installment sales of circumvented. It may be, as petitioner pointed
personal property, PCI LEASING is barred from out, that the basic “lease agreement” does not
further pursuing any claim arising from the lease contain a “purchase option” clause. The
agreement and the companion contract absence, however, does not necessarily argue
documents, adding that the agreement between against the idea that what the parties are into is
the parties is in reality a lease of movables with not a straight lease, but a lease with option to
option to buy. purchase. This Court has, to be sure, long been
-GIRAFFE asserts in its Motion to Dismiss that aware of the practice of vendors of personal
the civil complaint filed by PCI LEASING is property of denominating a contract of sale on
proscribed by the application to the case of installment as one of lease to prevent the
Articles 1484 and 1485, supra, of the Civil Code. ownership of the object of the sale from passing
- PCI Leasing on the other hand maintains that to the vendee until and unless the price is fully
its contract with GIRAFFE is a straight lease paid.
without an option to buy. -Being leases of personal property with option to
- petitioner contends that the financial leasing purchase as contemplated in the above article,
arrangement it concluded with the respondent the contracts in question are subject to the
represents a straight lease covered by R.A. No. provision that when the lessor in such case “has
5980, the Financing Company Act, as last chosen to deprive the lessee of the enjoyment of
amended by R.A. No. 8556, otherwise known as such personal property,” “he shall have no
Financing Company Act of 1998, and is outside further action” against the lessee “for the
the application and coverage of the Recto Law. recovery of any unpaid balance” owing by the
To the petitioner, R.A. No. 5980 defines and latter, “agreement to the contrary being null and
authorizes its existence and business. void.”
-the trial court granted GIRAFFE’s motion to -In choosing, through replevin, to deprive the
dismiss respondent of possession of the leased
- motion for reconsideration was denied, hence equipment, the petitioner waived its right to bring
this petition for review. an action to recover unpaid rentals on the said
leased items. Paragraph (3), Article 1484 in
Issue: relation to Article 1485 of the Civil Code, which
we are hereunder re-reproducing, cannot be any
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clearer. renege on its word. Yet more than that, the very
word “or” as used in the letter conveys distinctly
its intention not to claim both the unpaid balance
ART. 1484. In a contract of sale of personal and the equipment. It is not difficult to discern
property the price of which is payable in why: if we add up the amounts paid by the
installments, the vendor may exercise any of the respondent, the residual value of the property
following remedies: recovered, and the amount claimed by the
petitioner as sued upon herein (for a total of
xxx xxx xxx P21,779,029.47), then it would end up making
an instant killing out of the transaction at the
(3) Foreclose the chattel mortgage on the expense of its client, the respondent. The Recto
thing sold, if one has been constituted, should Law was precisely enacted to prevent this kind
the vendee's failure to pay cover two or more of aberration. Moreover, due to considerations
installments. In this case, he shall have no of equity, public policy and justice, we cannot
further action against the purchaser to recover allow this to happen. Not only to the respondent,
any unpaid balance of the price. Any agreement but those similarly situated who may fall prey to
to the contrary shall be void. a similar scheme.

ART. 1485. The preceding article shall be


applied to contracts purporting to be leases of
personal property with option to buy, when the
lessor has deprived the lessee of the possession
or enjoyment of the thing.

-As we articulated in Elisco Tool Manufacturing


Corp. v. Court of Appeals, the remedies
provided for in Article 1484 of the Civil Code are
alternative, not cumulative. The exercise of one
bars the exercise of the others. This limitation
applies to contracts purporting to be leases of
personal property with option to buy by virtue of
the same Article 1485. The condition that the
lessor has deprived the lessee of possession or
enjoyment of the thing for the purpose of
applying Article 1485 was fulfilled in this case by
the filing by petitioner of the complaint for a sum
of money with prayer for replevin to recover
possession of the office equipment. By virtue of
the writ of seizure issued by the trial court, the
petitioner has effectively deprived respondent of
their use, a situation which, by force of the
Recto Law, in turn precludes the former from
maintaining an action for recovery of “accrued
rentals” or the recovery of the balance of the
purchase price plus interest.

The imperatives of honest dealings given Elisco Tool Manufacturing Corp. Vs. Court of
prominence in the Civil Code under the heading: Appeals et. al.
Human Relations, provide another reason why May 31, 1999 GR 109966
we must hold the petitioner to its word as Second Division
embodied in its demand letter. Else, we would Mendoza J.
witness a situation where even if the
respondent surrendered the equipment Facts:
voluntarily, the petitioner can still sue upon its -Private respondent Rolando Lantan was
claim. This would be most unfair for the employed at the Elisco Tool Manufacturing
respondent. We cannot allow the petitioner to Corporation as head of its cash department. On
Sales Case Digests
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2A SY 2009-2010
January 9, 1980, he entered into an agreement demands, private respondents failed to settle
with the company which provided as follows: their obligation thereby entitling petitioner to the
- that, Elisco Tool Manufacturing Corp is the possession of the car; that petitioner was ready
owner of a car which for and in consideration of to post a bond in an amount double the value of
a monthly rental of P 1010.65 will be leased to the car, which was P60,000; and that in case
Rolando Lantan for 5 years private respondents could not return the car,
- That, Rolando Lantan shall pay the lease thru they should be held liable for the amount of
salary deduction from his monthly remuneration P60,000 plus the accrued monthly rentals
in the amount as above specified for a period of thereof, with interest at the rate of 14% per
FIVE (5) years; annum, until fully paid.
- That, he shall for the duration of the lease - Upon the posting of the bond, the sheriff took
contract, shoulder all expenses and costs of possession of the car and after 5 days turned it
registration, insurance, repair and maintenance, over to the petitioner
gasoline, oil, part replacement inclusive of all - private respondents claim that their agreement
expenses necessary to maintain the vehicle in was to buy and sell and not lease with option to
top condition buy the car
-That, at the end of FIVE (5) year period or upon - in its reply, petitioner maintained that the
payment of the 60th monthly rental, Lantan may contract was one of lease with option to
exercise the option to purchase the motor purchase and that the promissory note was
vehicle from Elisco and all monthly rentals shall merely a “nominal security” for the agreement.
be applied to the payment of the full purchase - trial court rendered its decision in favor of the
price of the car and further, should Lantan desire private respondent
to exercise this option before the 5-year period - petitioner appealed to CA, petitioner filed
lapse, he may do so upon payment of the motion for execution pending appeal
remaining balance on the five year rental unto - CA affirmed in toto the decision of the trial
Elisco, it being understood however that the court, hence the petition for review on certiorari
option is limited to the EMPLOYEE;
-That, in case of default in payment THREE (3) Issue/s:
accumulated monthly rentals, Elisco shall have Whether the Court of Appeals erred
the full right to lease the vehicle to another (a) in disregarding the admission in the
EMPLOYEE; pleadings as to what documents contain the
-That, in the event of resignation and or terms of the parties’ agreement.
dismissal from the service, Lantan shall return (b) in holding that the interest stipulation in
the subject motor vehicle to the EMPLOYER in respondents’ Promissory Note was not valid and
good working and body condition. binding.
-On the same day, January 9, 1980, private (c) in holding that respondents had fully paid
respondent executed a promissory note which their obligations.
states his promise to pay P 1,010.65 without the Held:
necessity of notice or demand in accordance The decision of the Court of Appeals is
with the schedule of payment AFFIRMED with costs against petitioner.
- After taking possession of the car, Lantan
installed accessories worth P15,000.00 Ratio:
-In 1981, Elisco Tool ceased operations, as a First. Petitioner does not deny that private
result of which private respondent Rolando respondent Rolando Lantan acquired the vehicle
Lantan was laid off. Nonetheless, as of in question under a car plan for executives of the
December 4, 1984, private respondent was able Elizalde group of companies. Under a typical car
to make payments for the car in the total amount plan, the company advances the purchase price
of P61,070.94. of a car to be paid back by the employee
-On June 6, 1986, petitioner filed a complaint, through monthly deductions from his salary.
entitled “replevin plus sum of money,” against The company retains ownership of the motor
private respondent Rolando Lantan, his wife vehicle until it shall have been fully paid for.
Rina, and two other persons, identified only as However, retention of registration of the car in
John and Susan Doe, before the Regional Trial the company’s name is only a form of a lien on
Court of Pasig, Metro Manila. the vehicle in the event that the employee would
-Petitioner alleged that private respondents abscond before he has fully paid for it. There
failed to pay the monthly rentals that despite are also stipulations in car plan agreements to
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2A SY 2009-2010
the effect that should the employment of the the delivery to it of the motor vehicle “complete
employee concerned be terminated before all with accessories and equipment.” In the event
installments are fully paid, the vehicle will be the car could not be delivered to petitioner, it
taken by the employer and all installments paid was prayed that private respondent Rolando
shall be considered rentals per agreement. Lantan be made to pay petitioner the amount of
This Court has long been aware of the practice P60,000.00, the “estimated actual value” of the
of vendors of personal property of denominating car, “plus accrued monthly rentals thereof with
a contract of sale on installment as one of lease interests at the rate of fourteen percent (14%)
to prevent the ownership of the object of the sale per annum until fully paid.” This prayer of
from passing to the vendee until and unless the course cannot be granted, even assuming that
price is fully paid. As this Court noted in Vda. private respondents have defaulted in the
de Jose v. Barrueco: payment of their obligation. This led the trial
Sellers desirous of making conditional sales of court to say that petitioner wanted to eat its cake
their goods, but who do not wish openly to make and have it too.
a bargain in that form, for one reason or another, Both the trial court and the Court of Appeals
have frequently resorted to the device of making correctly ruled that private respondents could no
contracts in the form of leases either with longer be held liable for the amounts of
options to the buyer to purchase for a small P39,054.86 or P60,000.00 because private
consideration at the end of term, provided the respondents had fulfilled their part of the
so-called rent has been duly paid, or with obligation. The agreement does not provide for
stipulations that if the rent throughout the term is the payment of interest on unpaid monthly
paid, title shall thereupon vest in the lessee. It is “rentals” or installments because it was entered
obvious that such transactions are leases only in into in pursuance of a car plan adopted by the
name. The so-called rent must necessarily be company for the benefit of its deserving
regarded as payment of the price in installments employees. As the trial court correctly noted,
since the due payment of the agreed amount the car plan was intended to give additional
results, by the terms of the bargain, in the benefits to executives of the Elizalde group of
transfer of title to the lessee. companies.
Second. The contract being one of sale on
installment, the Court of Appeals correctly Third. Private respondents presented evidence
applied to it the following provisions of the Civil that they “felt bad, were worried, embarrassed
Code: and mentally tortured” by the repossession of
the car. This has not been rebutted by
The remedies provided for in Art. 1484 are petitioner. There is thus a factual basis for the
alternative, not cumulative. The exercise of one award of moral damages. In addition, petitioner
bars the exercise of the others. This limitation acted in a wanton, fraudulent, reckless and
applies to contracts purporting to be leases of oppressive manner in filing the instant case,
personal property with option to buy by virtue of hence, the award of exemplary damages is
Art. 1485. The condition that the lessor has justified. The award of attorney’s fees is likewise
deprived the lessee of possession or enjoyment proper considering that private respondents
of the thing for the purpose of applying Art. 1485 were compelled to incur expenses to protect
was fulfilled in this case by the filing by petitioner their rights
of the complaint for replevin to recover
possession of movable property. By virtue of
the writ of seizure issued by the trial court, the
deputy sheriff seized the vehicle on August 6,
1986 and thereby deprived private respondents PEOPLE'S INDUSTRIAL AND COMMERCIAL
of its use. The car was not returned to private CORPORATION, petitioner, vs. COURT OF
respondent until April 16, 1989, after two (2) APPEALS and MAR-ICK INVESTMENT
years and eight (8) months, upon issuance by CORPORATION, respondents.
the Court of Appeals of a writ of execution.
Petitioner prayed that private respondents be G.R. No. 112733 October 24, 1997
made to pay the sum of P39,054.86, the amount
that they were supposed to pay as of May 1986, 281 SCRA 206
plus interest at the legal rate. At the same time,
it prayed for the issuance of a writ of replevin or Ponente: ROMERO, J. (THIRD DIVISION)
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Facts: the contract because private respondent never
encashed and benefited from those checks.
Private respondent Mar-ick Investment There was no meeting of the minds between the
Corporation is the exclusive and registered parties because Art. 475 of the Civil Code
owner of Mar-ick Subdivision in Barrio Buli, should be read with the Statute of Frauds that
Cainta, Rizal. On May 29, 1961, private requires the embodiment of the contract in a
respondent entered into 6 agreements with note or memorandum. What was clearly proven
petitioner People's Industrial and Commercial was that both parties negotiated a new contract
Corporation whereby it agreed to sell to after the termination of the first. Thus, the fact
petitioner 6 subdivision lots. that the parties tried to negotiate a new contract
indicated that they considered the first contract
Five of the agreements stipulate that the as already cancelled.
petitioner agreed to pay private respondent for Petitioner elevated the case to the Court
each lot, the amount of P7,333.20 with a down of Appeals which affirmed in toto the lower
payment of P480.00. The balance of P6,853.20 court's decision.
shall be payable in 120 equal monthly
installments of P57.11 every 30th of the month,
for a period of ten years. With respect to another
lot, the parties agreed to the purchase price of Issue:
P7,730.00 with a down payment of P506.00 and Whether or not there was a perfected
equal monthly installments of P60.20. After and enforceable contract of sale on October 11,
the lapse of ten years, petitioner still had not 1983 which modified the earlier contracts to sell
fully paid for the six lots. It had paid only the which had not been validly rescinded.
down payment and 8 installments.
Ruling:
After a series of negotiations between The contracts to sell of 1961 were
the parties, they agreed to enter into a new cancelled to which the parties voluntarily bound
contract to sell on October 11, 1983. The themselves. When petitioner failed to abide by
contract stipulates that the previous contracts its obligation to pay the installments provision
have been cancelled due to the failure of the No. 9 of the contract automatically took effect
purchaser to pay the stipulated installments. which states that “should the purchaser fail to
make the payment of any of the monthly
Neither of the parties signed the new
installments as agreed herein, this contract
contract. Siatianum issued checks in the total
shall, by the mere fact of nonpayment, expire by
amount of P37,642.72 to private respondent.
itself and become null and void.”
Private respondent received but did not
The 1961 agreements are contracts to
encash the checks. Instead, it filed in the
sell and not contracts of sale. The distinction
Regional Trial Court of Antipolo, Rizal, a
between these contracts is depicted in Adelfa
complaint for accion publiciana de posesion
Properties, Inc. v. Court of Appeals which states
against petitioner and Tomas Siatianum, as
that “the distinction between the two is important
president and majority stockholder of petitioner.
for in a contract of sale, the title passes to the
It prayed that petitioner surrender possession of
vendee upon the delivery of the thing sold;
the lots of Mar-ick Subdivision, and that
whereas in a contract to sell, by agreement the
petitioner and Tomas Siatianum be ordered to
ownership is reserved in the vendor and is not to
pay reasonable rentals for the use of the lots. In
pass until the full payment of the price. In a
the alternative, the complaint prayed that should
contract of sale, the vendor has lost and cannot
the agreements be deemed not automatically
recover ownership until and unless the contract
cancelled, the same agreements should be
is resolved or rescinded; whereas, in a contract
declared null and void.
to sell, title is retained by the vendor until the full
Lower court rendered a decision finding
payment of the price, such payment being a
that the original agreements of the parties were
positive suspensive condition and failure of
validly cancelled. The parties did not enter into a
which is not a breach but an event that prevents
new contract in accordance with Art. 1403 (2) of
the obligation of the vendor to convey title from
the Civil Code as the parties did not sign the
becoming effective. Thus, a deed of sale is
draft contract. Receipt by private respondent of
considered absolute in nature where there is
the five checks could not amount to perfection of
neither a stipulation in the deed that title to the

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property sold is reserved in the seller until the
full payment of the price, nor one giving the
vendor the right to unilaterally resolve the
contract the moment the buyer fails to pay within
a fixed period.” Being contracts to sell, Article
1592 of the Civil Code which requires rescission
either by judicial action or notarial act is not
applicable.
Petitioner alleges that there was a new
perfected and enforceable contract of sale
between the parties in October 1983. Private
respondent's company lawyer volunteered that
after the cancellation of the 1961 agreements,
the parties should negotiate and enter into a
new agreement. However, after he had drafted
the contract and sent it to petitioner, the latter
deposited a check for downpayment but its
representative refused to sign the prepared
contract. In the absence of proof to the contrary,
this draft contract may be deemed to embody
the agreement of the parties. Private respondent
did not and has not denied the existence of that
contract. Under these facts, therefore, the
parties may ideally be considered as having
perfected the contract of October 1983.
Justice and equity, however, will not be
served by a positive ruling on the perfection and
performance of the contract to sell. There are
facts on record proving that the parties had not
arrived at a definite agreement. By Atty.
Villamayor's admission, the checks were not
encashed because Tomas Siatianun did not sign
the draft contract that he had prepared. On his
part, Tomas Siatianun explained that he did not
sign the contract because it covered 7 lots while
their agreement was only for 6 lots.
The number of lots to be sold is a material
component of the contract to sell. Without an
agreement on the matter, the parties may not in
any way be considered as having arrived at a
contract under the law. Moreover, installments
paid by the petitioner on the land should be
deemed rentals. Article 1486 of the Civil Code
provides that a stipulation that the installments
or rents paid shall not be returned to the vendee
or lessee shall be valid insofar as the same may
not be unconscionable under the circumstances.
REGALADO DAROY, complainant, vs. ATTY.
WHEREFORE, the instant petition for
ESTEBAN ABECIA, respondent.
review on certiorari is hereby denied and the
questioned Decision of the Court of Appeals is
AFFIRMED. A.C. No. 3046 October 26, 1998

Ponente: MENDOZA, J. (SECOND DIVISION)

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Facts: possession of the land not only the buyer,
This refers to the complaint for Regalado Daroy, but also the latter’s assignee,
malpractice filed by Regalado Daroy against Nena Abecia, in whose name the title to the land
Esteban Abecia, a member of the Bar. had in fact been transferred. It would appear,
Respondent Abecia was counsel of therefore, that Daroy already knew that title to
complainant Daroy in a case for forcible entry the land had already been transferred in the
before the Municipal Trial Court of Opol, name of the respondent’s wife.
Misamis Oriental. Judgment was rendered in Indeed, what appears to have happened
favor of complainant. To satisfy the judgment, in this case is that the parties thought that
the sheriff sold at public auction a parcel of land because the land had been acquired by
belonging to one of the defendants to complainant at a public sale held in order to
complainant Daroy as highest bidder. Upon satisfy a judgment in his favor in a case in which
failure of the defendants to redeem the land, its respondent was complainant’s counsel, the
ownership was consolidated in complainant latter could not acquire the land. The parties
Daroy. apparently had in mind Art. 1491 of the Civil
Complainant Daroy claimed that Code which provides:
respondent Abecia forged his signature in a
deed of absolute sale transferring the parcel of ART. 1491. The following persons
land to Jose Gangay and that in a fictitious deed cannot acquire by purchase, even at a
of absolute sale it was made to appear that public or judicial auction, either in
Gangay in turn conveyed the land to Nena person or through the mediation of
Abecia, wife of respondent Abecia. Daroy another:
alleged that he entrusted the title to the land to 5) Justices, judges, prosecuting
Abecia as his counsel and allowed him to take attorneys, clerks of superior and inferior
possession of the land upon the latter’s request. courts, and other officers and
By means of the forged deed of sale, Abecia employees connected with the
was able to obtain new transfer certificates of administration of justice, the property
title, first in the name of Gangay and then in that and rights in litigation or levied upon an
of Mrs. Abecia, from the Registry of Deeds of execution before the court within whose
Misamis Oriental. Daroy claimed he discovered jurisdiction or territory they exercise their
the fraud only in 1984. respective functions; this prohibition
On July 15, 1993, includes the act of acquiring by
Commissioner Plaridel Jose ruled that assignment and shall apply to lawyers,
respondent Abecia is guilty of malpractice and with respect to the property and rights
recommended his disbarment. The Integrated which may be the object of any litigation
Bar of the Philippines approved the report but in which they may take part by virtue of
reduced the penalty to indefinite suspension. their profession.
Respondent Abecia filed a Motion for
Reconsideration and/or Appeal. In Guevara v. Calalang, we held that the
prohibition in Art. 1491 does not apply to the
Issues: sale of a parcel of land, acquired by a client to
Whether or not the Commission on Bar satisfy a judgment in his favor, to his attorney as
Discipline erred when it held that complainant long as the property was not the subject of the
had no knowledge of the execution of the Deed litigation. While judges, prosecuting attorneys,
of Absolute Sale. and others connected with the administration of
Whether or not respondent Atty. justice are prohibited from acquiring property or
Esteban Abecia is prohibited from acquiring the rights in litigation or levied upon in execution, the
parcel of land. prohibition with respect to attorneys in the case
extends only to property and rights which may
Ruling: be the object of any litigation in which they may
Respondent’s motion is well taken. take part by virtue of their profession.
As already stated, the land in question WHEREFORE, the resolution of the IBP
was purchased by complainant at the sheriff’s Board of Governors is RECONSIDERED and
sale. Deputy Sheriff stated that when he finally the complaint against respondent Esteban
transferred the land to the buyer, he placed in Abecia is DISMISSED.

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In Re: Suspension from the Practice of Law
in the territory of Guam of Atty. Leon G.
Maquera,

435 SCRA 417, July 30, 2004.

Tinga, B.M. 793

FACTS:

Atty. Leon G. MAquera, in a decision


rendered by the Superior Court of Guam, was
suspended from the practice of law in Guam for

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UST Faculty of Civil Law Page 29
2A SY 2009-2010
two years. The decision was based on
Maquera’s misconduct, as he acquired his
client’s property as payment for his legal
services, then sold it and as a consequence
obtained an unreasonable high fee for handling
his client’s case.

Castro, his client, and his creditor was in


a civil case where Castro’s property, a parcel of
land, was a subject. The decision was rendered
in against Castro and ordered the auction sale of
the land. It was purchased by the creditor but
Castro retained his right of redemption which
was later on assigned to Maquera as payment
for his services. Maquera exercised this right
and he was able to obtain the property. He then
sold it to C.S Chang and C.C. Chang which
gave him a huge profit.

Thw suspension of Maquere was


referred here in the Philippines through the
Integrated Bar of the Philippines. However, it
concluded that there’s no evidence to establish
that he also committed a breach of ethics in the
Philippines.

ISSUE: Whether Atty. Maquera’s acts constitute


grounds for his suspension or disbarment in the
Philippine Jurisdiction.

RULING: Atty. Maquera is suspended for one


year for the meantime or until he shall have paid
his membership dues, whichever came later.

Paragraph 5 of Article 1491 of the New


Civil Code prohibits lawyer’s acquisition by
assignment of the client’s property which is the
subject of the litigation handled by the lawyer.

Under Article 1492, the prohibition Chua v. Court of Appeals and Valdes-Choy,
extends to sales in legal redemption.
401 SCRA 54, April 9, 2003
Maquera’s acts in Guam which resulted
in his two-year suspension from the practice of Carpio, G.R. No. 119255
law in that jurisdiction are also valid grounds for
his suspension from the practice of law in the
Philippines. Such acts are violative of lawyer’s
FACTS:
sworn duty to act with fidelity toward his clients.
Encarnacion Valdes-Choy advertised for
It is also violative of Canon 17 which
sale her paraphernal house and lot in Makati
states, “a lawyer owes fidelity to the cause of his
City which Chua responded to. They both
client and shall be mindful of the trust and
agreed on a purchased price of P100,000.00
confidence reposed in him.”
payable in cash.
Sales Case Digests
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2A SY 2009-2010
Chua gave P100,000.00 to Valdes-Choy
as an earnest money and another P485,000.00
for the payment of capital gains tax since
Valdes-Choy was not able to pay the said tax.

However, Chua did not pay the


remaining balance of P10,215,000.00 but
demanded that the property be first registered
under his name. On the other hand, Valdes-
Choy wanted that the remaining purchase
balance be deposited in her account before she
could transfer the title of her property to him.

Chua filed a complaint for a specific


performance against her which the trial court
held in favor of Chua. However, the Court of
Appeals reversed the said decision.

ISSUE: Whether there is a perfected contract of


sale of immovable property.

RULING: Petition is dismissed. There is no


perfected contract of sale.

The agreement that the parties entered


into is a contract to sell and not a contract of
sale.

In a contract of sale, the title of the


property passes to the vendee upon the delivery
of the thing sold and the vendor loses ownership
over the property and cannot recover it until and
unless the contract is resolved or rescinded. In a
contract to sell, ownership is, by agreement,
reserved in the vendor and is not to pass to the
vendee until full payment of the purchase price
and the title is retained by the vendor until full
payment of the price. Also in the contract to sell, VISAYAN SAWMILL COMPANY, INC., and
payment of the price is a positive suspensive ANG TAY, petitioners,
condition, failure of which is not a breach but an vs.
event that prevents the obligation of the vendor THE HONORABLE COURT OF APPEALS and
to convey title from becoming effective. RJH TRADING, represented by RAMON J.
HIBIONADA, proprietor, respondents.
The receipt made by both of them
shows that the true agreement between the G.R. No. 83851 March 3, 1993
parties was a contract to sell. Ownership over
the property was retained by Valdes-Choy and DAVIDE, JR.
was not to pass to Chua until full payment of the
purchase price. Facts:
Ramon J. Hibionada and Visayan Sawmill
Company (VISAYAN SAWMILL) entered into a
sale involving scrap iron subject to the condition
that plaintiff-appellee will open a letter of credit

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in the amount of P250,000.00 in favor of not a contract of sale.
defendant-appellant corporation on or before
May 15, 1983. The seller bound and promised itself to sell the
scrap iron upon the fulfillment by the private
Ramon J. Hibionada through his man, started to respondent of his obligation to make or indorse
dig and gather and scrap iron at the VISAYAN an irrevocable and unconditional letter of credit
SAWMILL's premises, proceeding with such in payment of the purchase price.
endeavor until May 30 when VISAYAN
SAWMILL allegedly directed Hibionada‘s men to The VISAYAN SAWMILL's obligation to sell is
desist from pursuing the work in view of an unequivocally subject to a positive suspensive
alleged case filed against Hibionada by a certain condition, i.e., the private respondent's opening,
Alberto Pursuelo. This, however, is denied by making or indorsing of an irrevocable and
VISAYAN SAWMILL who allege that on May 23, unconditional letter of credit. The former agreed
1983, they sent a telegram to Hibionada to deliver the scrap iron only upon payment of
cancelling the contract of sale because of failure the purchase price by means of an irrevocable
of the latter to comply with the conditions and unconditional letter of credit. Otherwise
thereof. stated, the contract is not one of sale where the
buyer acquired ownership over the property
On May 26, 1983, VISAYAN SAWMILL received subject to the resolutory condition that the
a letter advice from the Dumaguete City Branch purchase price would be paid after delivery.
of the Bank of the Philippine Islands dated May Thus, there was to be no actual sale until the
26, 1983. opening, making or indorsing of the irrevocable
and unconditional letter of credit. Since what
Hibionada sent a series of telegrams stating that obtains in the case at bar is a mere promise to
the case filed against him by Pursuelo had been sell, the failure of the private respondent to
dismissed and demanding that VISAYAN comply with the positive suspensive condition
SAWMILL comply with the deed of sale, cannot even be considered a breach — casual
otherwise a case will be filed against them. or serious — but simply an event that prevented
the obligation of petitioner corporation to convey
In reply, VISAYAN SAWMILL is unwilling to title from acquiring binding force.
continue with the sale due to Hibionada's failure
to comply with essential preconditions of the Consequently, the obligation of the petitioner
contract. corporation to sell did not arise; it therefore
cannot be compelled by specific performance to
Hibionada filed the complaint below with a comply with its prestation. In short, Article 1191
petition for preliminary attachment and prayed of the Civil Code does not apply; on the
for judgment ordering the VISAYAN SAWMILL contrary, pursuant to Article 1597 of the Civil
to comply with the contract by delivering to him Code, the petitioner corporation may totally
the scrap iron subject thereof rescind.

In their Answer with Counterclaim, VISAYAN The trial court ruled, however, and the public
SAWMILL insisted that the cancellation of the respondent was in agreement, that there had
contract was justified because of Hibionada’s been an implied delivery in this case of the
non-compliance with essential preconditions, subject scrap iron because on 17 May 1983,
among which is the opening of an irrevocable private respondent's men started digging up and
and unconditional letter of credit not later than gathering scrap iron within the petitioner's
15 May 1983. premises. The entry of these men was upon the
private respondent's request.
Issue:
Is there a contract of sale? This permission or consent can, by no stretch of
Is the object of sale delivered? the imagination, be construed as delivery of the
scrap iron in the sense that, as held by the
Held: public respondent, citing Article 1497 of the Civil
The nature of the transaction between the Code, petitioners placed the private respondent
petitioner corporation and the private respondent in control and possession thereof. In the first
is a mere contract to sell or promise to sell, and place, said Article 1491 falls under the Chapter
Sales Case Digests
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15
Obligations of the Vendor, which is found in
Title VI (Sales), Book IV of the Civil Code. As
such, therefore, the obligation imposed therein is
premised on an existing obligation to deliver the
subject of the contract. In the instant case, in
view of the private respondent's failure to comply
within the positive suspensive condition earlier
discussed, such an obligation had not yet arisen.
In the second place, it was a mere
accommodation to expedite the weighing and
hauling of the iron in the event that the sale
would materialize. The private respondent was
not thereby placed in possession of and control
over the scrap iron. Thirdly, the conversion of
the initial contract or promise to sell into a
contract of sale by the petitioner corporation's
alleged implied delivery of the scrap iron
because its action and conduct in the premises
do not support this conclusion. Indeed,
petitioners demanded the fulfillment of the
suspensive condition and eventually cancelled
the contract.

MUNICIPALITY OF VICTORIAS, petitioner,


vs.
THE COURT OF APPEALS, NORMA
LEUENBERGER and FRANCISCO SOLIVA,
respondents.

G.R. No. L-31189 March 31, 1987

PARAS, J.:

Facts:
Norma Leuenberger inherited the whole of Lot
No. 140 from her grandmother, Simeona J. Vda.

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de Ditching. In 1952, she donated a portion of
Lot No. 140, about 3 ha., to the municipality for Respondent Norma Leuenberger admitted that
the ground of a certain high school and had 4 she inherited the land covered by Transfer
ha. converted into a subdivision. In 1963, she Certificate of Title No. T-34036 from her
had the remaining 21 ha. or 208.157 sq. m. grandmother, who had already sold the land to
relocated by a surveyor upon request of lessee the petitioner in 1934; hence, she merely
Ramon Jover who complained of being stepped into the shoes of her grandmother and
prohibited by municipal officials from cultivating she cannot claim a better right than her
the land. It was then that she discovered that the predecessor-in-interest.
parcel of land, more or less 4 ha. or 33,747
sq.m. used by Petitioner Municipality of
Victorias, as a cemetery from 1934, is within her
property.
Norma Leuenberger wrote the Mayor of
Victorias regarding her discovery, demanding
payment of past rentals and requesting delivery
of the area allegedly illegally occupied by
Municipality of Victorias. When the Mayor
replied that Petitioner bought the land she asked
to be shown the papers concerning the sale but
was referred by the Mayor to the municipal
treasurer who refused to show the same.
Norma Leuenberger filed a complaint for
recovery of possession of the parcel of land
occupied by the municipal cemetery. In its
answer, petitioner Municipality, by way of special
defense, alleged ownership of the lot, subject of
the complaint, having bought it from Simeona
Jingco Vda. de Ditching sometime in 1934. The
lower court decided in favor of the Municipality.
On appeal Respondent appellate Court set
aside the decision of the lower court hence, this
petition for review on certiorari.

Held:
It is expressly provided by law that the thing sold
shall be understood as delivered, when it is
placed in the control and possession of the
vendee. Where there is no express provision
that title shall not pass until payment of the
price, and the thing gold has been delivered, title
passes from the moment the thing sold is placed SPOUSES CAMILO L. SABIO, and MA.
in the possession and control of the buyer. MARLENE A. LEDONIO-SABIO, petitioners,
Delivery produces its natural effects in law, the vs. THE INTERNATIONAL CORPORATE
principal and most important of which being the BANK, INC. (now UNION BANK OF THE
conveyance of ownership, without prejudice to PHILIPPINES), GOLDENROD, INC., PAL
the right of the vendor to payment of the price. EMPLOYEES SAVINGS AND LOAN
When the sale is made through a public ASSOCIATION, INC., AYALA CORPORATION,
instrument, the execution thereof shall be LAS PINAS VENTURES, INC., FILIPINAS LIFE
equivalent to the delivery of the thing which is ASSURANCE COMPANY(now AYALA LIFE
the object of the contract, if from the deed, the ASSURANCE, INC.), AYALA PROPERTY
contrary does not appear or cannot be clearly VENTURES CORPORATION, and AYALA
inferred. The execution of the public instrument LAND, INC., respondents.
operates as a formal or symbolic delivery of the
property sold and authorizes the buyer to use G.R. No. 132709. September 4, 2001.
the document as proof of ownership.
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YNARES-SANTIAGO, J.: also transferred, along with ownership thereof,
to the petitioners by virtue of the deed of
Facts: conveyance. Petitioner’s contention that
respondents “never acquired ownership over the
The object of the controversy is a subject property since the latter was never in
portion of a vast tract of land located at Tindig possession of the subject property nor was the
na Manga, Almanza, Las Pinas City. The property ever delivered” is totally without merit.
spouses Gerardo and Emma Ledonio, assigned The mere execution of the deed of conveyance
to the spouses Camilo and Ma. Marlene Sabio in a public document is equivalent to the delivery
(herein petitioners) all their rights, interests, title of the property. Since the execution of the deed
and participation over a contiguous portion of of conveyance is deemed equivalent to delivery,
the subject property measuring 119,429 square prior physical delivery or possession is not
meters. Similarly, while the subject property legally required. The deed operates as a formal
was still the object of several pending cases, the or symbolic delivery of the property sold and
International Corporate Bank, Inc. (or Interbank) authorizes the buyer or transferee to use the
acquired from the Trans-Resource Management document as proof of ownership. Nothing more
and Development Corporation all of the latter’s is required.
rights to the subject property by virtue of a deed
of assignment executed between them.

Sometime thereafter, the Sabios and


Interbank settled their opposing claims by
entering into a Memorandum of Agreement (or
MOA) whereby the Sabios assigned, conveyed
and transferred all their rights over the parcel
assigned to them to Interbank, with the express
exception of of 58,000 square meter contiguous
portion of said lot. Thereafter, a dispute arose
concerning the 58,000 square meter contiguous
portion subject of the MOA, petitioners claiming
that respondent Interbank was obligated to
complete and perfect its ownership and title to
the parcels of land so that Interbank could
transfer to petitioners the absolute ownership
and title over the contiguous portion.

Issue:

Whether or not respondents failed to


“complete and perfect ownership and title” to the
subject property since it was never in actual
occupation, possession, control and enjoyment LEOPOLDO C. LEONARDO, represented by
of said property. his daughter EMERCIANA LEONARDO,
petitioner, vs. VIRGINIA TORRES
Whether or not symbolic delivery by MARAVILLA and LEONOR C. NADAL, as
mere execution of the deed of conveyance is Administratrices of the Estate of MARIANO
sufficient since actual possession, control and TORRES, as substituted by FE NADAL,
enjoyment is a main attribute to ownership. respondents.

Held: G.R. No. 143369. November 27, 2002.

Under Article 1498 of the Civil Code, YNARES-SANTIAGO, J.:


“when the sale is made through a public
instrument, the execution thereof shall be Facts:
equivalent to the delivery of the object of the
contract , if from the deed the contrary does not The instant controversy stemmed from a
appear or cannot be inferred.” Possession is dispute over a lot located in Pasay City and

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registered in the name of Mariano Torres y Petitioner’s contention is without merit,
Chavarria, the predecessor-in-interest of for petitioner’s action is actually an action for
respondents. Petitioner claims that he is the specific performance, i.e., to enforce the deed of
lawful owner of the disputed lot, having absolute sale allegedly executed in his favor and
purchased it from a certain Eusebio Leonardo not an action for recovery of possession. It is a
Roxas who in turn acquired the same lot by fundamental principle that ownership does not
purchase from Mariano Torres. Petitioner filed a pass by mere stipulation but by delivery. The
complaint for “Delivery of Possession of delivery of the thing constitutes a necessary and
Property, Owner’s Duplicate Certificate of Title, indispensable requisite for the purpose of
Rentals and Damages”. acquiring the ownership of the same by virtue of
a contract. Under Art. 1498 of the Civil Code,
Respondents, in their answer, countered when the sale is made through a public
that since 1938 up to the present, the lot in instrument, execution thereof shall be equivalent
question has been registered in the name of the to the delivery of the thing which is the object of
late Mariano Torres y Chavarria, their the contract, if from the deed the contrary does
predecessors-in-interest and that they have not appear or cannot be clearly inferred. Thus,
been in material possession thereof in the the execution of the contract is only a
concept of owners. Respondents maintain that presumptive, not conclusive delivery which can
they have been in open and peaceful be rebutted by evidence to the contrary, as
possession of the said property and that it was when there is failure on the part of the vendee to
only in 1993 when they came to know of the take material possession of the land subject of
alleged claim of petitioners over the same the sale in the concept of a purchaser-owner.
property.
In the case at bar, it is not disputed that
The trial court issued an order the lot in question was never delivered to
dismissing petitioner’s complaint on the ground petitioner notwithstanding the alleged execution
of prescription and laches. The Court of Appeals of a deed of absolute sale. Petitioner neither
likewise ruled that since petitioner’s cause of had, nor demanded, material possession of the
action is founded on the the deed of sale dated disputed lot. It was the respondents who have
September 29, 1972, being an action based on been in control and possession thereof in the
written contracts, petitioner’s complaint falls concept of owners since 1983 up to the present.
under Art. 1144 of the Civil Code which It follows that ownership of the lot was never
provides that an action upon a written contract transferred to petitioner. Hence, he cannot claim
shall prescribe in 10 years from the time the that the instant case is an action to recover
right of action accrued. Since petitioner brought ownership and full possession of the property
the instant case only on September 6, 1993 or which, in the first place, never came into his
21 years from the time his supposed right of possession for lack of requisite delivery. Clearly,
action accrued on September 29, 1972, i.e., the the case filed by petitioner was an action for
date of execution of the contract conveying him specific performance of a written contract of sale
the questioned lot, his action was clearly barred which, pursuant to Art. 1144 of the Civil Code,
by statute of limitations. Petitioner, on the other prescribes in 10 years from the accrual of the
hand, contends that the applicable provision is right of action. In the same vein, said action is
Art. 1141 and not Art.1144 of the Civil Code barred by laches having allowed 21 years to
because his action is one for recovery of lapse before enforcing his alleged right.
possession of real property which prescribes in
30 years.

Issue:

Whether or not petitioner’s action is


barred by prescription and laches

Held:

The action by petitioner is already


barred by prescription and laches.

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Perfecto Dy , Jr. vs. Court of Appeals

July 8, 1991
Third Division
Justice Gutierrez, Jr.

Facts:
Perfecto Dy and Wilfredo Dy are brothers.
Wilfredo Dy purchased a truck and a farm tractor
through financing extended by Libra Finance
and Investment Corporation. Both truck and
tractor were mortgaged to Libra as a security for
the loan.

The petitioner, Perfecto Dy, wanted to buy the


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tractor from his brother, therefore he wrote a right to sell it although he was under obligation
letter to Libra requesting that he be allowed to to secure the written contract of the mortgagee.
purchase from Wilfredo Dy the said tractor and And even if no consent was obtained from the
assume the mortgage debt from the latter. Libra, mortgagee, the validity of the sale would still not
thru its manager, approved the petitioner’s be affected.
request. Wilfredo executed a deed of absolute
sale in favor of Perfecto. Article 1496 of the civil code states that the
ownership of the thing sold is acquired by the
A PNB check was issued in favor of Libra, thus vendee from the moment it is delivered to him in
the indebtedness of Wilfredo with the financing any of the ways specified in Articles 1497 to
firm has bee settled. Libra insisted, however that 1501 or in any manner signifying an agreement
it be cleared first before Libra could release the that the possession is transferred from the
tractor in question. vendor to the vendee.

Meanwhile a civil case entitled ‘”Gelac Trading, The sale of the object tractor was consummated
Inc v. Wilfredo Dy was pending in another court upon the execution of the public instrument. At
in Cebu regarding a collection case to recover a this time constructive delivery was already
sum. Through an alias writ of execution, the effected. Hence, the subject tractor was no
sheriff was able to seize and levy on the tractor longer owned by Wilfredo Dy when it was levied
which was in the premises of Libra in Carmen, upon by the sheriff(Dy, Jr. vs. Court of Appeals).
Cebu. The tractor was subsequently sold at
public auction. The property was sold to Antonio
Gonzales. It was only when the check was
cleared that Perfecto learned about Gelac
having already taken custody of the subject
tractor.

Perfecto Dy filed and action to recover the


subject tractor against “Gelac Trading “ with the
RTC in Cebu City. RTC rendered judgment in
favor of Perfecto, pronouncing that Perfecto is
the owner of the tractor and directing Gelac
Trading Corporation and Antonio Gonzales to
return the same to Perfecto.

On appeal, the Court of Appeals reversed the


decision of the RTC and dismissed the
complaint. It held that the tractor in question still
belonged to Wilfredo Dy when it was seized and
levied by the sheriff by virtue of the alias writ of
execution.

Issue: Industrial Textile Manufacturing Company of


Whether or not the property(tractor) in question the Philippines, Inc. v. LPJ Enterprises, Inc.
belongs to the mortgagor upon the execution of
the chattel mortgage. January 21, 1993
Third Division
Ruling: Justice Melo
Petition granted. The decision of the Court of
Appeals was set aside. The decision of the trial Facts:
court was reinstated. The respondent LPJ Enterprises, Inc. had a
contract to supply 300,000 bags of cement per
Ratio: (Dy, Jr. vs. Court of Appeals) year to Atlas Consolidated Mining Development
The mortgagor who gave the property as Corporation. Cesar Campos, a Vice-President of
security under a chattel mortgage did not part petitioner Industrial Textile Manufacturing
with the ownership over the same. He had the Company of the Philippines(or Itemcop), asked
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Lauro Panganiban, Jr., president of respondent invoice or bill of sale that was complete in every
corporation, if he would like to cooperate in an aspect and purporting to embody a sale without
experiment to develop a plastic cement bags. condition or restriction constituted a contract of
The petitioner agreed to the offer. The sale or return. If the purchase desired to
experiment,however, was unsuccessful. Cement incorporate a stipulation securing to him the right
dust oozed out under pressure through the small of return , he should have done so at the time
holes of the woven plastic bags and the loading the contract was made. On the other hand, the
and the loading platform was filled with dust. buyer cannoy accept part and reject the rest of
The second batch o plastic bags subjected to the goods since this falls outside the normal
trial was likewise a failure. Although the weaving intent of the parties in the “on approval”
of the plastic bags was already tightened, situation.
cement dust still spilled through the gaps.
Therefore, we hold that the transaction between
Petitoner delivered the orders consecutively but the respondent and petitioner constituted an
the respondent only remitted a part of the total absolute sale. Accordingly, respondent is liable
amount leaving a balance of P84, 123.80 Thus, for the plastic bags delivered to it by
the legal department of the petitioner sent petitioner(Industrial Textile Manufacturing
demand letters to respondent corporation Company of the Phils. v. LPJ Enterprises, Inc,
pp 326-327).
On the trial, the respondent admitted its liability
covered by the first purchase. With respect to
the second, third, fourth purchase orders,
respondent, however, denied full responsibility.
Respondent said that it will pay for, only the
plastic bags actually used in packing cement.

The trial court rendered a decision sentencing


the defendant to pay the sum of P84, 123 with
corresponding interest.

The respondent corporation’s appeal was


upheld by the appellate court when it reversed
the trial court’s decision and dismissed the case
with costs against petitioner.

Issue:
Whether or not respondent may be held liable
for the plastic bags which were not actually
used for packaging cement as originally
intended.
Aerospace Chemical Industries, Inc vs. Court
Ruling: of Appeal, Philippine Phosphate Fertilizer
The decision appealed from is SET ASIDE and Corporation.
the decision of the trial court REINSTATED.
G.R. No. 108129. September 23, 1999.
Ratio: (Industrial Textile Manufacturing
Company of the Phils. v. LPJ Enterprises, Inc, QUISUMBING, J.:
pp 326-327)
FACTS: Petitioner Aerospace Industries
The provision in the Uniform Sales Act and the purchased five hundred (500) metric tons of
Uniform Commercial Code from which Article sulfuric acid from private respondent Philippine
1502 was taken, clearly requires an express Phosphate Fertilizer Corporation (Philphos).The
written agreement to make a sales contract agreement provided that the buyer shall pay its
either a “sale of return” or a “sale on approval”. purchases in Philippine Currency five days
Parol or extrinsic testimony could not be before the shipment date. Petitioner as buyer
admitted for the purpose of showing that an committed to secure the means of transport to

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pick-up the purchases from private respondents the performance of its obligation? Did private
load ports. Per agreement, 100 metric tons of respondent err in awarding damages to private
sulfuric acid should be taken from Basay Negros respondent?
Oriental storage tank, while the remaining 400
metric tons should be retrieve from Sangi, Cebu. RULING: Supreme Court ruled in sustaining the
decision of the Court of Appeals finding in favor
On August 6, 1986, private respondent Philphos of private respondent. SC held that petitioner
sent an advisory letter to petitioner to withdraw violated the subject contract of sale supported
the sulfuric acid purchased at Basay because by preponderant evidence. The contention that
private respondent has been incurring petitioner’s delay was caused by a storm or
incremental expenses of 2,000 for each delay in force majeure is untenable. The report revealed
shipment.On October 3, 1986, petitioner paid that the vessel chartered by petitioner is
Php 553,280 for 500 metric tons of sulfuric acid. unstable and incapable of carrying full load.
Despite of several repairs of the vessel, the
Petitioner charted the M/T Sultan Kayumanggi to vessel still failed to carry the whole metric tons
carry out the agreed volumes of freight form of sulfuric acid. Its unfortunate sinking was not
designated loading areas. The chartered vessel due to force majeure. Hence, the proximate
only withdrew 70 metric tons of sulfuric acid from cause of the delay of the petitioner cannot be
Basay because said vessel heavily tilted on its attributed due to force majeure but because of
port side. Because of this, the vessel underwent the chartered vessel contracted by petitioner to
repairs. carry out the sulfuric acid. Despite demands to
immediate replace M/T Sultan Kayumanggi,
Private respondents asked petitioners to retrieve petitioner did not comply.
the remaining sulphur in Basay tanks so that
said tanks are emptied before December 15, Moreover, because of petitioner delay in
1986.Private respondent said that if petitioner complying with its obligation to replace
will not comply petitioner will be charge storage immediately the defective chartered vessel
and consequential costs. Petitioner chartered despite several demand letters sent by private
another vessel after several demand of the respondent to it, the awarding of damages
private respondent. Hernandez, acting for the against the petitioner is justified .Petitioner in
petitioner, addressed a letter to private this case is guilty of delay. Since petitioner failed
respondent, commencing additional orders to to comply with its obligation under the contract it
replace its sunken purchases. Petitioner became liable for its shortcomings.
Counsel, Atty Santos, sent a demand letter to
private respondent for the delivery of the 272.49
MT of sulfuric acid or return the purchase price
of Php 307, 530.In reply, private respondent
instructed petitioner to lift remaining 30 MT of
sulfuric acid from Basay or pay maintenance
and storage expenses. Despite several
demands to deliver remaining sulfuric acids and
other counter demands also of private
Conchita Nool and Gaudencio Almojera vs.
respondents, petitioner filed a complaint for
Court of Appeals, Anacleto Nool and Emilia
specific performance and/or damages before the
Nebre.
RTC. Private respondent contends that it was
the petitioner who was remiss in the G.R. No.116635. July 24, 1997
performance of its obligation.
PANGANIBAN, J.:
The RTC ruled in favor of the petitioner. Upon
appeal, Court of Appeals reversed the decision FACTS: Two parcels of land are the subject of
of RTC, ruling in favor of the private respondent. dispute in this case. The first area was formerly
Hence, this petition owned by Victorino Nool and the other parcel of
land previously owned by Francisco Nool. Both
ISSUES: Whether or not respondent Court of parcels of land located in San Manuel, Isabela.
Appeals erred in holding that the petitioner Petitioner spouses Conchita and Gaudencio
committed breach of contract due to the delay in seek recovery of the parcel of land from

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defendant, Anacleto Nool, younger brother of sale of the parcels of land, such right to redeem
Conchita and Emilia, respondents in this case is also void. The petitioners in this case cannot
assert the right to repurchase the property with
Petitioners contend that they are the owners of the respondents, since respondent Anacleto
subject of land and that it bought the same from redeemed the property after the period of
Conchita’s brothers, Francisco and Victorino. redemption given to the petitioners. Thus, the
Because they are in need of money, they ownership of the parcels of land was transferred
applied and were granted of a loan by DBP, already to DBP and then conveyed to
secured by real estate mortgage on the said Respondent upon buying the said property to
parcels of land. The title of the lands then was DBP.
still in the names of the previous owners. Since
the petitioners defaulted in paying the loan the Moreover, respondent cannot be estopped from
mortgaged lands were foreclosed. The raising the defense of nullity of contract, since
ownership of the lands was conveyed with DBP they acted in good faith, believing that
for being the highest bidder in the auction sale. petitioners are still the owners of the parcels of
As requested by Conchita, Anacleto, brother of land. Article 1410 of the Civil Code provides that
Conchita redeemed the foreclosed property with the action or defense for the declaration of the
DBP; as a result, the titles of two parcels of were inexistence of a contract does not prescribe.
transferred to Anacleto. That as part of their Thus, respondent Anacleto can impugn the
agreement (Conchita and Anacleto), Anacleto nullity of the agreement at anytime.
agreed to buy from the petitioners the parcels of
land for 100,000, 30,000 of which price is paid to
Conchita and upon payment of 14, 000
petitioners were to regain possession of the two
parcel of land. which defendants failed to pay.
Because of this another agreement was entered
into by the parties, whereby respondents agreed
to return the parcels of land at anytime when the
petitioners have the necessary amount, When
petritioners asked to return the parcels of land,
respondents refused to return the same. Hence,
petitioners filed this complaint to seek recovery
of the disputed land.

Lower court ruled in favor of the respondents.


Court of Appeals affirmed Lower Court Decision.
Hence this petition

ISSUES: Whether or not the agreement entered


into by the parties (Petitioners and respondents)
with respect to the sale and period of
redemption of the parcels of land valid and
enforceable? Whether or not the Respondent is
estopped in impugning the validity of the
Semira vs. Court of Appeals
agreement with the petitioner?
March 2, 1994 G.R. No. 76031
RULING: Supreme Court ruled affirming the
decision of the Court of Appeals and the Lower First Division
Court. The SC held that the sellers (petitioners)
no longer had any title to the parcels of land at Bellosillo, J.
the time of sale. And since delivery is not
possible in this case without transferring Facts:
ownership of such parcels of land, the contract
of sale between petitioners and respondent is
void. Further since the right to redeem the
property is dependent upon the validity of the Juana Guitierrez sold a parcel of land, lot 4221,

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to Buenaventura An by a deed of sale. Th are which thereafter became a subject of a suit for
stated in the deed was an estimated area of annulment of documents. The RTC rendered
822.5 square meters and the boundaries of the judgment approving the Compromise Agreement
lot. Subsequently, Buenaventura An sold the submitted by the parties. Gloria Villafania was
said lot to his nephew who in turn sold the lot to given one year to buy back the house and lot
petitioner with the very same boundaries which she failed to do so. However, unknown to
mentioned in the deed of sale executed in his Rosenda and Rosita, Gloria has a crtificate title
favor by his uncle Buenaventura An. of the lot. 4 years after the 1st sale, Gloria again
sold the said lot to Romanda de Vera and a TCT
was issued to her. Rosita and Rosenda then
filed for the annulment of the documents and
Petitioner claims that he owns the entire 2,200 damages.
square meters since it is the size of Lot 4221
following its established boundaries. On the Issue: Who between the petitioner and
other hand, private respondent insists that he respondent has a better right to the property?
only sold 822.5 square meters, hence, his
nephew could not have transferred a bigger area Ruling: Denied.
to petitioner.
The law provides that a double sale of
immovables transfers ownership to (1) the first
registrant in good faith; (2) then, the first
Issue: Is the sale of Lot 4221 includes the whole possessor in good faith; and (3) finally, the buyer
1, 377 square meters or the estimated 822.5 who in good faith presents the oldest title.
square meters? Section 51 of PD 1529 provides that no deed,
mortgage, lease or other voluntary instrument --
except a will -- purporting to convey or affect
registered land shall take effect as a
Ruling: Reversed and set aside. Reinstating the conveyance or bind the land until its registration.
decision of MCTC dated May 4, 1983.

Knowledge gained by the first buyer of the


Where land is sold for a lump sum and not so second sale cannot defeat the first buyer’s rights
much per unit of measure or number, the except where the second buyer registers in good
boundaries of the land stated in the contract faith the second sale ahead of the first, as
determine the effects and scope of the sale, not provided by the Civil Code. A person dealing
the area thereof. The vendors are obligated to with registered land is not required to go behind
deliver all the land included within the the registry to determine the condition of the
boundaries, regardless of whether the real area property, since such condition is noted on the
should be greater or smaller than that recited in face of the register or certificate of title.[36]
the deed. This is particularly true where the area Following this principle, this Court has
is described as "humigit kumulang," that is, more consistently held as regards registered land that
or less. This is particularly true where the area is a purchaser in good faith acquires a good title as
described as "humigit kumulang," that is, more against all the transferees thereof whose rights
or less. are not recorded in the Registry of Deeds at the
time of the sale.
Abrigo vs. De Vera
SPOUSES TOMAS OCCEÑA and SILVINA
June 21, 2004 G.R. No.
OCCEÑA vs. LYDIA MORALES OBSIANA
154409First Division
ESPONILLA
Panganiban ,J.
June 4, 2004 G.R. No. 156973
Facts: Second Division

Gloria Villafania sold a house and lot to PUNO, J.:


Rosenda Tigno-Salazar and Rosita Cave-Go
Facts:

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Spouses Nicolas and Irene Tordesillas owned a there be no inscription, the ownership shall
piece of land which their children Harod, Angela pertain to the person who in good faith was first
and Rosario, and grandchildren Arnold and Lilia in possession; and, (3) in the absence thereof,
de la Flor inherited. The heirs sold a part of the to the person who presents the oldest title,
land to Alberta Morales. Morales possessed the provided there is good faith.
lot as owner, constructed a house on it and
appointed a caretaker to oversee her property. In all cases, good faith is essential. It is
Arnold borrowed the Original Certificate of Title the basic premise of the preferential rights
(OCT) from Alberta covering the lot. Then, he granted to the one claiming ownership over an
executed an Affidavit acknowledging receipt of immovable. What is material is whether the
the OCT in trust and undertook to return said second buyer first registers the second sale in
title free from changes, modifications or good faith, i.e., without knowledge of any defect
cancellations. However, Arnold used the OCT in the title of the property sold. The defense of
he borrowed from the vendee Alberta Morales, indefeasibility of a Torrens title does not extend
subdivided the entire lot into three sublots, and to a transferee who takes the certificate of title in
registered them all under his name. Arnold did bad faith, with notice of a flaw.
not return the OCT belonging to Alberta despite
repeated requests. Arnold subsequently sold the Indeed, the general rule is that one who
land to spouses Tomas and Sylvina Occeña. deals with property registered under the Torrens
When the respondent heirs of Alberta learned of system need not go beyond the same, but only
the sale, they filed a case for annulment of sale has to rely on the title. He is charged with notice
and cancellation of titles, with damages, against only of such burdens and claims as are
the Occeña spouses, alleging bad faith since the annotated on the title. However, this principle
Occeñas conducted ocular inspection of the does not apply when the party has actual
area before the purchase and their caretaker knowledge of facts and circumstances that
warned them that Arnold is no longer the owner would impel a reasonably cautious man to make
of the lot being sold. On the other hand, the such inquiry or when the purchaser has
Occeña spouses alleged that they were buyers knowledge of a defect or the lack of title in his
in good faith as the titles to the subject lots were vendor or of sufficient facts to induce a
free from liens or encumbrances when they reasonably prudent man to inquire into the
purchased them, that they verified with the status of the title of the property in litigation. One
Antique Registry of Deeds that Arnold’s TCTs who falls within the exception can neither be
were clean and unencumbered. Lower court denominated an innocent purchaser for value
declared the Occeña spouses as buyers in good nor a purchaser in good faith.
faith and ruled that the action of the heirs was
time-barred. Court of Appeals reversed the
decision of the trial court. Hence the petition.

Issue: Whether or not a purchaser of a


registered land is obliged to make inquiries of
any possible defect or adverse claim which does
not appear on the Certificate of Title

SPOUSES ISABELO and ERLINDA


PAYONGAYONG, vs.
Ruling: Petition dismissed.
HON. COURT OF APPEALS,
The petition at bar presents a case of
double sale of an immovable property. Article
1544 of the New Civil Code provides that in case May 28, 2004 G.R. No. 144576
an immovable property is sold to different Third Division
vendees, the ownership shall belong: (1) to the
person acquiring it who in good faith first
recorded it in the Registry of Property; (2) should

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CARPIO MORALES, J.: Registry of Deeds of Quezon City if Mendoza
was indeed the registered owner. Given this
factual backdrop, respondents did indeed
purchase the property in good faith and
Facts: Eduardo Mendoz is the registered owner accordingly acquired valid and indefeasible title
of a parcel of land in Caloocan. He mortgaged thereto.
the land to the Meralco Employees Savings and
Loan Association (MESALA) to secure a loan.
The law is thus in respondents’ favor. Article
The mortgage was duly annotated on the title.
1544 of the Civil Code so provides:
After 2 years, Mendoza executed a Deed of Sale
with Assumption of Mortgage over the parcel of
land in favor of spouses Payongayong. It is Art. 1544. If the same thing should have
stated in the deed that petitioners bound been sold to different vendees, the
themselves to assume payment of the balance ownership shall be transferred to the
of the mortgage indebtedness of Mendoza to person who may have first taken
MESALA. Mendoza, without the knowledge of possession thereof in good faith, if it
petitioners, mortgaged the same property to should be movable property.
MESALA, again to secure another loan. Second
mortgage was annotated in Mendoza’s title. Should it be immovable property, the
Mendoza executed a Deed of Absolute Sale ownership shall belong to the person
over still the same property in favor of acquiring it who in good faith first
respondent spouses Clemente and Rosalia recorded it in the Registry of Property.
Salvador. Spouses Salvador had the lot
registered in their name after ocular inspection Should there be no inscription, the
and verification from the Register of Deeds. ownership shall pertain to the person
Getting wind of the sale of the property to who in good faith was first in the
respondents, Payongayong filed for annulment possession; and, in the absence thereof,
sale with damages against Mendoza and to the person who presents the oldest
spouses Salvador. Trial Court ruled in favor of title, provided there is good faith.
Mendoza and Salvador. CA affirmed. Hence the
petition. There being double sale of an
immovable property, as the above-quoted
provision instructs, ownership shall be
Issue: Whether or not spouses Salvador are transferred (1) to the person acquiring it who in
innocent purchasers for value good faith first recorded it in the Registry of
Property; (2) in default thereof, to the person
who in good faith was first in possession; and (3)
in default thereof, to the person who presents
Held: Petition denied. the oldest title, provided there is good faith.

Where innocent third persons rely upon


the correctness of a certificate of title and
acquire rights over the property, the court cannot
just disregard such rights. Otherwise, public
confidence in the certificate of title, and Isabela Colleges, Inc. vs. Heirs of Nieves
ultimately, the Torrens system, would be Tolentino–Rivera
impaired, for everyone dealing with registered
property would still have to inquire at every October 20, 2000 G.R. No.132677
instance whether the title has been regularly or Second Division
irregularly issued.28 Ponente: Justice Mendoza

Facts: The late Nieves Tolentino-Rivera and her


In respondents’ case, they did not only
husband, Pablo Rivera, were married in 1921.
rely upon Mendoza’s title. Rosalia personally
Nieves, still using her maiden name, filed an
inspected the property and verified with the
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application for a sales patent over a 13.5267- the government during her marriage with Pablo
hectare land in Cauayan, Isabela. Her Rivera out of conjugal funds;
application was approved and a sales patent 2.) Nieves’ signature in the questioned deed of
was issued in the name of “Nieves Tolentino, sale is forged;
married to Pablo Rivera”. 3.) laches cannot defeat that claim of a
registered property owner despite the long delay
The above said spouses sold to petitioner of 41 years.
Isabela four hectares of their land, which was
thereafter immediately occupied by the petitioner Ruling: Wherefore the decision of the Court of
and used the same as its new campus. Since Appeals is REVERSED.
1950, the Isabela Colleges declared the land for
tax purposes, but it did not immediately secure a Issue 1: Both the acquisition of the 13-hectare
separate title to the property. It was only on land and the sale of a portion thereof to
January 13, 1970 when it secured a title to the petitioner in 1949 took place when the Spanish
land. Civil Code was still in effect. Under Article 1407
of that code, the property of the spouses are
In December 1976, the Office of the Register of deemed conjugal partnership property in the
Deeds of Isabela was burned. Among the titles absence of proof that it belongs exclusively to
destroyed was that of the Isabela Colleges one or the other spouse. This presumption
which was however administratively arises with respect to property acquired during
reconstituted in 1978. the marriage. It is not necessary to prove that
the property was acquired with conjugal funds.
In January 1988, certain people entered the
property of Isabela Colleges, prompting the Indeed, other than its finding that Nieves was
latter to bring an action for forcible entry. The already in possession of the land and applied for
Municipal Trial Court of Cauayan, Isablela a sales patent before she married Pablo Rivera,
rendered a decision ordering the intruders to the Court of Appeals cited no other evidence to
vacate the land in question. prove that the land was her paraphernal
property. On the contrary, the evidence clearly
In 1991, Nieves brought the present suit against shows that the land was acquires during her
the Isabela Colleges for “Nullity of Titles, Deeds marriage with Pablo Rivera.
of Sale, Recovery of Ownership and
Possession, Cancellation of Titles, Damages Issue 2: The fact that Nieves Tolentino’s
with Preliminary Injunction.” In its Answer, the signature in the deed of sales is a forgery does
Isabela Colleges asserted that the property in not, however, render the deed of sale void. The
question had been sold to it with the knowledge land was conjugal property and under the
and consent of Nieves who in fact signed the Spanish Civil Code, the wife’s consent to the
deed of sale. Moreover, herein petitioner sale is not required. Therefore, that her
contends that the complaint was barred by signature is a forgery is determinative only of
prescription and/or laches. Nieves’ lack of consent but not of the validity of
the sale.
Two complaints-in-intervention were allowed by
the trial court. The intervenors, who were the As the husband may validly sell or dispose of
parties in the ejectment suit, claimed to be conjugal property even without the wife’s
buyers in good faith or lessees of Nieves as to consent, the absence of the wife’s consent alone
certain portions of the subject land. does not make the sale “in fraud” of her.

During the pendency of this case Nieves died Issue 3: Nonetheless while it is true that a
and her heirs substituted her. On September 30, Torrens title is indefeasible and imprescriptible,
1994, the trial court rendered its decision, ruling the registered owner may lose his right to
in favor of Isabela Colleges. On Appeal, its recover possession of his registered property by
decision was reversed. Hence, this petition. reason of laches.

Issue: Whether the Court of Appeals erred in Laches means the failure or neglect for an
ruling that: unreasonable and unexplained length of time to
1.) the subject property is paraphernal despite do that which, by observance of due diligence,
Nieves’ admission that it was purchased from could or should have been done earlier. It is
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negligence or omission to assert a right within a
reasonable time, warranting the presumption
that the party entitled to assert his right either
has abandoned or declined to assert it.

So it is in the present case where the complaint


questioning the validity of the sale to petitioner
Isabela Colleges was filed only after 42 years
had lapsed. Respondents could not feign
ignorance of the sale because petitioner had
been in open, public, and continuous possession
of the land, which it had used as its school
campus since 1949.

Bayoca vs. Nogales

September 12, 2000 G.R.No.138201


Third Division
Ponente: Justice Gonzaga-Reyes

Facts: Gaudioso Nogales acquired ownership


over the subject property on the basis of the
Compromise Agreement and the Deed of
Absolute Sale executed by Julia Deocareza who
had acquired of said property from the Canino

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brothers and sisters. However, Preciosa Canino Should it be immovable property, the
subsequently sold at different times portions of ownership shall belong to the person acquiring it
the subject property to herein petiitoners, who in good faith first recorded it in the Registry
Francisco Bayoca, Nonito Dichoso, Erwin of Property.
Bayoca, and spouses Pio and Dolores Dichoso.
Should there be no inscription, the
The Appellee, filed complaint against the ownership shall pertain to the person who in
Appellants for “Accion Reinvindicatoria with good faith was first in possession; and in the
Damages.” He alleged in his complaint, that he absence thereof, to the person who presents the
purchased the said property from Julia Decareza oldest title, provided there is good faith.”
and thus acquired ownership thereof and that
the Appellants respectively purchased portions Based on the foregoing, to merit the protection
of said property in bad faith and through fraud. under Article 1544, second paragraph, the
The Appellants, in their Answer to the complaint, second buyer must act in good faith in
alleged that Preciosa Canino and her siblings registering the deed. Thus, It has been held that
acquired just title over the property when they in cases of double sale of immovables, what
executed their “Deed of Partition of Real finds relevance and materiality is not whether or
Property” and conveyed titles to the vendees, not the second buyer was a buyer in good faith
the Appellants in the present recourse, as but whether or not said second buyer registers
buyers in goof faith. such second sale in good faith, that is, without
knowledge of any defect in the title of the
The Regional Trial Court ruled in favor of property.
Nogales and declared that the sales of portions
of said property by Preciosa Canino were null On account of the undisputed fact of registration
and void. The trial court further declared further by respondent Nogales as the first buyer,
that petitioners were purchasers in bad faith. necessarily, there is absent good faith in the
registration of the sale by the petitioners Erwin
On appeal, the court of Appeals affirmed the Bayoca and the spouses Pio and Lourdes
RTC ruling. Hence this petition. Dichoso for which they had been issued
certificates of title in their names. As for the
Issue: Who has the superior right to the parcel petitioners Francisco Bayoca and Nonito
of land sold to different buyers at different times Dichoso, they failed to register the portions of
by its former owners? the property sold to them, and merely rely on the
fact that they declared the same in their name
Ruling: Petition is hereby DENIED and the for taxation purposes. Suffice it to state, that
assailed DECISION of the Court of Appeals is such fact, does not, by itself, constitute evidence
AFFIRMED. of ownership and cannot likewise prevail over
the title of respondent Nograles.
There is no question from the records that
respondent Nogales was the first to buy the
subject property from Julia, who in turn bought
the same from the Canino brothers and sisters.
Petitioners, however, rely on the fact that they
were the first to register the sales of the different
portions of the property resulting in the issuance
of new titles in their names.
SPOUSES FLORENDO DAUZ and HELEN
Article 1544 of the Civil Code governs the DAUZ, et al. v. SPOUSES ELIGIO and
preferential rights of vendees in cases of LORENZA ECHAVEZ and the COURT OF
multiple sales, as follows: APPEALS

“Art. 1544. If the same thing should have been G.R. No. 152407, 21 September 2007,
sold to different vendees, the ownership shall be SANDOVAL-GUTIERREZ, J.
transferred to the person who may have first
taken possession thereof in good faith, if it
should be movable property. Spouses Albert Oguis, Sr. and Florencia

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Refuerzo Oguis sold a portion of the land to HELD:
respondents spouses Eligio and Lorenza
Echavez. On April 1, 1982, they had the sale Petition DENIED.
registered in the Registry of Deeds of Benguet.
Spouses Oguis later on sold the remaining RATIO:
portion of the land to the same respondents, but
the land was not registered. Article 1544 of the Civil Code is
relevant, thus:

Albert Oguis, Sr. and his two children


Albert Oguis, Jr. and Helen Oguis Valerio, Article 1544. If the same thing
executed a Deed of Extrajudicial Settlement of should have been sold to different
Estate. On the same date, they sold to spouses vendees, the ownership shall be
Florendo and Helen Dauz, petitioners, a portion transferred to the person who may
of the land as shown by a Deed of Absolute have first taken possession thereof in
Sale. Albert Oguis, Sr. informed petitioners that good faith, if it should be movable
he had sold only a portion to respondents. property.

Petitioners then filed with the Regional Should it be immovable


Trial Court (RTC) of Baguio and Benguet a property, the ownership shall belong
Petition for the Issuance of a New Duplicate to the person acquiring it who in
Copy of TCT No. T-13728. good faith first recorded it in the
Registry of Property.

Respondents had the sale to them of


the remaining 7,616 square meters portion of Should there be no inscription,
the land registered in the same Registry of the ownership shall pertain to the
Deeds. Consequently, the title in the names of person who in good faith was first in
spouses Oguis was cancelled and in lieu possession; and, in the absence
thereof, a new title was issued in respondents’ thereof, to the person who presents
names. The new title covers the entire property the oldest title, provided there is good
previously owned by spouses Oguis. faith.

Meanwhile, petitioners sold to spouses In April 1982, respondents caused the


Ignacio and Francisca Reambonanza, also registration of the sale of the 1,295-square
petitioners, a portion sold to them by Albert meter portion of the land; and on January 25,
Oguis, Sr. and his two children. Petitioners, 1989, the sale of the remaining 7,616 square
then filed with the RTC, a complaint for meters in the Registry of the Deeds. Petitioners
declaration of ownership. The trial court (spouses Dauz), on the other hand, failed to
dismissed the petition. The Court of Appeals cause the registration of the sale to them in the
affirmed RTC’s decision. Registry of Deeds. Where both parties claim to
have purchased the same property, as in this
case, Article 1544 cited above provides that as
between two purchasers, the one who registered
ISSUE: the sale in his favor has a preferred right over
the other who has not registered his title, even if
WHETHER THERE WAS BAD FAITH the latter is in actual possession of the
ON THE REGISTRATION OF THE LAND BY immovable property
THE RESPONDENTS

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Nonetheless, we still perused the
records and found that there is no evidence
showing that respondents acted in bad faith. In
China Airlines, Ltd. v. Court of Appeals, we held
that bad faith does not simply connote bad
judgment or negligence. It imports a dishonest
purpose or some moral obliquity and conscious
doing of a wrong. It means breach of a known
duty through some motive, interest or ill will that
partakes of the nature of fraud. These incidents
or circumstances are not present here.
Respondents did not immediately register the
sale because they waited for spouses Oguis to
repurchase the property. In fact, it was Albert
Oguis, Sr. himself who requested them not to
cause the registration of the sale.

CHINA AIRLINES, LTD. v. COURT OF


APPEALS, ANTONIO S. SALVADOR and
ROLANDO C. LAO

G.R. No. 129988, 14 July 2003, CARPIO, J.

Private respondents planned to travel to


Los Angeles, California. They initially engaged

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the services of Morelia Travel Agency (Morelia), destination, and (2) a contract to transport
which booked them with petitioner China Airlines passengers to their destination. In this case,
Ltd (CAL). However, private respondents when CAL confirmed the reservations, it bound
decided to drop the services of Morelia, as the itself to transport private respondents on its flight
American Express Travel Service Philippines on 13 June 1990.
(Amexco) offers cheaper rates, and engage the
services of the latter. The airline business is intended to serve
the traveling public primarily and is thus imbued
Lao then called Amexco and gave the with public interest. The law governing common
tire record locator number if booking reference carriers consequently imposes an exacting
that CAL had previously issued to Morelia when standard. Thus, in an action based on a breach
Morelia booked the reservations of the private of contract of carriage, the aggrieved party does
respondents. In the afternoon of the same day, not have to prove that the common carrier was
Amexco called up CAL to finalize private at fault or was negligent. All that he has to prove
respondents' reservation for CAL's 13 June is the existence of the contract and the fact of its
1990 flight. Amexco used the record locator non-performance by the carrier.
number given by Lao in confirming the
reservations of private respondents. CAL CAL does not deny its confirmation of
confirmed the booking. Amexco then issued to the reservations made by Amexco. The
private respondents the confirmed tickets for the confirmed tickets issued by Amexco to private
13 June 1990 flight of CAL. On the same day, respondents upon CAL's confirmation of the
CAL called up Morelia to reconfirm the reservations are undeniable proof of the contract
reservations of private respondents. Morelia of carriage between CAL and private
cancelled the reservations of private respondents. In Alitalia Airways v. CA, et al., we
respondents. held that when an airline issues a ticket to a
passenger confirmed for a particular flight on a
On the day of the flight, the private certain date, a contract of carriage arises. The
respondents were not able to board the plane passenger then has every right to expect that he
since their names were not on the passengers’ would fly on that flight and on that date. If he
list. CAL cancelled the reservations when does not, then the carrier opens itself to a suit
Morelia revoked the booking it had made for the for breach of contract of carriage.
private respondents. Hence this petition.
CAL did not allow private respondents,
ISSUE: who were then in possession of the confirmed
tickets, from boarding its airplane because their
Whether the petitioner is liable despite names were not in the passengers' manifest.
the fact that such acts complained of were acts Clearly, CAL breached its contract of carriage
done by its employees with private respondents. We, however, rule out
bad faith by CAL.

HELD:

SPOUSES SALERA vs SPOUSES RODAJE


Petition DENIED.
G.R. No. 135900 17 August 2007

RATIO: Ponente: Justice Sandoval – Gutierrez, First


Division

Facts: Spouses Salera filed an action for


quieting of title regarding a parcel of land in
The nature of an airline's contract of
Brgy. Basud, San Isidro, Leyte. The land was
carriage partakes of two types, namely: (1) a
bought from the heirs of Brigido Tonacio as
contract to deliver a cargo or merchandise to its
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evidenced by the Deed of Absolute Sale single vendor sold one and the same immovable
executed on June 23, 1986. They allege that property to two or more buyers. Art. 1544 does
they have been in possession of the property not apply in this case since the sale was made
and the house they built thereon because they by Catalino and the heirs of Brigido.
had paid the purchase price even before the
execution of the deed of sale. When they asked Bad faith was established in the RTC. The
the Provincial Assessor to declare the property evidence submitted to the court, established that
under their names for taxation purposes, they Spouses Rodaje knew beforehand that the
found that Tax Declaration No. 2994 (R-5) in property was declared in the name of Brigido
the name of Brigido was already cancelled and Tonacao for taxation purposes. Any lot buyer is
another one, Tax Declaration No. 2408, was expected to be vigilant, exercising utmost care in
issued in the names of Spouses Rodaje. determining whether the seller is the true owner
of the property and whether there are other
Spouses Rodaje claimed that they bought the claimants. There is no indication from the
land from Catalino Tonacio, father of Brigido on record that Rodaje first determined the status of
June 6, 1986 and that the sale was registered the lot.
with the Register of Deeds and the Tax
Declaration No. 2408 was issued in their name. While tax declarations are not conclusive proofs
They also claimed that they had a verbal of ownership, however, they are good indicia of
contract with Catalino even before the execution possession in the concept of owner, for no one
of the sale since January 1984. They paid a in his right mind would be paying taxes for a
downpayment of P1,000 and paid the balance of property that is not in his actual or at least
P4,000 when the sale was executed. They constructive possession. Hence, Catalino, not
allege that they been in exercising their right of being the owner or possessor, could not validly
ownership over the property and the building sell the lot to respondents.
constructed thereon peacefully, publicly,
adversely and continuously. Apart from being The certification presented by respondents
the first registrants, they are buyers in good clearly shows that the house is owned by Aida
faith. Salera and that respondents started paying the
electric bills (in the name of Aida Salera) only in
RTC of Calubian, Leyte declared Spouses 1986. The respondents proof of payment of
Salera as the rightful and legal owners while realty tax from the period of 1974 to 1984 was
declaring null and void the Deed of Absolute paid in lump sum.
Sale between Catalino and herein respondents
and ordering the cancellation of Tax Declaration (Petition is GRANTED. The assailed Decision
No. 2408 issued. The court cited that the real of the Court of Appeals is REVERSED and the
owners of the land, by operation of the law on Decision of the trial court is REINSTATED.)
succession would be the heirs of Brigido and not
his father. Catalino had no legal personality to
sell the parcel of land.

The Court of Appeals reversed and set aside the


decision of the RTC. It based its decision on the
Civil Code provision on double sale.

Issue: Which of the two contracts of sale is URACA, et al. vs CA and VELEZ, JR., et al.
valid?
G.R. No. 115158 September 5,
Held: Sale made by the heirs of Brigido 1997
Tonacao to the spouses Salera is valid. Sale
made by Catalino to spouses Rodaje is invalid. Ponente: Justice Panganiban, Third Division

The Court of Appeals is wrong. Article 1544 of Facts: The Velezes were the owners of the lot
the Civil Code contemplates a case of double and commercial building in question located at
sale or multiple sales by a single vendor. Progreso and M.C. Briones Streets in Cebu City.
More specifically, it covers a situation where a The petitioners were its lessees.
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perfected contract of sale of the property for
On July 8, 1985, the Velezes through Carmen P1,050,000.00 between the Velezes and herein
Velez Ting wrote a letter to petitioners offering to petitioners. It added, however, that such
sell the subject property for P1,050,000.00 and perfected contract of sale was subsequently
to reply within three days. Petitioners, through novated. However, it was mutually withdrawn,
counsel, accepted the offer. cancelled and rescinded by novation, and was
therefore abandoned by the parties when
When Uraca went to Ting, Ting told her that Carmen Velez Ting raised the consideration of
there was a mistake in the price. It should have the contract by P350,000.00, thus making the
been P1.4M, Uraca agreed to the new price to price P1.4M instead of the original price of
be payable in installments with a down payment P1,050,000.00. Since there was no agreement
of P1M and the balance of P400,000 to be paid as to the 'second' price offered, there was no
in 30 days. Carmen Velez Ting did not accept meeting of minds between the parties, hence, no
the said counter-offer of Emilia Uraca although contract of sale was perfected.
this fact is disputed by Uraca.
CA added that, even if there was agreement as
No payment was made by to the Velezes on to the price and a second contract was
July 12 and 13, 1985. On July 13, 1985, the perfected, the later contract would be
Velezes sold property to Avenue Merchandising unenforceable under the Statute of Frauds. It
Inc. for P1,050,000.00. The certificate of title of further held that such second agreement, if there
the said property was clean and free of any was one, constituted a mere promise to sell
annotation of adverse claims or lis pendens. which was not binding for lack of acceptance or
a separate consideration.
On July 31, 1985, petitioners filed the instant
complaint against the Velezes. On August 1, Issues:
1985, they also registered a notice of lis 1.) Was there novation of the first contract?
pendens over the property in question with the 2.) Was there a double sale of the real
Office of the Register of Deeds. property involved?

On October 30, 1985, the Avenue Group filed an Held:


ejectment case against petitioners ordering the
latter to vacate the commercial building standing On Novation
on the lot in question.
Novation is never presumed; it must be
Petitoners filed an amended complaint sufficiently established that a valid new
impleading the Avenue Group as new agreement or obligation has extinguished or
defendants after about 4 years after the filing of changed an existing one. The registration of a
the original complaint. later sale must be done in good faith to entitle
the registrant to priority in ownership over the
RTC found two perfected contracts of sale vendee in an earlier sale.
between the Velezes and the petitioners
involving the real property in question. The first Article 1600 of the Civil Code provides that
sale was for P1,050,000.00 and the second was "(s)ales are extinguished by the same causes as
for P1,400,000.00. In respect to the first sale, all other obligations, . . . ." Article 1231 of the
the trial court held that "[d]ue to the unqualified same Code states that novation is one of the
acceptance by the plaintiffs within the period set ways to wipe out an obligation. Extinctive
by the Velezes, there consequently came about novation requires: (1) the existence of a
a meeting of the minds of the parties not only as previous valid obligation; (2) the agreement of all
to the object certain but also as to the definite the parties to the new contract; (3) the
consideration or cause of the contract. The extinguishment of the old obligation or contract;
second sale merely constituted a mere and (4) the validity of the new one.
modificatory novation which did not extinguish
the first sale. It also held that the Avenue Group Novation is effected only when a new contract
were buyers in bad faith. has extinguished an earlier contract between the
The Court of Appeals held that there was a same parties. It must be proven as a fact either

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by express stipulation of the parties or by the consideration to be paid under par. 2 of the
implication derived from an irreconcilable disposition is P1,050,000.00 and not
incompatibility between old and new obligations P1,400,000.00.)
or contracts.

The petitioners and the Velezes clearly did not


perfect a new contract because the essential
requisite of consent was absent, the parties
having failed to agree on the terms of the
payment. Since the parties failed to enter into a
new contract that could have extinguished their
previously perfected contract of sale, there can
be no novation of the latter. Consequently, the
first sale of the property in controversy, by the
Velezes to petitioners for P1,050,000.00,
remained valid and existing.

On Double Sale

Prior registration of the disputed property by the


second buyer does not by itself confer
ownership or a better right over the property.
Article 1544 requires that such registration must
be coupled with good faith.

Knowledge gained by the first buyer of the


second sale cannot defeat the first buyer's rights
except where the second buyer registers in
good faith the second sale ahead of the first, as
provided by the Civil Code.

Knowledge gained by the second buyer of the


first sale defeats his rights even if he is first to
register the second sale, since such knowledge
taints his prior registration with bad faith (Art.
1544).

The Avenue Group was a buyer and registrants


in bad faith. They had actual knowledge of the
Velezes' prior sale of the same property to the
petitioners.

Hence, the third and not the second paragraph


of Article 1544 should be applied to this case.
Under this provision, petitioners are entitled to
the ownership of the property because they
were first in actual possession, having been the BINALBAGAN TECH., INC. vs. COURT OF
property's lessees and possessors for decades APPEALS
prior to the sale.
G.R. No. 100594 March 10, 1993
(219SCRA777)
(The petition is GRANTED. The assailed
Decision of the Court of Appeals is hereby SET Third Division
ASIDE and the dispositive portion of the trial
MELO, J.:
court's decision dated October 19, 1990 is
REVIVED with the following MODIFICATION —
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When the Supreme Court dissolved the
aforesaid injunction issued by the Court of
Facts: On May 11, 1967, private respondents, Appeals, possession of the building and other
through Angelina P. Echaus, in her capacity as property was taken from petitioner Binalbagan
Judicial Administrator of the intestate estate of and given to the third-party claimants, the de la
Luis B. Puentevella, executed a Contract to Sell Cruz spouses. Petitioner Binalbagan transferred
and a Deed of Sale of 42 subdivision lots within its school to another location.
the Phib-Khik Subdivision of the Puentevella
family, conveying and transferring said lots to After petitioner Binalbagan was again
petitioner Binalbagan Tech., Inc. In turn placed in possession of the subdivision lots,
Binalbagan, through its president, petitioner private respondent Angelina Echaus demanded
Hermilo J. Nava, executed an Acknowledgment payment from petitioner Binalbagan for the
of Debt with Mortgage Agreement, mortgaging subdivision lots, enclosing in the letter of
said lots in favor of the estate of Puentevella. demand a statement of account as of
September 1982 showing a total amount due of
Upon the transfer to Binalbagan of titles P367,509.93, representing the price of the land
to the 42 subdivision lots, said petitioner took and accrued interest as of that date.
possession of the lots and the building and
improvements thereon. Binalbagan started As petitioner Binalbagan failed to effect
operating a school on the property from 1967 payment, Echaus filed on October 8, 1982 Civil
when the titles and possession of the lots were Case No. 1354 with the RTC in Himamaylan,
transferred to it. Negros Occidental against petitioners for
recovery of title and damages. Echaus filed an
There was a pending case involving the said amended complaint by including her mother,
property. The intestate estate of the late Luis brothers, and sisters as co-plaintiffs.
B. Puentevella sold said lots to Raul
Javellana with the condition that the vendee- The trial court rendered a decision in
promisee would not transfer his rights to favor of the defendants.
said lots without the express consent of
Puentevella and that in case of the Private respondents appealed to the CA
cancellation of the contract by reason of the which reversed and set aside the appealed
violation of any of the terms thereof, all decision.
payments therefore made and all
improvements introduced on the property Thus, this petition for review on
shall pertain to the promissor and shall be certiorari wherein petitioners assign the following
considered as rentals for the use and alleged errors of the Court of Appeals:
occupation thereof. Javellana having failed
to pay the installments for a period of five
years, the case was filed by defendant
Issue: Whether private respondents' cause of
Puentevella against him. Judgment was
action in Civil Case No. 1354 is barred by
rendered in favor of Puentevella. Plaintiffs in
prescription.
the instant case on appeal filed their Third-
Party Claim based on an alleged Deed of
Sale executed in their favor by spouses
Jose and Lolita Lopez, thus Puentevella was Ruling: Petition is DENIED and the decision of
constrained to assert physical possession of the Court of Appeals in CA-G.R. CV No. 24635
the premises to counteract the fictitious and is AFFIRMED.
unenforceable claim of herein plaintiffs.
A party to a contract cannot demand
CA issued a writ of preliminary injunction, thus,
performance of the other party's obligations
defendant Puentevella was restored to the
unless he is in a position to comply with his own
possession of the lots and buildings subject of
obligations. Similarly, the right to rescind a
this case. Plaintiffs filed a petition for review with
contract can be demanded only if a party thereto
the Supreme Court which issued a restraining
is ready, willing and able to comply with his own
order against the sale of the properties claimed
obligations thereunder (Art. 1191, Civil Code;
by the spouses-plaintiffs [in Abierra vs. Court of
Seva vs. Berwin, 48 Phil. 581 [1926]; Paras,
Appeals, 45 SCRA 314].
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Civil Code of the Philippines, 12th ed. Vol. IV, p.
200). In a contract of sale, the vendor is bound
to transfer the ownership of and deliver, as well
as warrant, the thing which is the object of the
sale (Art. 1495, Civil Code); he warrants that the
buyer shall, from the time ownership is passed,
have and enjoy the legal and peaceful
possession of the thing -

Art. 1547. In a contract of sale, unless a


contrary intention appears, there is:

(1) An implied warranty on the part of the seller


that he has a right to sell the thing at the time
when the ownership is to pass, and that the
buyer shall from that time have and enjoy the
legal and peaceful possession of the thing.

The period of prescription was


interrupted, because from 1974 up to 1982, the
appellants themselves could not have restored
unto the appellees the possession of the 42
subdivision lots precisely because of the
preliminary injunction mentioned elsewhere.
Consequently, the appellants could not have
prospered in any suit to compel performance or
payment from the appellees-buyers, because
the appellants themselves were in no position to
perform their own corresponding obligation to
deliver to and maintain said buyers in
possession of the lots subject matter of the sale.

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ROBERTO Z. LAFORTEZA vs. ALONZO On October 18, 1989, plaintiff sent the
MACHUCA defendant heirs a letter requesting for an
extension of the 30 DAYS.
G.R. No. 137552. June 16, 2000 (333SCRA643)
On November 15, 1989, plaintiff informed the
Third Division defendant heirs, through defendant Roberto Z.
Laforteza, that he already had the balance
GONZAGA_REYES, J. P600,000.00 covered by United Coconut
Planters Bank Managers Check. However, the
defendants, refused to accept the balance
Defendant Roberto Z. Laforteza had told him
Facts: On August 2, 1988, defendants Lea
that the subject property was no longer for sale.
Zulueta-Laforteza and Michael Z. Laforteza both
executed a Special Power of Attorney (SPA) in On November 20, 1998, defendants informed
favor of defendants Roberto and Gonzalo Z. the plaintiff that they were canceling the MOA in
Laforteza, Jr., appointing both as her Attorney- view of the plaintiffs failure to comply with his
in-fact authorizing them jointly to sell the subject contractual obligations.
property and sign any document for the
settlement of the estate of the late Francisco Q. Thereafter, plaintiff reiterated his request to
Laforteza. tender payment of the balance. Defendants,
however, insisted on the rescission of the MOA.
Both agency instruments contained a provision Plaintiff filed the instant action for specific
that in any document or paper to exercise performance. The lower court rendered
authority granted, the signature of both judgment in favor of the plaintiff.
attorneys-in-fact must be affixed.
Petitioners appealed to the Court of Appeals,
On October 27, 1988, defendant Dennis Z. which affirmed with modification the decision of
Laforteza executed an SPA in favor of defendant the lower court.
Roberto Z. Laforteza for the purpose of selling
the subject property. A year later, Dennis Z. Motion for Reconsideration was denied but the
Laforteza executed another SPA in favor of Decision was modified so as to absolve Gonzalo
defendants Roberto and Gonzalo Laforteza, Jr. Z. Laforteza, Jr. from liability for the payment of
naming both attorneys-in-fact for the purpose of moral damages. Hence this petition.
selling the subject property and signing any
document for the settlement of the estate of the
late Francisco Q. Laforteza.
Issues:
On January 20, 1989, the heirs of the late
Francisco Q. Laforteza represented by Roberto W the Memorandum of Agreement is a mere
Z. Laforteza and Gonzalo Z. Laforteza, Jr. contract to sell, as indicated in its title.
entered into a Memorandum of Agreement
(MOA[Contract to Sell]) with the plaintiff over the
subject property for the sum of P630,000.00. Ruling: CA decision is AFFIRMED and the
instant petition is hereby DENIED.
On January 20, 1989, plaintiff paid the earnest
money of P30,000.00, plus rentals for the
subject property.
A perusal of the MOA shows that the transaction
On September 18, 1998 , defendant heirs, between the petitioners and the respondent was
through their counsel wrote a letter to the one of sale and lease.
plaintiff furnishing the latter a copy of the
reconstituted title to the subject property, A contract of sale is a consensual contract and
advising him that he had 30 days to produce the is perfected at the moment there is a meeting of
balance of P600,000.00 under the Memorandum the minds upon the thing which is the object of
of Agreement which plaintiff received on the the contract and upon the price. From that
same date. moment the parties may reciprocally demand
performance subject to the provisions of the law

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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.

In the case at bench, there was a perfected


agreement between the petitioners and the
respondent whereby the petitioners obligated
themselves to transfer the ownership of and
deliver the house and lot and the respondent to
pay the price amounting to P600,000.00. All the
elements of a contract of sale were thus present.
However, the balance of the purchase price was
to be paid only upon the issuance of the new
certificate of title in lieu of the one in the name of
the late Francisco Laforteza and upon the
execution of an extrajudicial settlement of his
estate. Prior to the issuance of the
"reconstituted" title, the respondent was already
placed in possession of the house and lot as
lessee thereof for six months at a monthly rate
of P3,500.00.

The six-month period during which the


respondent would be in possession of the
property as lessee, was clearly not a period
within which to exercise an option. An option is a
contract granting a privilege to buy or sell within
an agreed time and at a determined price. An
option contract is a separate and distinct
contract from that which the parties may enter
into upon the consummation of the option. An
option must be supported by consideration. An
option contract is governed by the second
paragraph of Article 1479 of the Civil Code.

“An accepted unilateral promise to buy or to sell


a determinate thing for a price certain is binding
upon the promissor if the promise is supported
by a consideration distinct from the price."

In the present case, the six-month period merely


delayed the demandability of the contract of sale
and did not determine its perfection for after the
expiration of the six-month period, there was an
absolute obligation on the part of the petitioners
and the respondent to comply with the terms of
the sale.

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Jon and Marissa De Ysasi vs. Arturo and
Estela Arceo
Issue: WON there was an implied waiver of
G.R. No. 136586 November 22, 2001 repairs including repairs for hidden and unknown
defects by the lessee.
Mendoza, J. Second Division

Ruling: Decision of Court of Appeals affirmed


Facts: On October 1, 1988, spouses Jon and with modification that the order for payment of
Marissa de Ysasi leased from spouses Arturo unpaid rentals with interest to respondents is
and Estela Arceo, the latter's premises in order deleted.
to carry on their business of hand painting and
finishing services. Petitioners paid P5,000.00 as
goodwill money and P15,000.00 as deposit for
three months. Ratio: Petitioners anchor their complaint for
damages on respondents' failure, as lessors, to
It appears that due to heavy rains, the roof of the make the necessary repairs on the leased
building leaked and the premises were flooded, premises as provided in Art. 1654(2) of the Civil
as a result of which the schedule of the delivery Code. The Court of Appeals held that under the
of hand painted moldings to petitioners' contract of lease of the parties, there was an
customers was disrupted. Although petitioners implied waiver of right to demand repairs to be
asked respondents to make the necessary made by the lessee.
repairs, the latter repaired only a portion of the
leased premises. Consequently, petitioners The records show that respondent Mrs. Arceo
stopped paying rent as well as their share of the caused certain repairs to be done on the leased
electric, water, and telephone bills from premises at the request of petitioners, although
December 1988 up to the time they vacated the the latter alleged that the repairs made were
leased premises in June 1989. inadequate. This fact indicates that there was no
implied waiver of repairs on the part of the
Respondents in turn filed an ejectment suit lessee. For Art. 1371 of the Civil Code provides
against petitioners in the Metropolitan Trial that “In order to judge the intention of the
Court. In its decision, the MeTC, while ruling that contracting parties, their contemporaneous and
petitioners were justified in suspending the subsequent acts should be principally
payment of rent, ordered the deposits made by considered.”
them to be applied to the payment of rentals up
to June 1989 and directed them to pay them
electric and water bills. On appeal to the Under Arts. 1561 and 1653 of the Civil Code, the
Regional Trial Court, the decision was modified lessor is responsible for warranty against hidden
inasmuch as petitioners were ordered to pay defects, but he is not answerable for patent
P20,000.00 as balance of their rentals up to the defects or those, which are visible. Petitioner
time they vacated the premises. Jon de Ysasi admitted on cross-examination that
he inspected the premises three or four times
Petitioners then filed a complaint in the Regional before signing the lease contract. During his
Trial Court, for specific performance or inspection, he noticed the rotten plywood on the
rescission of contract with damages, which they ceiling, which in his opinion was caused by
subsequently changed to a claim for damages in leaking water or termites. Yet, he decided to go
view of the expiration of the lease contract. The through with the lease agreement. Hence,
trial court, however, dismissed the complaint respondents cannot be held liable for the alleged
and ordered petitioners to pay respondents the warranty against hidden defects.
sums of P5,000.00 as attorney's fees and
P20,000.00 as back rentals, with interest at the
legal rate. On appeal to the Court of Appeals,
the decision was affirmed. Petitioners' motion for
reconsideration was subsequently denied.

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Coca-Cola Bottlers Philippines, Inc. vs. The defects of or encumbrances upon the thing sold
Honorable Court of Appeals and Ms. Lydia are not limited to those prescribed in Article
Geronimo 1567 of the Civil Code which provides:

G.R. No. 110295 October 18, 1993 Art. 1567. In the case of Articles 1561, 1562,
1564, 1565 and 1566, the vendee may elect
Davide, Jr., J, First Division between withdrawing from the contract and
demanding a proportionate reduction of the
price, with damages eithercase.
Facts: Lydia L. Geronimo was the proprietress of
Kindergarten Wonderland Canteen in Dagupan The vendee may also ask for the annulment of
City, an enterprise engaged in the sale of soft the contract upon proof of error or fraud, in
drinks (including Coke and Sprite) and other which case the ordinary rule on obligations shall
goods to the students of Kindergarten be applicable. Under the law on obligations,
Wonderland and to the public. On or about responsibility arising from fraud is demandable
August 12 1989, some parents of the students in all obligations and any waiver of an action for
complained to her that the Coke and Sprite soft future fraud is void. Responsibility arising from
drinks sold by her contained fiber-like matter and negligence is also demandable in any obligation,
other foreign substances or particles. She then but such liability may be regulated by the courts,
went over her stock of softdrinks and discovered according to the circumstances. Those guilty of
the presence of some fiber-like substances in fraud, negligence, or delay in the performance of
the contents of some unopened Coke bottles their obligations and those who in any manner
and a plastic matter in the contents of an contravene the tenor thereof are liable for
unopened Sprite bottle. She brought the said damages.
bottles to the Regional Health Office of the
Department of Health at San Fernando, La The vendor could likewise be liable for quasi-
Union, for examination. She received a letter delict under Article 2176 of the Civil Code, and
from the Department of Health informing her that an action based thereon may be brought by the
the samples she submitted "are adulterated;" as vendee. While it may be true that the pre-
a consequence of the discovery of the foreign existing contract between the parties may, as a
substances in the beverages, her sales of soft general rule, bar the applicability of the law on
drinks severely plummeted from the usual 10 quasi-delict, the liability may itself be deemed to
cases per day to as low as 2 to 3 cases per day arise from quasi-delict, i.e., the acts which
resulting in losses of from P200.00 to P300.00 breaks the contract may also be a quasi-delict.
per day, and not long after that she had to lose
shop on December 12 1989, she became
jobless and destitute. She demanded from the
petitioner the payment of damages but was
rebuffed by it.

Issue: WON the subsequent action for damages


by the proprietress against the soft drinks
manufacturer should be treated as one for
breach of implied warranty against hidden
defects or merchantability.

Ruling: Petiton denied.

Ratio: The vendee's remedies against a vendor


with respect to the warranties against hidden

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Inocencio Yu Dino vs. Court of Appeals

June 20, 2001 G.R. No. 113564 ISSUE:

359 SCRA 91

Whether the contract between the contracting


parties is a contract of sale or a contract for a
First Division piece of work

Puno, J.:

FACTS: Whether the respondent is responsible for the


warranty against hidden defects
Petitioners spouses Dinoare engaged in the
business of manufacturing and selling shirts.1 RULING:
Respondent Sio is part owner and general
manager of a manufacturing corporation doing Petition is DENIED.
business under the trade name "Universal Toy
Master Manufacturing." The contract between the petitioners and
respondent stipulated that respondent would
Petitioners and respondent Sio entered into a manufacture upon order of the petitioners
contract whereby the latter would manufacture 20,000 pieces of vinyl frogs and 20,000 pieces
for the petitioners 20,000 pieces of vinyl frogs of vinyl mooseheads according to the samples
and 20,000 pieces of vinyl mooseheads at P7.00 specified and approved by the petitioners.
per piece in accordance with the sample Respondent Sio did not ordinarily manufacture
approved by the petitioners. These frogs and these products, but only upon order of the
mooseheads were to be attached to the shirts petitioners and at the price agreed upon.
petitioners would manufacture and sell. Clearly, the contract executed by and between
the petitioners and the respondent was a
Respondent Sio delivered in several installments contract for a piece of work. At any rate, whether
the 40,000 pieces of frogs and mooseheads. the agreement between the parties was one of a
Petitioner fully paid the agreed price. contract of sale or a piece of work, the
Subsequently, petitioners returned to provisions on warranty of title against hidden
respondent 29,772 pieces of frogs and defects in a contract of sale apply to the case at
mooseheads for failing to comply with the bar.
approved sample. Petitioners then demanded
from the respondent a refund of the purchase A hidden defect is one which is unknown or
price of the returned goods in the amount of could not have been known to the vendee.
P208,404.00. As respondent Sio refused to pay.
Petitioners filed action for collection of a sum of
money.

RTC ruled in favor of the petioners. Respondent


Sio sought recourse in the Court of Appeals.
The appellate court affirmed the trial court
decision. Respondent then filed a Motion for
Reconsideration and a Supplemental Motion for
Reconsideration alleging therein that the
petitioners' action for collection of sum of money
based on a breach of warranty had already
prescribed. On January 24, 1994, the
respondent court reversed its decision and
dismissed petitioners' Complaint for having been
filed beyond the prescriptive period.

Hence, this petition.

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D.M Wenceslao and Associates, Inc. Vs. balance must be paid, the contract failed to
Ready Contrading and Construction Corp. reflect the true intention of the parties.12 It
June 29, 2004 G.R. No. 154106 alleged READYCON agreed that the balance in
the payments would be settled only after the
Second Division government had accepted READYCON’s work
as to its quality in laying the asphalt. By way of
QUISUMBING, J.: counterclaim, WENCESLAO prayed for the
payment of damages caused by the filing of
READYCON’s complaint and the issuance of the
writ of attachment despite lack of cause.
FACTS:
RTC ruled in favor of the petitioner. CA affirmed.
WENCESLAO had a contract with the Public
Hence this petition.
Estates Authority (PEA) for the improvement of
the main expressway in the R-1 Toll Project
along the Coastal Road in Parañaque City. To
fulfill its obligations to the PEA, WENCESLAO ISSUE:
entered into a contract with READYCON.
READYCON agreed to sell to WENCESLAO Was the obligation of WENCESLAO to pay
asphalt materials valued at P1,178,308.75. READYCON already due and demandable as of
Under the contract, WENCESLAO was bound to May 30, 1991.
pay respondent a twenty percent (20%)
downpayment, or P235,661.75, upon delivery of
the materials contracted for. The balance of the
contract price, amounting to P942,647, was to RULING:
be paid within fifteen (15) days thereof. It was
further stipulated by the parties that respondent Petition Denied.
was to furnish, deliver, lay, roll the asphalt, and if
necessary, make the needed corrections on a Under Article 1582 of the Civil Code, the buyer
prepared base at the jobsite. is obliged to pay the price of the thing sold at the
time stipulated in the contract. Both the RTC and
Fifteen (15) days after performance of said work, the appellate court found that the parties’
READYCON demanded that WENCESLAO pay contract stated that the buyer shall pay the
the balance of the contract price. WENCESLAO, manufacturer the amount of P1,178,308.75.
however, ignored said demand.On May 30,
1991, the counsel for READYCON wrote a Following the rule on interpretation of contracts,
demand letter to WENCESLAO asking that it no other evidence shall be admissible other than
make good on the balance it owed. Again, the original document itself,26 except when a
WENCESLAO failed to heed the demand. It did party puts in issue in his pleading the failure of
not even bother to reply to the demand letter. the written agreement to express the true intent
of the parties.
READYCON filed a complaint with the RTC of
Pasig City for collection of a sum of money and However, to rule on whether the written
damages, with prayer for writ of preliminary agreement failed to express the true intent of the
attachment against D.M. Wenceslao and/or parties would entail having this Court reexamine
Dominador Dayrit. the facts. The findings of the trial court as
affirmed by the appellate court on this issue,
In the proceedings below, WENCESLAO however, bind us now. For in a petition for
admitted that it owed READYCON certiorari under Rule 45 of the 1997 Rules of
P1,014,110.45 indeed. However, it alleged that Civil Procedure, this Court may not review the
their contract was not merely one of sale but findings of fact all over again. Suffice it to say,
also of service, namely, that respondent shall lay however, that the findings by the RTC, then
the asphalt in accordance with the specifications affirmed by the CA, that the extra condition
and standards imposed by and acceptable to the being insisted upon by the petitioners is not
government. WENCESLAO also alleged that found in the sales contract between the parties.
since the contract did not indicate this condition Hence it cannot be used to qualify the reckoning
with respect to the period within which the of the period for payment. Besides, telling

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against petitioner WENCESLAO is its failure still
to pay the unpaid account, despite the fact of the
work’s acceptance by the government already

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.INTEGRATED PACKAGING CORP., not for the failure or delay of respondent to
vs. deliver printing paper, petitioner could have sold
books to Philacor and realized profit of
COURT OF APPEALS and FIL-ANCHOR P790,324.30 from the sale. SInce that petitioner
PAPER CO., INC., suffered a dislocation of business on account of
loss of contracts and goodwill as a result of
[G.R. No. 115117; June 8, 2000; Second respondent's violation of its obligation, the
Division] former is entitled to moral damages.

QUISUMBING, J.: The Court of Appeals (CA) reverse and set


aside the jugdgment. It deleted the award of
FACTS P790,324.30 as compensatory damages as well
as the award of moral damages and attorney's
Integrated Packaging Corp (petitioner) and Fil- fees, for lack of factual and legal basis.
Anchor Paper Co. Inc. (respondent) executed on
May 5, 1978, an order agreement whereby Hence this petition.
respondent bound itself to deliver to petitioner
3,450 reams of printing paper. The materials ISSUE
were to be paid within a minimum of thirty days
and maximum of ninety days from delivery. Whether or not the respondent violated the order
agreement
Respondent filed with the Regional Trial Court
(RTC) a collection suit against petitioner for the RULING
sum of P766,101.70, representing the unpaid
purchase price of printing paper bought by PETITION DENIED. The respondent did not
petitioner on credit. violate the order agreement when the latter
failed to deliver the balance of the printing paper
In its counterclaim, the petitioner denied the on the dates agreed upon.
material allegations of the complaint. It alleged
that respondent delivered only 1,097 reams of The transaction between the parties is a contract
printing paper which was short of 2,875 reams, of sale whereby respondent (seller) obligates
in total disregard of their agreement and also itself to deliver printing paper to petitioner
failed to deliver the balance of the printing paper (buyer) which, in turn, binds itself to pay therefor
despite demand therefor, hence, petitioner a sum of money or its equivalent (price). Both
suffered actual damages and failed to realize parties concede that the order agreement gives
expected profits. rise to a reciprocal obligations such that the
obligation of one is dependent upon the
obligation of the other. Reciprocal obligations
are to be performed simultaneously, so that the
In its reply respondent alleged that subsequent
performance of one is conditioned upon the
to the enumerated purchase invoices in the
simultaneous fulfillment of the other. Thus,
original complaint, petitioner made additional
respondent undertakes to deliver printing paper
purchases of printing paper on credit amounting
of various quantities subject to petitioner's
to P94,200.00 and that petitioner refused to pay
corresponding obligation to pay, on a maximum
its outstanding obligation although it made
90-day credit, for these materials. In the
partial payments amounting to P97,200.00
contract, petitioner is not even required to make
which was applied to back accounts, thus,
any deposit, down payment or advance
reducing petitioner's indebtedness to
payment, hence, the undertaking of respondent
P763,101.70.
to deliver the materials is conditional upon
payment by petitioner within the prescribed
RTC ruled that petitioner should pay period. Clearly, petitioner did not fulfill its side of
P763,101.70 representing the value of printing the contract as its last payment in August 1981
paper delivered by respondent from June 5, could cover only materials covered by delivery
1980 to July 23, 1981. However it also found invoices dated September and October 1980.
petitioner's counterclaim meritorious because if
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The agreement provides for the delivery of
printing paper on different dates and a separate
price has been agreed upon for each delivery. It
is also admitted that it is the standard practice of
the parties that the materials be paid within a
minimum period of thirty (30) days and a
maximum of ninety (90) days from each delivery.
Accordingly, the respondent's suspension of its
deliveries to petitioner whenever the latter failed
to pay on time, as in this case, is legally justified
under the second paragraph of Article 1583 of
the Civil Code which provides that:

When there is a contract of sale of goods


to be delivered by stated installments,
which are to be separately paid for, and
the seller makes defective deliveries in
respect of one or more installments, or the
buyer neglects or refuses without just
cause to take delivery of or pay for one or
more installments, it depends in each case
on the terms of the contract and the
circumstances of the case, whether the
breach of contract is so material as to
justify the injured party in refusing to
proceed further and suing for damages for
breach of the entire contract, or whether
the breach is severable, giving rise to a
claim for compensation but not to a right to
treat the whole contract as broken.

Here, petitioner's evidence failed to establish


that it had paid for the printing paper covered by
the delivery invoices on time. Consequently,
respondent has the right to cease making further
delivery, hence the respondent did not violate
the order agreement. On the contrary, it was
petitioner which breached the agreement as it
failed to pay on time the materials delivered by
respondent. Respondent appellate court
correctly ruled that respondent did not violate
the order agreement.

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GREGORIO FULE, agreed that the balance of P40,000.00 would
vs just be paid later in cash.
COURT OF APPEALS, NINEVETCH CRUZ
and JUAN BELARMINO
[G.R. No. 112212 March 2, 1998; Third
Division] Thereafter the petitioner headed for the bank,
arriving there at past 5:00 p.m. Dr. Cruz (who
ROMERO, J.: arrived later) and the cashier then opened the
safety deposit box, the former retrieving a
FACTS cellophane bag with the jewelry inside and
Gregorio Fule (petitioner), a banker by handing over the same to petitioner. The latter
profession and a jeweler at the same time, took the jewelry from the bag, went near the
acquired a 10-hectare property in Tanay, Rizal electric light at the bank's lobby, held the jewelry
(Tanay property). against the light and examined it for ten to fifteen
minutes. After a while, Dr. Cruz asked, "Okay na
Petitioner, as corporate secretary of the bank, ba iyan?" Petitioner expressed his satisfaction
asked Remelia Dichoso and Oliva Mendoza to by nodding his head.
look for a buyer who might be interested in the
Tanay property. The two found Dr. Ninevetch
Cruz (private respondent).
Later, at about 8:00 o'clock in the evening of the
same day, petitioner arrived at the residence of
Atty. Belarmino complaining that the jewelry
It so happens that at that time petitioner had given to him was fake. He then used a tester to
shown interest in buying a pair of emerald-cut prove the alleged fakery.
diamond earrings owned by Dr. Cruz which he
had seen when his mother examined and
appraised them as genuine. Petitioner then
made a bid to buy them but Dr. Cruz declined On October 26, 1984, petitioner filed a complaint
the offer. At that point former inspected said before the Regional Trial Court (RTC) against
jewelry at the lobby of the Prudential Bank private respondents praying, among other
branch in San Pablo City and then made a things, that the contract of sale over the Tanay
sketch thereof. Having sketched the jewelry then property be declared null and void on the ground
gave them back to Dr. Cruz. of fraud and deceit.

Subsequently, negotiations for the barter of the RTC, as affirmed by the Court of Appeals, held
jewelry and the Tanay property ensued. When the earrings uses as consideration for the sale
Dr. Cruz had later agreed to the proposal, was delivered by Dr. Cruz to the petitioner as
petitioner went to Prudential Bank once again to genuine.
take a look at the jewelry.
Hence this petition.
In the afternoon of October 23, 1984, petitioner
met Atty. Belarmino (Dr. Cruz’s lawyer) at the ISSUE
latter's residence to prepare the documents of
sale. The Attorney accordingly caused the Whether or not the deed of sale of the Tanay
preparation of a deed of absolute sale while property is null and void.
petitioner and Dr. Cruz attended to the
safekeeping of the jewelry.
RULING

The following day, petitioner, together with


Dichoso and Mendoza, arrived at the residence
of Atty. Belarmino to finally execute a deed of PETITION DENIED. The contract of barter or
absolute sale. sale is valid.

Petitioner signed the deed. Since the jewelry The Civil Code provides that contracts are
was appraised only at P160,000.00, the parties
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perfected by mere consent. From this moment, contract which, without them, he would not have
the parties are bound not only to the fulfillment agreed to. The records, however, are bare of
of what has been expressly stipulated but also to any evidence manifesting that private
all the consequences which, according to their respondents employed such insidious words or
nature, may be in keeping with good faith, usage machinations to entice petitioner into entering
and law. A contract of sale is perfected at the the contract of barter. Neither is there any
moment there is a meeting of the minds upon evidence showing that Dr. Cruz induced
the thing which is the object of the contract and petitioner to sell his Tanay property or that she
upon the price. Being consensual, a contract of cajoled him to take the earrings in exchange for
sale has the force of law between the said property. On the contrary, Dr. Cruz did not
contracting parties and they are expected to initially accede to petitioner's proposal to buy the
abide in good faith by their respective said jewelry. Rather, it appears that it was
contractual commitments. Article 1358 of the petitioner, through his agents, who led Dr. Cruz
Civil Code which requires the embodiment of to believe that the Tanay property was worth
certain contracts in a public instrument, is only exchanging for her jewelry as he represented
for convenience, and registration of the that its value was P400,000.00 or more than
instrument only adversely affects third parties. double that of the jewelry which was valued only
Formal requirements are, therefore, for the at P160,000.00. If indeed petitioner's property
benefit of third parties. Non-compliance was truly worth that much, it was certainly
therewith does not adversely affect the validity of contrary to the nature of a businessman-banker
the contract nor the contractual rights and like him to have parted with his real estate for
obligations of the parties thereunder. half its price. In short, it was in fact petitioner
who resorted to machinations to convince Dr.
It is evident from the facts of the case that there Cruz to exchange her jewelry for the Tanay
was a meeting of the minds between petitioner property.
and Dr. Cruz. As such, they are bound by the
contract unless there are reasons or Moreover, petitioner did not clearly allege
circumstances that warrant its nullification. mistake as a ground for nullification of the
Hence, the problem that should be addressed in contract of sale. Even assuming that he did,
this case is whether or not under the facts duly petitioner cannot successfully invoke the same.
established herein, the contract can be voided in To invalidate a contract, mistake must "refer to
accordance with law so as to compel the parties the substance of the thing that is the object of
to restore to each other the things that have the contract, or to those conditions which have
been the subject of the contract with their fruits, principally moved one or both parties to enter
and the price with interest. into the contract." An example of mistake as to
the object of the contract is the substitution of a
Contracts that are voidable or annullable, even specific thing contemplated by the parties with
though there may have been no damage to the another. In his allegations in the complaint,
contracting parties are: (1) those where one of petitioner insinuated that an inferior one or one
the parties is incapable of giving consent to a that had only Russian diamonds was substituted
contract; and (2) those where the consent is for the jewelry he wanted to exchange with his
vitiated by mistake, violence, intimidation, undue 10-hectare land. He, however, failed to prove
influence or fraud. Accordingly, petitioner now the fact that prior to the delivery of the jewelry to
stresses before this Court that he entered into him, private respondents endeavored to make
the contract in the belief that the pair of emerald- such substitution.
cut diamond earrings was genuine. On the
pretext that those pieces of jewelry turned out to Likewise, the facts as proven do not support the
be counterfeit, however, petitioner subsequently allegation that petitioner himself could be
sought the nullification of said contract on the excused for the "mistake." On account of his
ground that it was, in fact, "tainted with fraud" work as a banker-jeweler, it can be rightfully
such that his consent was vitiated. assumed that he was an expert on matters
regarding gems. He had the intellectual capacity
There is fraud when, through the insidious words and the business acumen as a banker to take
or machinations of one of the contracting precautionary measures to avert such a mistake,
parties, the other is induced to enter into a considering the value of both the jewelry and his

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land. The fact that he had seen the jewelry forming part of the consideration was still
before October 24, 1984 should not have payable to petitioner, its nonpayment by Dr.
precluded him from having its genuineness Cruz is not a sufficient cause to invalidate the
tested in the presence of Dr. Cruz. Had he done contract or bar the transfer of ownership and
so, he could have avoided the present situation possession of the things exchanged considering
that he himself brought about. Indeed, the finger the fact that their contract is silent as to when it
of suspicion of switching the genuine jewelry for becomes due and demandable.
a fake inevitably points to him. Such a mistake
caused by manifest negligence cannot invalidate Neither may such failure to pay the balance of
a juridical act. As the Civil Code provides, the purchase price result in the payment of
"(t)here is no mistake if the party alleging it knew interest thereon. Article 1589 of the Civil Code
the doubt, contingency or risk affecting the prescribes the payment of interest by the
object of the contract." vendee "for the period between the delivery of
the thing and the payment of the price" in the
Furthermore, petitioner was afforded the following cases:
reasonable opportunity required in Article 1584
of the Civil Code within which to examine the (1) Should it have been so stipulated;
jewelry as he in fact accepted them when asked
by Dr. Cruz if he was satisfied with the same. 29 (2) Should the thing sold and delivered
By taking the jewelry outside the bank, petitioner produce fruits or income;
executed an act which was more consistent with
his exercise of ownership over it. This gains
credence when it is borne in mind that he (3) Should he be in default, from the
himself had earlier delivered the Tanay property time of judicial or extrajudicial demand
to Dr. Cruz by affixing his signature to the for the payment of the price.
contract of sale. That after two hours he later
claimed that the jewelry was not the one he Not one of these cases obtains here. There is no
intended in exchange for his Tanay property, stipulation for the payment of interest in the
could not sever the juridical tie that now bound contract of sale nor proof that the Tanay
him and Dr. Cruz. The nature and value of the property produced fruits or income. Neither did
thing he had taken preclude its return after that petitioner demand payment of the price as in
supervening period within which anything could fact he filed an action to nullify the contract of
have happened, not excluding the alteration of sale.
the jewelry or its being switched with an inferior
kind.

Both the trial and appellate courts, therefore,


correctly ruled that there were no legal bases for
the nullification of the contract of sale.
Ownership over the parcel of land and the pair
of emerald-cut diamond earrings had been
transferred to Dr. Cruz and petitioner,
respectively, upon the actual and constructive
delivery thereof. Said contract of sale being
absolute in nature, title passed to the vendee
upon delivery of the thing sold since there was
no stipulation in the contract that title to the
property sold has been reserved in the seller
until full payment of the price or that the vendor
has the right to unilaterally resolve the contract
the moment the buyer fails to pay within a fixed
period. Such stipulations are not manifest in the
contract of sale.

While it is true that the amount of P40,000.00


CENTRAL BANK OF THE PHILIPPINES vs.
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SPOUSES ALFONSO and ANACLETA complaint for rescission. After receipt of
BICHARA summons, petitioner filed its answer averring
that it was justified in delaying payment of the
G.R. No. 131074 March 27, 2000 purchase price in view of respondents' breach of
several conditions in the contract. First,
petitioner alleged that respondents failed to
Second Division
deliver to the former free and legal possession
of the two properties, in view of the
DE LEON, JR., J.: encumbrances noted in the title, in addition to
the presence of squatters who were not evicted
Facts: Respondent sold a parcel of land located by respondents. Second, it claimed that
in Legaspi City to Petitioner at the amount of respondents did not fill up the lots with
500 pesos per square meter or a total amount of escombro free from waste materials, as agreed
405 thousand pesos. The deed of sale
contained that the payment is to be effected only Trial court ordered specific performance of
after the Deed of Sale shall have been duly Central Bank to pay for the property plus
registered and a clean title issued in the name of interest. Court of Appeals on the other hand
VENDEE. Also, the VENDORS will undertake at ordered the rescission of the contract of sale
their expense to fill the parcels of land with an hence this petition.
escombro free from waste materials compacted
to the street level upon signing of the Deed of
Sale to suit the ground for the construction of the
regional office of the Central Bank of the Issues:
Philippines thereat.
Issue 1: Whether respondents are entitled to the
remedy of rescission despite of their non-
Despite the issuance of the title, petitioner failed compliance to their obligations to Central Bank.
to pay respondent. On its part, respondents did
not fill up the lot with escombro despite several Issue 2: Whether Central Bank is justified in
demands made by petitioner. Petitioner was withholding the payment of the purchase price.
thus constrained to undertake the filling up of the
said lots, by contracting the services of BGV Held:
Construction. The filling up of the lots cost
petitioner P45,000.00. Petitioner deducted the Issue 1: Respondents should not be allowed to
said amount from the purchase price payable to rescind the contract where they themselves did
respondents. not perform their essential obligation thereunder
which is to fill up the parcels of land with
Petitioner, however, still did not pay the escombro. It should be emphasized that a
respondents. Consequently, respondents contract of sale involves reciprocity between the
commenced an action for rescission or specific parties. Since respondents were in bad faith,
performance with damages, against petitioner they may not seek the rescission of the
before the Regional Trial Court of Legazpi City. agreement they themselves breached.
Respondents alleged that petitioner failed to pay
the purchase price despite demand. They Issue 2: Aside from the instances mentioned
prayed for the rescission of the contract of sale under Article 1590 of the civil code, the vendee
and the return of the properties, or in the is likewise entitled to withhold payment of the
alternative that petitioner be compelled to pay purchase price if the vendor fails to perform any
the purchase price plus interest at the rate of essential obligation of the contract. Such right is
12% per annum from July 19, 1983, until fully premised not on the aforequoted article, but on
paid, and to pay the capital gains and general principles of reciprocal obligations.
documentary stamp taxes with the Bureau of Since respondents failed to comply with their
Internal Revenue and registration fees with the obligation, Central Bank is justified in
Register of Deeds. withholding its payment of the purchase price.

Petitioner tendered payment to respondents in


the amount of P360,500.00. Respondents
refused the tender, however, in view of their ALBERT R. PADILLA vs. SPOUSES

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FLORESCO PAREDES and ADELINA before the lower court that petitioner maliciously
PAREDES, and THE HONORABLE COURT delayed payment of the balance of the purchase
OF APPEALS price, despite repeated demand. According to
private respondents, their acceptance of partial
G.R. No. 124874 March 17, 2000 payments did not at all modify the terms of their
agreement, such that the failure of petitioner to
Second Division fully pay at the time stipulated was a violation of
the contract. Also, they aver that this violation
QUISUMBING, J.: led to the rescission of the contract, of which
petitioner was formally informed.
Facts: Albert R. Padilla and Floresco and
Adelina Paredes entered into a contract to sell The lower court ruled in favor of petitioner,
involving a parcel of land in San Juan, La Union. saying that even if petitioner indeed breached
At that time, the land was untitled although the contract to sell, it was only a casual and
private respondents were paying taxes thereon. slight breach that did not warrant rescission of
Under the contract, petitioner undertook to the contract. The trial court pointed out that
secure title to the property in private private respondents themselves breached the
respondents' names. Of the P312,840.00 contract when they requested and accepted
purchase price, petitioner was to pay a installment payments from petitioner, even
downpayment of P50,000.00 upon signing of the before the land registration court ordered
contract, and the balance was to be paid within issuance of a decree of registration for the
ten days from the issuance of a court order property. According to the trial court, this
directing issuance of a decree of registration for constituted modification of the contract, though
the property. But petitioner made several not reduced into writing as required by the
payments to private respondents, some even contract itself. The payments, however, were
before the court issued an order for the issuance evidenced by receipts duly signed by private
of a decree of registration. respondents. Acceptance of delayed payments
estopped private respondents from exercising
After the court ordered the issuance of a decree
their right of rescission, if any existed.
of land registration for the subject property,
respondents then demanded payment of the The Court of Appeals, however, reversed the
balance of the purchase price. But the petitioner ruling of the trial court and confirmed private
was not able to pay the balance in full. In a respondents' rescission of the contract to sell.
letter, private respondents, through counsel, According to the Court of Appeals, the issue of
demanded payment of the remaining balance, whether or not the breach of contract committed
with interest and attorney's fees, within five days is slight or casual is irrelevant in the case of a
from receipt of the letter. Otherwise, private contract to sell, where title remains in the vendor
respondents stated they would consider the if the vendee fails to "comply with the condition
contract rescinded. Petitioner did not accept precedent of making payment at the time
private respondents' proposal. Instead, he specified in the contract." Moreover Court of
offered to pay the balance in full for the entire Appeals rejected petitioner's claim that there had
property, plus interest and attorney's fees. been a novation of the contract when he
Private respondents refused the offer. tendered partial payments for the property even
before payment was due. The contract itself
Petitioner instituted an action for specific
provides that no terms and conditions therein
performance against private respondents,
shall be modified unless such modification is in
alleging that he had already substantially
writing and duly signed by the parties. The
complied with his obligation under the contract
modification alleged by petitioner is not in
to sell. He claimed that the several partial
writing, much less signed by the parties.
payments he had earlier made, upon private
Moreover, private respondents made a timely
respondents' request, had impliedly modified the
objection to petitioner's partial payments when
contract. He also averred that he had already
they offered to sell to petitioner only one-half of
spent P190,000.00 in obtaining title to the
the property for such partial payments. Private
property, subdividing it, and improving its right-
respondents therefore are entitled to rescission
of-way.
under Article 1191 of the Civil Code, but with the
Private respondents on the other hand claimed obligation to return to petitioner the payments

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the latter had made, including expenses incurred
in securing title to the property and in
subdividing and improving it right of way, hence
this petition.

Issues:

Whether the appellants are entitled to rescission


under Article 1191 of the Civil Code.

Held: Pertinent provisions of the contract signify


that title to the property remains in the vendors
until the vendee should have fully paid the
purchase price, the contract entered into by the
parties thus is a contract to sell. Since petitioner
failed to comply with his obligation to pay the full
purchase price within the stipulated period, the
contract therefore may be rescinded but the
reason for this is not that private respondents
have the power to rescind such contract, but
because their obligation thereunder did not
arise.

Art. 1191 cannot be applied. It speaks of


obligations already existing, which may be
rescinded in case one of the obligors fails to
comply with what is incumbent upon him.
However, in the present case, there is still no
obligation to convey title of the land on the part
of private respondents. There can be no
rescission of an obligation that is non-existent,
considering that the suspensive condition has
not yet happened.

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Alfonso Iringan vs. Court of Appeals party entitled to rescind should apply to
the court for a decree of rescission. The
G.R. No. 129107 operative act which produces the
resolution of contract is decree of court
September 26, 2001 not the mere act of vendor.
The letter written by the private
Quisumbing respondent declaring hi intention to
rescind did not operate validly,

The filing by Palao of Judicial


Facts:
Confirmation of Rescission of Contract
Private respondent Palao sold to petitioner and Damages satisfies the requirement
Iringan an undivided portion of land to be paid in of the law.
installments.
2. The petitioner knew respondent’s
Due to petitioner’s failure to pay the full amount reason for selling. Petitioner refused to
on the second installment, private respondent formally execute an instrument showing
considered the contract rescinded. The their mutual agreement to rescind the
petitioner on the other hand, on its reply, did not contract of sale. He also did not
oppose the revocation of the contract but only substantiate proof that he was ready
asked for the reimbursement of the initial and willing to pay. Hence, the awarding
payment made. for damages is proper.
Petition denied.
Private respondent said that they are not
amenable regarding to the reimbursements
claimed. Simply put, no agreement between the
parties was made.

Palao filed a complaint for Judicial Confirmation


of Rescission of Contract and Damages against
Iringan and his wife.

On his answer, he argued that the contract is


already consummated; hence, the remedy
should be for the collection of the balance of the
purchase price and not rescission.

RTC affirmed the rescission and ordered for the


payment for damages to Palao.

This was brought to the Court of Appeals but the


latter also affirmed the decision. Hence, this
petition.

Issues:

1. Whether or not the contract of sale is


validly rescinded.
2. Whether or not the award of moral and
exemplary damages is proper.
Held:

1. Article 1592 requires the rescinding


party to serve judicial or notarial notice
of his intent to resolve the contract. The

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in good faith.

Perla Gil vs. CA

G.R. No. 127206 Issue:

September 12, 2003 Whether or not the property was validly


sold to Iluminada and Agapito Pacetes.
Callejo Sr.
Held:

The Court ruled that the sale between


Facts: Concepcion and Iluminada is a
consummated contract of sale. The
Concepcion Gil and sister Nieves Gil are contract specifies payment provision
co-owners of a parcel of land. Nieves wherein a deposit will be made at a time
and husband constructed a two storey of the execution of the instrument. The
building on the said land. Concepcion vendor within 120 days shall be
then filed a complaint against her sister. delivered the certificate of title to the
The Court rendered judgment in favor of vendee. Then, vendee will pay the
Concepcion. Nieves appealed to the remaining amount.
Court of Appeals but the latter also
affirmed the assailed decision. The certificate of title was not delivered.
As a consequence of the death of
The Court issued a writ of execution but Concepcion, it is the heirs who have the
Nieves refused to execute the required duty to deliver such. Apparently, they
deed. were not able to deliver the certificate
also. Iluminada’s act of paying the
The Sheriff was then ordered to execute remaining amount only after so many
but instead, he divided the property into years is still valid because after all she
4 lots and gave two to Concepcion. Lot has no duty to pay until tile has been
59 C1, one of the two lots given to delivered to her.
Concepcion was then sold by the latter
to Agapito and Iluminada Pacetes. This
contract was however subject to the
condition that a deposit shall be given at Petition denied for lack of merit.
the time of the execution of the contract
and the remaining amount shall be paid
upon the delivery of the certificate of title
to the vendee. The property was then
sold to one Constancio Maglana and
was again sold to the present possessor
Emilio Magtulac who is constructing a
building on said lot. Subsequently,
Concepcion died and now represented
by her successors as the petitioners in
this instant case.

Petitioners are contending that


Concepcion’s sale of the disputed
property to Iluminada and Agapito
Pacetes is merely a contract to sell
because the full price was not paid by
the latter to the former. They also argue
that the consignation made by Iluminada
did not produce legal effect. Therefore,
subsequent buyers are not purchasers

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Severino Baricuatro, Jr., ISSUE:

vs.

Court of Appeals, Tenth Division, Mariano B. 1. Whether the sale made to Amores by
Nemenio and Felisa V. Nemenio, Constantino Galeos is valid?
M. Galeos and Eugenio V. Amores
2. Whether the Nemenio spouses are
purchasers in good faith?
February 9, 2000 G.R. No. 105902

Buena, J.: RULING:

FACTS: Issue 1

Baricuatro bought two lots, part of the Victoria Amores was in good faith when he bought the
Village, on installments basis from Galeos on subdivision, however, when he registered his
October 16, 1968. title he already had knowledge of the previous
sale. Such knowledge tainted his registration
with bad faith. In addition, the agreement to
collect the balance of the purchase price of the
Two months from the date of the previous sale, disputed lots from Baricuatro which presupposes
Galeos sold the entire subdivision, including the knowledge of the previous sale by Amores.
two lots, to Amores. Baricuatro was informed by
Galeos about the sale and was advised to pay
the balance of the purchase price of the two lots
directly to Amores. Under Art. 1544, the ownership of an immovable
property shall belong to the purchaser who in
good faith registers it first in the registry of
property.
Amores took possession of the subdivision and
developed the same for residential purposes. He
secured the transfer of the title to the same in
his name. Afterwards, he sold the two lots of the (Uraca vs Ca) “The second buyer must show
spouses Mariano and Felisa Nemenio. Prior to continuing good faith and innocence or lack of
the sale, Baricuatro was informed through a knowledge of the first sale until his contract
letter by Amores about the impending sale of the ripens into full ownership through prior
two lots but the former failed to respond. registration as provided by law.” This means that
Nemenio spouses demanded from Baricuatro to the good faith of the purchaser should be from
vacate the said lots but the latter refused to do the time of the perfection of the sale until up to
so. the time that he be declared the sole and true
owner of the property.

Trial court rendered a decision, declaring


Nemenio spouses as the owners of the disputed Issue 2
lot. Court of Appeals affirmed in toto the
judgment of the trial court.

Nemenio spouses only visited the lots ten


months after the sale which was evidenced

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during the trial of the case. And so, they cannot
claim to be purchasers in good faith when they
registered the title. The registration made by the
spouses were done in bad faith, hence, it
amounted to no inscription at all.

Decision of CA is REVERSED.

Cecilia Amodia Vda. De Melencion,


Veneranda Amodia, Felipe Amodia, Eutiquio
Amodia and Go Kim Chuan

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vs. ISSUE:

Honorable Court of Appeals and Aznar


Brothers Realty Company.
1. Who between Go Kim Chuan and Aznar
has the better right over the subject
property?
June 23, 2001 G.R. No. 148846

Nachura, J.:
RULING:

FACTS:
Art. 1544 provides:

A property in the name of Go Kim Chuan was


originally owned by the Amodias and was Should it be immovable property, the
brought under the operation of the Torrens ownership shall belong to the person acquiring it
System. However, the title was lost during the who in good faith first recorded it in the Registry
Second World War. of Property.

In 1964, the Amodias allegedly conveyed the If the land is registered under Torrens Title, and
property to Aznar and was registered under Act it is sold and the sale is registered no under the
344 as there was no title. Land Registration Act but under Act 3344, such
sale is not considered registered.

In 1989, the Amodias conveying the property in


favor of Go Kim Chuan and was reconstituted Aznar registered its title under Act 3344 while
pursuant to RA No. 26. Thereafter, Go Kim Go Kim Chuan registered it under Act No. 496,
Chuan exercised control and dominion over the and so the latter is deemed to be the owner of
subject property in an adverse and continuous the property.
manner in the concept of an owner.

RTC’s decision: Go Kim Chuan as the real


Petition for review is GRANTED.
owner of the property. The signatures of the
Amodias were forged, thus, the said deed did
not convey anything in favor of Aznar. And
Aznar, failed to show that Go Kim Chuan
acquired the property in bad faith.

CA’s decision: Aznar registered ahead in favor


of Go Kim Chuan, thus, pursuant to Art 1544,
the former deed should be given preference
over the latter. Soliva vs. The Intestate Estate of Marcelo M.
Villalba

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Date: December 8, 2003 G.R. No.154017 For the rescission of immovables, Art
1592 provides that even though it may have
Division: First Division
been stipulated that upon failure to pay the price
Ponente: Justice Panganiban at the time agreed upon, the recission 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 has been
made upon him. After the demand, the court
may not grant him a new term.
FACTS: Petitioner, Soliva, filed a complaint for
recovery of ownership against respondent,
Villalba, over a parcel of land situated in
Misamis Oriental. She contended that the The petitioner, herein, did not exercise
respondent failed to give full consideration for her right to demand for rescission or specific
the house and lot purchased by the latter. performance. Hence, she was already barred
from recovering the property due to laches and
prescription.

On the other hand, respondent argued


that the house and lot were sold to him on
installment basis; and that partial payment
thereof was given. He also argued that no
demands were made on him to vacate the
property for a long a period of time. Prescription,
therefore, barred petitioner’s claim of ownership.

Trial Court ruled in favor of the


respondent on the ground of laches. Court of
Appeals affirmed this ruling.

Hence, this petition.

ISSUE: Whether or not the respondent’s


nonpayment of the full consideration would
invalidate the contract of sale.

RULING: SC affirmed CA’ s and ruled in favor of


respondent, stressing that contrary to
petitioner’s submission, the nonpayment of the
full consideration did not invalidate the contract
of sale. Under the settled doctrine, nonpayment
is a resolutory condition that extinguishes the
transaction existing for a time and discharges
the obligations created thereunder. The remedy
of the unpaid seller is to sue for collection or
rescind the contract.
Visayan Sawmill Company, Inc. vs. Court of
Appeals

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Hence, the petition.

Date: March 3, 1993 G.R. No. 83851

Division: En banc ISSUE: Whether or not lower court erred in


ruling that automatic rescission could not be
Ponente: Justice Davide applied in the instant case.

FACTS: Petitioner-corporation entered into a RULING: SC found merit on the petition


sale involving scrap iron with private respondent, stressing that the lower court erred in the
subject to the condition that the latter should appreciation of the nature of the transaction
open a letter of credit in favor of the former on or between petitioner-corporation and private
before May 15, 1983. Private respondent then respondent. Accordingly, what transpired
started to dig and gather scrap iron. between the parties was a contract or promise to
Subsequently, however, petitioner-corporation sell and not a contract of sale. Petitioner-
sent a letter to the private respondent conveying corporation’s obligation to sell is subject to a
its intention to discontinue with the sale due to suspensive condition, which was private
the latter’s failure to comply with the essential respondent’s opening of an irrevocable and
preconditions of their con tract. unconditional letter of credit. However, this
condition was not fulfilled.

Private respondent prayed for judgment


ordering the petitioner-corporation to comply In line with the foregoing, the non-
with the contract by delivering to him the scrap fulfillment could not even be considered a
iron subject thereof. breach, but simply an event that prevented the
obligation of the petitioner corporation to convey
title from acquiring binding force.
On the other hand, petitioner-
corporation insisted that the cancellation of the
contract was justified because of private
respondent’s non-compliance with essential pre-
conditions, among which was the opening of an
irrevocable and unconditional letter of credit not
later than May 15, 1983.

Trial Court ruled in favor of the private


respondent finding that Art 1593 of the Civil
Code, which provides for automatic rescission
upon failure to deliver or failure to pay movable
properties, could not be applied because implied
delivery was already made in the case at bar.
This implied delivery was manifested by the fact
that the petitioner-corporation allowed the
private respondent to dig and gather scrap iron
from its premises.

Court of Appeals affirmed the ruling. Conchita Nool, et al. vs. Court of Appeals, et
al.

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G.R. No. 116635, July 24, 1997

Third Division None.

PANGANIBAN, J: A contract of repurchase arising out of a sale


where the seller did not have any title to the
property “sold” is not valid. Since nothing was
sold, then there is also nothing to repurchase. It
FACTS: is clear that Conchita no longer had any title to
the parcels of land at the time of sale because
when the mortgaged parcels of land were
foreclosed due to their non-payment of said
Two parcels of land are in dispute and litigated
loan, ownership of the mortgaged lands was
which was formerly owned by Victorino Nool and
consolidated to DBP. DBP gave the mortgagors
Francisco Nool. Plaintiff spouses Conchita Nool
one year redemption period but this was not
seek recovery of the aforementioned parcels of
exercised by them. Thereafter Anacleto
land from defendants Anacleto Nool, younger
succeeded in buying the same, so that DBP’s
brother of Conchita. Plaintiffs alleged that they
titles were cancelled and new certificates of title
are the owners of subject parcels of land and
were issued to him. Since, the alleged contract
they bought the same from Conchita’s other
of repurchase was dependent on the validity of
brother, Victorino and Francisco. When they
the contract of sale, it is itself void. A void
were in dire of money, they obtained a loan from
contract cannot give rise to a valid one. It is
Development Bank of the Philippines (DBP)
likewise clear that Conchita can no longer
secured by a real estate mortgage on said land
deliver the object of the sale to the Anacleto
which was still registered in the names of
because he has already acquired title and
Victorino and Francisco. For their failure to pay
delivery thereof from the rightful owner, the
said loan, the mortgage was foreclosed. That
DBP. Thus, the contract may be deemed to be
within the period of redemption, plaintiff
inoperative. The right to repurchase
contacted defendant Anacleto to redeem it from
presupposes a valid contract of sale between
DBP which the latter did. Because of this, titles
the same parties. Undisputedly, Anacleto
of two parcels were transferred to Anacleto.
acquired title to the property from DBP and not
Anacleto agreed to buy the land for
from the petitioners. Petition denied.
P100,000.00, P30,000.00 of which was paid to
Conchita and upon payment of the balance
P14,000.00, plaintiffs were to regain possession
which amounts defendant failed to pay. Another
agreement was entered where by defendants
agreed to return to plaintiffs the land at anytime
the latter have the necessary amount. Plaintiffs
asked the defendants to return the same but
defendant refused, impelling them to come to
court for relief.

ISSUE:

Whether or not plaintiffs spouses has the right to


repurchase the parcels of land to Anacleto.

RULING:
Sps. Carlos and Eulalia Raymundo, et al. vs.
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Sps. Dominador and Rosalia Bandung

G.R. No. 171250, July 04, 2007 ISSUE:

Third Division

1. Whether or not the transaction entered


into by the parties was a contract of
CHICO-NAZARIO, J.: sale.
2. Whether or not Jocelyn is a buyer in
Good Faith.
FACTS:
RULING:

Eulalia was engaged in the business of buying


and selling large cattle. For this purpose, she 1. No.
employed “biyaheros” whose primary task In executing the said Deed of
involved the procuring of large cattle with the Sale, Dominador and Eulalia never
financial capital provided by Eulalia and intended the transfer of ownership of the
delivering the procured cattle to her for further subject property but to burden the same
diposal. To secure the financial capital she with an encumbrance to secure the
advanced for the “biyaheros” Eulalia required indebtedness incurred by Dominador on
them to surrender the Transfer Certificates of the occasion of his employment with
Title of their properties and to execute the Eulalia. By Eulalia’s own admission it
corresponding Deeds of Sale in her favour. was her customary business practice to
Dominador had been working for Eulalia as one require her “biyaheros” to deliver to her
of her “biyaheros” for three decades so she no the titles to their real properties and to
longer required him to post any security in the execute in her favour the corresponding
performance of his duties. However, Eulalia deeds of sale over the said properties
found that he incurred shortage in his cattle as security for the money she provided.
procurement operation so Dominador and his Hence, said transaction is an equitable
wife Rosalia Bandong executed a Deed of Sale mortgage, so that Eulalia has no right to
in favour of Eulalia. The subject property was subsequently transfer ownership of the
thereafter sold by Eulalia and her spouse Carlos subject property, in consonance that
Raymundo to Eulalia’s grandniece Jocelyn nobody can dispose of what he does not
which was later registered in the name of have. Their relationship is merely
Jocelyn and her husband Angelito Buenaobra. mortgagor and mortgagee rather than
Spouses Buenaobra instituted before the MeTC seller and buyer. The contention of
an action for ejectment against Souses Bandong petitioner that Dominador ceded his
which they opposed on the ground that they are property to Eulalia as payment for his
the rightful owners. Spouses Bandong instituted obligation for it is contrary to human
an action for annulment of sale before RTC experience because he would first look
against Eulalia and Jocelyn on the ground that for means to settle his obligation and the
their consent to the sale of the subject property selling of a property on which his house
was vitiated by Eulalia after they were served by that shelters them stand would be his
Jocelyn’s counsel to vacate. They alleged that last resort.
there was no sale intended but only equitable
mortgage for the purpose of securing the
shortage incurred by Dominador while employed
as “biyahero”. Jocelyn maintained that she was 2. No.
a buyer in good faith and for value. The court of Jocelyn is a grandniece of
appeals reversed the RTC Decision and found Eulalia which resides in the same
that the transaction entered into by Dominador locality where the latter lives and
and Eulalia was not one of sale but an equitable conducts her principal business.
mortgage. Hence this petition. Therefore it is impossible for her not to

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acquire knowledge of her grand aunt’s
business practice of requiring her
“biyaheros” to surrender the titles to
their properties as security. This should
put her on guard for any possible
abuses that Eulalia may commit with the
titles. Likewise she admitted that she
was aware that Dominador and Lourdes
were in possession of the property. A
buyer of real property that is in
possession of a person other than the
seller must be wary. A buyer who does
not investigate the rights of one in
possession can hardly be regarded as a
buyer in good faith.

Petition is denied.

ERLINDA SAN PEDRO vs. RUBEN LEE and


LILIAN SISON

G.R. No. 156522 May 28, 2004


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petitioner. On appeal, the Court of Appeals
reversed the trial court, and rendered a decision
FIRST DIVISION in favor of respondents, the dispositive portion of
which reads:

YNARES-SANTIAGO, J.:
Issue:

Whether the contract in question is an equitable


Facts: mortgage or a deed of absolute sale.

The parties in this case executed the Ruling:


"Kasulatan ng Ganap na Bilihan ng Lupa", which
states that the petitioner is the true owner of a
parcel of land located in Bulacan, which is
selling to the respondents for the amount of The document appears on its face to be a
P150,000. contract of sale, and contains the following
clause:

The document bears two signatures above the


typewritten words "ERLINDA SAN PEDRO, Na dahil at alang-alang sa halagang ISANG
Nagbibili". It contains the signatures of two DAAN AT LIMAMPUNG LIBONG PISO
witnesses. (P150,000.00), Salaping Pilipino, na ngayong
araw na ito ay ibinayad sa akin at tinanggap ko
naman ng buong kasiyahang-loob bilang husto
at ganap na kabayaran ni RUBIN T. LEE, may
Petitioner claims that she approached one Philip sapat na gulang, Pilipino, kasal kay Lilian Sison
dela Torre, who introduced her to respondent. at naninirahan sa 230 MacArthur Highway,
From Lee and his wife Lilian Sison, Petitioner Karuhatan, Valenzuela, Metro Manila, aking
was able to secure a loan in the amount of IPINAGBIBILI, ISINASALIN at INILILIPAT ng
P105,000.00, with interest of P45,000.00, or a ganap at patuluyan at walang anumang
total indebtedness of P150,000.00.6 As security pasusubali o pananagutan, ang lahat at boo [sic]
for this loan, she agreed to mortgage a parcel of kong karapatan at pagmamay-ari at
agricultural land located in Bulacan, pamumusesyon sa nabanggit na lagay ng lupa
at mga kaunlaran o mejoras na dito ay makikita
o nakatirik o matatagpuan sa nasabing RUBIN
T. LEE at sa kanyang mga tagapamana o
Petitioner claims that Atty. Roxas and Lee
kahalili.
coerced her to sign the "Kasulatan" and that the
document was executed merely as written
evidence of the loan and mortgage.

Respondents, on the other hand claim


that the sale of the property in question was It is well-settled that the presence of even one of
brokered by their mutual acquaintance and the foregoing circumstances is sufficient to
broker, Philip dela Torre. They thus negotiated declare a contract as an equitable mortgage, in
for the purchase of the property, which had an consonance with the rule that the law favors the
initial asking price of P200,000.00,21 and least transmission of property rights.For the
offered to pay P150,000.00 therefor. San Pedro presumption of an equitable mortgage to arise
accepted their offer and agreed to sell the land. under Article 1602, two requisites must concur:
(1) that the parties entered into a contract
denominated as a sale; and (2) that their
intention was to secure an existing debt by way
The trial court rendered a decision in favor of

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of a mortgage.

WHEREFORE, premises considered, the


decision of the Court of Appeals dated
November 20, 2002, which dismissed the
complaint filed by petitioner for lack of merit, is
AFFIRMED

Spouses Austria and Leonisa Hilario vs.


Spouses Gonzalez G.R. No. 147321
January 21, 2004 Second Division

QUISUMBING, J.,
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existence and genuineness of the letter was
FACTS: Spouses Hilario filed an action for never rebutted. Note that in said letter Leonisa
Declaration of Nulity against Spouses Gonzales used the term "Kasulatan ng Bilihan" (Deed of
involving 3 parcels of lands which were the Sale). She likewise made mention about capital
subject of 2 Deeds of Sale executed Leonisa gains tax and registration fees, which can only
Hilario in favor of the latter spouses. One lot was find relevance and necessity in a contract of sale
priced at P50, 000 and the other at P240,000. and not in a contract of mortgage. Petitioners
Spouses Hilario claimed that the contract cannot feign ignorance and illiteracy as to its
between them and Spouses Gonzalez were not contents. Said letter is written not in English but
of sale but loans for P260,000. However, it in Filipino in which petitioners are conversant.
turned out that Spouses Gonzalez registered the Thus, the true intent of the parties involves a
disputed lots in their names through the use of contract of sale. It is not merely a loan, much
fraud, misrepresentation and falsification, using less an equitable mortgage
the fictitious contracts of sale.

Spouses on the other hand contend that they


bought the said lots from Spouses Hilario merely
out of pity for them and that the Deed of
Absolute Sale was notarized.

RTC: ruled in favor of Spouses Hilario.

CA: REVERSED.

ISSUE: Whether the transaction is an absolute


sale or equitable mortgage of real property.

HELD: AFFIRMED.

The transaction is an absolute sale.

The presumption of equitable mortgage when


there is inadequacy of the selling price;
possession in the premises; and payment of
realty taxes is not conclusive. It may be rebutted
by competent and satisfactory proof to the
contrary. Here, Spouses Hilario failed to present
any proof whatsoever that the fair market values
of the real property in the area at the time of the
transaction were much higher than the selling
price of the parcels in question. As to the
allegation that petitioners were in possession of
the properties even after the sale, it is obviated
by the fact that they executed an undertaking
promising to vacate the premises.

Moreover, they failed to rebut the testimony of


the Notary Public who testified in court that the
petitioners as vendors of the properties
personally appeared and acknowledged the sale
documents before him.

Lastly, Leonisa Hilario sent a note to Mrs. Oscar Fernandez vs. Spouses Carlos and
Gonzales requesting them to execute another Narcisa Tarun G.R. No. 143868
antedated deed of sale, providing for a
decreased selling price, so as to reduce November 14, 2002 Third Division
petitioners' taxes, e.g. capital gains tax. The

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PANGANIBAN, J.: contract denominated as a contract of sale, and
that their intention was to secure an existing
FACTS: A fishpond located in Arellano-Bani debt by way of mortgage.
Dagupan City is co-owned by brothers Antonio,
Santiago, Demetria and Angel Fernandez, Furthermore, mere alleged inadequacy of the
together with their uncle Armando. Antonio and price does not necessarily void a contract of
Demetria sold their respective shares to sale, although the inadequacy may indicate that
Spouses Tarun. These sales were registered there was a defect in the consent, or that the
and annotated in the OCT. Later, the said co- parties really intended a donation, mortgage, or
owners executed a Deed of Extrajudicial some other act or contract. Finally, unless the
Partition of two parcels of registered land with price is grossly inadequate or shocking to the
exchange of shares. This involved the fishpond conscience, a sale is not set aside. In this case,
(1st) that was co-owned and another fishpond petitioners failed to establish the fair market
(2nd). It was also stipulated in the deed that the value of the property when it was sold in 1967.
parties recognize and respect the sale earlier Hence, there is no basis to conclude that the
made. Angel B. Fernandez exchanged his share price was grossly inadequate or shocking to the
in the 2nd fishpond to the shares of his co-owners conscience.
on the remaining portion of the 1st fishpond.
From that time on, they had been paying the
realty taxes thereon. However, it was Angel B.
Fernandez and later on his heirs, [petitioners],
who remained in possession of the entire
fishpond. The Spouses Tarun sought the
partition of the property but Angel Fernandez
refused. When he died, Spouses Tarun again
sought the partition of the property but Angel
Fernandez’s heirs [petitioner] again refused.
Hence, this action for partition.

RTC: in favor of petitioners. They are entitled to


redeem the property.

CA: REVERSED.

ISSUE: Whether or not the transaction is one of


absolute sale or equitable mortgage.

HELD: AFFIRMED.

The transaction is an absolute sale.

On its face, a document is considered a contract


of equitable mortgage when the circumstances
enumerated in Article 1602 of the Civil Code are
manifest, as follows: (a) when the price of the
sale with the right to repurchase is unusually
inadequate, and (b) when the vendor remains in
possession as lessee or otherwise. Although it is
undisputed that Angel Fernandez was in actual
possession of the property, it is important to note
that he did not sell it to respondents. The sellers
were his co-owners -- Antonio and Demetria
Fernandez -- who, however, are not claiming
that the sale between them was an equitable Tolentino and Roño vs. CA, De Guzman,
mortgage. For the presumption of an equitable Pongco and Baduria
mortgage to arise, one must first satisfy the
requirement that the parties entered into a
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G.R. No. 128759 Issues:

August 1, 2002 1.) Whether Art. 1602 (presumption of


equitable mortgage) is inapplicable
Second Division to the instant case.
2.) Whether the action for declaration of
Quisumbing, J: nullity of the Deed of Absolute Sale
is the proper remedy or cause of
action.
Facts:
Ruling:
Sps. Pedro and Josefina De Guzman
were the registered owners of a parcel of land 1.) Petitioners argue that Art. 1602 of
covered by TCT No. 20248 T-105 of the the Civil Code applies only when there is no
Register of Deeds of Quezon City (RD of QC). express agreement or stipulation between the
They obtained a loan from the Rehabilitation parties. But in the instant case, there was an
Finance Corporation (RFC), now Development express agreement, therefore inapplicable.
Bank of the Philippines (DBP), and executed a
mortgage security therefor. They failed to pay
the obligation; hence, the mortgage was
foreclosed. SC said wrong. There is nothing in Art.
1602 that indicates it applies only in the absence
of express agreement between the parties. The
trial court in rendering the decision considered
But before the expiry of the redemption foremost the real parties’ intent in entering into
period, Sps. De Guzman obtained another loan the transactions. It observed that the
of P18,000 from Raymundo Tolentino and transactions indicated that petitioners did not
Lorenza Roño (petitioners). The loan to RFC intend to hold the property as owner, but as
was paid and the mortgage was cancelled. security for the loan extended to the
Petitioners then requested Sps. De Guzman to respondents. Furthermore, the respondents
sign a Deed of Promise to Sell as security for remained in possession of the property and
the loan. Afterwards, they asked again Sps. De continued to pay real estate taxes even after the
Guzman to sign a Deed of Absolute Sale. execution of the Deed of Absolute Sale. These
Armed with the Deed of Absolute Sale, are badges of equitable mortgage. The trial
petitioners secured the cancellation of TCT No. court, invoking Art. 1602 and Art. 1604 of the
20248 T-105 and TCT No. 69164 was issued in Civil Code, ruled that these were sufficient to
their name. raise the presumption that the contract was an
equitable mortgage.

Upon the death of Pedro de Guzman in


1971, respondents tried to settle the remaining 2.) SC held that well entrenched is the
balance of the loan. Petitioners agreed to rule that litigants cannot raise an issue for the
reconvey the property on the condition that first time on appeal as this contravenes the
respondents pay the actual market value basic rules of fair play and justice. Moreover,
obtaining in 1971. Upon verification with the RD there is nothing in Art. 1605 that prohibits the
of QC, the De Guzmans found that the title was institution of an action different from the one
already in the name of the petitioners. provided therein. It uses the word “may” and
Consequently, respondents filed a complaint for denotes discretion and cannot be construed as
declaration of sale as equitable mortgage and mandatory. Thus, it is not obligatory for
reconveyance of property with damages. Both respondent to file an action for reformation of
the trial court and CA ruled in favor of instruments.
respondents. Hence, this instant petition.

Petition DENIED.

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_______________________________________

Art. 1602. The contract shall be presumed to be


an equitable mortgage, in any of the following
cases:

(1) When the price of a sale with right to


repurchase is unusually inadequate;

(2) When the vendor remains in possession


as a lessee or otherwise;

(3) When upon or after the expiration of the


right to repurchase another instrument
extending the period of redemption or
granting a new period is executed;

(4) When the purchaser retains for himself a


part of the purchase price;

(5) When the vendor binds himself to pay


the taxes on the thing sold;

(6) In any other case where it may be fairly


inferred that the real intention of the
parties is that the transaction shall secure
the payment of a debt or the performance
of any other obligation.

In any of the foregoing cases, any money,


fruits, or other benefit to be received by the
vendee as rent or otherwise shall be
considered as interest which shall be subject
to the usury laws.

Art. 1604. The provisions of article 1602 shall


also apply to a contract purporting to be an
absolute sale.

Georgina Hilado vs. Heirs of Rafael Medalla

G.R. No. 144227

February 15, 2002

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Second Division

Mendoza, J: However, the CA reversed the trial


court’s decision for the reason that the assessed
value of Lot No. 1031 is P145,460 and the
consideration was only for P50,000. As such, it
Facts: can only conclude that it was grossly
inadequate.
Gorgonio Macainan was the owner of
several properties in Bacolod City. Upon his
death in 1966, his estate was divided among his
heirs, including Berbonia who had predeceased Petitioner now seeks a reversal of the
him. In turn, her children Rafael, Lourdes and said decision.
Teresita, surnamed Medalla succeeded to her
inheritance. Rafael Medalla’s share consisted of
five hectares in Lot No. 1031 and 1,197 sq.m. in
the Lopez Jaena property. Issues:

1.) Whether Art. 1602 of the Civil Code


is present in the instant case.
In 1979 and 1981, Rafael executed a 2.) Whether the contract of deed of
Deed of Absolute Sale, purporting to sell his absolute sale executed is the law
share to Georgina Hilado (petitioner). The first between the parties.
deed was for Lot No. 1031 for P50,000 while the
second was for the Lopez Jaena property for
P25,000. Ruling:

1.) Under Art. 1602 in relation to Art.


1604 of the Civil Code, a contract purporting to
Over the next two years, Hilado and be an absolute sale is presumed to be an
Medalla executed three more contracts equitable mortgage –
concerning Lot No. 1031 and the Lopez Jaena
property.

(1) when the price of a sale . . . is unusually


inadequate;
In 1984, Berbonia’s sister, Anita
Macainan brought a suit against Hilado and (2) when the vendor remains in
Medalla for legal redemption. Medalla filed a possession as lessee or otherwise;
cross-claim against Hilado, alleging that the
Deed of Sale in 1979 was an equitable (6) in any other case where it may be fairly
mortgage to secure a loan for P50,000 which he inferred that the real intention of the
had received from Hilado. Nevertheless, Hilado parties is that the transaction shall
claims it was a deed of sale and not a loan secure the payment of a debt or the
agreement. performance of any other obligation

The trial court dismissed Anita’s The presence of these circumstances is


complaint and ruled in favor of petitioner, stating sufficient for a contract to be presumed as an
that Medalla as a third year law proper when the equitable mortgage.
deed was executed had full knowledge of the
consequences when he affixed his signature.
Hence, the court was convinced that the
In the instant case, there was evidence
intention was really to sell because all the
showing that the price paid by petitioner was
formalities required for a valid and enforceable
unusually inadequate as compared to the
contract have been fully satisfied.
market value of the lands in the neighborhood.

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Also, Medalla remained in possession of
the lot as corroborated by his tenant Ramon
Nessia and also by Anita Macainan.

Moreover, the series of transactions


executed after the 1979 Deed of Absolute Sale
indicated quite clearly that the real intention of
the parties was to secure the loans of Medalla.
In fact the CA held that “It is very unlikely for one
person who had acquired a property for a
certain price to sell the same property to the
same person five years after for the same price
rate, considering that they are unrelated, unless,
there has been an understanding between them
that the same property will be resold to Medalla
after the fulfillment of a resolutory condition.”

2.) The SC held that in view of the


conclusions reached, it will suffice to say that
even if a document appears on its face to be a
sale, the owner of the property may prove that
the contract is really a loan with mortgage and
that the document does not express the true
intent and agreement of the parties.

Petition DENIED.

SPOUSES JAYME C. UY and EVELYN UY,


petitioners,
vs.
THE HONORABLE COURT OF APPEALS and
SPS. NICANOR G. DE GUZMAN and ESTER
DE GUZMAN, respondents.

G.R. No. 109197 June 21, 2001

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MELO, J.: filed a complaint for ejectment on August 1,
1988 against the de Guzman spouses with the
Private respondents Nicanor de Metropolitan Trial Court of San Juan, Metro
Guzman, Jr. and Ester de Guzman were the Manila. On September 16, 1988, the de
owners of three lots located in Greenhills Guzmans filed a complaint with the Regional
Subdivision, San Juan, Metro Manila. In 1971, Trial Court of Pasig against Siochi, Salapantan,
they constructed, at a cost of P3 million, a 1,200 and herein petitioners, seeking the reformation
square meter residential house on two of the of the April 10, 1987 Deed of Absolute Sale to
lots. In 1987, the market value of the lots already the end that the true intention of the parties
ranged from P4,000 to P5,000 per square meter therein be expressed. On December 28, 1990,
while the house was worth about P10 million. the trial court rendered its decision in favor of
the de Guzmans. Aggrieved, petitioners
interposed an appeal with the Court of Appeals,
Sometime in 1987, Nicanor de Guzman,
the latter affirmed the decision of the trial court
Jr. decided to run for the position of
holding that the sale disputed by the de
Representative of the Fourth District of Nueva
Guzmans to Siochi was an equitable mortgage.
Ecija. Sometime in April 1987, however, de
Guzman’s campaign fund began to run dry and
he was compelled to borrow P2.5 Million from ISSUE : Whether or not the sale made by herein
Mario Siochi. The de Guzman spouses were private respondents was indeed an equitable
required to sign, as a sort of collateral, a deed of mortgage as held by both the trial court and the
sale dated April 10, 1987 whereby they appellate court
purportedly sold 2 of the 3 lots along with the
improvements thereon, to Siochi. De Guzman
was able to obtain two more loans of
P500,000.00 each from Siochi. No additional HELD: YES, the sale is an equitable mortgage.
collateral was required, the "deed of sale" being Art. 1602 of the New Civil Code provides:
more than sufficient to cover the original P2.5
million loan and the additional P1 million loan. The contract shall be presumed to be an
Despite the "deed of sale," however, the de equitable mortgage, in any of the following
Guzmans remained in possession of the cases:
property. Aside from these loans, de Guzman
also owed Siochi several debts, to repay these
other loans, the de Guzmans agreed with Siochi (1) When the price of a sale with right to
to have their 1,411 square meter vacant lot, repurchase is unusually inadequate;(2) When
which had already been "sold" to Siochi under the vendor remains in possession as lessee or
the April 10, 1987 deed of sale, sold. The sale of otherwise;(3) When upon or after the expiration
the same amounted to P4.8 Million, the of the right to repurchase another instrument
proceeds of which were all retained by Siochi. In extending the period of redemption or granting a
the meantime and without the knowledge of the new period is executed;(4) When the purchaser
de Guzman spouses, Siochi had the spouses retains for himself a part of the purchase price;
TCT cancelled on the basis of the deed of sale (5) When the vendor binds himself to pay the
executed by the spouses on April 10, 1987, and taxes on the thing sold;(6) In any other case
had new Torrens titles issued in his name. where it may fairly be inferred that the real
intention of the parties is that the transaction
shall secure the payment of a debt or the
On June 20, 1987, Siochi sold the two performance of any other obligation.
lots and the improvements thereon for P2.75
Million to herein petitioners Jayme and Evelyn
Uy. Thereafter, petitioners had Siochi’s titles The court was convinced and found that the
over the lots cancelled and had new titles issued questioned deed of sale is in reality a mere
over the property. On July 1, 1988, petitioners equitable mortgage and not an absolute sale in
entered into a contract of lease with option to view of the following circumstances:
buy with Roberto Salapantan. Salapantan was,
however, unable to obtain possession of the lots First, the consideration of the sale of P2.5 Million
since the premises were occupied by the de is grossly and unusually inadequate.Second,
Guzman spouses. Consequently, Salapantan despite the alleged deed of sale, plaintiffs have

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remained in actual and physical possession of
the litigated property up to the present
time.Third, the uncontradicted evidence is that
plaintiffs were driven to obtain the emergency
loan due to urgent necessity of obtaining funds
and they signed the deed of sale knowing that it
did not express their real intention. In fact,
additional loans in the total sum of P1 million
were extended to plaintiffs by Siochi even after
the execution of said sale without Siochi
demanding for any additional security.Lastly,
Siochi had retained for themselves the entire
proceeds of P4.8 million derived from the sale of
plaintiffs’ vacant lot. In the following
circumstances, it indubitably shows that the
alleged sale was indeed an equitable mortgage.
As found by both the trial court and appellate
court, the April 10, 1987 deed of sale executed
by the de Guzmans and Siochi was an equitable
mortgage, hence, the titles to the house and lots
which were sold by Siochi to petitioners actually
remained with the mortgagors, the de Guzmans.
The circumstance that the original transaction
was subsequently declared to be an equitable
mortgage must mean that the title to the subject
land which had been transferred to private
respondents actually remained or is transferred
back to petitioners herein as owners-
mortgagors, conformably with the well-
established doctrine that the mortgagee does
not become the owner of the mortgaged
property because the ownership remains with
the mortgagor. The issuance of a certificate of
title in Siochi’s favor did not vest upon him
ownership of the property. Neither did it validate
the sale made by Siochi to petitioners, which is
null and void. Article 2088 of the Civil Code
provides that the "the creditor cannot
appropriate the things given by way of pledge or
mortgage, or dispose of them." Being null and
void, the sale by Siochi of the questioned
property to petitioners, who are not innocent
purchasers, produced no legal effects
whatsoever.
SPOUSES OCTAVIO and EPIFANIA LORBES,
petitioners,
vs.
COURT OF APPEALS, RICARDO DELOS
REYES and JOSEFINA CRUZ, respondents.
G.R. No. 139884 February 15, 2001

GONZAGA-REYES, J.:

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Petitioners were the registered owners docketed as Civil Case No. 94-3296.
of a 225-square meter parcel of land located in
Antipolo, Rizal covered by Transfer Certificate of In the complaint, petitioners claimed that
Title No. 165009. Sometime in August 1991, the deed was merely a formality to meet the
petitioners mortgaged this property to Florencio requirements of the bank for the housing loan,
and Nestor Carlos in the amount of and that the real intention of the parties in
P150,000.00. securing the loan was to apply the proceeds
thereof for the payment of the mortgage
About a year later, the mortgage obligation. They alleged that the deed of sale did
obligation had increased to P500,000.00 and not reflect the true intention of the parties, and
fearing foreclosure of the property, petitioners that the transaction was not an absolute sale but
asked their son-in-law, herein private an equitable mortgage, considering that the
respondent Ricardo delos Reyes, for help in price of the sale was inadequate considering the
redeeming their property. Private respondent market value of the subject property and
delos Reyes agreed to redeem the property but because they continued paying the real estate
because he allegedly had no money then for the taxes thereto even after the execution of the
purpose he solicited the assistance of private said deed of sale.
respondent Josefina Cruz, a family friend of the
delos Reyeses and an employee of the Land On June 20, 1995, the trial court
Bank of the Philippines. rendered judgment in favor of petitioners, upon
finding that: (1) the Deed of Absolute Sale dated
It was agreed that petitioners will sign a October 21, 1992 did not reflect the true
deed of sale conveying the mortgaged property intention of the parties, and (2) the transaction
in favor of private respondent Cruz and entered into between petitioners and Cruz was
thereafter, Cruz will apply for a housing loan with not an absolute sale but an equitable mortgage,
Land Bank, using the subject property as considering that the price stated in the Deed of
collateral. It was further agreed that out of the Absolute Sale was insufficient compared to the
proceeds of the loan, P500,000.00 will be paid value of the property, petitioners are still in
to the Carloses as mortgagees, and an such possession of the property, and petitioners had
balance will be applied by petitioners for capital continued to pay the real estate taxes thereon
gains tax, expenses for the cancellation of the after the execution of the said deed of sale. The
mortgage to the Carloses, transfer of title to Court of Appeals reversed the above decision,
Josefina Cruz, and registration of a mortgage in finding that the transaction between petitioners
favor of Land Bank. Moreover, the monthly and Cruz was one of absolute sale, not of
amortization on the housing loan which was equitable mortgage. To the Court of Appeals,
supposed to be deducted from the salary of the transaction was unmistakably a contract of
private respondent Cruz will be reimbursed by sale, as evidenced by the numerous supporting
private respondent delos Reyes. documents thereto, such as the Contract to Sell
dated June 1992, Affidavit of Waiver/Assignment
On September 29, 1992, the Land Bank dated August 14, 1992, Receipt of Partial
issued a letter of guarantee in favor of the Advance Payment dated September 9, 1992,
Carloses, informing them that Cruz’s loan had and Transfer Certificate of Title No. 229891
been approved. On October 22, 1992, Transfer issued in the name of private respondent Cruz.
Certificate of Title No. 165009 was cancelled
and Transfer Certificate of Title No. 229891 in ISSUE: Whether or not the alleged sale was an
the name of Josefina Cruz was issued in lieu equitable mortgage
thereof.2 On November 25, 1992, the mortgage
was discharged. HELD: YES, the sale was indeed an equitable
mortgage. The Supreme Court held that the
Sometime in 1993, petitioners notified conditions which give way to a presumption of
private respondent delos Reyes that they were equitable mortgage, as set out in Article 1602 of
ready to redeem the property but the offer was the Civil Code, apply with equal force to a
refused. Aggrieved, petitioners filed on July 22, contract purporting to be one of absolute sale.
1994 a complaint for reformation of instrument Moreover, the presence of even one of the
and damages with the RTC of Antipolo, Rizal, circumstances laid out in Article 1602, and not a

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concurrence of the circumstances therein property only because they refused to vacate on
enumerated, suffices to construe a contract of Cruz’s demand is not accurate because the
sale to be one of equitable mortgage. This is records reflect that no such demand was made
simply in consonance with the rule that the law until more than a year since the purported sale
favors the least transmission of property rights. of the property.
Thus, under Article 1602 of the Civil Code, a
contract shall be presumed to be an equitable From the above, the Court is satisfied that
mortgage when --- (a) the price of a sale with enough of the circumstances set out in Article
right to repurchase is unusually inadequate; (b) 1602 of the Civil Code are attendant in the
the vendor remains in possession as lessee or instant case, as to show that the true
otherwise; (c) upon or after the expiration of the arrangement between petitioners and private
right of repurchase another instrument extending respondent Cruz was an equitable mortgage.
the period of redemption or granting a new
period is executed; (d) the purchaser retains for
himself a part of the purchase price; (e) the
vendor binds himself to pay the taxes on the
thing sold; and, (f) in any other case where it
may be fairly inferred that the real intention of
the parties is that the transaction shall secure
the payment of a debt or the performance of any
other obligation.

Applying the foregoing considerations to


the instant case, the Court found that the true
intention between the parties for executing the
Deed of Absolute Sale was not to convey
ownership of the property in question but merely
to secure the housing loan of Cruz, in which
petitioners had a direct interest since the
proceeds thereof were to be immediately applied
to their outstanding mortgage obligation to the
Carloses.

Understandably, the Deed of Absolute


Sale and its supporting documents do not reflect
the true arrangement between the parties as to
how the loan proceeds are to be actually applied
because it was not the intention of the parties for
these documents to do so. The sole purpose for
preparing these documents was to satisfy Land
Bank that the requirement of collateral relative to
Cruz’s application for a housing loan was met.

The facts further bear out that


petitioners remained in possession of the TOMAS SEE TUAZON vs. COURT OF
disputed property after the execution of the APPEALS and JOHN SIY LIM
Deed of Absolute Sale and the transfer of G.R. No. 119794 October 3, 2000
registered title to Cruz in October 1992. Cruz Third Division
made no demand on petitioners to vacate the Ponente: PURISIMA, J.:
subject premises until March 19, 1994;
interestingly, this was two days after petitioners FACTS: The case originated from a contract of
signified their intention to redeem the property mortgage constituted on the subject lot. Tomas
by paying the full amount of P600,000.00. On See Tuazon, who was then the President and
this basis, the finding of respondent court that General Manager of Universal Rubber Products,
petitioners remained in possession of the Inc., together with the spouses, See Tiong

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Cheng and Eng Tang Go See, mortgaged, not in the concept of owner. The first year of
together with other properties, subject lot to the Tuazons continued occupancy of Apt. No. 163
Philippine Bank of Commerce (PBCom), to was at Lims graciousness with the
secure a loan of 4,830,265.90 Pesos. When the understanding that after one year, the Tuazons
mortgagors failed to pay the mortgage debt, the will pay the appropriate rentals for the continued
mortgaged property was foreclosed and sold at use and occupation of the property. In the
public auction, with PBCom itself as the highest exercise of his right as owner of the property,
bidder. Lim leased Apartment No. 161 to a William Sze
On July 15, 1987, spouses Tomas S. where Lim signed the contract of lease as the
Tuazon and Natividad S. Tuazon sold to John lessor
Siy Lim (Lim) a 650 square meter conjugal lot
along A. del Mundo Street, 7th Avenue, Kaloocan ISSUE: Whether or not the deed of absolute
City, with a two-storey building and Apartment sale is in fact an equitable mortgage
Units Nos. 161 and 163 existing thereon.
Atty. Crisostomo, lawyer of the Tuazons, RULING: Petition is denied. Ruling of CA is
drafted the Absolute Deed of Sale, which was affirmed.
duly registered. By virtue of the said deed, TCT Article 1602 of the Civil Code provides
in the name of the Tuazons was cancelled and that a contact shall be presumed to be an
in lieu thereof, a TCT was issued in the name of equitable mortgage by the presence of any of
John Siy F. Lim. the following:
The Tuazons brought a Complaint for (1) When the price of a sale with right to
Reformation of Contract, Quieting of Title with repurchase is unusually inadequate;
Damages against John Siy F. Lim theorizing (2) When the vendor remains in possession as
that the real intention of the parties was to enter lessee or otherwise;
into a loan accommodation that their daughter (3) When upon or after the expiration of the right
Bernice told that her fiancé, the respondent was to repurchase another instrument extending the
willing to help them redeem the subject property period of redemption or granting a new period is
by accommodating them with 1Million Pesos. executed;
Appellee proposed that: 60% of the P1 Million, (4) When the purchaser retains for himself a part
or P600,000 would be a URPI loan where of the purchase price;
machineries worth P3 Million, by way of chattel (5) When the vendor binds himself to pay the
mortgage, would secure it, and 40% of the P1 taxes on the thing sold;
Million would be appellants personal loan. The (6) In any other case where it may be fairly
bank agreed to reduce the redemption price to inferred that the real intention of the parties is
One Million (P1,000,000.00) Pesos subject to that the transaction shall secure the payment of
the condition that petitioner surrendered in favor a debt or the performance of any other
of PBCom his (petitioner) Producer's Bank stock obligation.
certificates by way of dacion en pago. To keep Under Article 1604 of the New Civil
the creditors, suppliers and laborers of URPI Code, the provisions of Article 1602 shall also
from levying on subject property, petitioner apply to a contract purporting to be an absolute
decided to transfer the title thereof to Lim. The sale. And for these provisions of law to apply,
new title was to serve as security for the loan. two requisites must concur: that the parties
Lim filed hi s answer, theorizing that the entered into a contract denominated as a
Deed of Absolute Sale expressed the true contract of sale and that their intention was to
intention of the parties. Petitioner Tuazon and secure an existing debt by way of mortgage.
his daughter persuaded him to redeem for For an action for reformation of an instrument as
himself the extrajudicially foreclosed property provided for in Article 1359 to prosper, the
from PBCom because Tuazon was financially following requisites must concur, to wit: (1) there
incapable. must have been a meeting of the minds of the
Trial court decided for the respondent. parties to the contract; (2) the instrument does
Both parties filed an MR. not express the true intention of the parties; and
Trial court rendered a decision declaring that the (3) the failure of the instrument to express the
deed of absolute sale was an equitable true intention of the parties is due to mistake,
mortgage. fraud, inequitable conduct or accident. Here,
CA decided in favour of respondent. The Tuazon petitioner has not shown or established the
family remained in the premises sold to Lim. But presence of the aforestated requirements for the
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reformation of the deed in question.
Prepared by the lawyer of the herein
petitioner, Tomas See Tuazon, subject Deed of
Absolute Sale executed on July 15, 1987 is
couched in clear terms and conditions. John Siy
Lim had no hand in its preparation. Besides, the
voluntary, written and unconditional acceptance
of contractual commitments negate the theory of
equitable mortgage.

SPOUSES MARIO REYES VS. COURT OF


APPEALS
G.R. No. 134166 August 25, 2000
Second Division
Ponente: Bellosillo,J.:

FACTS: Two separate actions for specific


performance was filed by Spouses Ramos
agains Spouses Reyes and Spouses Victa to
compel them to segregate a total of 3000 square
meters of lot from each of their respective
shares in the estate of the FLorentino
Dominguez, their father.
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The Ramoses contended that alleged sales were not really sales but receipts
Conception Reyes and Araceli Vita sold 1,700 of sums of money by way of loans."
and 1,300 square meters of lot to them. The Court of Appeals however
Early 1991 Lot No. 4705 was finally disagreed and reversed the ruling of the trial
subdivided into several smaller lots and court on appeal. CA: We have examined the
partitioned extrajudicially among the five (5) instruments evidencing the transactions under
heirs of Florentino Dominguez although the consideration and found the language of each
records only disclosed three (3) names, clearly and without ambiguity to be setting forth
Concepcion Dominguez-Reyes, Araceli a contract of sale and purchase. And the
Dominguez-Victa and Fortunata Dominguez. authenticity and due execution of these deeds, it
Concepcion acquired a 2,440-square meter lot must be emphasized, are not disputed. They
while Araceli took possession of two (2) lots with are in fact admitted x x x x In the mind of this
a combined area of 2,340 square meters. court, appellants have convincingly proven the
Upon learning of the partition, the reality of the sale of the parcels of land subject
Ramoses demanded that the petitioners make hereof x x x these pieces of evidence are not
good their undertakings under the deed of sale mere drafts of contracts since everything for the
executed beforehand but the latter refused, existence of a perfect contract of purchase and
insisting that the deeds did not reflect the true sale are present. Neither can they possibly be
intention of the parties as their real intention was mistaken for receipts inasmuch as even their
simple loans of money the payment of which title – typewritten in capital letters and
was to be secured by mortgages. underlined – proclaims what each of the
Concepcion D. Reyes and Araceli D. documents is all about x x x x When contracting
Victa averred that between 1980 to 1985 they minds have reduced their agreement into
obtained individually various loans from Nilda writing, the contents of the writing constitute the
Ramos which were covered by handwritten sole repository of the terms of the contract
receipts prepared either by her or by her between the parties x x x x
daughter Dinah Ramos and signed by
Concepcion and Araceli. Sometimes they were ISSUE: The pivotal issue then is whether the
furnished by Nilda Ramos with duplicate copies parties intended the contested Deed(s) of
of the corresponding receipts although in most Absolute Sale and Transfer to be bona fide
instances only one (1) copy was prepared which absolute conveyances of parcels of land, or
Nilda retained. merely equitable mortgages
The loans were released by Nilda to
Concepcion and Araceli on a piecemeal basis, RULING: CA decision is inconsistent with law
and every time the loans reached an aggregate and equity. Trial court decision is reinstated and
amount of P10,000.00 to P20,000.00 Nilda affirmed.
would prepare a Deed of Absolute Sale and Art. 1602 of the Civil Code enumerates
Transfer which purported to convey in her favor the instances when a contract, regardless of its
a portion of the undivided shares of Concepcion nomenclature, may be presumed to be an
and Araceli in Lot No. 4705. To entice them to equitable mortgage: (a) when the price of a sale
sign the deeds, Nilda represented to them that with right to repurchase is unusually inadequate;
the instruments were merely for purposes of (b) when the vendor remains in possession as
complying with the formalities required by ARVI lessee or otherwise; (c) when upon or after the
Finance Corporation, which she owned, and expiration of the right to repurchase another
where the amounts loaned to them presumably instrument extending the period of redemption or
came from. Nilda Ramos further assured granting a new period is executed; (d) when the
Concepcion and Araceli that the deeds would purchaser retains for himself a part of the
not be notarized nor would they be enforced purchase price; (e) when the vendor binds
against them. That however out of a total of himself to pay the taxes on the thing sold; and,
eighteen (18) deeds of sale signed by (f) in any other case where it may be fairly
Concepcion and Araceli, it appeared that three inferred that the real intention of the parties is
(3) were actually notarized. Finally, Concepcion that the transaction shall secure the payment of
and Araceli offered to settle their indebtedness a debt or the performance of any other
but Nilda refused to accept payment. obligation.
Trial court rendered a decision in favor For the presumption of an equitable
of the Reyes and Victa spouses holding that "the mortgage to arise under Art. 1602, two (2)
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requisites must concur: (a) that the parties
entered into a contract denominated as a
contract of sale, and (b) that their intention was
to secure an existing debt by way of a
mortgage. The existence of any one of the
circumstances defined in the foregoing
provision, not the concurrence nor an
overwhelming number of such circumstances, is
sufficient for a contract of sale to be presumed
an equitable mortgage. The provision also
applies even to a contract purporting to be an
absolute sale, as in this case, if indeed the real
intention of the parties is that the transaction
shall secure the payment of a debt or the
performance of any other obligation.
The facts and evidence decidedly show
that the true intention of the parties was to
secure the payment of the loans and not to
convey ownership over the property in question.
The transactions were replete with veritable
badges of equitable mortgage.

Aguirre vs. CA and Tupas


G.R. No. 131520 January 28, 2000

Facts:

• In April 30, 1972, petitioner Estelita


Aguirre and private respondent Teofista
S. Tupas entered into a Deed of
Absolute Sale covering a 3,230 square
meter parcel of land located in Balabag,

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Malay, Aklan, in what is more popularly as follows:
known as Boracay Island.
‘Art. 1602. The contract shall be
presumed to be an equitable
mortgage, in any of the following
• Immediately thereafter, petitioner took cases:
possession and occupied the said
parcel of land. On August 15, 1984, (1).......When the price of a sale
however, claiming to have been with right to repurchase is
disturbed in the possession of the unusually inadequate;
subject land, petitioner filed a Complaint
for Quieting of Title and/or Recovery of (2).......When the vendor
Possession with Damages being co- remains in possession as lessee
owners with their sister, Teofista S. or otherwise;
Tupas, of the subject land.
(3).......When upon or after the
• On August 21, 1991, the Regional Trial expiration of the right to
Court of Kalibo, Aklan rendered repurchase another instrument
judgment dismissing the Complaint for extending the period of
lack of merit. It found that the contract redemption or granting a new
between the parties was one of period is executed;
equitable mortgage and not of sale.
(4).......When the purchaser
retains for himself a part of the
Issue: purchase price;
Whether or not the transaction between the
parties was not a sale but an equitable (5).......When the vendor binds
mortgage? himself to pay the taxes on the
thing sold;
Ruling:
(6).......In any other case where
Petition Denied
it may be fairly inferred that the
real intention of the parties is
• In determining the nature of a contract, that the transaction shall secure
courts are not bound by the title or name the payment of a debt or the
given by the parties. The decisive factor performance of any other
in evaluating such agreement is the obligation.
intention of the parties, as shown not
necessarily by the terminology used in In any of the foregoing cases,
the contract but by their conduct, words, any money, fruits or other
actions and deeds prior to, during and benefit to be received by the
immediately after executing the vendee as rent or otherwise
agreement. As such therefore, shall be considered as interest
documentary and parol evidence may which shall be subject to the
be submitted and admitted to prove usury laws.’ Lexj  uris
such intentio.against the spouses
Privado Tupas and Teofista S. Tupas.
The other private respondents then By the terms of Art. 1604, the
came in as intervenors, foregoing provisions ‘shall also
apply to a contract purporting to
be an absolute sale.’ x x x."
• Art. 1602 of the Civil Code enumerates
the instances when a contract,
regardless of its nomenclature, may be
presumed to be an equitable mortgage,

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• As already stated above, Article 1604 of • Neither was rent ever collected from
the Civil Code provides that the them for their occupancy of the land.
provisions of Article 1602 shall also
apply to a contract purporting to be an • Coming now to the temporary
absolute sale. The presence of even possession of the subject land by
one of the circumstances in Article 1602 petitioner, the court find credibility in
is sufficient basis to declare a contract private respondents’ claim that the
as one of equitable mortgage. spouses Tupas gave petitioner a ten
(10) year period to occupy the subject
land as part of their mortgage
agreement. That period of time may well
• The explicit provision of Article 1602 that be deemed as the time allotted to the
any of those circumstances would spouses Tupas, as mortgagors, to pay
suffice to construe a contract of sale to their indebtedness to petitioner. That
be one of equitable mortgage is in petitioner vacated the subject land after
consonance with the rule that the law having occupied the same only
favors the least transmission of property underscores the fact that no sale took
rights. To stress, the existence of any place between the parties. Otherwise,
one of the conditions under Article 1602, why would she, as rightful owner,
not a concurrence, or an overwhelming abandon the property she already was
number of such circumstances, suffices in possession of, only to leave
to give rise to the presumption that the possession of the same to her vendor?
contract is an equitable mortgage
• It is also of record that private
• Article 1602(6), in relation to Article respondents had continued paying tax
1604 provides that a contract of sale is on the subject land even after the same
presumed to be an equitable mortgage had been supposedly "sold" to
in any other case where it may be fairly petitioner. On the other hand, while
inferred that the real intention of the petitioner presented tax declarations in
parties is that the transaction shall her favor, the same would show that the
secure the payment of a debt or the taxes for the years 1974-1980 were only
performance of any other obligation. made by petitioner on June 4,
After a careful review of the records of 1985,almost a year after she had
the case, we are convinced that it already filed the suit below.
qualifies as an equitable mortgage
under Article 1602(6). This may be • In arguing that the transaction was one
gleaned from the following of sale, petitioner points out that private
circumstances surrounding the respondent Teofista Tupas was not a
transaction debtor at any time prior to the sale;
hence, it cannot be held that the subject
• First, it is not disputed that private land was being used as security for a
respondents spouses Tupas built two debt. However, it may be that the debt
cottages on the subject land as well as was given at the very moment of the
operated a sari-sari store and grew mortgage transaction.
banana plants on the same, such that,
per petitioner’s own account, almost ½ Lumayag v. Court of Appeals
half of the area had been occupied by G.R. No. 162112 July 3, 2007
them.Despite this bold possession, Facts:
petitioner admits that no demand to
vacate the land was ever made upon • During their lifetime, the spouses
the spouses Tupas. Their possession Jacinto Nemeño and Dalmacia
remained undisturbed for years, until the Dayangco-Nemeño, predecessors-in-
action below was filed in 1984. interest of the herein respondent heirs,
owned two (2) parcels of coconut land

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located in Manaca, Ozamiz City. The was lost when a typhoon hit and
parcels are: Lot No. 4049, with an area destroyed the couple’s house in Talisay,
of five (5) hectares and covered by Cebu. The petition was opposed by the
Original Certificate of Title (OCT) No. 0- other heirs of Jacinto and Dalmacia who
1743 and Lot No. 4035 C-4, consisting claimed that the owner’s duplicate copy
of 4,420 square meters and covered by of the same OCT was actually in the
Tax Declaration No. 13750 possession and custody of their brother
Meliton Nemeño, the administrator of
• In 1979, Dalmacia died survived by her the property, when it was burned in a
husband, Jacinto, and their six (6) fire on May 22, 1992. In an order dated
children, to wit: Meliton, Eleuteria, December 20, 1996, the RTC resolved
Timoteo, Justo, Saturnino (now said petition by ordering the issuance of
deceased) and Felipa. a new owner’s duplicate copy and its
delivery to the heirs of Jacinto and
Dalmacia.
• On February 25, 1985, Jacinto, joined
by his five (5) children, namely, Meliton,
Eleuteria, Timoteo, Justo and Saturnino, • The heirs of Jacinto and Dalmacia,
conveyed to his daughter Felipa and the namely, their children Meliton, Eleuteria,
latter’s husband Domingo Lumayag the Timoteo and Justo and grandchildren
aforementioned Lot. The instrument of Ricky and Daisy who are the heirs of
conveyance is denominated as Deed of Saturnino, (hereinafter collectively
Sale with Pacto De Retro referred to as the respondent heirs) filed
against the spouses Domingo Lumayag
and Felipa N. Lumayag a complaint for
• Thereunder, it was stipulated that the Declaration of Contract as Equitable
consideration for the alleged sale of the Mortgage, Accounting and Redemption
two (2) aforementioned lots was Twenty with Damages.
Thousand Pesos (P20,000.00) and that
the vendors a retro have the right to
repurchase the same lots within five (5) • Essentially, the complaint alleged that
years from the date of the execution of the subject Deed of Sale with Pacto De
the instrument on February 25, 1985. It Retro was executed only for the purpose
was likewise agreed thereunder that in of securing the payment of a loan of
the event no purchase is effected within P20,000.00 obtained from the defendant
the said stipulated period of five (5) spouses in connection with the
years “conveyance shall become medication and hospitalization of the
absolute and irrevocable without the then ailing Jacinto Nemeño.
necessity of drawing up a new absolute
deed of sale, subject to the • To support their claim that the contract
requirements of law regarding in question was an equitable mortgage,
consolidation of ownership of real the plaintiff heirs materially pointed out
property.” the following: (1) the grossly inadequate
price of the subject lots considering that
• More than a decade later, or on August Lot No. 4049 with an area of 5 hectares
28, 1996, the spouses Domingo has a market value of P40,760.00 and
Lumayag and Felipa Nemeño-Lumayag an assessed value of P15,230.00, as
filed with the RTC of Ozamiz City a shown by Tax Declaration No. 94-
petition for the reconstitution of the 07335-A, while Lot No. 4035 C-4 with an
owner’s duplicate copy of one of the two area of 4,420 square meters has a
lots subject of the earlier Deed of Sale market value of P4,120.00 and an
with Pacto De Retro. assessed value of P1,460.00, per Tax
Declaration No. 94-07355-A; (2) their
(plaintiffs’) continued payment of realty
• In that petition, the Lumayags alleged taxes; (3) the land title and tax
that said owner’s duplicate copy of was declaration remained in the names of
in Domingo’s possession but the same Jacinto Nemeño and Dalmacia

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Dayangco-Nemeño; (4) their • Here, there is no issue as regards the
possession, particularly Justo fact that the subject Deed of Sale with
Nemeño’s, of the subject lots with the Pacto De Retro provided for a 5-year
petitioner spouses only given two-thirds redemption period which expired on
share of the harvest therefrom; and (5) February 25, 1990. Evidently, then, the
the pactum commissorium stipulation in failure of the respondent heirs to
the subject contract. redeem the properties within the
stipulated period indubitably vested the
• Eventually, in a decision dated absolute title to and ownership thereof
February 3, 1999, the trial court to the petitioners. But such
adjudged the subject Deed of Sale with consequence would only be true if
Pacto De Retro as an equitable the contract that was executed
mortgage and ordered the defendant between the parties was indeed a
spouses to reconvey the lot to the pacto de retro sale and not an
plaintiff heirs for P20,000.00 equitable mortgage.

• Dissatisfied, both parties appealed to • The two (2) courts below unanimously
the CA. Unfortunately, for failure of the found that the subject Deed of Sale with
plaintiff heirs to submit their appeal brief, Pacto De Retro, while purporting to be a
their appeal was dismissed, leaving that sale, is in truth and in fact an equitable
of the defendant spouses mortgage. Such factual finding, more so
when supported by the evidence, as
here commands is binding upon the
• As stated at the threshold hereof, the
court.
appellate court, affirmed that of the trial
court but with the modification that the
mortgaged properties are subject to • An equitable mortgage has been
foreclosure should the respondents fail defined “as one which although lacking
to redeem the same within thirty (30) in some formality, or form or words, or
days from finality of the decision. other requisites demanded by a statute,
nevertheless reveals the intention of the
parties to charge real property as
• Hence this appeal...
security for a debt, and contains nothing
impossible or contrary to law.”
Issue:
• Article 1604 of the Civil Code provides
Whether or not the transaction between the
that the provisions of Article 1602 shall
parties was not a sale but an equitable
also apply to a contract purporting to be
mortgage?
an absolute sale, and, in case of doubt,
a contract purporting to be a sale with
right to repurchase shall be construed
Ruling: as an equitable mortgage.

• Petition denied. • The law requires the presence of any


one and not the concurrence of all of the
circumstances enumerated under Article
• Under a pacto de retro sale, title to and 1602, to conclude that the transaction is
ownership of property are immediately one of equitable mortgage.
vested in the vendee a retro, subject
only to the resolutory condition that the
vendor repurchases it within the • Here, the CA correctly found the
stipulated period. The failure of the presence of not merely one but four (4)
vendor a retro to repurchase the circumstances indicative of the true
property vests upon the vendee a retro nature of the subject transaction as an
by operation of law the absolute title and equitable mortgage, to wit: (a) gross
ownership over the property sold. inadequacy of the contract price of

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P20,000.00 for two (2) parcels of land, the realty taxes were declared has a
the total area of which is almost 5.5 valid and rightful claim over the land.
hectares; (b) respondent heirs
remained in possession of the subject • Lastly, the stipulation in the subject
property even after the execution of the deed reading: “if we fail to exercise our
supposedly Deed of Sale with Pacto de rights to repurchase as herein granted
Retro; (c) said respondents’ payment of within the period stipulated, then this
realty taxes; and (d) the provision on conveyance shall become absolute and
pactum commissorium irrevocable without the necessity of
• While the Supreme Court are not in full drawing a new absolute Deed of Sale,
accord with the CA in its observation subject to the requirements of law
that the consideration of the sale with regarding consolidation of ownership of
right to repurchase is grossly real property,” - is considered a pactum
inadequate since the market value and commissorium. This stipulation is
assessed value of the two lots were not contrary to the nature of a true pacto de
made on or before the date the subject retro sale since in such sale, ownership
contract was executed on February 25, of the property sold is immediately
1985 but only on June 8, 1994, still, transferred to the vendee a retro upon
there are other circumstances execution of the sale, subject only to the
convincing enough to support a repurchase of a vendor a retro within the
conclusion that the transaction in stipulated period.
question is really an equitable mortgage. • Undoubtedly, the aforementioned
stipulation is a pactum commissorium
• Evidence is extant on record that the because it enables the mortgagee to
respondent heirs, as vendors a retro, acquire ownership of the mortgaged
remained in possession of the subject properties without need of any
lots after the execution of the deed of foreclosure proceedings which is a
sale with right to repurchase. In stark nullity being contrary to the provisions of
contrast, evidence is wanting that Article 2088 of the Civil Code. Indeed,
petitioners ever enjoyed possession the inclusion of such stipulation in the
thereof. If the transaction was really a deed shows the intention to mortgage
sale with right to repurchase, as claimed rather than to sell.
by the petitioners, then the latter should
have asserted their rights for the
immediate delivery of the lots to them
instead of allowing some of the
respondents to freely stay in the
premises. Well-settled to the point of
being elementary is the doctrine that
where the vendor remains in physical
possession of the land as lessee or
otherwise, the contract should be
treated as an equitable mortgage

• As well, that the parties intended to
enter into an equitable mortgage is AMELIA S. ROBERTS, petitioner,
further accentuated by respondents’
vs.
continued payment of the real property
taxes subsequent to the alleged sale. MARTIN B. PAPIO, respondent.
Payment of those taxes is a usual
burden attached to ownership and
when, as here, such payment is coupled
with continuous possession of the February 9, 2007 G.R.No.166714
property, it constitutes evidence of great
weight that a person under whose name

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THIRD DIVISION amount of P150,000.00 as partial payment and
another P100,000.00 and were evidenced by
receipts signed by Ventura. However, Ventura
misappropriated P39,000.00 out of P250,000.00
Ponente: CALLEJO, SR. which is the reason why Roberts refused to
execute the Deed of Absolute Sale in favor of
Papio if Ventura would not pay the amount she
misappropriated.
FACTS: Spouses Martin and Lucina Papio
mortgage their residential lot in Makati in order
to secure P59,000.00 loan from Amparo
Investments Corporation. Upon Papio’s failure to Metropolitan Trial Court ruled in favor of
pay, the Corp. filed a petition for extrajudicial Roberts. Papio appealed to RTC, and in its
foreclosure of the mortgage. To prevent decision it affirmed the findings of MeTC. Papio
foreclosure, they executed a Deed of Absolute file a petiton for review in CA. CA ruled in favor
Sale over the property in favor of Amelia of Papio stating that what transpired is not a
Roberts (his cousin) for P85,000.00 purchase contract of absolute sale but an equitable
price. Transfer Certificate of Title is now in the mortgage and that Papio is entitled to
name of Amelia Roberts. possession of the property. Roberts filed a
petition for review assigning as error that
petitioner did not alleged in his Answer the
defense of equitable mortgage; hence the Ca
Roberts and Papio executed a 2-yr. contract of
should not have discussed the same.
lease subject to renewal at the option of the
lessor. After 2yrs Papio failed to pay the monthly
rentals but he and his family remained in the
possession of the property for almost 13yrs. ISSUE: whether the transaction entered into by
Roberts demanded Papio to vacate the property the parties under the Deed of Absolute Sale and
in case he failed to settle his back rentals Contract of Lease is an equitable mortgage.
amounting to P410,000.00. Papio refused to pay
and leave the premises.

RULING: CA erred in finding that the transaction


is an equitable mortgage. An EQUITABLE
Roberts now filed a complaint for unlawful MORTGAGE is one that although lacking in
detainer and damages against Papio before some formality, form or words, or other
Metropolitan Trial Court. requisites demanded by a statute, nevertheless
reveals the intention of the parties to change a
real property as security for a debt and contain
nothing impossible or contrary to law. The
In his Answer, Papio alleged that when the
decisive factor is the intention of the parties.
Corp. filed a petition for extrajudicial foreclosure,
his cousin Roberts offered to redeem the
property. Believing that she had made the offer
for the purpose of retaining his ownership over In Papio’s Answer he stated that he was given
the property, he accepted. However, he was the right of redemption at any time; that he had
alarmed when Roberts had a Deed of Absolute repurchased the property and consequently he
Sale over the property prepared. He then obliged Roberts to execute a deed of absolute
believed that if he signed the deed, Roberts sale in his favor. With this claims, it is antithetical
would acquire ownership over the property. He to an equitable mortgage.
asked her to allow him to redeem the property
anytime for a reasonable amount. Roberts
agreed so he signed the Deed of Absolute Sale.
Pursuant to the right to redeem given him, Papio In PACTO DE RETRO SALE, ownership of the
purchased the property for P250,000.00. Since property sold is immediately transferred to the
Roberts was already in USA, he remitted to her vendee a retro subject only to the right of the
authorized representative Perlita Ventura the vendor a retro to repurchase the property upon

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compliance with legal requirements for
repurchase. Failure of the vendor a retro to
exercise the right to repurchase within the
agreed time vests upon the vendee a retro, by
operation of law, absolute title over the property.

One who repurchase a property means that the


property was previously sold. The right of
repurchase presupposes a valid contract of sale
between the parties. Papio insisted that he
repurchased the property thereby admitting that
a deed of absolute sale was executed by him
and petitioner and not an equitable mortgage.
Papio is barred from claiming otherwise.

The right of repurchase is not a right granted the


vendor by the vendee, but a right reserved by
the vendor in the same instrument of the sale as
one of the stipulations of the contract. When the
sale is made without such agreement, the
purchaser acquires the thing sold absolutely.

When the language of the contract is explicit,


leaving no doubt as to the intention of the
drafters, the courts may not read into it any other
intention that would contradict its plain import.

DIONISIA DORADO VDA. DE DELFIN,


petitioner vs. SALVADOR DELLOTA,
respondent.

January 28, 2008 G.R. No.143697

FIRST DIVISION

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Ponente: SANDOVAL-GUTIERREZ ramifications of her signing the Deed of Sale
with Right of Redemption. Nor is there any
showing that she was threatened, forced or
defrauded into affixing her signature on the said
FACTS: Dionisia Dorado Delfin is the registered contract.
owner of Lot in Capiz with an area of 143,935
square meters. Dionisia executed an Escritura If the terms of the pacto de retro sale were
De Venta Con Pacto de Retro over 50,000 unfavorable to Dionisia, this Court has no
square meters in favor of Ildefonso Dellota and business extricating her from that bad bargain.
Patricia Delfin. Courts are not guardians of persons who are not
legally incompetent.

Dionisia sold another portion to Gumersinda


Deleña as evidenced by a notarized “Deed of
Sale with Right of Redemption” thus, leaving an
unsold area of more than 43,000 square meters.

Dionisia never redeemed this 50,000 square


meter portion from Gumersindo.

Dionesia’s heirs now contend that the Deed of


Sale with Right of redemption entered into by
Dionisia and Gumersindo is an equitable
mortgage. They insist that the price of
P5,3000.00 for 5 hectare portion is grossly
inadequate.

ISSUE: whether the transaction entered into by


Dionisia is an equitable mortgage.

RULING: An EQUITABLE MORTGAGE is one


that although lacking in some formality, form or
words, or other requisites demanded by a
statute, nevertheless reveals the intention of the
parties to change a real property as security for Bautista vs. Unangst
a debt and contain nothing impossible or
contrary to law. The decisive factor is the G.R. No. 173002; July 04, 2008
intention of the parties.

Third Division
There is gross inadequacy in price if a
reasonable man will not agree to dispose of his Reyes, R.T., J.:
property. The court finds no cogent reason to
conclude that the 1949 price of P5,300.00 as
agreed upon by the parties was unreasonable. FACTS:

Hamilton Salak and Shirley G. Unangst


were arrested on February 02, 1997 for estafa
There is no evidence herein whatsoever to show
and carnapping for the former’s failure to return
that Dionisia did not understand the
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a car he rented from Benjamin Bautista.
Bautista demanded from Salak the sum of Php
232, 372.00 as payment for car rental fees, RATIO DECIDENDI:
other fees and incidental expenses in the
retrieval of the car. The Deed of Sale with right to
repurchase qualifies as an equitable mortgage
Salak and the respondent proposed to under Article 1602, for respondent merely
sell to the petitioner a house & lot under the secured the payment of the unpaid car rentals
Unangst’s name to amicably settle the cases and the amount advanced by petioner to Jojo
filed against them and their accounts with the Lee.
same, which the petitioner welcomed.
Furthermore, petitioner agrees to pay the Provided for are the cases to presume a
mortgage loan over the subject property to a contract to be an equitable mortgage under
certain Jojo Lee (as the property was then set to Article 1602 (NCC):
be publicly auctioned).
(1.) When the price of the sale with right to
They executed a deed of sale with right repurchase is unusually inadequate;
to repurchase within 30 days, and that the (2.) When the vendor remains in possession
respondents shall pay the taxes and utility bills as lease or otherwise;
related to the subject property. (3.) When upon or after the expiration of the
right to repurchase another instrument
Upon the failure of the respondent to extending the period of redemption or
repurchase, petitioner filed a complaint for granting a new period is executed;
specific performance or recovery of possession, (4.) When the purchaser retains for himself a
for sum of money, for consolidation of part of the purchase price;
ownership, and damages against the (5.) When the vendor binds himself to pay the
respondent. taxes on the thing sold;
(6.) In any other case where it may be fairly
After the RTC deciding in favor of the inferred that the real intention of the
petitioner, respondent now argues before the CA parties is that the transaction shall secure
to annul the deed, arguing that respondent the payment of a debt of the performance
Unangst’s consent to the deed was procured of any other obligation
under duress and assuming arguendo that the
same was freely given the same partakes the
nature of an equitable mortgage and not of sale. In the case at bar, first, the consent was
The CA ruled in favor of the respondent; hence taken in duress since it was signed by the
this petition for review on certiorari. respondent to be freed from police custody.
Following the principle, “Nel consensui tam
The petitioner argues that the deed was contrarium est quam vis ataqui mtus”
clear and unequivocal, ergo; such must be (Necessitous men are not, truly speaking, free
construed in its literal sense. men; but to answer a present emergency will
submit to any terms that the crafty may impose
upon them).

ISSUE: Second, petitioner allowed respondent


Salak to retain the possession of the property
Whether the subject contract is that of despite the execution of the deed since the latter
sale or an equitable mortgage? is not even bound to deliver the possession of
the property to the former if they would pay him
the amount he demanded. In this case it shall
be presumed that it is an equitable mortgage, for
HELD:
if otherwise, the legal title to the property must
The Deed of Sale with right to be immediately transferred to the vendee,
repurchase is that of an equitable mortgage. subject to the vendor’s right to redeem. Ergo,
The petition is denied for lack of merit. retention by the vendor of the possession is
inconsistent with the vendee’s acquisition of the
right of ownership under a true sale. It
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discloses, in the alleged vendee, a lack of
interest in the property that belies the
truthfulness of the sale a retro.

Third, the deed was executed by reason


of: (01.) the alleged indebtedness of Salak to
petitioner, that is, car rental payments; and (02.)
respondent’s own obligation to petitioner, that is,
reimbursement of what petitioner paid to the
mortgagee, Jojo Lee. Fact is, the purchase
price stated in the deed was the amount of the
indebtedness of both respondent and Salak to
petitioner.

Apparently, the deed purports to be a


sale a retro, on the other hand, since the same
was executed in consideration of the aforesaid
loans and/or indebtedness, said contract is
firmly settled that whenever it is clearly shown
that a deed of sale with pacto de retro, regular
on its face, is given as security for a loan, it must
be regarded as an equitable mortgage.

Moreover, it is provided for in Article


1603 (NCC) that: “in case of doubt, a contract
purporting to be a sale with right to repurchase
shall be construed as an equitable mortgage.”

Lorbes vs. Court of Appeals

G.R. No. 139884; February 15, 2001

Octavio and Lorbes (petitioners)


mortgaged their parcel of land in Antipolo, Rizal
to Florencio and Nestor Carlos for Php 150,
000.00 that subsequently increased to Php 500,
000.00 in a year. In fear of foreclosure,
petitioner asked their son-in-law, delos Reyes
(herein respondent), for help in redeeming the
subject property. Since the latter has no money
for that purpose, he solicited the help of his
friend Josefina Cruz, a Land Bank of the
Philippines (LBP) employee.

It was agreed upon by the parties that:

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(1.) they would sign a deed of sale conveying The private respondent (delos Reyes) was
the mortgaged property in favor of private declared in default and the case proceeded in ex
respondent Cruz; and thereafter parte. The lower court ruled in favor of the
(2.) Cruz will apply for a housing loan with petitioners, since the sale was executed in order
Land Bank, using the subject property as to secure a loan from LBP to save the property
collateral; from the danger of foreclosure and to use it as
(3.) it was further agreed that out of the collateral thereof for bank loan purposes and
proceeds of the loan, P500,000.00 will be that the same does not reflect the real intention
paid to the Carloses as mortgagees, and of the parties in executing the said Deed of Sale.
any such balance will be applied by Furthermore, the petitioners are still in
petitioners for capital gains tax, expenses possession of the subject property and had been
for the cancellation of the mortgage to the paying the realty taxes thereon even after the
Carloses; execution of the deed, and that the petitioners
(4.) transfer of title to Josefina Cruz; were merely forced to enter into the said
(5.) and registration of a mortgage in favor of transaction out of the grave necessity of
Land Bank; and redeeming the subject property at that time.
(6.) the monthly amortization on the housing
loan which was supposed to be deducted The CA reversed the decision of the lower
from the salary of private respondent Cruz court; hence this petition for review on certiorari.
will be reimbursed by private respondent
delos Reyes.
ISSUES:
After which, LBP issued a letter of
guarantee in favor of the Carloses, informing Whether the Deed of Absolute Sale
them that Cruz’ loan has been approved, and entered into by the parties was an equitable
subsequently a new title in the name of Cruz mortgage?
was issued in lieu thereof; thus, the mortgage
was discharged.

In 1993, the petitioners notified delos


Reyes that they are now capable of redeeming
the subject property, but the latter refused. This
led the former to file an action for reformation of
instrument plus damages.
HELD:
The petitioners argue that:
The Deed of Absolute Sale is an
(1.) the deed was merely a formality to meet equitable mortgage. The CA decision is
the requirements of the bank for the reversed and the RTC decision is reinstated.
housing loan, and that the real intention of
the parties in securing the loan was to
apply the proceeds thereof for the
payment of the mortgage obligation; RATIO DECIDENDI:
(2.) that the deed of sale did not reflect the
true intention of the parties, and that the There is no conclusive test to determine
transaction was not an absolute sale but whether a deed of absolute sale on its face is
an equitable mortgage, considering that really a simple loan accommodation secured by
the price of the sale was inadequate a mortgage, ergo; “the decisive decisive factor in
considering the market value of the evaluating such agreement is the intention of the
subject property and because they parties, as shown not necessarily by the
continued paying the real estate taxes terminology used in the contract but by all the
thereto even after the execution of the surrounding circumstances, such as the relative
said deed of sale situation of the parties at that time, the attitude,
acts, conduct, declarations of the parties, the
negotiations between them leading to the deed,

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and generally, all pertinent facts having a emergency, will submit to any terms that the
tendency to fix and determine the real nature of crafty may impose upon them,” since the
their design and understanding. As such, transaction was borne out of the impending
documentary and parol evidence may be foreclosure of the subject property.
submitted and admitted to prove the intention of
the parties.” Lastly, the petitioners remained in
possession of the subject property after the
Provided for are the cases to presume a execution of the deed; and Cruz made no
contract to be an equitable mortgage under demand to the former to vacate the premises.
Article 1602 (NCC):

(1.) When the price of the sale with right to


repurchase is unusually inadequate;
(2.) When the vendor remains in possession
as lease or otherwise;
(3.) When upon or after the expiration of the
right to repurchase another instrument
extending the period of redemption or
granting a new period is executed;
(4.) When the purchaser retains for himself
a part of the purchase price;
(5.) When the vendor binds himself to pay
the taxes on the thing sold;
(6.) In any other case where it may be fairly
inferred that the real intention of the
parties is that the transaction shall
secure the payment of a debt of the
performance of any other obligation.

And that the conditions herein set forth


by the law which give way for the presumption of
equitable mortgage apply with equal force to a
contract purporting to be one of absolute sale.
The presence of even one of these
circumstances, and not the concurrence of these
circumstances, suffices to construe a contract of
sale to be one of equitable mortgage.

The SC finds that the true intention


between the parties for executing the Deed of
Sale was not to convey ownership of the subject
property but merely to secure the housing loan
of Cruz, in the petitioners had direct interest
since the proceeds thereof was to be
immediately applied to their outstanding
mortgage obligation to the Carloses. Although
this is not shown in the supporting documents of
the principal transaction between the parties, the
sole purpose of these documents was to satisfy
LBP.

Second, the consent given by the


petitioners where in duress following the
principle, “Necessitous men are not, truly
speaking, free men; but to answer a present

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executed a Special Power of Attorney in favor of
Parangan to secure an agricultural loan from
private respondent Philippine National Bank
(PNB) with the aforesaid lot as collateral. On
February 18, 1972, a second Special Power of
Attorney was executed by petitioner, by virtue of
which, Parangan was able to secure four (4)
additional loans. The last three loans were
without the knowledge of herein petitioner and
all the proceeds therefrom were used by
Parangan for his own benefit. These
encumbrances were duly annotated on the
certificate of title. On April 16, 1973, petitioner
signed a Deed of Pacto de Retro Sale in favor of
Parangan which was superseded by the Deed of
Definite Sale dated May 4, 1979 which petitioner
signed upon Parangan's representation that the
same merely evidences the loans extended by
him unto the former.

For fear that her property might be prejudiced by


the continued borrowing of Parangan, petitioner
demanded the return of her certificate of title.
ADORACION LUSTAN, petitioner, vs. COURT Instead of complying with the request, Parangan
OF APPEALS, NICOLAS PARANGAN and asserted his rights over the property which
SOLEDAD PARANGAN, PHILIPPINE allegedly had become his by virtue of the
NATIONAL BANK, respondents. aforementioned Deed of Definite Sale. Under
said document, petitioner conveyed the subject
property and all the improvements thereon unto
[G.R. No. 111924. January 27, 1997] Parangan absolutely for and in consideration of
the sum of Seventy Five Thousand Pesos.

THIRD DIVISION

FRANCISCO, J.:
Aggrieved, petitioner filed an action for
cancellation of liens, quieting of title, recovery of
possession and damages against Parangan and
FACTS PNB in the Regional Trial Court of Iloilo City.
The RTC ordered the cancellation by the
Register of Deeds of the Province of lloilo, of the
unauthorized loans, the liens and encumbrances
Petitioner Adoracion Lustan is the registered appearing in the Transfer Certificate of the land.
owner of a parcel of land. On February 25, 1969, Declaring the Deed of Pacto de Retro Sale
petitioner leased the land to private respondent dated April 25, 1978 and the Deed of Definite
Nicolas Parangan for a term of ten (10) years Sale dated May 6, 1979, both documents
and an annual rent of One Thousand executed by Adoracion Lustan in favor of
(P1,000.00) Pesos. During the period of lease, Nicolas Parangan over Lot 8069 in TCT No. T-
Parangan was regularly extending loans in small 561 of the Register of Deeds of lloilo, as null and
amounts to petitioner to defray her daily void, declaring the same to be Deeds of
expenses and to finance her daughter's Equitable Mortgage. It also ordered defendant
education. On July 29, 1970, petitioner Nicolas Parangan to pay all the loans he
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secured from defendant PNB using thereto as as an issue the fact that the document does not
security TCT No. T-561 of plaintiff and express the true intent of the parties. In this
defendant PNB to return TCT No. T-561 to case, parol evidence then becomes competent
plaintiff. Also, Ordering defendant Nicolas and admissible to prove that the instrument was
Parangan to return possession of the land in in truth and in fact given merely as a security for
question to the plaintiff upon payment of the sum the repayment of a loan. And upon proof of the
of P75,000.00 by plaintiff to defendant Parangan truth of such allegations, the court will enforce
which payment by plaintiff must be made within the agreement or understanding in consonance
ninety (90) days from receipt of this decision; with the true intent of the parties at the time of
otherwise, sale of the land will be ordered by the the execution of the contract.
court to satisfy payment of the amount;

"Art. 1604. The provisions of Article 1602 shall


Upon appeal to the Court of Appeals (CA), also apply to a contract purporting to be an
respondent court reversed the trial court's absolute sale."
decision.

For a presumption of an equitable mortgage to


ISSUE arise, we must first satisfy two requisites
namely: that the parties entered into a contract
denominated as a contract of sale and that their
intention was to secure an existing debt by way
Whether or not the Deed of Definite Sale is in of mortgage. Under Art. 1604 of the Civil Code,
reality an equitable mortgage. a contract purporting to be an absolute sale shall
be presumed to be an equitable mortgage
should any of the conditions in Art. 1602 be
present. The existence of any of the
RULING
circumstances therein, not a concurrence nor an
overwhelming number of such circumstances,
suffices to give rise to the presumption that the
The Deed of Definite Sale is in reality an contract is an equitable mortgage.
equitable mortgage as it was shown beyond
doubt that the intention of the parties was one of
a loan secured by petitioner's land.
Art. 1602, (6), in relation to Art 1604 provides
A contract is perfected by mere consent. More that a contract of sale is presumed to be an
particularly, a contract of sale is perfected at the equitable mortgage in any other case where it
moment there is a meeting of minds upon the may be fairly inferred that the real intention of
thing which is the object of the contract and the parties is that the transaction shall secure
upon the price. This meeting of the minds the payment of a debt or the performance of any
speaks of the intent of the parties in entering into other obligation.
the contract respecting the subject matter and
the consideration thereof. If the words of the
contract appear to be contrary to the evident That the case clearly falls under this category
intention of the parties, the latter shall prevail can be inferred from the circumstances
over the former. In the case at bench, the surrounding the transaction as herein set forth:
evidence is sufficient to warrant a finding that
petitioner and Parangan merely intended to
consolidate the former's indebtedness to the
latter in a single instrument and to secure the Petitioner had no knowledge that the contract
same with the subject property. Even when a she signed is a deed of sale. The contents of
document appears on its face to be a sale, the the same were not read nor explained to her so
owner of the property may prove that the that she may intelligibly formulate in her mind
contract is really a loan with mortgage by raising the consequences of her conduct and the nature

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of the rights she was ceding in favor of
Parangan. Petitioner is illiterate and her
condition constrained her to merely rely on
Parangan's assurance that the contract only
evidences her indebtedness to the latter. When
one of the contracting parties is unable to read,
or if the contract is in a language not understood
by him, and mistake or fraud is alleged, the
person enforcing the contract must show that
the terms thereof have been fully explained to
the former. Settled is the rule that where a party
to a contract is illiterate or cannot read or cannot
understand the language in which the contract is
written, the burden is on the party interested in
enforcing the contract to prove that the terms
thereof are fully explained to the former in a
language understood by him. To our mind, this
burden has not been satisfactorily discharged.

We do not find the testimony of Parangan and


Delia Cabial that the contract was duly read and
explained to petitioner worthy of credit. The
assessment by the trial court of the credibility of
witnesses is entitled to great respect and weight
for having had the opportunity of observing the
conduct and demeanor of the witnesses while
testifying.

The presumption of equitable mortgage prevails.


The contract of definite sale, where petitioner
purportedly ceded all her rights to the subject lot
in favor of Parangan, did not embody the true
intention of the parties. The evidence speaks
clearly of the nature of the agreement — it was
one executed to secure some loans.

SPOUSES CRISPIN AUSTRIA and LEONISA


HILARIO, petitioners, vs. SPOUSES DANILO
GONZALES, JR., and VERONICA
GONZALES, respondents.

[G.R. No. 147321. January 21, 2004 ]

SECOND DIVISION

QUISUMBING, J.:

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Hilario sold to them the three lots in question.
Respondent Veronica Gonzales agreed to buy
FACTS the same out of pity for petitioners, whose
several properties had earlier been foreclosed
by the bank. The transaction was embodied in a
Deed of Absolute Sale and notarized before
On September 4, 1991 , petitioners Crispin Notary Public Protacio Cortez, Jr. The original
Austria and Leonisa Hilario filed a civil action for amount in the Deed of Absolute Sale was
Declaration of Nullity of Document and P240,000. However, before the properties were
Reconveyance before the RTC of Malolos, registered, petitioner Leonisa Hilario in a letter
Bulacan, against herein respondents Danilo dated July 20, 1983 , requested for the
Gonzales, Jr., and Veronica Gonzales. In their execution of another Deed of Absolute Sale
Complaint, petitioners alleged that they are the indicating a price of P50,000, purportedly to
owners and possessors of three (3) parcels of lessen the taxes and fees that they will be
land, all in the name of petitioner Leonisa paying as the vendors.
Hilario.

Said parcels became the subject of two (2)


Deeds of Absolute Sale, one dated July 21, According to respondents, a new Deed of
1979 , priced at P50,000 and the other dated Absolute Sale indicating a selling price of
October 23, 1981 priced at P240,000. Both P50,000 for the 3 lots was executed and
deeds were executed by petitioner Leonisa notarized before Notary Public Jose Ramos.
Hilario in favor of respondents. But petitioners Shortly afterwards, according to respondents,
claimed that the transactions entered between the titles of said lots were transferred to them.
petitioners and respondents were not actually
sales, but merely loans in the amount of
P260,000. According to petitioners, they used
this amount to redeem some mortgaged After respondents wrote petitioners on June 20,
properties from the Rural Bank of Pandi, 1983, asking them to vacate the disputed
Bulacan. To secure the loan, however, properties, petitioners sent respondents on July
respondents required petitioners to furnish them 28, 1983, an UNDERTAKING5 promising to
with ten (10) TCTs. Three of these certificates vacate and surrender possession of the
covered the petitioners' properties subject of the properties on or about December 15, 1983,
present case, while .the other seven belonged to without further extension. But then petitioners
their relatives. Petitioners admitted that their failed to vacate as promised on said date. Their
debts to respondent spouses remained unpaid failure to vacate and turn over the purchased
due to business reverses. lots prompted respondents to send a final
demand letter asking petitioners to vacate the
premises but petitioners still refused. As a result,
said respondents were forced to file an
According to petitioners, respondents thereafter ejectment suit before the Municipal Trial Court of
registered the disputed properties in their own Pandi, Bulacan,6 against petitioners. That suit
names through the use of fraud, was decided by the municipal court in
misrepresentation and falsification, using the respondents' favor.
fictitious contracts of sale. Petitioners alleged
that they came to know of said acts of
respondents only when they were served with a
notice dated May 22, 1991 , from respondents' Hence the petitioners elevated their case to the
counsel to vacate said lots. Thus, petitioners Regional Trial Court of Malolos.
sought the reconveyance of the three parcels
from respondents, with moral damages and
attorney's fees.
On August 11, 1995 , after trial on the merits,
the RTC of Malolos decided Civil Case No. 552-
M-91 against respondents and in favor of herein
For their part, respondents insisted in their petitioners.
Answer that on October 1981, petitioner Leonisa

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mortgage is not conclusive. It may be rebutted
by competent and satisfactory proof to the
Applying Article 1604 of the Civil Code in contrary. In the instant case, petitioners' claim
relation to Article 1602,the RTC observed that: that the selling price of the lots in question was
(a) petitioners as the vendor remained in inadequate needs closer scrutiny. Petitioners'
physical possession of the lots even after the allegation that the insufficiency of the selling
execution of the deed of sale; (b) petitioners price creates the presumption that the
paid the realty taxes for the years 1982 and transaction is an equitable mortgage is
1983; and (c) the purchase price of P50,000.00 unsupported by the evidence on record.
was unusually inadequate by any standard for Petitioners failed to present any proof
realties. whatsoever that the fair market values of the
real property in the area at the time of the
transaction were much higher than the selling
price of the parcels in question. Mere allegation
Respondents seasonably appealed the decision that the price paid by respondents was
to the Court of Appeals. It reversed the trial inadequate, without more, does not make a case
court's decision. favorable to petitioners.

ISSUE As to the allegation that petitioners were in


possession of the properties even after the sale,
it is obviated by the fact that they executed an
WHETHER OR NOT THE COURT OF undertaking promising to vacate the premises.
APPEALS IS CORRECT IN HOLDING THAT But they repeatedly delayed honoring it. The
THE CONTRACT BETWEEN PETITIONERS records also show that they did not object when
AND RESPONDENTS WAS A SALE AND NOT improvements were made on the premises by
AN EQUITABLE MORTGAGE OF REAL respondents. The latter introduced permanent
PROPERTY improvements thereon and had in fact converted
the pigpens, which used to belong to plaintiff
Austria , into a fishpond. When all these
improvements were being undertaken, plaintiffs
were aware thereof but did not object to any of
the work done on the subject premises. Such
inaction is contrary to their claim of ownership
over the subject properties, considering that the
RULING owner of a thing has the right to exclude any
person from the enjoyment and disposal thereof
Decisive for the proper determination of the true and may, for this purpose, use such force as
nature of the transaction between the parties is may be reasonably necessary to repel or
the intent of the parties. There is no conclusive prevent an actual or threatened unlawful
test to determine whether a deed absolute on its physical invasion or usurpation of his property.
face is really a simple loan accommodation (Article 429, Civil Code).
secured by a mortgage.

Petitioners insist that they entered into a


Petitioners point out that the requirements of an contract only to obtain a loan with respondents
equitable mortgage have been satisfied by the and nothing more. Petitioners failed, however, to
following circumstances, to wit: (1) inadequacy present a copy of said contract in the
of the selling price; (2) possession in the proceedings before the RTC, nor could they
premises, and (3) payment of realty taxes. testify as to its details. Petitioners surely cannot
However, such presumption of equitable now pretend to be ignorant of the real nature of
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their transaction with respondents. For this was
not the first time they dealt with each other.
MOREOVER, he failed to rebut the testimony of
the Notary Public who testified in court that the
petitioners as vendors of the properties
personally appeared and acknowledged the sale
documents before him.

Thus, we are constrained to find that indeed the


true intent of the parties involves a contract of
sale. It is not merely a loan, much less an
equitable mortgage. WHEREFORE, the petition
is DENIED, and the decision of the Court of
Appeals dated February 23, 1999 as well as its
resolution dated February 28, 2001 , is
AFFIRMED.

RONALDO P. ABILLA vs. CARLOS ANG


GOBONSENG, JR.

August 6, 2002 G.R. No. 146651

Respondent (Gobonseng) contracted a


loan from petitioner in the sum of P550k,
secured by a real estate mortgage over two
parcels of land, covered by TCT Nos. 13607 and
13535. Respondent defaulted in the payment of
the loan, which had reached the amount of
P700k. He sought a renewal of the loan and
issued 2 postdated checks, one for P10k and
the other for P690k, representing the full amount
of his obligation.

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The second check was dishonoured ISSUE:
xxx. Respondent promised to pay petitioner the
sum of P690k upon approval of his pending loan Whether or not the contract between the
application with the State Investment House, parties was an absolute sale with pacto de retro.
Inc. However, the said lending institution
required a collateral for which reason HELD: NO.(it was held as a mere
respondent borrowed from petitioner the two equitable mortgage)
titles so he can mortgage the same. Thus,
petitioner cancelled the mortgage in his favor
and delivered the two titles to respondent. On January 17, 2002, we rendered the
assailed Decision reversing the Order of the
RTC, in effect denying respondent the right to
Despite approval of the loan, repurchase the subject lots.
respondent failed to make good on his promise
to pay his outstanding obligation to petitioner.
Hence, the latter threatened to sue him for Respondent's claim of the right to
Estafa. Respondent thus executed a deed of repurchase the lots is anchored on the third
absolute sale over his17 lots in Dumaguete in paragraph of Article 1606 of the Civil Code,
favor of petitioner. On the same day, the parties which states:
executed an Option to Buy whereby respondent
was allowed to repurchase the lots within a However, the vendor may still exercise
period of 6 months. the right to repurchase within thirty days
from the time final judgment was
Respondent failed to repurchase the lots rendered in a civil action on the basis
within the stipulated period. Consequently, that the contract was a true sale with
petitioners instituted an action for specific right to repurchase.
performance xxx pursuant to the deed of
absolute sale. In his answer, respondent In our Decision, we ruled that Article
interposed the defense that the transaction was 1606 of the Civil Code does not apply to the
in reality an equitable mortgage. case at bar because the transaction between the
parties was a pacto de retro sale, citing the case
RTC of Dumaguete rendered judgment of Vda. de Macoy v. CA. However, upon a
in favor of petitioner and ruled that the Option to careful review and analysis of the antecedent
Buy was rendered null and void by respondent's facts, we are convinced that the right granted
failure to exercise the option within the period of under the third paragraph of Article 1606 may be
six months. On appeal, the Court of Appeals invoked by respondent.
affirmed the decision of the trial court, but further
declared that "the deed of sale and option to buy In Vda. de Macoy, citing the earlier ruling in
actually constitute a pacto de retro sale." Felicen, Sr. v. Orias, we held:

Gabonseng’s MR was denied. His The application of the third paragraph of


petition filed with SC was also. Hence, the Article 1606 is predicated upon the bona
decision became final on February 8, 1999.. fides of the vendor a retro. It must
appear that there was a belief on his
On February 27, 1999, respondent filed part, founded on facts attendant upon
with the court of origin a motion to repurchase the execution of the sale with pacto de
the lots with tender of payment, which was retro, honestly and sincerely
denied. Subsequently, the trial court issued an entertained, that the agreement was in
Order granting respondent's motion for reality a mortgage, one not intended to
reconsideration and allowing him to repurchase affect the title to the property ostensibly
the lots within thirty days from finality thereof. sold, but merely to give it as security for
a loan or other obligation. In that event,
if the matter of the real nature of the
Thus, petitioner Abilla brought the contract is submitted for judicial
instant petition for review. resolution, the application of the rule is
meet and proper; that the vendor a retro

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be allowed to repurchase the property retro, honestly and sincerely entertained, that
sold within 30 days from rendition of the agreement was in reality a mortgage, one
final judgment declaring the contract to not intended to affect the title to the property
be a true sale with right to repurchase. ostensibly sold, but merely to give it as security
Conversely, if it should appear that the for a loan or other obligation. Consistently
parties' agreement was really one of therewith, respondent has maintained
sale — transferring ownership to the throughout the proceedings that transaction
vendee, but accompanied by a between him and petitioner was really an
reservation to the vendor of the right to equitable mortgage. As such, respondent may
repurchase the property — and there avail of the third paragraph of Article 1606 of the
are no circumstances that may Civil Code and repurchase the lots affected by
reasonably be accepted as generating the deed of absolute sale and option to buy.
some honest doubt as to the parties'
intention, the proviso is inapplicable.
The reason is quite obvious. If the rule
were otherwise, it would be within the
power of every vendor a retro to set at
naught a pacto de retro, or resurrect an
expired right of repurchase, by simply
instituting an action to reform the
contract — known to him to be in truth a
sale with pacto de retro — into an
equitable mortgage. xxx xxx xxx.

Therefore, the applicability of Article


1606 rests on the bona fide intent of the vendor
a retro, i.e., Gabonseng in this case. If he
honestly believed that the transaction was an
equitable mortgage, the said article applies and
he can still repurchase the property within thirty
days from finality of the judgment declaring the
transaction as a sale with pacto de retro.
Parenthetically, it matters not what the vendee
intended the transaction to be.

When petitioner lent the two titles to


respondent, the loan he extended to respondent
became unsecured. Naturally, there was a need
to secure respondent's obligation after he
reneged on his promise to pay the same out of PHILADELPHIA AGAN vs. HEIRS OF SPS.
the loan proceeds from State Investment House. ANDRES NUEVA and DIOSDADO NUEVA
Thus, it may well be that the deed of sale,
together with the option to buy executed on the
same day, was meant to serve as security for
the indebtedness of respondent which had December 11, 2003 G.R. No. 155018
become long overdue. Said obligation would
have been satisfied had respondent exercised
the option to buy within the stipulated period. FACTS:

These circumstances, peculiar to the On April 13, 1988, Diosdada Nueva, with marital
case at bar, make this case fall squarely within consent, sold under a pacto de retro, a parcel of
the situation contemplated in the above-quoted land (2,033 sq.m.) situated in Cagayan de Oro
doctrine – that there was a belief on the part of City to Agan for P21k.The property is covered by
the vendor a retro, founded on facts attendant TCT No. 25370 and registered in the name of
upon the execution of the sale with pacto de Spouses Andres and Diosdada Nueva.

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The agreement is evidenced by a public with the court.
instrument entitled “Deed of Sale under a Pacto
de Retro” executed and duly signed by the late On September 12, 2000, Philadelphia filed a
Diosdada and Philadelphia. The parties agreed petition for relief from the August 3, 2000
that the Nuevas are granted the right to decision. She argued that she did not find it
repurchase the property sold, within six (6) necessary to file an appeal from the said
months for the same consideration. decision considering that the grant of the third-
day period to redeem the property is a mere
Petitioners failed to repurchase the property surplusage and hence, unenforceable and illegal
within the stipulated period. in view of the court’s order consolidating
ownership of the property in her favor.
On July 5, 1991, upon the death of Diosdada Respondent Agan prayed for the court to delete
Nueva, the property was extrajudicially the said portion of the decision.
partitioned where Andres sold his interest in the
land in question to his daughter Ann and son On October 9, 2000, the trial court rendered its
Lou. Since the title to the property was allegedly questioned Order, thus:
lost during the fire that razed the property on
March 19, 1990 where Diosdada died, title was “WHEREFORE, the decision of August 4, 2000
reconstituted and subsequently transferred and is hereby amended by deleting the second
registered in the name of Ann and Lou Nueva. paragraph of the disposition thereof.

On June 19, 1992, Philadelphia filed a petition [“]SO ORDERED.”


for consolidation of ownership against Spouses
Nuevas with RTC of Cagayan de Oro City xxx In Nuevas’ MR was denied by the court.
their answer filed on the Nuevas alleged that the
pacto de retro sale was actually an equitable Respondent heirs filed a petition for certiorari
mortgage, the consideration for the sale being before the CA, contending that the RTC gravely
only P21k as against its Fair Market Value of abused its discretion in granting the petition for
P81k pursuant to Tax Declaration. relief. In its Decision, the CA reversed the Order
of the RTC and rendered judgment in favor of
On August 3, 2000, the judgment consolidating respondent heirs.
ownership over the disputed property in favor of
Philadelphia was rendered by RTC. However, The CA held that:
the second paragraph of the dispositive portion
Further, We do not agree with the contention of
gave the vendors a period of 30 days from
the private respondent that Article 1606 of the
receipt of the decision within which to redeem
Civil Code does not apply in the instant case. In
the property. The dispositive portion of the
their answer to the petition for consolidation filed
decision reads:
on October 22, 1998, petitioners raised the
“WHEREFORE, based on the evidence defense that the transaction between the parties
presented, the ownership in the vendee is was actually an equitable mortgage, considering
hereby consolidated by virtue of the failure of the that they remained in possession of the subject
vendors to redeem the property described in the property and continued to pay the real taxes
Deed of Sale under Pacto de Retro xxx thereon. The lower court, in its August 3, 2000
consisting of an area of 2,033 square meters, decision, ruled that the transaction is one of sale
more or less. under a pacto de retro, hence it acted within its
authority under Article 1606 of the Civil Code in
However, the vendors can still exercise the right giving the petitioners thirty days as redemption
to repurchase said property within thirty (30) period.
days from receipt of this decision pursuant to
Article 1606 and 1607 of the New Civil Code.

[“]SO ORDERED.” Hence, petitioner filed this presentaction with the


SC.
Because of the refusal of Agan to accept the
amount of P52,080.00 as redemption price, the
Nuevas were constrained to consign the amount

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ISSUE: Whether the transaction between the fair market value of the property was P81k.
parties in the case at bar was an equitable Respondents also averred that they remained in
mortgage. possession of the subject property and paid the
real taxes thereon, and that their predecessor
continued to pay the loan under which the
mortgage was constituted. Respondents even
HELD: YES. reconstituted their title over the property, and
partitioned the property with the other heirs, after
There is no ambiguity at all in the which respondents purchased the latter’s share
decision that would warrant clarification. If at all, and caused the issuance of a TCT in their name.
the ambiguity is merely ostensible. At first Such title, however, was subsequently annulled.
blush, the dispositive portion of the RTC
Decision declaring the consolidation of The law presumes good faith and, in the
ownership of the property in petitioner, on one absence of a contrary finding by the RTC in its
hand, and granting respondents thirty (30) days Decision, respondents are entitled to the right to
to repurchase the property, on the other, redeem the property pursuant to the third
appears inconsistent. The dispositive portion, paragraph of Article 1606 of the New Civil Code.
however, also makes reference to the third
paragraph of Article 1606 of the New Civil Code. The Court also notes that the RTC erred in
Taken together, it becomes obvious that the allowing petitioners the right to repurchase said
consolidation of the property in petitioner is property within thirty (30) days from receipt of
subject to the suspensive condition of the RTC Decision. By express provision, Article
respondents’ failure to repurchase within the 1606 grants the vendor a retro thirty (30) days
thirty-day period. “from the time final judgment was rendered,” not
from the defendant’s receipt of the judgment.
At any rate, the grant of the right to repurchase The Court has construed “final judgment” to
to respondents is in accordance with the third mean one that has become final and executory.
paragraph of Article 1606, a provision not found
in the old Civil Code. The legislative intent
behind this Article, along with Articles 1602-1605
and 1607 of the same Code, is “to accord the
vendor a retro the maximum safeguards for the
protection of his legal rights under the true
agreement of the parties. Experience has
demonstrated too often that many sales with
right to repurchase have been devised only to
circumvent or ignore our usury laws and for this
reason, the law looks upon then with disfavor.”

Article 1606 is intended to cover suits where the


seller claims that the real intention was a loan Spouses ALEXANDER CRUZ and ADELAIDA
with equitable mortgage but decides otherwise. CRUZ, petitioners, vs. ELEUTERIO LEIS,
The seller, however, must entertain a good faith RAYMUNDO LEIS, ANASTACIO L.
belief that the contract is an equitable mortgage. LAGDANO, LORETA L. CAYONDA and the
HONORABLE COURT OF APPEALS,
The RTC in this case made no finding in its respondents.
Decision that respondents’ defense that the
pacto de retro sale was an equitable mortgage
G.R. No. 125233 March 9, 2000
was not made in good faith. Indeed, it does not
appear that petitioner even attempted to prove
bad faith on the part of respondents during the Facts: Adriano and Gertrudes were married.
trial, which accounts for the RTC Decision’s utter Gertrudes acquired from the then Department of
silence on the matter. Agriculture and Natural Resources (DANR) a
parcel of land. The Deed of Sale described
Moreover, respondents alleged in their answer Gertrudes as a widow. TCT No. 43100 was
that the consideration for the alleged sale, which issued in the name of "Gertrudes Isidro," who
was P21k was inadequate, considering that the was also referred to therein as a "widow."

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When Adriano died It did not appear that he Petitioners are now before this Court seeking
executed a will before his death. the reversal of the decision of the Court of
Appeals.
Gertrudes then obtained a loan from petitioners,
the spouses Alexander and Adelaida Cruz, in Issue: whether or not a co-owner may acquire
the amount of P15,000.00 at 5% interest, exclusive ownership over the property held in
payable on or before 5 February 1986. The loan common?
was secured by a mortgage over the property
covered by TCT No. 43100. Gertrudes, Held: Essentially, it is the petitioner's contention
however, failed to pay the loan on the due date. that the property subject of dispute devolved
upon him upon the failure of his co-heirs to join
Unable to pay her outstanding obligation, him in its redemption within the period required
Gertrudes executed two contracts in favor of by law. He relies on the provisions of Article
petitioner Alexander Cruz. The first is 1515 of the old Civil Code, Article 1613 of the
denominated as "Kasunduan" which the parties present Code, giving the vendee a retro the right
concede is a pacto de retro sale, granting to demand redemption of the entire property.
Gertrudes one year within which to repurchase
the property. The second is a "Kasunduan ng There is no merit in this petition.
Tuwirang Bilihan," a Deed of Absolute Sale
covering the same property for the price of The right of repurchase may be exercised by a
P39,083.00, the same amount stipulated in the co-owner with respect to his share alone (CIVL
"Kasunduan." For failure of Gertrudes to CODE, art. 1612; CIVIL CODE (1889), art.
repurchase the property, ownership thereof was 1514.). While the records show that petitioner
consolidated in the name of Alexander Cruz. redeemed the property in its entirety,
shouldering the expenses therefor, that did not
When Gertrudes Isidro died, her heirs, herein make him the owner of all of it. In other words, it
private respondents, received demands to did not put to end the existing state of co-
vacate the premises from petitioners, the new ownership (Supra, Art. 489). There is no doubt
owners of the property. Private respondents that redemption of property entails a necessary
responded by filing a complaint. expense.

On the basis of the foregoing facts, the RTC The result is that the property remains to be in a
rendered a decision in favor of private condition of co-ownership. While a vendee a
respondents. retro, under Article 1613 of the Code, "may not
be compelled to consent to a partial
The RTC held that the land was conjugal redemption," the redemption by one co-heir or
property since the evidence presented by private co-owner of the property in its totality does not
respondents disclosed that the same was vest in him ownership over it. Failure on the part
acquired during the marriage of the spouses and of all the co-owners to redeem it entitles the
that Adriano contributed money for the purchase vendee a retro to retain the property and
of the property. Thus, the court concluded, consolidate title thereto in his name (Supra, art.
Gertrudes could only sell to petitioner spouses 1607). But the provision does not give to the
her one-half share in the property. redeeming co-owner the right to the entire
property. It does not provide for a mode of
Petitioners appealed to the Court of Appeals in terminating a co-ownership.
vain. The Court of Appeals affirmed the decision
of the Regional Trial Court, holding that since It is conceded that, as a rule, a co-owner such
the property was acquired during the marriage of as Gertrudes could only dispose of her share in
Gertrudes to Adriano, the same was presumed the property owned in common.
to be conjugal property under Article 160 of the
Civil Code. The appellate court, like the trial Unfortunately for private respondents, however,
court, also noted that petitioner did not comply the property was registered in TCT No. 43100
with the provisions of Article 1607 of the Civil solely in the name of "Gertrudes Isidro, widow."
Code. Where a parcel of land, forming past of the

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undistributed properties of the dissolved without prejudice to compliance by petitioners
conjugal partnership of gains, is sold by a widow with the provisions of Article 1607 of the Civil
to a purchaser who merely relied on the face of Code
the certificate of title thereto, issued solely in the
name of the widow, the purchaser acquires a
valid title to the land even as against the heirs of
the deceased spouse. The rationale for this rule
is that "a person dealing with registered land is
not required to go behind the register to
determine the condition of the property. He is
only charged with notice of the burdens on the
property which are noted on the face of the
register or the certificate of title. To require him
to do more is to defeat one of the primary
objects of the Torrens system." 9

As gleaned from the foregoing discussion,


despite the Court of Appeals' finding and
conclusion that Gertrudes as well as private
respondents failed to repurchase the property
within the period stipulated and has lost all their
rights to it, it still ruled against petitioners by
affirming the Regional Trial Court's decision on
the premise that there was no compliance with
Article 1607 of the Civil Code requiring a judicial
hearing before registration of the property in the
name of petitioners. This provision states:

Art. 1607. In case of real property, the


consolidation of ownership in the vendee by
virtue of the failure of the vendor to comply with
the provisions of article 1616 shall not be
recorded in the Registry of Property without a
judicial order, after the vendor has been duly
heard.

The aforequoted article is intended to minimize


the evils which the pacto de retro sale has BPI FAMILY SAVINGS BANK, INC. v.
caused in the hands of usurers. A judicial order SPS. JANUARIO ANTONIO VELOSO AND
is necessary in order to determine the true NATIVIDAD VELOSO
nature of the transaction and to prevent the
interposition of buyers in good faith while the G.R. No. 141974 August 9, 2004
determination is being made. 10
CORONA, J.:
WHEREFORE, the decision of the Court of Facts:
Appeals is MODIFIED in that the petitioners are
deemed owners of the property by reason of the Respondent spouses Januario Antonio
failure of the vendor, Gertrudes Isidro, to Veloso and Natividad Veloso obtained a loan of
repurchase the same within the period P1,300,000 from Family Bank and Trust
stipulated. However, Transfer Certificate of Title Company. The loan was secured by a deed of
No. 130584, in the name of Alexander M. Cruz, mortgage over three parcels of lands owned by
which was issued without judicial order, is the spouses.
hereby ordered CANCELLED, and Transfer
Certificate of Title No. 43100 in the name of
Gertrudes Isidro is ordered REINSTATED,

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When the respondents defaulted in the
monthly installments due on their loan, Family
Bank instituted an extra-judicial foreclosure Hence, the instant petition.
proceeding on the respondents’ mortgaged
properties and was sold at public auction with
Family Bank as the highest bidder for
P2,782,554.66. Issue:

Subsequently, Family Bank assigned all 1. Whether the extra-judicial foreclosure


its rights and interests in the foreclosed confirmed by both the trial court and the
properties to BPI Family Bank, Inc, herein court of appeals is valid.
petitioner.
2. Whether the respondent spouses
complied with all the requirements for
Respondents, wrote to petitioners the redemption of the subject properties.
offering to redeem the foreclosed properties for
P1,872,935 but were however rejected by the
latter. Decision:

Being so, they filed with the RTC of The appealed decision of the Court of
Quezon City, a complaint for annulment of Appeals is hereby REVERSED and SET ASIDE.
foreclosure and thereafter were ordered by the The complaint filed by respondent spouses is
latter to deposit with the clerk of court the sum of hereby dismissed.
P1,500,000 representing the redemption price.

Ratio Decidendi:
Despite the opposition of petitioner, the
trial court ordered the release to the
respondents of P1,400,000 of the consigned The Supreme Court found no reason to
amount. The balance of P100,000 is to take the question the validity of the extra-judicial
place of the injunction bond to answer for foreclosure. In a real estate mortgage, when the
whatever damages petitioner might suffer principal obligation is not paid when due, the
because of the issuance of the preliminary mortgagee has the right to foreclose on the
injunction previously issued by a different branch mortgage and have the property seized and sold
of RTC and then later lifted. to apply the proceeds to the obligation.
Therefore, due to the default of the respondents
to pay their obligation, foreclosure was proper.
The trial court rendered a decision
declaring the validity of the extra-judicial
foreclosure of the mortgaged properties of As regards the second issue, the
respondents but allowed the redemption of the general rule on redemption is that the statement
same at a redemption price of P2,140,000. of intention to exercise the right to repurchase
must be accompanied by an actual and
simultaneous tender of payment, otherwise, the
Upon appeal by the petitioner, the Court offer to redeem is ineffectual. A bona fide
of Appeals affirmed the trial court’s decision redemption necessarily implies a reasonable
subject to the modification declaring and valid tender of the entire repurchase price,
P2,678,639.80 as the redemption price. otherwise the rule on the redemption period
fixed by law can easily be circumvented.

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The Supreme Court held in the case of In the instant case, the offer was not a
Bodiongan vs. Court of Appeals that in order to legal and effective exercise of the right of
effect a redemption, the judgment debtor must redemption contemplated under the law, hence,
pay the purchaser the redemption price refusal of the offer by petitioner was completely
composed of the following: (1) the price which justified. The law on equity as defense, applies
the purchaser paid for the property; (2) interest only in the absence of, and never against,
of 1% per month on the purchase price; (3) the statutory law or judicial rules of procedure.
amount of any assessments or taxes which the
purchaser may have paid on the property after
the purchase; and (4) interest of 1% per month
on such assessments and taxes.

Furthermore, Article 1616 of the Civil


Code provides that the vendor cannot avail
himself of the right to repurchase without
returning to the vendee the price of the sale.

In the case at bar, the offer by


respondents to redeem the foreclosed
properties for P1,872,935 and the
subsequent consignation in court of
P1,500,000 while made within the redemption
period was ineffective because the amount
offered and actually consigned not only
excluded the interest but was lower than the
P2,782,554.66 paid by the highest
bidder/purchaser of the properties during the
auction sale.

Moreover, the P1,400,000 consigned by


respondents and then subsequently withdrawn
by them, leaving only P100,000 as injunction LEE CHUY REALTY CORPORATION vs.
bond, would have been equivalent to requiring COURT OF APPEALS and MARC REALTY
petitioner to accept payment by installments AND DEVELOPMENT CORPORATION
making it necessary to indefinitely extend the
redemption period which is contrary to the policy December 4, 1995 GR No. 104114
of the law.
Bellosillo, J.:

FACTS:
The law grants the right of redemption.
But in so granting, the law intended that the offer
A piece of land is disputed by Lee Chuy Corp.
to redeem be valid and effective, accompanied
and Marc Realty. Originally the property was co-
by an actual tender of the redemption price. The
owned by Ruben Jacinto to the extent of one-
fixing of a definite term within which the property
sixth and the Bascara’s and Ernesto Jacinto who
should be redeemed is meant to avoid
collectively owned the remaining five-sixths.
prolonged economic uncertainty over the
ownership of the thing sold.
On April 30, 1981, sale bet. Ruben Jacinto, of

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his one-sixth pro-indiviso share, and Lee Chuy Art. 1623. The right of legal pre-
was duly registered. The Bascara’s and E. emption or redemption shall not be
Jacinto sold theirs to Marc Realty. The same exercised except within thirty days
was registered on Oct. 16, 1989. from the notice in writing by the
prospective vendor, or by the vendor,
Lee Chuy claims it was never informed of the as the case may be. The deed of sale
other sale. Marc Realty claims it was verbally shall not be recorded in the Registry of
informed and was given a copy of the deed of Property unless accompanied by an
sale. affidavit of the vendor that he has
given written notice thereof to all
On 13 November 1989 LEE CHUY REALTY possible redemptioners.
filed a complaint for legal redemption against
MARC REALTY and consigned in court a There is actually no prescribed form for an
manager's check for 614,400. In its Amended offer to redeem to be properly effected.
Answer with Counterclaim with Motion to Hence, it can either be through a formal
Dismiss, MARC REALTY insisted that the tender with consignation, or by filing a
complaint be dismissed for failure to state a complaint in court coupled with
cause of action there being no allegation of prior consignation of the redemption price within
valid tender of payment nor a prior valid notice the prescribed period.
of consignation.
A co-owner desirous of exercising his right
The trial court ruled in favour of Lee Chuy and of legal redemption is given a period of
decreed that neither a separate offer to redeem thirty (30) days from notice of the sale
nor a formal notice of consignation are within which to avail of the right to redeem.
necessary for the reason that the filing of the Under the free patent or homestead
action itself, within the period of redemption, is provisions of the Public Land Act a period
equivalent to a formal offer to redeem. of five (5) years from the date of
conveyance is provided, the five-year
In respondents appeal to CA, CA reversed trial period to be reckoned from the date of the
court’s judgment and decreed in contrary that a sale and not from the date of registration in
prior tender or offer of redemption is a the office of the Register of Deeds.The
prerequisite or precondition to the filing of an redemption of extrajudicially foreclosed
action for legal redemption. Hence, the petition. properties, on the other hand, is
exercisable within one (1) year from the
date of the auction sale as provided for in
ISSUE: W/N THE FILING OF THE ACTION
Act No. 3135.
ITSELF IS EQUIVALENT TO A FORMAL
OFFER TO REDEEM

RULING:
Petition Granted. Primary Structures Corp. vs. Sps. Anthony
and Susan T. Valencia
SC sustains LEE CHUY REALTY. Arts. 1620
and 1623 of the Civil Code on legal redemption
provide:
August 19, 2003 GR No.150060
Art. 1620. A co-owner of a thing may
exercise the right of redemption in First Division
case the shares of all the other co-
Ponente: Vitug, J.
owners or of any of them are sold to a
third person. If the price of the
alienation is grossly excessive, the
redemptioner shall pay only a Facts: Petitioner is a private corporation based
reasonable one. in Cebu City and the registered owner of Lot
4523 situated in Liloan, Cebu, with an area of

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22,214 square meters. Adjacent to the lot of one hectare, is alienated unless the grantee
petitioner are parcels of land, identified to be Lot does not own any rural land.
4527, Lot 4528, and Lot 4529 with a total
combined area of 3,751 square meters. The
three lots, aforenumbered, have been sold by
Hermogenes Mendoza to respondent spouses This right is not applicable to adjacent lands
sometime in December 1994. Petitioner learned which are separated by brooks, drains, ravines,
of the sale of the lots only in January, 1996, roads and other apparent servitudes for the
when Hermogenes Mendoza sold to petitioner benefit of other estates.
Lot No. 4820, a parcel also adjacent to Lot 4523
belonging to the latter. Forthwith, it sent a letter
to respondents, on 30 January 1996, signifying
If two or more adjoining owners desire to
its intention to redeem the three lots. On 30 May
exercise the right of redemption at the same
1996, petitioner sent another letter to
time, the owner of the adjoining land of smaller
respondents tendering payment of the price paid
area shall be preferred; and should both lands
to Mendoza by respondents for the lots.
have the same area, the one who first requested
Respondents, in response, informed petitioner
the redemption.
that they had no intention of selling the parcels.
Thereupon, invoking the provisions of Articles
1621 and 1623, petitioner filed an action against
respondents to compel the latter to allow the ART. 1623. The right of legal pre-emption or
legal redemption. Petitioner claimed that neither redemption shall not be exercised except within
Mendoza, the previous owner, nor respondents thirty days from the notice in writing by the
gave formal or even just a verbal notice of the prospective vendor, or by the vendor, as the
sale of the lots as so required by Article 1623 of case may be. The deed of sale shall not be
the Civil Code. recorded in the Registry of Property, unless
accompanied by an affidavit of the vendor that
he has given written notice thereof to all possible
redemptioners.
After trial, the Regional Trial Court of Cebu
dismissed petitioners complaint and
respondents' counterclaim; both parties
appealed the decision of the trial court to the The right of redemption of co-owners excludes
Court of Appeals. The appellate court affirmed that of adjoining owners.
the assailed decision.

Article 1621 of the Civil Code expresses that the


Issue: Interpretation of Articles 1621 and 1623 of right of redemption it grants to an adjoining
the Civil Code owner of the property conveyed may be
defeated if it can be shown that the buyer or
grantee does not own any other rural land.
Held: Petition Granted

Article 1623 of the Civil Code provides that the


right of legal pre-emption or redemption shall not
Article 1621 and Article 1623 of the Civil Code,
be exercised except within thirty days from
which read:
notice in writing by the prospective vendor, or by
the vendor, as the case may be. In stressing the
mandatory character of the requirement, the law
ART. 1621. The owners of adjoining lands shall states that the deed of sale shall not be
also have the right of redemption when a piece recorded in the Registry of Property unless the
of rural land, the area of which does not exceed same is accompanied by an affidavit of the
vendor that he has given notice thereof to all
possible redemptioners.

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The Court of Appeals has equated the statement
in the deed of sale to the effect that the vendors
have complied with the provisions of Article
1623 of the Civil Code, as being the written
affirmation under oath, as well as the evidence,
that the required written notice to petitioner
under Article 1623 has been met. Respondents,
like the appellate court, overlook the fact that
petitioner is not a party to the deed of sale
between respondents and Mendoza and has
had no hand in the preparation and execution of
the deed of sale. It could not thus be considered
a binding equivalent of the obligatory written
notice prescribed by the Code.

The written notice of sale is mandatory. This


Court has long established the rule that
notwithstanding actual knowledge of a co-owner,
the latter is still entitled to a written notice from
the selling co-owner in order to remove all
uncertainties about the sale, its terms and
conditions, as well as its efficacy and status.

Sen Po Ek Marketing Corp. vs. Martinez


G.R. No. 134117 325 SCRA 210
SECOND DIVISION
Ponente: De Leon, Jr.

Facts:
Sofia P. Martinez was the registered owner of
two (2) parcels of land in Tacloban City. On
1961, she leased the lots to Yu Siong, father of
petitioner for a period of ten (10) years. The
contract required the lessee to construct a
commercial building on the property which shall
become the property of Sofia upoon expiration
of the lease. On 1973, the contract was renewed
with explicit stipulation that the new owner of the
building is Sofia. Sofia then sold the lot and
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building to her daughter, private respondent of Sofia executed a “Confirmation of
Teodora P. Martinez. After the new lease Sale of Land and Improvements”. Thus,
contract expired, it was no longer renewed by the sale is considered valid and binding.
the party. Petitioner continued posession and
regulary paid monthly rentals to Sofia until her 2. The Petitioner does not have a right of
death. After her death the rentals were paid to first refusal to assert against the private
Teodora. On 1989, private respondent sent a respondents. Neither any law nor any
letter to petitioner informing him of her intention contract grants it preference in the
to sell the premises to one Mrs. Petilla which the purchase of leased premises.
petitioner only received a month after. The Such grant of right of first refusal must
petitioner sought to purchase the property. be clearly embodied in a written
Petitioner filed a verified complaint against contract, but there is none in the present
Teodora for the annulment of the Deed of Sale case.
by her mother in her favor stating that they have
preferential right over the land. However,
Teodora sold the property to respondent Tiu
Uyping. Petitioner prays for the nullity of the
second sale. Trial court rendered decision in
favor of the petitioner. Court of Appeals
rendered a decision reversing the trial court.

HTP.

Issues:

Whether the CA erred in declaring the sale


between Sofia and Teodora valid?

Whether Petitioner has the right of first refusal to


assert against the private respondent?
Rulings:
1. Teodora Martinez had the right, as
lawful owner of the leased premises, to
sell the same to private respondent Tiu
Uypin brothers. However, the sale
between her and her mother was void
for being fictitious. This was established
by several badges of simulation proving
that the sale was not intended to have
any legal effect between them. Some Nelson Cabales and Rito Cabales v. Court of
evidence of simulation is the late Appeals, Jesus Feliano and Anunciano
notarization and Teodora’s signature not Feliano
as an owner but merely as an August 31, 2007 GR No. 162421
instrumental witness. Also, Sofia First Division
continued to receive the rentals until her Puno C.J.
death. Futhermore, Teodora never
asserted her alleged right of ownership Facts:
over the leased premises. - Rufino Cabales died on July 4, 1966 and left a
5, 714 square meter parcel of land to his wife
Nonetheless, the sale between Teodora and children
and the Tiu Uyping is valid. Since - On July 26, 1971, brothers and co owners sold
Teodora is one of the co-heirs she can the property to Dr. Corrompido for P 2,000 with
only her undivided portion since her co- right to repurchase within eight years. The
heirs did not give her authority. siblings divided the proceeds of the sale among
However, the sale can be subject to them.
ratification. In this case, the other heirs --The following month or on August 18, 1971,
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Alberto secured a note (“vale”) from Dr. then residing in Manila, went back to his father’s
Corrompido in the amount of P300.00. hometown in Southern Leyte. That same year,
he learned from his uncle, petitioner Rito, of the
In 1972, Alberto died leaving his wife and son, sale of subject property. In 1993, he signified
petitioner Nelson. his intention to redeem the subject land during a
barangay conciliation process that he initiated.
On December 18, 1975, within the eight-year
redemption period, Bonifacio and Albino -On January 12, 1995, contending that they
tendered their payment of P666.66 each to Dr. could not have sold their respective shares in
Corrompido. But Dr. Corrompido only released subject property when they were minors,
the document of sale with pacto de retro after petitioners filed before the Regional Trial Court
Saturnina paid for the share of her deceased of Maasin, Southern Leyte, a complaint for
son, Alberto, including his “vale” of P300.00. redemption of the subject land plus damages.

On even date, Saturnina and her four (4) -in their answer, respondents-spouses
children Bonifacio, Albino, Francisco and maintained that petitioners were estopped from
Leonora sold the subject parcel of land to claiming any right over subject property
respondents-spouses Jesus and Anunciacion considering that (1) petitioner Rito had already
Feliano for P8,000.00. The Deed of Sale received the amount corresponding to his share
provided in its last paragraph, thus: of the proceeds of the sale of subject property,
and (2) that petitioner Nelson failed to consign to
It is hereby declared and the court the total amount of the redemption
understood that the amount of price necessary for legal redemption. They
TWO THOUSAND TWO prayed for the dismissal of the case on the
HUNDRED EIGHTY SIX PESOS grounds of laches and prescription.
(P2,286.00) corresponding and
belonging to the Heirs of Alberto No amicable settlement was reached at pre-
Cabales and to Rito Cabales who trial. Trial ensued and on August 11, 2000, the
are still minors upon the execution trial court ruled against petitioners
of this instrument are held in trust
by the VENDEE and to be paid On appeal, CA modified tha decision of the trial
and delivered only to them upon court
reaching the age of 21.
Issue:
- On December 17, 1985, the Register of Deeds Whether CA erred in
of Southern Leyte issued Original Certificate of (1) recognizing petitioner Nelson Cabales
Title No. 17035 over the purchased land in the as co-owner of subject land but denied
names of respondents-spouses. him the right of legal redemption, and
(2) not recognizing petitioner Rito Cabales
-On December 30, 1985, Saturnina and her four as co-owner of subject land with similar
(4) children executed an affidavit to the effect right of legal redemption.
that petitioner Nelson would only receive the
amount of P176.34 from respondents-spouses Held:
when he reaches the age of 21 considering that Petition denied, CA decision affirmed with
Saturnina paid Dr. Corrompido P966.66 for the modification.
obligation of petitioner Nelson’s late father
Alberto, i.e., P666.66 for his share in the Ratio:
redemption of the sale with pacto de retro as -When Rufino Cabales died intestate, his wife
well as his “vale” of P300.00. Saturnina and his six (6) children survived and
succeeded him. Article 996 of the New Civil
- On July 24, 1986, 24-year old petitioner Rito Code provides that “[i]f a widow or widower and
Cabales acknowledged receipt of the sum of legitimate children or descendants are left, the
P1,143.00 from respondent Jesus Feliano, surviving spouse has in the succession the
representing the former’s share in the proceeds same share as that of each of the children.”
of the sale of subject property.
-Verily, the seven (7) heirs inherited equally on
-In 1988, Saturnina died. Petitioner Nelson, subject property. Petitioner Rito and Alberto,
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petitioner Nelson’s father, inherited in their own only, as the case may be. The
rights and with equal shares as the others. guardian of the estate of a
nonresident shall have the
-But before partition of subject land was management of all the estate of
effected, Alberto died. By operation of law, his the ward within the Philippines,
rights and obligations to one-seventh of subject and no court other than that in
land were transferred to his legal heirs – his wife which such guardian was
and his son petitioner Nelson. appointed shall have jurisdiction
over the guardianship
-The first sale with pacto de retro to Dr.
Corrompido by the brothers and co-owners Indeed, the legal guardian only has the plenary
Bonifacio, Albino and Alberto was valid but only power of administration of the minor’s property.
as to their pro-indiviso shares to the land. When It does not include the power of alienation which
Alberto died prior to repurchasing his share, his needs judicial authority. Thus, when Saturnina,
rights and obligations were transferred to and as legal guardian of petitioner Rito, sold the
assumed by his heirs, namely his wife and his latter’s pro-indiviso share in subject land, she did
son, petitioner Nelson. But the records show not have the legal authority to do so.
that it was Saturnina, Alberto’s mother, and not
his heirs, who repurchased for him. As correctly Accordingly, the contract of sale as to the pro-
ruled by the Court of Appeals, Saturnina was not indiviso share of petitioner Rito was
subrogated to Alberto’s or his heirs’ rights to the unenforceable. However, when he
property when she repurchased the share. acknowledged receipt of the proceeds of the
-Upon redemption from Dr. Corrompido, the sale on July 24, 1986, petitioner Rito effectively
subject property was resold to respondents- ratified it. This act of ratification rendered the
spouses by the co-owners. Petitioners Rito and sale valid and binding as to him.
Nelson were then minors and as indicated in the
Deed of Sale, their shares in the proceeds were With respect to petitioner Nelson, on the other
held in trust by respondents-spouses to be paid hand, the contract of sale was void. He was a
and delivered to them upon reaching the age of minor at the time of the sale. Saturnina or any
majority. and all the other co-owners were not his legal
-the father, or, in his absence, the mother, is guardians with judicial authority to alienate or
considered legal administrator of the property encumber his property. It was his mother who
pertaining to the child under his or her parental was his legal guardian and, if duly authorized by
authority without need of giving a bond in case the courts, could validly sell his undivided share
the amount of the property of the child does not to the property. She did not. Necessarily, when
exceed two thousand pesos. Corollary to this, Saturnina and the others sold the subject
Rule 93, Section 7 of the Revised Rules of Court property in its entirety to respondents-spouses,
of 1964, applicable to this case, automatically they only sold and transferred title to their pro-
designates the parent as legal guardian of the indiviso shares and not that part which pertained
child without need of any judicial appointment in to petitioner Nelson and his mother.
case the latter’s property does not exceed two Consequently, petitioner Nelson and his mother
thousand pesos retained ownership over their undivided share of
Saturnina was clearly petitioner Rito’s legal subject property.
guardian without necessity of court appointment
considering that the amount of his property or -As to whether the petitioners can redeem the
one-seventh of subject property was P1,143.00, land from respondent spouses, it is clear that
which is less than two thousand pesos. legal redemption may only be exercised by the
However, Rule 96, Sec. 1 provides that: co-owner or co-owners who did not part with his
or their pro-indiviso share in the property held in
Section 1. To what common. As demonstrated, the sale as to the
guardianship shall extend. – A undivided share of petitioner Rito became valid
guardian appointed shall have and binding upon his ratification on July 24,
the care and custody of the 1986. As a result, he lost his right to redeem
person of his ward, and the subject property.
management of his estate, or
the management of the estate -In the face of the established facts, petitioner

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Nelson cannot feign ignorance of the sale of
subject property in 1978. To require strict proof
of written notice of the sale would be to
countenance an obvious false claim of lack of
knowledge thereof, thus commending the letter
of the law over its purpose, i.e., the notification
of redemptioners.

G.R. No. 150060 August 19, 2003

PRIMARY STRUCTURES CORP. represented


herein by its President ENGR. WILLIAM C.
LIU, petitioner, vs. SPS. ANTHONY S.
VALENCIA and SUSAN T. VALENCIA,
respondents.

409 SCRA 371

Ponente: VITUG, J. (FIRST DIVISION)

Facts:
Petitioner is a private corporation in

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Cebu City and the registered owner of Lot The Court of Appeals has equated the
situated in Liloan, Cebu. Adjacent to the lot of statement in the deed of sale to the effect that
petitioner are 3 parcels of land. The 3 lots have the vendors have complied with the provisions of
been sold by Hermogenes Mendoza to Article 1623 of the Civil Code, as being the
respondent spouses. written affirmation under oath, as well as the
Petitioner learned of the sale of the lots evidence that the required written notice to
then it sent a letter to respondents signifying its petitioner under Article 1623 has been met.
intention to redeem the three lots. Petitioner sent Respondents overlook the fact that petitioner is
another letter to respondents tendering payment not a party to the deed of sale between
of the price paid to Mendoza by respondents for respondents and Mendoza and has had no hand
the lots. Respondents, in response, informed in the preparation and execution of the deed of
petitioner that they had no intention of selling the sale. It could not thus be considered a binding
parcels. equivalent of the obligatory written notice
Invoking the provisions of prescribed by the Code.
Articles 1621 and 1623, petitioner filed an action The written notice of sale is mandatory.
against respondents to compel the latter to allow This Court has long established the rule that
the legal redemption. Petitioner claimed that notwithstanding actual knowledge of a co-owner,
neither Mendoza, the previous owner, nor the latter is still entitled to a written notice from
respondents gave formal or even just a verbal the selling co-owner in order to remove all
notice of the sale of the lots as so required by uncertainties about the sale, its terms and
Article 1623 of the Civil Code. conditions, as well as its efficacy and status.
Regional Trial Court of Cebu WHEREFORE, the instant petition is
dismissed petitioner’s complaint and GRANTED, and the assailed decision of the
respondents' counterclaim. Both parties Court of Appeals is REVERSED and SET
appealed the decision of the trial court to the ASIDE. Petitioner is hereby given a period of
Court of Appeals. The appellate court affirmed thirty days from finality of this decision within
the assailed decision. which to exercise its right of legal redemption.

Issue:
Whether or not petitioner Primary
Structures Corporation has the right of
redemption over the three parcels of land.

Ruling:
Article 1621 of the Civil Code expresses
that the right of redemption it grants to an
adjoining owner of the property conveyed may
be defeated if it can be shown that the buyer
does not own any other rural land. The appellate
court, sustaining the trial court, has said that
there has been no evidence to show that Ledonio v. Capitol Development Corporation
respondents are not themselves owners of rural
lands for the exclusionary clause of the law to Chico-Nazario,
apply.
Article 1623 of the Civil Code provides G.R. No. 149040 July 4, 2007
that the right of legal pre-emption or redemption
shall not be exercised except within thirty days
from notice in writing by the prospective vendor, Facts:
or by the vendor, as the case may be. In
stressing the mandatory character of the Edgar Ledonio obtained from Patrocinio
requirement, the law states that the deed of sale S. Picache two loans with the amount of
shall not be recorded in the Registry of Property P60,000.00, and covered by promissory notes
unless it is accompanied by an affidavit of the duly signed by him.
vendor that he has given notice to all possible
redemptioners. Later on, Picache transferred his due

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from Ledonio to Capitol Development The law does not require any formal
Corporation . notice to bind the debtor to the assignee, all that
the law requires is knowledge of the assignment.
However, Ledonio failed to pay any of Even if the debtor had not been notified, but
the loans covered by the promissory notes when came to know of the assignment by whatever
they became due. The corporation demanded means, the debtor is bound by it.
payment from him but refused to do so. He
denied that he made such promissory notes in
favor of Picache and he further alleged that he
only signed the promissory notes as a result of
intimidation and fraud. He alleged that when he
made the promissory notes, they were only used
by Picache by taking advantage of his signature.

Prior to the case, Ledonio was engaged


in a garment business where he leased a real
property from Mission Realty and Management
Corporation. An incident happened where a
group of Meralco employees cut-off the power
supply of the plant of Ledonio due to non-
payment of electric bills. This made foreign
investors to desist transacting with him. He
blamed the MRMC for not notifying him with the
unpaid bills but he failed to obtain any of his
claims.

The RTC ruled in favor of the


respondent corporation finding its version of the
facts more credible. The Court of Appeals
affirmed the same.

ISSUE: whether the assignment of debt by


Picache, the creditor, to another party such as
the CDC, requires his consent being the debtor.

RULING: Petition is denied for lack of merit.

The transaction between Picache and


CDC was an assignment of credit and does not
require petitioner’s consent as debtor for its G.R. No. 97753 August 10, 1992
validity and enforceability.
CALTEX (PHILIPPINES), INC., petitioner,
An assignment of credit has been vs.
defined as an agreement by virtue of which the COURT OF APPEALS and SECURITY BANK
owner of a credit known as the assignor, by a AND TRUST COMPANY, respondents.
legal cause - such as sale, dation in payment or
exchange or donation – and without need of the REGALADO, J.:
debtor’s consent, transfers that credit and its
accessory rights to another who is the assignee, Facts:
who acquires the power to enforce it, to the On various dates, defendant Security Bank and
same extent as the assignor could have Trust Company issued 280 certificates of time
enforced it against the debtor. deposit in favor of Angel dela Cruz who
deposited of time deposit therein the aggregate
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amount of P1,120,000.00. Angel dela Cruz
delivered said certificate of time deposit to
plaintiff-petitioner Caltex in connection with his
purchase of fuel products from the latter.
Thereafter, dela Cruz informed defendant Bank
that he lost all the certificates of deposit and ask
for the replacement of said last CTP where it
was granted by the bank. Soon after said grants,
dela Cruz negotiated and obtained a loan from
defendant bank in the amount of Eight Hundred
Seventy-Five Thousand Pesos (P875,000.00).
On the same date, said depositor executed a
notarized Deed of Assignment of Time Deposit
which stated, among others, that he surrendered
to defendant bank “full control of the indicated
time deposits from and after date” of the
assignment and further authorizes said bank to
preterminate, set-off and “apply the said time
deposit to the payment of whatever amounts
may be due” on the loan upon it maturity. the
loan of Angel dela Cruz with the defendant bank
matured and fell due and on August 5, 1983, the
latter set-off and applied the time deposits in
question to the payment of the matured loan.
Plaintiff filed the instant complaint, praying that
defendant bank be ordered to pay it the
aggregate value of the certificates of time
deposit of P1,120,000.00 plus accrued interest
and compounded interest therein at 16% per
annum

Issue:
whether or not Caltex Philippines has a better
right over the Certificate of time deposits?

Held:
Security Bank has a better right because the
assignment of the CTDs made by Angel de la
Cruz in favor of respondent bank was embodied
in a public instrument. Art. 1625. An assignment
of credit, right or action shall produce no effect
as against third persons, unless it appears in a Lo vs. KJS Eco-Formwork System Phil., Inc.
public instrument, or the instrument is recorded
in the Registry of Property in case the October 8, 2003
assignment involves real property. First Division
Justice Ynares-Santiago
Respondent bank duly complied with this
statutory requirement. Contrarily, petitioner, Facts:
whether as purchaser, assignee or lien holder of Respondent KJS ECO_FORMWORK System
the CTDs, neither proved the amount of its credit Phil., Inc. is a corporation engaged in the sale of
or the extent of its lien nor the execution of any steel scaffoldings. Sonny Lo, on the other hand
public instrument which could affect or bind is a building contractor.
private respondent. Necessarily, therefore, as
between petitioner and respondent bank, the The petitioner ordered scaffolding equipments
latter has definitely the better right over the worth P540, 425.80 from respondent and paid a
CTDs in question. downpayment of P150,000. The balance was
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2A SY 2009-2010
made payable in ten monthly installments. payment, the debtor offers another thing to the
creditor who accepts it as equivalent of payment
The respondent delivered the equipments to of an outstanding debt.
petitioner but Sonny Lo was only able to pay the
first two monthly installments because his Hence, it may be well settled that the
business encountered financial difficulties. assignment of credit, which is in the nature of a
sale of personal property, produced the effects
Despite the situation, the petitioner and of a dation in payment which may extinguish the
respondent executed a Deed of Assignment obligation. However, as in any other contract of
whereby the petitioner assigned to respondent sale, the vendor is bound by certain
his receivables in the amount of P335, 462.80 warranties.
from Jomero Realty Corporation.
From the provision of the civil code(Article
When the respondent tried to collect the said 1628), petitioner, as vendor or assignor, is
credit from the corporation. Jomero Realty bound to warrant the existence and legality of
Corporation refused to honor the Deed of the credit at the time of the sale or assignment.
Assignment because it claimed that petitioner When Jomero claimed that it was no longer
was also indebted to it. indebted to petitioner since the latter also had
an unpaid obligation to it, it essentially meant
The respondent filed an action for recovery of a that its obligation to petitioner has been
sum of money before the RTC of Makati.The extinguished by compensation. In other words,
trial court dismissed the complaint on the ground respondent alleged the non-existence of the
that the assignment of credit extinguished the credit and asserted its claim to petitioner’s
obligation when they executed the Deed of warranty under assignment. Therefore, it
Assignment. behooved on petitioner to make good its
warranty and paid the obligation.
The respondent appealed the decision to the
Court of Appeals and the said court reverses the Indeed by warranting the existence of the credit,
appealed decision. petitioner should be deemed to have ensured
the performance thereof in case the same is
Issue: later found to be inexistent. He should be held
Whether or not the Deed of Assignment that was liable to pay to respondent the amount of his
executed extinguished the obligation of the indebtedness(Lo vs. KJS Eco-Formwork System
petitioner. Phil., Inc., pp 186-188).

Ruling:
The decision of the Court of Appeals ordering
petitioner to pay the respondent the sum of
P335, 462.14 is AFFIRMED with
MODIFICATION.

Ratio: (Lo vs. KJS Eco-Formwork System Phil., ATOK FINANCE CORPORATION,
Inc., pp 186-188) petitioner vs. COURT OF APPEALS, SANYU
CHEMICAL CORPORATION, DANILO E.
An Assignment of Credit is an agreement by ARRIETA, NENITA B. ARRIETA, PABLITO
virtue of which the owner of a credit, known as BERMUNDO and LEOPOLDO HALILI,
the assignor, by a legal cause, such as sale, respondents.
dacion en pago, exchange or donation, and
without the consent of the debtor , transfers his G.R. No. 80078 May 18, 1993
credit and accessory rights to another, known as
the assignee, who acquires the power to enforce
it to the same extent as the assignor could FELICIANO, J.:
enforce it against the debtor.
FACTS: Private respondents Sanyu Chemical
In dacion en Pago, as a special mode of corporation ("Sanyu Chemical") as principal and

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Sanyu Trading Corporation ("Sanyu Trading") reversed the decision of the trial court, ruling in
along with individual private stockholders of favor of the private respondents.Hence, this
Sanyu Chemical, namely, private respondent petition.
spouses Danilo E. Halili and Pablico Bermundo
as sureties, executed in the continuing ISSUES: Whether the individual private
Suretyship Agreement in favor of Atok Finance respondents may be held solidarily liable with
as creditor. Under this Agreement, Sanyu Sanyu Chemical under the provisions of the
Trading and the individual private respondents Continuing Suretyship Agreement? Whether or
who were officers and stockholders of Sanyu not the continuing suretyship agreement must
Chemical did jointly and severally be held null and void as having been executed
unconditionally guarantee to ATOK FINANCE without consideration and without a pre-existing
CORPORATION the full, faithful and prompt principal obligation to sustain it.
payment and discharge of any and all
indebtedness of private respondent to the RULING: The Supreme Court granted the
Creditor Atok. The word "indebtedness" is used petition of Petitioner Atok Finance and sustains
herein in its most comprehensive sense and the decision of trial court finding in favor of
includes any and all advances, debts, petitioner Atok Finance.
obligations and liabilities of Principal or any one The contention of private appellants that the
or more of them. suretyship agreement is null and void because it
is not in consonance with the laws on guaranty
On 27 November 1981, Sanyu Chemical and security on the ground that the agreement
assigned its trade receivables outstanding as of was entered into by the parties two years before
27 November 1981 with a total face value of the Deed of Assignment was executed.
P125, 871.00, to Atok Finance in consideration Thus, contesting that it ran counter to the
of receipt from Atok Finance of the amount of provision that guaranty cannot exist
P105, 000.00. The assigned receivables carried independently because by nature it is merely an
a standard term of thirty (30) days; it appeared, accessory contract. The SC held that Court of
however, that the standard commercial practice Appeals here was in serious error. It is true that
was to grant an extension up to one hundred a serious guaranty or a suretyship agreement is
twenty (120) days without penalties. Later, an accessory contract in the sense that it is
additional trade receivables were assigned by entered into for the purpose of securing the
Sanyu Chemical to Atok Finance with a total performance of another obligation which is
face value of P100, 378.45. denominated as the principal obligation. It is also
true that Article 2052 of the Civil Code states
On 13 January 1984, Atok Finance commenced that "a guarantee cannot exist without a valid
action against Sanyu Chemical, the Arrieta obligation." However, the SC ruled that such
spouses, Pablito Bermundo and Leopoldo Halili legal proposition is not, like most legal
before the Regional Trial Court of Manila to principles, to be read in an absolute and literal
collect the sum of P120, 240.00 plus penalty manner and carried to the limit of its logic. This
charges amounting to P0.03 for every peso due is clear from Article 2052 of the Civil Code itself.
and payable for each month starting from 1 A surety is not bound under any particular
September 1983. Atok Finance alleged that principal obligation until that principal obligation
Sanyu Chemical had failed to collect and remit is born. But there is no theoretical or doctrinal
the amount due under the trade receivables. difficulty inherent in saying that the suretyship
agreement itself is valid and binding even before
The private respondents on the other hand seek the principal obligation intended to be secured
for the dismissal of the complaint for lack of thereby is born, any more that there would be in
cause of action and contended that the saying that obligations which are subject to a
Continuing Suretyship Agreement, being an condition precedent are valid and binding before
accessory contract, was null and void since, at the occurrence of the condition precedent. By
the time of its execution, Sanyu Chemical had executing such an agreement, the principal
no pre-existing obligation due to Atok Finance. places itself in a position to enter into the
projected series of transactions with its creditor;
with such surety agreement, there would be no
The trial court rendered a decision in favor of
need to execute a separate surety contract or
Atok Finance.Upon appeal; Court of Appeals

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bond for each financing or credit
accommodation extended to the principal
debtor.

With respect to the second issue, that is,


whether private respondents are liable under the
Deed of Assignment which they, along with the
principal debtor Sanyu Chemical, executed in
favor of petitioner, on the receivables thereby
assigned, SC held that private respondents are
liable with respect to the deed they executed in
favor of creditor Atok Finance. The Deed of
Assignment was valid and binding upon Sanyu
Chemical. It is an activity or operation that
permits the assignee to monetize or realize the
value of the receivables before the maturity
thereof. In other words, Sanyu Chemical
received from Atok Finance the value of its trade
receivables it had assigned; Sanyu Chemical
obviously benefitted from the assignment. The
liability of Sanyu Chemical to Atok Finance rest
on the breach of ex contractu (contractual
obligation). Under the Deed of Assignment, the
effect of non-payment by the original trade
debtors was breach of warranty of solvency by
Sanyu Chemical, resulting in turn in the
assumption of solidary liability by the assignor
under the receivables assigned. In other words,
the assignor Sanyu Chemical becomes a
solidary debtor under the terms of the
receivables covered and transferred by virtue of
the Deed of Assignment. And because assignor
Sanyu Chemical became, under the terms of the
Deed of Assignment, solidary obligor under each
of the assigned receivables, the other private
respondents (the Arrieta spouses, Pablito
Bermundo and Leopoldo Halili), became
solidarily liable for that obligation of Sanyu
Chemical, by virtue of the operation of the
Continuing Suretyship Agreement.

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